2010 Medicare Reimbursement: What’s in It for Radiology?

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The nation’s hospitals eluded a $1 billion pay cut on October 1, when the 2010 Inpatient Prospective Payment System (IPPS) went into effect, because CMS chose not to include a negative 1.9% update for payments to hospitals as originally proposed. On the other hand, imaging-technology owners in the freestanding outpatient and in-office settings are bracing for a new round of significant cuts, as described in the proposed rule. An increase in the assumed equipment-utilization rate from 50% to 90% and new, lower practice-expense data for radiology from the AMA would result in further cuts to CT and MRI payments, adding up to 30.7% and 26.5%, respectively (by some estimates), if implemented. The final rule is due within days and is being watched with keen attention by all stakeholders.

“In the very short term, we are going to see a further contraction of the imaging center business to the advantage of the hospitals.”

—Gerard Durney, Sr VP, Ancillary Services,Bon Secours Charity Health System, Suffern, NY

“Imaging centers are going to find it hard to get capital because of the financial marketplace, as will hospitals, but imaging centers will have a harder time doing that,” he continues. “I think you’ll see some hospitals absorbing or buying imaging centers.”

IPPS Issues

Instead of a pay cut, hospitals should expect an increase of 1.6% in operating payments (an estimated total of $1.73 billion) and a 1.9% increase in capital payments ($171 million) under the fiscal year (FY) 2010 rules, not taking into consideration any further change in admissions or case-mix intensity. The threatened negative update, however, was meant to correct an estimated 2.5% increase in payments made to hospitals in 2009 due to changes in documentation and coding under the Medicare Severity DRGs, and is likely to be revisited next year.

imagePam Kassing

CMS delayed the decision pending a retrospective evaluation of the changes in case mix for the complete FY 2009 claims data. Further, hospitals and organized radiology are keeping a close watch on the issue of charge compression, discussed in the rule, which would result in lower payments for higher-priced equipment and higher payments for lower-priced equipment, a no-win equation for specialties—like radiology—based on the use of advanced technology.

Cost-to charge Ratios and Charge Compression

In the 2010 IPPS, CMS continues its ongoing discussion of charge compression by recalculating cost-to-charge ratios (CCRs). The subject was initiated by a series of reports by Research Triangle Institute (RTI), issued in 2007 and 2008, laying out a set of formulas that would result in lower prices for higher-priced equipment and higher prices for lower-priced equipment. If implemented, this policy would have negative implications for payment levels for imaging-intensive DRGs such as trauma services. The consequences of charge compression for imaging paid under the Outpatient Prospective Payment System (OPPS) would further adversely affect reimbursement in the freestanding and in-office realms due to the DRA caps.

imageGerard Durney, Sr VP

The ACR® last commented on the reports in a letter dated June 13, 2008, calling RTI’s estimate of an 1,800% average markup on CT services over costs implausible. Harvey L. Neiman, MD, then executive director of the ACR, wrote, “This roughly five-fold differential in markup seems too large to be an accurate reflection of the typical hospital charging behavior and, accordingly, we believe the RTI CCRs are implausibly low and would result in substantial distortion of payments if used for calibrating Medicare results.”

Pamela Kassing, ACR senior director of economics and health policy, notes, “For some studies, this would result in higher payments for x-ray than for CT.” Due to the interest expressed by CMS in the concepts of charge compression, value-based purchasing, and bundling, Kassing expects the ACR to give the annual IPPS rules closer scrutiny.

In the final 2010 IPPS rule, CMS reaffirms its decision, made last year, to not use the adjusted CCRs, preferring instead to focus on more precise cost reporting as a strategy to improve the accuracy of cost weights. The issue, nonetheless, bears watching.

Quality Reporting

The final IPPS retains the 41 existing quality measures, combines two existing ones, and adds four new measures on which hospitals must report in order to receive the full annual update factor for FY 2011. This adds to the cost and complexity