How Radiology Volumes Impact Revenue
Four community hospitals, each located in a non-metropolitan area, sought to improve their radiology service. Each began to see improvements within about six months, and the gains were accomplished, for the most part, without adding new or better modalities. The explanation, according to Clayton Larsen, senior vice president of client and network development at Radisphere National Radiology Group (Beachwood, Ohio), is that the hospitals focused almost entirely on improving their quality and service levels; it was this initiative that resulted in a favorable shift of local referral patterns. Referring physicians gradually shifted cases to the hospitals for imaging instead of to their freestanding imaging center competitors, he says. Equally significant, Larsen says, is that total volumes for more highly reimbursed, high-tech CT and MRI studies did not appear to grow dramatically at any of the four facilities; in some cases, there was flat to modest growth in these modalities. However, when a more in-depth analysis was performed, a subtle but more compelling story emerged, according to Larsen. “Hospital-based outpatient-imaging operations typically suffer in the marketplace because the nonhospital competition is perceived as offering better service—everything from more convenient patient scheduling to easier physical access,” Larsen notes. “The frustrating part, for hospitals, is that physicians don’t need to look any further to obtain a high-quality product.” Good Volume and Bad Volume How did the four community hospitals alter their mix? Larsen observes that each organization positioned itself to build its service–in terms of both report quality and service indicators such as turnaround times. Results included increases in “good” imaging volume. Larsen likens imaging volumes to cholesterol: “Total imaging volume of CT and MR, as a single number, is like your total cholesterol,” he says. “It really doesn’t tell you the full story unless you know the ratio of ‘good’ cholesterol to ‘bad’ cholesterol. Similarly, in imaging volume, outpatient high-tech studies offer an attractive reimbursement profile, whereas inpatient imaging technical fees are part of bundled and strictly capitated payments and only incur costs without bringing in corresponding hospital revenue.” At these four community hospital clients, Radisphere saw the exam mix shift toward a favorable ratio of outpatient exams to inpatient exams. “There were really two changes occurring simultaneously: referring physicians were ordering fewer inpatient follow-up studies, but more outpatient exams,” Larsen says. “There certainly was a strong data correlation across these institutions. Any senior hospital executive can appreciate the financial difference between the two.” Reclaiming Volume A single root cause for these shifts would be hard to identify categorically, Larsen says, but he feels the trend is indicative of particular radiology practice patterns that can provide the opportunity for growth if all other factors are held equal. “On the outpatient imaging side, certainly we know that most communities have experienced a concerted effort by insurers to limit the frequency or expansion of expensive imaging within a population,” he notes. “So the net total volume between a local community hospital and its competing independent diagnostic testing facilities is a zero-sum game these days. The rising tide is not lifting all boats for outpatient imaging.” Thus, the most viable strategy for hospitals seeking to increase their outpatient volume in CT and MRI is to reclaim volume that might have shifted to freestanding imaging centers in previous years, Larsen says. “Stemming the tide of referrals and reversing it can only be accomplished if referring physicians are fully satisfied that they are getting the best results, when they need them, from the radiologist team,” he says. “Quality and service levels are key. Radiology is a service-based component of the care process, and if referring physicians are not getting what they need for patient care, they will look for alternatives.” Larsen adds, however, that inpatient utilization of high-cost imaging services like CT and MRI is affected by other factors. If there is a nondefinitive diagnosis from radiology during an inpatient episode of care, for example, then open questions from that report might lead to another, more advanced imaging procedure. “An even more explicit situation arises when the radiologist recommends another procedure for an inpatient as part of their impression,” Larsen says. “This sets up a difficult scenario wherein the hospital’s resources are being expended, whether for additional diagnostic technical charges and/or stay-length extensions, with no concomitant revenue for that patient’s bundled reimbursement.” Larsen says that Radisphere’s radiology services address both sides of this equation. “Due to our radiologists’ specialized training and deep experience in their specialty, more directive diagnoses are rendered,” he says. “In addition, Lexicon tools that afford consistent (yet detailed) content for each encountered modality, body part, or disease process have been cataloged into a real-time reporting tool, custom engineered by Radisphere through years of experience in both clinical and technology arenas.” He adds that the group periodically assesses recommendation rates over tens of thousands of reports, ensuring that follow-up recommendations made by each Radisphere radiologist are at appropriate levels. Service-based Differentiation The ability to attract additional outpatient-imaging volume is less correlated with the types of imaging that a facility offers than it was in the past, Larsen concludes. “Over the past 10 years, both hospitals and imaging centers have taken the opportunity to invest in state-of-the-art equipment,” he notes. “Even some of the smaller, nonmetropolitan community hospitals are well fitted with imaging equipment today. They can generate an image that will be just as advanced as any produced at the typical academic medical center.” Having achieved what Larsen calls technology parity with imaging centers, the next step for hospitals is to differentiate themselves based on quality and service, he says. “Though it sounds like a simple objective, delivering it is another matter, especially when a local radiology practice will see only limited numbers of specific disease states in a given year,” he observes. “It has been documented, for years, that high-quality medicine is differentiated by a volume effect, where those institutions and physicians doing the most volume in a procedure become the most proficient at it. In that regard, nonmetropolitan community hospitals—the small ones, in particular—are at a real disadvantage.” The critical mass of subspecialization required to differentiate themselves based on quality is what Radisphere offers its clients, Larsen says—and that can result in the kind of outpatient volume changes that result in revenue gains. As a case in point, the four community hospitals are currently averaging one additional outpatient MRI study and more than three additional outpatient CT studies per day, according to Larsen. “Those increases represent six-figure annualized revenue gains for each hospital,” he says, “and those much-needed dollars do a lot for the bottom line.” Cat Vasko is editor of ImagingBiz.com and associate editor of Radiology Business Journal.