Post-DRA Roundup: The Good, the Bad, and the Downright Ugly

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I have been asked to provide our experience, so far, in 2007, with respect to the impact of DRA 2005 on imaging centers. Many professional associations and news outlets are all asking the same question: What is the real impact of DRA 2005? In our experience, it is a bit early for any of us to have sufficient data to precisely assess the impact of DRA 2005 in various settings and markets.

However, for the purposes of this article, we will share our experiences to date, based on specific data from a number of imaging centers, in different markets across the country, with varying federal and state patient content, and with varying market positions in the communities they serve.

As one might expect, early results vary widely, depending on the size of the imaging center, local demographics, numbers of modalities in the imaging centers, and the aggregate amount of Medicare and Medicaid content at each of the centers. But, as we found out, DRA 2005 is only part of the story.

It is no surprise that the imaging centers most affected by DRA 2005 are the smaller operators and imaging center owners with a single modality, or two modalities—specifically MRI or CT—as the principal imaging modalities at the center. Larger facilities with a full spectrum of modalities, located in high population growth areas, with increasing supplies of medical professionals in the area and robust business infrastructure, are not experiencing significant impact from DRA 2005…yet.

Let’s take a look at a few examples of the impact that we have seen through the first quarter of 2007. Second-quarter results may provide a different set of data and more precise insight into the issue than we currently have available. However, most of the analyses and forecasts we performed for a number of clients in 2006 with respect to potential DRA 2007 impact, based on actual 2006 CPT code by CPT code, by modality experience, appear to be as expected.

At one end of the spectrum is a single modality, MRI-only facility (IDTF) in a small rural community located in the southern part of the Midwest. In this practice, the Medicare and Medicaid content is approximately 35% of the total volume. However, specialists with high utilization of with- and without-contrast studies drive the majority of studies performed in this facility.

Historically, approximately 47% of their MRI studies were with and without contrast studies. The impact of DRA, including the multiple procedure discount, and reduction of reimbursement to the lower of the Medicare Physician Fee Schedule (MPFS) or the Outpatient Prospective Payment System, has been in the range of a 37% reduction in revenues on their Medicare and Medicaid patient population.

In this specific case, certain payers in this rather rural area began ratcheting down reimbursement in late 2006 (when DRA was in the offing) and early 2007, using a flat rate reimbursement methodology for MRI studies in the range of $500-$600 per study as an average. In addition, the business also has run into rather severe pre-authorization requirements on the part of all payers. This issue has, in the best case, slowed reimbursement and increased days outstanding, and in the worse case, created a number of denials from some payers, until the operators and ordering physicians learned how to provide the necessary information to the payer to facilitate more rapid payment and fewer denials.

The net impact, on an annualized basis, from the first quarter experience, assuming minimal growth in volume, is forecast to be in excess of $300,000 for this small facility, which is HUGE. It is estimated that this facility will need to approach volumes, in the range of 11 to 12 studies per day, at their average reimbursement experience, to have any hope of achieving income greater than breakeven.

Compounding the issue, in this instance, is a lack of population growth and, beginning in 2006, the introduction of a number of in-office imaging sites in the area, especially for MRI. In this small market, competition is a zero-sum game. Whatever volume growth comes through increased utilization per population, will likely be absorbed by these new “imaging facilities”, resulting in a decrease of volume at the imaging center and other traditional sites of service.

We have seen this scenario, or very similar scenarios, playing out in a number of small markets across the country. We believe, and initial data appears to support the contention, that we will see a number of smaller