2008 Update on Non-hospital-based Outpatient Medicare Reimbursement

As part of GE Healthcare’s commitment to ongoing monitoring of the reimbursement situation, GE presented a Webcast on this topic on May 7, 2008. Called the 2008 Reimbursement Environment for OICs, the program was presented by Michael Becker, general manager, reimbursement, and John Schaeffler, manager, federal government relations, both of GE Healthcare. The hour-long Webcast covered 2008’s changes in outpatient imaging reimbursement; current threats to reimbursement, along with positive developments for some imaging applications; the Economic Stimulus Act’s benefits for imaging providers; and GE’s important work in imaging advocacy among payors, lawmakers, regulatory agencies, the medical community, and the public. (These reimbursement topics will be covered in greater depth at the 3rd Annual GE Healthcare Outpatient Imaging Center Conference in Washington, DC, July 23-25. Executives can access conference information and register at www.gehealthcare.com/registration.) The presenters noted that imaging has become a target for spending cuts because of its own success, with the highest rate of growth in Medicare services per beneficiary, which it has sustained over the past several years. Because overutilization of imaging is often cited as a driver of this growth, payors are attempting to slow growth through aggressive measures. These may take the form of utilization controls, including broader use of preauthorization, accreditation, and credentialing requirements; radiology benefit management services, which now affect two thirds of the privately insured; and, at the state level, a greater emphasis on self-referral and certificate-of-need regulations. Commenting on the GE Webcast and the 2008 reimbursement environment, Gordon Baltzer of MEI Development Corp, Coral Springs, Fla, says:

"The evaluation of utilization assumptions underlying the establishment of reimbursement levels needs to be watched closely and is expected to increase, requiring imaging providers to operate closer to functional capacity to remain viable over the long term."

The second means of reducing imaging’s growth is to reduce payment rates. Perhaps the most visible payment change was the Deficit Reduction Act, which also included the Multiple Procedure Discount. In addition, other potential payment changes could result in further reductions including decreases mandated by Sustainable Growth Rate (SGR) regulations and state taxes on imaging services. Since January 1, 2007, the DRA has limited payment for the technical component of imaging services performed in IDTFs and medical offices or clinics to the lower of the Medicare Physician Fee Schedule (MPFS) rate and the Hospital Outpatient Prospective Payment System (HOPPS) rate. About a third of imaging procedure codes, have been affected by this cap, with PET, MRI, ultrasound, and CT, subject to the largest cuts. Some services have been excluded from the DRA including procedures packaged under HOPPS, along with therapeutic procedures and mammography. Drastic as the DRA’s effects were, many centers have now learned to cope with them through enhanced efficiency, higher volumes, or both. Baltzer says, “Imaging centers can now focus on patient volumes and cost containment instead of placing hope in the reversal of the DRA cuts.” A Better Year Some of the news presented for 2008 was surprisingly good. Asked to comment on the Webcast, Bob Maier, president and CEO, and Brian Baker, vice president, both of Regents Health Resources Inc, Brentwood, Tenn, say, “2008 is a more favorable year for outpatient medical imaging than 2007 was. In 2007, the DRA was implemented, new rules were established, and the industry responded. We now know how to address the financial impact proactively and understand the new rules for outpatient medical imaging.” Changes in HOPPS for 2008 are important not only to hospitals, but to outpatient imaging centers (OICs), because DRA linked the technical payments for many procedures to HOPPS rates. The overall HOPPS increase for 2008 was 3.8%, making the DRA reductions a bit less painful. In addition, a new packaging approach was applied to the hospital outpatient payment system where payment for secondary procedures, such as contrast, radiopharmaceuticals, guidance procedures, and post-processing, were packaged into the payment rate of the primary procedures they are performed with. This packaging resulted in an increase in the HOPPS payment rate for some procedures, thus raising the rate for some DRA capped procedures. Packaging regulations do not apply to the Physician Fee Schedule at this time and thus OICs receive a payment increase for some base procedures and still bill separately for secondary procedures. For procedures that are packaged in the Hospital Outpatient payment system, these are no longer subject to the DRA cap for OICs. The result of these hospital changes on payments for nonhospital OICs is a lessening of the DRA impact in 2008. While many procedures are paid less than before DRA, in 2008 the DRA reductions are smaller than in 2007. The process of obtaining coverage for new imaging applications appears to be growing increasingly difficult and more time consuming, but newer data-collection methods may provide opportunities for coverage while gathering data to meet the increasing evidence requirements. For example, the registry method implemented by CMS in 2005 is now providing evidence to support more permanent coverage decisions. Registry data made it clear that PET studies changed cancer treatment, leading to the registry working group’s request for expanded national coverage for PET for five oncology indications. The CMS proposed national coverage decision on PET coverage will be issued in October 2008, with the final decision to follow in January 2009. Baltzer says that reimbursement improvements are also possible for outpatient interventional procedures and for cardiac and other PET studies as the PET registry continues to prove that the modality alters outcomes. Standing Up For Imaging The threats on the horizon now are SGR cuts, which affect all physician payments under the MPFS, as well as technical payments for services outside hospitals (including those that were excluded from the DRA). For the past six years, SGR reductions have been reversed through legislation, but a 10.6% cut is now scheduled for July 1, 2008, to be followed by a 5% cut per year for 2009 and beyond. Baker and Maier say, “Our biggest concern is ensuring the passage of S 2785, the bill sponsored by Sen Debbie Stabenow (D-Mich) to block a 10.6% reduction in the MPFS scheduled to take place on July 1, 2008, and a 5% cut in 2009.” Baker and Maier continue, “Medical imaging providers need to make a strong case with their representatives and senators as to the importance of medical imaging, and impress on them how medical imaging eliminates higher medical costs through early diagnosis and avoidance of surgical and interventional procedures. Our lawmakers today are besieged with rapid-growth forecasts in imaging, which they may see as cost increases. What we have failed to impress upon them is how this is beneficial to overall health care costs, when compared with surgical diagnostic procedures of years past.” GE along with the Medical Imaging and Technology Alliance (MITA), AdvaMed, and the Access to Medical Imaging Coalition (AMIC) continue to monitor the legislative developments around imaging payment and utilization such as the SGR and to advocate for protection of imaging payment and utilization. The Medicare national coverage decision for coronary CT angiography (CCTA) exemplifies the effect that the imaging community can have on reimbursement when manufacturers and providers work together to educate payors. By 2006, all states and some private payors had some coverage for CCTA, subject to restrictions. In 2007, however, Medicare issued a proposal that restricted coverage to clinical trials. In response to efforts made by GE, MITA, CCTA providers, patient advocacy groups, and professional societies to explain the diagnostic and economic value of the study, Medicare reversed its proposal in March 2008. Now, the coverage decision for CCTA is in the hands of local Medicare contractors, as it was before the proposal was issued. Baker and Maier say, “To the extent that executives can invite their representatives to their centers to demonstrate their state-of-the-art technology and early-diagnosis capability, so much the better. Radiology needs grassroots involvement to support its agenda to improve reimbursement and continue investment in state-of-the-art technology to improve patient outcomes. No other medical service has the capability of early diagnosis and early intervention. The diagnostic gold standards for our two greatest disease challenges (heart disease and cancer), for example, are both imaging studies: multislice CT and high-field MRI.” Pleasant Surprises The Economic Stimulus Act included two provisions that create advantages for imaging centers hoping to acquire new equipment. The first provision, Section 179 expensing, applies to smaller for-profit organizations that have capital spending of less than $1.05 million. For equipment placed in service in 2008, it increases the available deduction from $128,000 to $250,000 per piece of equipment. It also increases the total-purchase threshold for reduced deductions from $510,000 to $800,000; above that level, the degree to which the deduction can be reduced begins to decrease gradually, with all reductions ending at $1.05 million. The second provision, bonus depreciation, applies to certain leases signed by nonprofit organizations and to all acquisitions made by for-profit organizations. Qualified assets are those to which the IRS Modified Accelerated Cost Recovery System (MACRS) applies; to the MACRS first-year limits, this provision adds an extra 50% depreciation expense. For example, a new piece of MACRS equipment acquired and placed in service in 2008 is subject to depreciation of 60% of the original equipment cost. This benefit does not apply if a binding, written contract for the purchase was signed before 2008, and the equipment must be placed in service before the end of the year. The equipment can also qualify if it is placed in service in 2008, but sold and leased back within three months. If a piece of equipment has more than 80% new components, it is classified as new under the provisions of the Economic Stimulus Act. Baker and Maier say, “There may be significant tax benefits to investing in new or replacement equipment through favorable bonus-depreciation and Section 179 expensing, which have become part of the Economic Stimulus Act. This is also a good time for centers to stay current in their medical technology, so they don’t get too far behind in addressing their capital needs, and to ensure that they will be able to receive or maintain their accreditation and privileges with payors. The affects of the DRA have caused many to postpone or reconsider new technology. The bonus depreciation is a way to help offset the impact of investing in new technology as part of a complete financial plan.” The first-year tax advantages could bring an equipment cost of $100,000 down to $65,000, with the largest drops seen for purchases of less than $800,000, but substantial savings still available above that spending level. For example, a $500,000 purchase would be reduced to $360,000 through the tax advantages; a $1 million purchase, to $783,000; and a $2 million purchase, to $1.58 million. Baker and Maier say, “It’s an advantage that may not last for long, but in the meantime, we must be diligent in capturing all revenue to which we are legitimately entitled. For now, we would not recommend it be considered in long-range strategic planning, but acted on tactically.” Looking Ahead While the imaging business is unlikely to lack future challenges, its outlook is strongly favorable and its prospects continue to be sound, even where reimbursement is concerned. Baker and Maier say, “We are seeing considerable growth in CTA reimbursement, not only from Medicare intermediaries, but also from the major third-party payors. Breast MRI receives fairly good reimbursement currently from Medicare, and most other major payors either pay for it or are reviewing it for payment. There is likely to be a small increase in MPFS reimbursement for MRI, since HOPPS will probably be increased in FY2009.” Even burdensome mechanisms used by payors to control utilization can be beneficial to well-run imaging centers. As Baltzer explains, “The increased use of accreditation requirements should elevate the barrier to entry for IDTFs, which could be viewed as positive. Careful scrutiny of the types of procedures performed by an imaging provider will become important so that imaging equipment can be properly configured to provide the types of studies for which patients are referred.” Baker and Maier add, “Imaging providers must respond positively to the increasing use of accreditation and preauthorization, as this will minimize unnecessary utilization and increase quality standards. The higher-quality medical imaging providers should embrace these requirements because they will ultimately weed out lower-quality providers who may depend on self-referral or unnecessary utilization to support their practices. Careful consideration of the quality of staff, technology, and operations will help each center adapt and conform quickly to the requirements.” For many OICs, the worst may well be past. As Baker and Maier remind us, “The continued growth in volumes in most markets has already had a very positive effect in offsetting some of the lost revenues of DRA.” As centers fine-tune their business practices to cope with utilization controls and payment cuts, they may emerge stronger than ever.