This article is the first in a four-part series on options for integrating imaging centers and hospitals.
Given accountable-care organizations, bundled payments, pay for performance, capitation, and medical homes, nobody knows the exact shape that health care will take in the future, but one thing is likely: It won’t look like today’s fee-for-service model.
Those who operate outpatient imaging centers know this. Many have already seen volumes drop, or have been buffeted by intrusions into their turf. Hospitals, in the future, will be hubs of care, involved in preadmission and post-discharge planning for their chronically ill patients, with an eye to holding down costs. To a degree that they haven’t been until now, hospitals will be in the driver’s seat. They will have to stay solvent to remain there, however, and this has them looking for new revenue streams.
Reimbursement’s vagaries and intrusions into daytime hospital-based imaging by national radiology groups with a heavy emphasis on teleradiology have given radiology groups their own motives to integrate outpatient imaging services with hospitals. Todd J. Sorensen, MBA, an accredited valuation analyst and partner in VMG Health (Dallas, Texas), says that 2010 was a banner year for the integration of hospitals and outpatient imaging centers, and he predicts that 2011 will continue the trend.
Several models for integrating outpatient imaging centers into hospital settings have developed. The most common are outright sales of the centers; joint ventures between radiology groups and hospitals; and lease-based, hybrid arrangements wherein hospitals largely control the imaging center’s operations, so as to be able to offer services as provider-based.
Drivers of Integration
Incentives to transform freestanding imaging centers into hospital-based outpatient imaging providers are market oriented, but diverse. One of the most important (and purely economic) factors is an anomaly that has developed between the rates at which third-party payors, and, to a lesser extent, Medicare pay hospitals and freestanding centers for the technical component of the same procedure. Hospitals are paid more in many cases—and sometimes much more.
Private payors in particular often pay much higher reimbursements to hospitals for outpatient imaging, potentially offering significant advantages for hospitals and for radiology groups that join with them in provider-based imaging structures. “The biggest differential is what commercial payors and managed care are paying hospitals for outpatient imaging,” Sorensen says. “It can sometimes even be a multiple of what freestanding centers get for those same services.”
Richard W. Townley, MBA, founder, president and CEO of AGI Healthcare Group (San Ramon, California) agrees. “The overwhelming difference is associated with the commercial contract differentials,” he says. “We have seen cases where a provider-based commercial payor contract rate for a breast biopsy is up to 10 times the reimbursement a freestanding imaging center receives in the same market, and the rate for an MRI exam may be well over two times greater.”
Radiology groups can opt to merge outpatient centers into hospital networks to chase these higher reimbursement levels, but there may be a long-term downside to that strategy. For now, according to Robert Maier, CPA, founder and CEO of Regents Health Resources, Inc, Brentwood, Tennessee, the differential in technical-component reimbursements is falling through the cracks.
Commercial payors are much more focused on inpatient rates in hospital reimbursement negotiations than they on are outpatient imaging technical payments. “There’s a real question here how long this differential will last,” Maier says. “If we see too many trying to convert freestanding into provider-based imaging, the payors may refuse to pay those higher fees.”
Sorensen adds, “There is even the expectation that the differential will go down, and perhaps even go away, because the nature of these structures is more short term.” Moreover, Maier says, “Patients’ out-of-pocket cost tends to be higher at hospitals, so patients will self-select the lower-cost freestanding center. Hospitals could lose that business by converting a center to provider-based imaging.” Despite these risks, the financial incentive, right now, is so attractive that capturing higher technical-component reimbursement is the number-one reason that hospitals and independent imaging