Medicare reform may cut imaging reimbursement

May 10, 2000

Hospitals, equipment vendors, and pharmaceutical companies are waiting for the Health Care Financing Administration, the U.S. agency that operates Medicare, to release a list that will tell them whether their products and services receive full or

Hospitals, equipment vendors, and pharmaceutical companies are waiting for the Health Care Financing Administration, the U.S. agency that operates Medicare, to release a list that will tell them whether their products and services receive full or dramatically lower reimbursement rates under healthcare reform.

The list will detail which medical devices and radiopharmaceuticals are covered by HCFA’s new ambulatory payment classifications, including those for outpatient imaging services. The new APCs are scheduled to become effective July 1.

The reduced payments and change in the bureaucracy brought on by the reform may prompt doctors or hospitals to establish joint ventures with freestanding imaging centers to circumvent the APCs.

“We see this as an opportunity,” said Bill Franz, director of reimbursement management for Radiologix, an operator of 118 freestanding radiology service centers that offer hospitals outsource services to provide patients with imaging.

“Hospitals will have the incentive to joint venture with someone if they fear reimbursement will go down under the APC, which is how many people feel,” Franz said.

Items on the list, which HCFA planned to post during the first week of May, will follow a pass-through, or full, payment system that requires Medicare to reimburse hospitals for the full cost of procedures carried out with the devices or drugs. Under the new APCs, new drugs and technologies since 1996 are fully covered. The list had not been published at press time.

Digital mammography, for example, approved (for hard copy read) by the FDA this year, will get pass-through status, said Cherrill Farnsworth, executive director of the National Coalition for Quality Diagnostic Imaging Services (NCQDIS).

HCFA received 336 applications to add more than 550 items to the APC list for either transitional pass-through status or as a new technology, said HCFA administrator Nancy-Ann DeParle.

For all other diagnostic procedures included under the APCs, providers will no longer be reimbursed for their actual cost when they perform a procedure in an outpatient setting.

Radiology industry groups say Medicare reimbursement could drop by 30%. They anticipate that hospitals are likely to reorganize their imaging processes in response to these changes.

“Hospitals are grappling with how we address APC changes from (the point of view of) revenue impact and what information system changes need to be made so we can address it,” said Michael Favreau, director of radiology services for the Baystate Health System in Springfield, MA. All five locations in the system have outpatient radiology services.

Under the new APCs, Medicare would pay $237.10 for a CT scan of the skull or chest, and a national insurance copayment would run $179.39. Payment for a brain MR would be $388.87, and the coinsurance payment would be $257.39. Radiology administrator Steve Seabrook, writing in an Internet forum sponsored by the Radiology Business Management Association, said the price of an MR brain scan without contrast followed by contrast would be eligible for a $1093 global payment at outpatient and freestanding facilities. A representative from Radiologix said the countrywide average charge for an MR would be around $1200.

The problem with the comparison is that professional fees that go directly to hospital-based radiologists are not covered by the APC fee schedule but remain unchanged. Professional fees are included in the global fee charged by freestanding facilities.

HCFA maintains that the new system streamlines the billing process, makes hospitals more efficient, and reduces patient copayments. The Clinton administration wants to lower the copayments of outpatient beneficiaries, HCFA officials said.

“I don’t disagree with that. We’ve got way too much paperwork, but we can’t get to the point where (the government) is making medical decisions,” the NCQDIS’s Farnsworth said.

The reform is galvanizing the NCQDIS, the Health Industry Manufacturers Association, and other members of the medical community to press HCFA for changes to the proposed fee schedule.

Farnsworth said the APC groups appear to be based on the modality, and don’t take differences in procedure and body part into consideration: an MR of the hand falls under the same APC as an MR of the heart.

Medicare would base virtually all diagnostic imaging classification on the modality, regardless of whether a contrast agent is used, Farnsworth said. Use of a contrast agent increases the cost of a procedure but also improves its clinical usefulness. In a letter to HCFA, Farnsworth said this payment policy would dissuade hospitals from using contrast agents.

If certain radiopharmaceuticals aren’t included on the pass-through list or classified as new technologies, the new rules may also have the same effect on drug companies.

“If your drug costs more than a couple of dollars, you have a serious problem,” said a source at a major radiopharmaceutical manufacturer who did not want to be identified.

Doctors who enter joint ventures with independent imaging operations or who found their own off-site centers will have to abide by federal antikickback laws.

Dr. James Ehrlich, medical director of Colorado Heart Imaging and Heartscan imaging centers in Colorado, Texas, and Washington, DC, said the next wave of doctors to set up joint ventures with independent centers will most likely be aiming to catch the growing number of patients who pay for preventive imaging out of pocket.

New HCFA rules may be just one more reason to do this, he said.

“It will be more a comfortable way for individuals to develop relationships with us and (at the same time) circumvent certain restrictions imposed by HCFA,” Ehrlich said.