OIC Reimbursement: The Multipronged Attack
In an illustration used for hospital clients, analyst Shay Pratt pinpoints imaging centers for sale around the country: four independents on the market in California, a four-center chain in Kansas, and a larger chain in central Florida with an asking price of $22.5 million. The list, with size and price variations, continues from coast to coast.
“We talked with our member hospitals and completed 250 research interviews with different radiology departments. We asked them if they had been approached by someone wanting to sell an imaging center, and at least 75% said they had.” --Shay Pratt, The Advisory Board Co
Shay Pratt
Pratt is managing director of the Imaging Performance Partnership for The Advisory Board Co, a Washington, DC-based company that provides best practices and strategic research to more than 2,700 hospital and health system members. He presented “The Future of Imaging Reimbursement” on June 10 in Orlando, Florida, at the 2009 Radiology Summit sponsored by the RBMA. The reason that so many imaging centers are hitting the market is simple, Pratt says. Reimbursements have fallen, forcing reevaluations of cash flow and profit, and many freestanding-center operators are “seeing the handwriting on the wall,” he notes. A weeding process is taking weak centers out of the market as volume growth is reduced. This is a big change from the double-digit growth in imaging of the recent past. Three years ago, Pratt notes, many of his hospital clients were contemplating the construction of imaging centers. “Now, the attention is totally on acquisition,” he says. Even that is a tough decision, he adds; after years of expansion, hospitals are making do with their existing imaging resources during the current economic downturn. Many hospitals, unable to acquire imaging centers, are now forced to try to grow using their existing equipment bases. According to Pratt, the trends that he forecasts for outpatient imaging—decelerating growth and a fight for volume—are likely to continue through 2013. Pratt says that outpatient imaging will grow in coming years, but at a much slower rate than in the earlier part of the decade. In addition, the economic downturn has changed the near-term volume outlook. RBMs, the DRA, and More The factors driving down imaging reimbursement are largely familiar—the impact of the DRA, exam preauthorization regimens imposed by payors, Medicare cutbacks, and proposed reform-related decreases—but that doesn’t make them any more palatable or less painful. A particular sore point for imaging providers has been the success of radiology benefit management (RBM) companies. “If you look at the commercial-payor market, there is incredible focus on precertification, and to a lesser extent, provider privileging,” Pratt says. “Precertification has been the horse they bet on; it’s had a major impact. If the payors are deciding whether to implement utilization management or cut prices, they prefer utilization management. If they cut prices, they feel the provider will just boost utilization. That’s been the perspective,” Pratt says. Alternatives to RBM-assisted utilization management now exist in the form of decision-support systems that rely on computer software to help referring physicians determine whether an imaging exam is appropriate. In convincing payors to use decision support instead of precertification, however, providers and decision-support vendors face an uphill battle, given that the RBM–payor relationship is now deeply entrenched. “In theory, for physicians, decision support should be preferable to RBMs, but I don’t know if you can make that conclusion yet. The physician has to interface with someone before the patient gets that MRI. A lot of the RBMs are offering online precertification-request portals now,” Pratt says. He adds that while referring physicians complain about the staff time taken up by precertification, RBMs are nonetheless reporting high physician-satisfaction scores. From the point of view of imaging providers, however, decision support is definitely preferable, he says, because it elevates their role in utilization management and might also result in fewer denials. Pratt says that he doesn’t have data to quote side-by-side denial rates for preauthorization and decision support. “I’m operating under the idea that decision support will judge one-third to one-half fewer scans to be inappropriate. I think that’s why payors have not been as quick to jump to decision support, even though it’s definitely cheaper for them,” he says. “I know a lot of hospitals would like to make the case for the use of decision support instead of preauthorization. The big system hospitals with market clout are bringing this up directly with payors, but I’m not sure what kind of progress they’ve made.” Strengthening Relationships In fact, Pratt says, the relationships between the insurance companies and the RBMs appear to be getting stronger. That’s due, in part, to what happens when RBMs operate preauthorization programs over time. There is only so much deadwood that precertification can clear away. By the second year of precertification, according to Pratt, the imaging costs borne by one payor are back into positive territory. Despite precertification, payors are seeing increases in overall per-patient/per-month payouts for imaging, albeit from a lower baseline than payors would have had in the absence of precertification. RBMs are also promoting a comprehensive outsourcing model in which the RBM “has total control over the imaging book of business for that payor,” Pratt says. This can mean that an RBM makes a capitated arrangement with the payor wherein the RBM agrees to manage the payor’s imaging benefits under that umbrella fee. Then, the RBM inserts itself into the referrer–patient process through a preauthorization/scheduling service for referrers and steers the patient to lower-cost providers. The RBM also sets the fee schedules and processes claims. “They inform the patients of their out-of-pocket costs with various providers and let the patients choose,” Pratt says. In this scenario, imaging centers would actually have an advantage over hospitals, which would have a difficult time lowering prices competitively. Theoretically, overall imaging reimbursements would fall, as would insurance companies’ imaging payouts. “There’s a lot riding on this model, and a lot has to go right for the payor for it to be effective,” Pratt says. Will the patients choose the right providers? Will the RBMs be able to interface online or by phone with every patient? “There are a lot of what-if factors with this model,” Pratt says. So far, he adds, the model has not been widely adopted: “Payors have been cautious about handing over their book of business to the RBMs.” An Opening for Decision Support Whether decision support will eventually challenge or surpass preauthorization as a preferred appropriateness-monitoring technique is not a decided issue, despite the RBMs’ success, Pratt notes. “What decision support needs is a catalyst,” he says, adding that this catalyst might hinge on whether CMS adopts appropriateness screening for its patients. According to Pratt, the Government Accountability Office (GAO) has recommended that CMS begin appropriateness screening via RBMs. In the meantime, the Senate Finance Committee, Pratt says, has suggested legislation to require referring physicians to meet appropriateness standards when ordering imaging exams. Referrers would be monitored for two years and, in the third year, would be required to meet appropriateness benchmarks or lose 5% from the Medicare conversion factor. “Will it be adopted? I’m waiting to see whether the proposal will appear in the broader reform legislation,” Pratt adds. “If that takes shape, CMS would be likely to need decision support to execute that model, and that might tip the balance for the decision-support vendors. I think a lot of potential decision-support adopters are waiting for clarity from CMS or Congress.” Self-referral For years, the ACR and other radiology bodies have complained that nonradiologists have been taking business from hospitals and imaging centers by putting imaging equipment in their offices and referring patients for in-house exams. The contention is that this results in many unnecessary imaging tests. This self-referral by nonradiologists has been the subject of legislation, but in-office loopholes have allowed it to continue. Pratt says that won’t change. In fact, he notes that self-referral under Medicare has increased during this decade. In 2000, when Medicare’s total imaging bill under the Physician Fee Schedule came to $6.9 billion, 58% of imaging was done in physicians’ offices. By 2006, Medicare’s imaging bill had gone up to $14.1 billion, and 64% of the studies were done in physicians’ offices, according to GAO data. This is too big a piece of the imaging pie to be challenged, he says. “Anytime somebody brings up closure of the in-office exemption, I always think of it as a pipe dream. I don’t see how Congress is going to do that. Lawmakers are too sensitive to the physician community to do anything to rock that boat more than they have to,” Pratt says. Besides, he points out, RBMs and payors are reporting that a lot of self-referred imaging is appropriate. According to one RBM, the preauthorization denial rate for self-referral is actually lower (3.8%) than that for traditional referrals (4.6%). “These referrers do certain imaging studies over and over, and they know what it takes to get approval,” Pratt says. “Payors probably aren’t interested in rocking that boat, in terms of upsetting the referring community, either.” There are minor restrictions on leasing and other self-referral maneuvers taking effect in October, but Pratt says that they will “only help at the margins” and will fall far short of a comprehensive self-referral crackdown. Hospitals Versus Imaging Centers In recent years, the DRA has targeted advanced-imaging payments to imaging centers by imposing costly reimbursement caps on CT and MRI. For instance, 99% of MRI tests and 91% of CT tests have reduced fees under the DRA, compared with 7% of routine exams like radiography, Pratt’s data show. Now, a proposed change in Medicare reimbursement pegged to equipment utilization could similarly hurt imaging centers. The proposal would raise to 90% the utilization rate used to calculate the practice-expense RVU on which technical-component reimbursement is based for nonhospital MRI and CT providers. An increase to 90% from the current 50% level would lower practice-expense RVUs and, as a consequence, the technical payment to part B providers, Pratt says. It is not certain that the equipment-utilization factor will change to 90%. Under proposed House health-reform legislation, the rate would be 75% (still an increase). “I would plan for both, and either one will be negative,” Pratt says Another disadvantage for imaging centers, he feels, will be the requirement of accreditation, due to begin for Medicare providers in 2012. Accreditation is costly, must be renewed, and will represent another expense for imaging centers, Pratt says. For all the struggles that they face, imaging centers do have advantages in the battle for imaging volume, Pratt says. For one thing, they’re more patient friendly—accessible, efficient, and attentive. They can also battle for referrer satisfaction on a level playing field with hospitals. The huge advantage for imaging centers—and one largely unrealized now—is price, Pratt says. Exams done at imaging centers are, on average, less costly than those performed at hospitals. Hospitals’ imaging volumes haven’t fallen, despite those higher charges, Pratt notes. If RBMs succeed in their strategy of redirecting patients to less costly providers, however, the landscape could tilt in favor of imaging centers, Pratt says. Steerage based on pricing would definitely make a difference. “Hospitals haven’t yet measured significant losses in volume because of price, but price may come into play more significantly in the future,” he says. Health Care Reform All eyes are on Washington now, waiting to see what changes will be enacted under health reform. Public-option insurance could be a boon to imaging volumes by bringing more patients on board, Pratt says. He notes that it could be a mixed blessing—these patients will now have insurance, but reimbursement rates might be comparable to those of Medicare. “It’s hard to tell if the public option will take hold,” he adds. “If Congress does mandate decision support or utilization management—if Congress does something to scrutinize ordering-physician behavior—more imaging providers will have to scrutinize what they’re providing and whether it is necessary,” Pratt says. “Providers will have to take a greater role in appropriateness scrutiny. That’s another wild card.” George Wiley is a contributing writer for ImagingBiz.com.