Trouble by the numbers

August 1, 2006

The Deficit Reduction Act of 2005 has created quite a stir in medical imaging. If the current provisions remain intact, outpatient imaging providers could see a 45% reduction in Medicare reimbursement next year.

The Deficit Reduction Act of 2005 has created quite a stir in medical imaging. If the current provisions remain intact, outpatient imaging providers could see a 45% reduction in Medicare reimbursement next year. The fate of several bills introduced to repeal or postpone the cuts remains unclear. In the meantime, radiologists, administrators, and other imagers in and out of hospitals are conducting worst-case scenarios to gauge the DRA's impact on profits, accessibility, and quality.

Medicare reimbursement for three categories of nonhospital outpatient imaging-nonradiologists' offices, radiologist-owned or partially owned imaging centers, and independent nonphysician-owned imaging centers where radiologists provide professional services-is calculated from the physician fee schedule. Payment for hospital outpatient imaging is derived from the Hospital Outpatient Prospective Payment System (HOPPS). In the DRA, Congress mandated that the technical fee for nonhospital outpatient imaging will also be reimbursed through HOPPS. This change will result in a reduction in revenues for outpatient imaging centers by 25% to 45%. HOPPS rates are historically lower than the physician fee schedule because HOPPS takes into account inpatient revenue, among other things (see accompanying article).

Ramifications of the change are drastic. Already, new equipment purchases and upgrades at many sites have been put on hold or canceled outright. At least one vendor has sent letters to its installed base detailing concerns about the reductions. Lenders are skittish about investing in upstart imaging facilities and even a bit conservative with proven entrepreneurs. A sliver of a silver lining is peeking through, however. Some academic radiologists won't shed any tears if the imaging centers that dot their perimeter close, bringing more high-end imaging business to hospitals.

Although hospitals might indeed improve their bottom lines after the DRA goes into effect, Congress could easily gut inpatient imaging payment the same way it slashed outpatient reimbursement, according to the American College of Radiology.

"What has thrown us about the DRA-and what should concern every academic radiologist-is the lack of thought that went into the cuts," said Cindy Moran, ACR assistant executive director for government affairs and economic policy. "Maybe this year it didn't hurt the academic radiologist, but maybe next year it will. We have to go after this policy."

The impact of the reductions on hospital-based radiologists could be minimal. The hospital owns the equipment and already receives reimbursement through HOPPS. But the ACR estimates that nearly half of hospital-based radiologists have some form of office space or imaging center practice, making them vulnerable to the reductions. Nonradiologists who have gotten comfortable with in-office MRI and CT could push and shove to perform inpatient imaging if their outpatient operations close down, and there is no assurance that patients will return to the hospital setting for simple imaging exams.

"These are real possibilities," Moran said. "As much as I understand how some academic radiologists feel, whistling by the graveyard, there are other unintended consequences of the DRA that we must consider."

A recent poll by the American Healthcare Radiology Administrators found that reimbursement, specifically the DRA, is a top concern. About 30% of AHRA members come from independent imaging centers. The rest are hospital-based, and many of their hospitals have outpatient ventures, said AHRA president Jay Mazurowski. Hospitals and radiology groups often open outpatient imaging centers through joint ventures. These reduce the threat of competition, but the ambulatory setting also provides a more patient-friendly atmosphere than the acute care environment. Scheduling is often easier and wait times shorter in outpatient centers. Closure of these centers could be counterproductive for many hospitals amid questions about their ability to handle the increased volume without being overwhelmed.

Many patients probably would stay within the hospital setting because that is where their physicians would refer them, Mazurowski said. That may not necessarily be the case, however.

W. Cannon King, vice president of business development for Outpatient Imaging Affiliates, a national owner and operator of outpatient imaging centers headquartered in Nashville, found that hospital-based physicians send many patients everywhere but to their hospitals. He learned that independent imaging centers are easier for patients to navigate. If referring physicians can, they'll opt for an outpatient imaging center, King said.

The people have spoken, and they have shown their preference for freestanding facilities, said Shannon Doyle, president of the Radiology Business Management Association and chief executive officer of Colorado Springs Radiologists.

"Will it help to put outpatient imaging centers and hospitals on an even basis in terms of a reimbursement scheme? I certainly don't think so," Doyle said.

Colorado Springs Radiologists has 18 physicians serving two hospitals as well as several freestanding imaging centers and a hospital joint-venture partnership. MRI and MR angiography, core to the practice's business, will see reductions in revenue in excess of 20% from the DRA. CT imaging will be significantly affected as well. The group canceled an order for a 64-slice CT scanner in late 2005 when the DRA provisions were announced. Even if advocates win a delay of the DRA, Doyle is not sure the practice would automatically reorder the high-end scanner.

"Imaging centers need the latest equipment to stay competitive, but they also have to make a reasonable business case that their large purchases can be amortized over the useful life of the equipment," he said.

Manufacturers will have to reduce prices if they want outpatient imagers to invest in new equipment, he said.

STRANGE BEDFELLOWS

The deal that resulted in the imaging reductions was sealed in the waning hours of 2005 by a small group of House and Senate negotiators. It is significant that the final cuts were not part of the original budget proposals. Rather than fight to repeal the DRA, the ACR and its allies have chosen to support a delay in its implementation. In May, more than 40 Republican House members signed a letter to Speaker Dennis Hastert (R-IL) to express their "strong concern" about the imaging cuts. They cited the lack of public debate and thoughtful analysis.

In early summer, bipartisan House and Senate bills were introduced calling for a two-year freeze on the cuts. The legislation also called for the Government Accountability Office to study implications to imaging access and to assess whether HOPPS is the appropriate methodology for physician outpatient payment, according to Tim Trysla of Alston Bird, a Washington, DC, law firm representing the Access to Medical Imaging Coalition. The coalition comprises a number of professional medical organizations from specialties such as radiology, cardiology, oncology, and neurology as well as industry and patient groups. Its mission is to focus the attention of Congress on the DRA.

The House bill has more than 40 original cosponsors. Each piece of legislation has sponsors from key committees, including Energy and Commerce, Ways and Means, and Finance. Hearings should take place in September, Trysla said. Congress could pass the bill in October, before elections, but a lame-duck Congress could let the issue slide until December.

The biggest challenge is finding the right vehicle for the bill. Legislation could be drawn up on several Medicare-related issues, including the annual fix to the sustainable growth rate or proposed changes to practice expense determination.

"There is a long list of people who want Medicare changes. You have to pick a number and hope to get in the package," Moran said.

It might seem unusual that radiology and cardiology are teaming up to defeat the DRA, given their historic turf battles and current concerns by radiologists about losing cardiac CT. Some radiologists worry this alliance will dampen efforts by the ACR to curb self-referral, but they recognize the importance of defeating the DRA.

"The DRA was such an earthshaking and sudden event that it has hijacked the agenda for all of medicine," said Dr. Alan D. Kaye, radiology chair at Bridgeport Hospital and an outspoken advocate of efforts to rein in self-referral.

The underlying issue of self-referral does not go away, Kaye said. In fact, the DRA might actually inhibit self-referral. With technical fee profits from high-end imaging such as coronary CT angiography diminished, cardiologists might think twice before deciding to become CTA entrepreneurs. They might even collaborate more with radiologists in the hospital setting, where neither side gets the technical fee.

In a darker flip side to the issue, however, declining reimbursements could be an inducement to drive utilization, according to Dr. Carter Newton, a cardiologist and CT imaging consultant to South Carolina Heart Center in Columbia. Beginning in 2007, the codes for 2D reconstruction will be eliminated, further reducing profits from CTA. But this is a moot point if cardiology groups won't even invest in the CT equipment.

"Uncertainty about reimbursement is the biggest impediment for cardiologists buying scanners right now," Newton said.

The Centers for Medicare and Medicaid Services should assign relative value units (RVUs), which will help determine the nonhospital outpatient reimbursement, to CTA this summer. Without such a benchmark, private carriers can choose to reimburse or not for CTA procedures. When they do reimburse, they can essentially pay whatever they want, since there is no Medicare guideline. Many expect the global fee for CTA to be around $800, including postprocessing and 3D reconstruction. The technical fee would be about $600. Under HOPPS, reimbursement would be even less.

Coronary CTA may appear as a bright spot to some. Compared with the rest of CT, coronary CTA will have a higher reimbursement, according to Steve Renard, president and COO of Liberty Pacific Medical Imaging, a California-based company that owns, manages, and builds imaging centers.

"If the 10 cardiovascular CPT codes get passed, it's an opportunity for us to get involved in a new line of work that pays and helps offset some of these the cuts. The downside is you have to invest $1.3 million on a piece of equipment to do it," Renard said.

PET and PET/CT stand to lose as well. Radiation oncology increasingly relies on PET and PET/CT to stage cancer, plan treatment, monitor treatment response, and restage. Almost all of the 97 cancer centers managed by U.S. Oncology use some kind of PET scanner, according to Matt Brow, national director of government and public policy for the company. Depending on the part of the country, PET reimbursement under HOPPS could be 50% less than under the physician fee schedule. Like coronary CTA, PET is considered a new technology by CMS and has not had RVUs assigned to it. The payment rate by carriers, therefore, is not automatically based on the physician fee schedule but still has to be negotiated with each carrier. In each case, it's different.

In Texas, the technical component reimbursement by carriers for oncologic PET is about $1800; for PET/CT it is $2350. Under HOPPS, those two amounts shrink to $1150 and $1250-a difference of $650 and $1100, respectively (Table 1). The rates for other states vary, but the payment reductions from the DRA will still be significant. Compounding the reductions is the fact that PET (like PET/CT) already has an average national volume of fewer than four patients per scanner per day, according to Fred Stuvek Jr., who operates three PET/CT centers in Georgia and is chair of the Institute for Molecular Technology.

"We feel PET is underutilized. It represents only 1% of the overall imaging a year. The technology is still in a growth phase; it's still fighting to be accepted. To be faced with such cuts is catastrophic," Stuvek said.

Women's imaging will feel the kick of the DRA as well. While screening and diagnostic mammography are exempt from the DRA, other imaging services are not. The technical fees for breast biopsies will get hit, as will breast ultrasound, sonohysterography, and thyroid evaluations, said Dr. Thomas S. Chang, a radiologist with Weinstein Imaging Associates in Pittsburgh. Chang is not alone in scrapping plans for a breast MR scanner because of the uncertainty of the DRA impact.

MULTIPLE PROCEDURES CHANGE

As if the pending DRA cuts aren't bad enough, they come on top of reductions already imposed by CMS and adopted by Congress that slash reimbursement for imaging exams on contiguous body parts in the same session by 25% this year and an additional 25% in 2007.

Barb Brown, business manager of MRI Centers in South Bend, IN, hasn't even digested the full impact of the DRA. She has opted to wait until closer to the year's end when its fate becomes clearer. Her immediate worry is the impact of the multiple procedures rule change. She estimates the loss to her six facilities-with one 0.3T open scanner and seven 1.5T machines-will be more than $57,000 in 2006 and $114,000 in 2007. Purchase of a new 1.5T magnet was put on hold for this year, and the fate of a new open magnet and a 3T scanner for next year is uncertain. Brown has had to renegotiate vendor contracts, looking for any small changes that will boost the bottom line.

"We've sharpened our pencils as much as we can and hope to fine-tune operations to counteract the impact of the cuts," she said.

The most frequently ordered exam at the South Bend centers is brain MRI with and without contrast (CPT70553, Table 2). It's not unusual for this exam to be accompanied by brain MRA without contrast (CPT70545) and neck MRA with and without contrast (CPT70549). In 2005, the technical fee for these three exams done in the same session was approximately $2067. In 2006, that amount was reduced to $1771. Next year, it shrinks to $1475. Brown said the reductions might have some degree of merit, but the two levels imposed-50% over two years-don't represent the true labor costs for MRI, which often involves patient repositioning, switching coils, and contrast injection.

The multiple procedures rule change was the topic of discussion at this year's meeting of the Magnetic Resonance Managers Society. Mary Roberts, MRMS chair and administrative director for Tri-State MRI in West Virginia, sent a letter to members detailing the dire consequences of the DRA and encouraging support of legislation that diminishes its effect. In the letter, she borrowed language from a missive she had received from a major vendor, which it had sent to its installed base, warning of the DRA. She didn't wish to identify the vendor.

"Across the country, centers are closing down," Roberts said. "Whether their closure is the result of too much competition or an overaggressive marketing strategy, I don't know."

The DRA won't help the situation. Roberts has gone back to vendors and insurance companies to renegotiate contracts. One attempt with a national insurance company was unsuccessful. The company essentially told her to take it or leave it. She couldn't leave it; the company was too big.

"The impact over time will be the loss of the bottom line for centers to reinvest in the newest technologies available," she said.

About one-third of the multiple procedure studies that come into NIA-Magellan Health Services, a radiology utilization company, are rejected and pared down to a single study. The most common combination study is MRI/MRA of the brain. The company suggests doing the exams serially: MRI first, then if there is reason to suspect a vascular abnormality, the MRA. Almost none of the rejected studies have to go to MRA, said Dr. Thomas Dehn, executive vice president and chief medical officer of NIA.

CT of the abdomen/pelvis will get hit hard, he said. It's the most common CT study ordered in tandem, and NIA does not deny it very often. Vascular combinations are becoming more common as well with 64-slice scanners. Data on those studies are just beginning to accumulate. Of course, some combination studies are appropriate, and some combination denials are ultimately approved. But is the reduction too much?

"I personally think it's appropriate," Dehn said. "It's been a pretty lucrative business for some time with full reimbursement, and a lot of radiologists have known this was coming."

VOLUME AND EFFICIENCY

With cuts coming from so many angles, the successful imaging entrepreneurs will be the ones with the most volume. Liberty Pacific's Renard nails a clear cutoff point: A center performing under 2500 scans a year won't make it. Centers performing more than 2500 scans have a better chance to reinvent themselves, partner with others, and make a profit. Based on his Medicare mix, Renard faces losses of up to 30% in MR and CT revenue. Neuroradiology procedures will get hit even harder, possibly up to 35%.

Proscan Imaging in Cincinnati operates 30 imaging centers with a myriad of equipment including high- and low-field MRI scanners, as well as new and old equipment. The DRA has put new purchases on hold, according to Judith Turner, vice president of sales. Imaging is projected to grow 10% per year, but what does that really mean in the context of a 40% reduction in contrast studies and a 10% reduction in musculoskeletal imaging?

"We won't sacrifice imaging, hours of operation, qualified technologists, or compliance. We're looking for better efficiencies such as consolidating to central scheduling and other measures that won't affect patient management," Turner said.

One of the biggest overhead expenditures, personnel, will take a hit. Every position will be scrutinized, and scheduling and billing systems will be overhauled. Some say the playing field has been leveled, but the measures are clearly a negative for everyone, said King of Outpatient Imaging Affiliates. The cuts will force imaging providers to compete on price and volume rather than service and patient need.

The worse part of the DRA for many imagers seems to be the uncertainty of its impact and of its fate. The momentum clearly has swung in radiology's favor, however, as Congress has indicated a willingness to give the Draconian cuts a thorough review.

No matter the fate of the DRA, this is certain: The current effort on Capitol Hill by the ACR is as much about the DRA of 2005 as it is about legislation in 2010.

"This has to be our priority," said the ACR's Moran. "If we are not successful, imaging will become the pinata for Congress."

Mr. Kaiser is news editor for Diagnostic Imaging.