What Reimbursement Cuts Mean

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HIIT080104The Deficit Reduction Act of 2005 (DRA) slashed reimbursement for diagnostic imaging centers by placing a cap on technical-component payments from Medicare for non-hospital imaging services beginning in January 2007. With the 2010 Medicare Physician Fee Schedule (MPFS) final rule from the Centers for Medicare & Medicaid (CMS) now in effect, radiology specialties and rural practitioners may encounter a challenge for advanced imaging access if the proposed final rule is implemented.

The 2010 MPFS final rule also resulted in the change of the equipment utilization rate for imaging systems priced at more than $1 million, from 50 percent to 90 percent. The equipment utilization rate is set to roll out over a four-year transitional period with a “25/75” ratio set for 2010 to adjust to the new practice expense values. However, the equipment utilization rate is (as of press time) up for debate in the House of Representatives and U.S. Senate as part of the overall healthcare reform bills, yet the Medicare Payment Advisory Committee (MedPAC) supports CMS’ proposal to adopt the 90 percent utilization rate.

Additionally, CMS is finalizing its proposal to use the Physician Practice Information Survey (PPIS), a study led by the American Medical Association (AMA) and conducted in 2007 and 2008, which will change the practice per hour (PE/HR) for radiology from the current $204 to $134.84—a drop of 34 percent in Medicare’s practice expense formula. The practice expense, much like equipment utilization rates, is scheduled to be phased in over the course of four years with 75 percent of current practice expense data and 25 percent of new data to set the practice expense values for 2010.

Survival Tactics
The passage of the DRA, according to a survey published in July in the Journal of the American College of Radiology (JACR), resulted in layoffs and postponed plans for equipment acquisition. Based on a survey of 601 radiologists, James W. Moser, PhD, of ACR et al found that, on average, technical-component payment reductions were 18.5 percent and varied by imaging modality, with up to 34 percent for MRI.

Alan Kaye, MD, diagnostic radiology practitioner across Connecticut and president of Advanced Radiology Consultants, a practice with 21 radiologists and eight outpatient sites, is just one radiology group to employ tactics to avoid the effects of previous legislation.

Using the practice’s profit figure before DRA took effect in 2006, Kaye and his colleagues projected revenue reductions from DRA for 2007. By cutting personnel, more aggressively negotiating contracts with private payors, outsourcing billing and using an aggressive marketing approach, Kaye says his practice was able to mitigate the DRA reductions by about 40 percent.

“By marketing ourselves more aggressively, we probably took market share from competitors,” says Kaye. “Additionally, we cut back on services like nuclear medicine by decreasing hours of operations and freezing upgrades of equipment.”

Survivalist approaches such as Kaye’s are likely to become more par for the course for provider-based and physician-owned radiology departments in response to the CMS’ MPFS rule. Bibb Allen, MD, chairman of the ACR Economics Commission and a radiologist at Trinity Medical Center in Birmingham, Ala., says the DRA, the utilization assumption rates and the practice expense changes that occur as a result of the Physician Practice Information Survey don’t affect hospital-owned facilities.

“Hospitals are paid under the Hospital Outpatient Prospective Payment System (HOPPS),” says Allen, “so the resulting regulations don’t affect hospitals and hospitals’ outpatient departments or facilities. But, as far as provider-based and physician-owned departments, we anticipate, based on a Radiology Business Management Association (RBMA) survey, that as reimbursement cuts increase, we’ll see an increasing proportion of physician-owned practices opt to not buy additional equipment, [and] not to upgrade their current equipment.”

Hugh Zettel, director of strategic reimbursement at GE Healthcare, echoes Allen’s observations. “The DRA has been a large catalyst of change since its 2006 implementation,” Zettel says. “After two years of data, we’ve seen a drop-off of equipment sales and orders across the industry. With that slowdown, the recession itself has made it difficult for a lot of our customers to make investments in capital equipment.”

HIIT080104aArbitrary standard
Although the utilization rate was