New payment formula proposes Medicare cuts for high-tech imaging

March 5, 2009

A new formula proposed by the influential Medicare Payment Advisory Commission for calculating practice expense relative value units could cut technical payments for MRI, CT, and PET from the Medicare Physician Fee Schedule by as much as 44%.

A new formula proposed by the influential Medicare Payment Advisory Commission for calculating practice expense relative value units could cut technical payments for MRI, CT, and PET from the Medicare Physician Fee Schedule by as much as 44%.

In its annual report to Congress, MedPAC recommended doubling the assumed utilization rate for calculating practice expense RVUs for the technical portion of reimbursement from 25 hours per week (50% utilization) to 45 hours per week (100% utilization). MedPAC's practice expense RVU recommendation would apply to all diagnostic imaging equipment costing more than $1 million.

The 17-member advisory panel also urged Congress and the Centers for Medicare and Medicaid Services to require more public disclosure about physician ownership of equipment and facilities and any financial relationships between physicians and vendors. The report was issued March 3.

MedPAC's recommendations were spurred by the continued significance of medical imaging to the rising cost of physician services covered by the outpatient Medicare Part B program. Medical imaging costs have slowed from the 8.6% growth rate of 2002 to 2006 that first drew intense regulatory attention. But its 3.8% growth rate of 2006 and 2007 remained substantially higher than the 2.9% growth rate for other physician services. Diagnostic imaging remains the subject of intense scrutiny.

Most of the payment for the technical component of imaging stems from the practice expense RVU. It is divided into direct costs (nonphysician clinical staff, medical equipment, and medical supplies) and indirect costs (administrative staff, office rent, and other expenses).

The professional component of payments consists of the work RVU. On average, the technical component composes 88% of global payment. The professional component involving imaging interpretation makes up the rest.

In the 2009 report, MedPAC officials reasoned that a 25-hour-per-week utilization factor for high-tech imaging encouraged providers to purchase CT, MR, and PET-CT systems and created a financial incentive to use them as much as possible.

"… We are concerned that rapid volume growth of costly imaging services over the past several years may signal that they are overpriced," the commissioners wrote.

The commission's analysis notes that tangible information about equipment operation was not available when CMS set the 25-hours-per-week equipment use factor in 1999. But a survey of 133 physician offices and freestanding imaging centers sponsored by MedPAC in 2006 found that the median hours of use for CT and MRI was 40 hours and 46 hours respectively.

The estimated cost of equipment is sensitive to changes in the equipment use factor, according to the report. The estimated cost of equipment operations would decrease 44% if the use factor was increased to 45 hours per week.

Several groups representing imaging centers, radiologists, and equipment manufacturers questioned MedPAC's findings.

The Association for Quality Imaging, which represents imaging service providers, questioned MedPAC's assumptions about the adoption rates for 64-slice CT and 3T MRI technologies. In a Jan. 7 letter to MedPAC, AQI chairman Paul S. Viviano wrote that most imaging providers are not equipped with the state-of-the-art imaging devices that MedPAC used to revise its assumptions about equipment efficiency and throughput.

Viviano also complained that previous rate cuts, including those from the federal Deficit Reduction Act mandate, have already reduced payments to a point where AQI has seen some of its members go out of business.

The American College of Radiology was surprised by the recommendation, especially because the six-market survey used to recalculate the rate is not representative of the country as a whole, according to Pam Kassing, senior director of health economics and health policy.

"We don't think that the MedPAC survey was based on solid data," she said in an interview.

If implemented, the 44% reduction in the technical component payment for MR, CT, and PET/CT would be seen mainly in payments from private insurers who use the Medicare Physician Fee Schedule (MPFS) to guide their payment rates, she said.

For Medicare Part B, the higher utilization assumption would lead to a 15% decrease in technical payments because of policies imposed in 2007. They required Medicare to pay the lower of the MPFS or Hospital Outpatient Prospective Payment system rate for medical imaging. The proposed adjustment to the practice expense RVU would lower the MPFS rates below the prospective payment rates for the first time, she said.

The ACR recommends that CMS weigh the MedPAC findings against the results of the American Medical Association's Practice Cost Survey. Imaging equipment utilization rates will be included in its results, which will be announced soon, Kassing said.

The Medical Imaging and Technology Alliance, a trade group for imaging device vendors, also believes MedPAC's proposed policy is based on insufficient data and faulty analysis.

MITA's managing director Ilyse Schuman called on CMS and the Department of Health and Human Services to work with the medical community to collect accurate medical imaging data to shape a new policy.

"Imaging technology allows accurate data to be collected that can assist policymakers in making better informed decisions about utilization rates and reimbursement," she said in a written statement.

MedPAC also asked Congress to require more public disclosure about the relations between manufacturers and physicians. Increased transparency about such associations would discourage conflicts of interest and would help CMS determine how they affect physician practice patterns, according to the report.

Along the same lines, MedPAC would have DHHS collect and disclose information on physician investment in hospitals and other healthcare provision facilities. The data would aid research on how physician ownership may influence physician referrals, quality, volume, and spending, according to the report.

The requirement appears to be aimed at physician-owned ambulatory surgery centers but would also apply to office-based imaging services that are exempt from Stark law prohibitions on physician self-referral.

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