Congress Slashes Billions from Imaging Fees; Centers Plan for Cuts in Staff, Service, Acces

WASHINGTON, DC — When the House narrowly approved the Senate version of the 2006 Federal budget on February 1, radiologists, radiation oncologists, and other physicians avoided the across-the-board 4.4% cut to Medicare fee schedules mandated by the sustainable growth rate formula built into the program. However, to help make up the $7.3 billion that not instituting this cut would cost, the Congressional budget bill also referred to as the Deficit Reduction Acthit the imaging industry with payment reductions that the Congressional Budget Office says will total around $2.8 billion over 5 years and the American College of Radiology (ACR) says will total around $6 billion over 5 years. The cuts come primarily through a reduction in payments for each service to the lesser of either the Hospital Outpatient Prospective Payment System (HOPPS) or the Medicare Physician Fee Schedule (MPFS) rates and a reduction on payments of additional scans performed on contiguous body parts in the same session of 25% for 2006 and 50% for 2007 and beyond. A small ray of hope was cast after it was discovered that the version of the budget President Bush signed into law on February 8 contained the wrong text for a provision about home oxygen. This meant that both the House and Senate would need to do a technical correction to avoid the law becoming invalid. The Senate acted but, as this column was being posted, Representatives opposed to the budget had an opportunity to block the House technical correction and thereby force another vote on the budget. Since the budget had passed by only two votes in the House, a new vote could overturn it. 'I don't want to predict [what the outcome of the House passing the budget will be], because I never would have predicted Congress would have done what it did, but we have commitments from the Republican Congresspersons in positions of responsibility with regard to this that they will work with us toward a better solution in achieving savings in imaging than that which is scheduled to go into effect next January," said Alan Kaye, MD, radiology chair of Bridgeport Hospital in Connecticut, and one of those who had worked hard to sway Republican representatives to join the Democrats in voting against the bill. Finding extra dollars in Washington in 2006 will be challenging, however, The day after the House voted to approve the Deficit Reduction Act, the White House said it would seek about $120 billion in additional financing to pay for military operations in Iraq and Afghanistan through 2006 – more than three times what was saved in the deficit reduction act – and according to the New York Times, the Bush administration plans to cut $30 billion from Medicare in next year’s budget. Early Effects While radiology group owners and managers also caution that it is still somewhat premature to forecast what the final outcome of the payment reductions may be, most are already taking a cautious approach to expansion plans, new capital equipment expenditures, and even hiring in preparation for a sizable reduction in revenue. “We have sort of hit the pause button,” said Robert Baumgartner, CEO of Center for Diagnostic Imaging, a Minneapolis, Minn-based group of more than 30 freestanding outpatient imaging centers spread across eight states. How the language in the bill is implemented and how the private insurance industry—widely predicted to follow Medicare’s lead and institute its own payment cuts—reacts will be key to the future outlook for outpatient imaging centers. However, Baumgartner tentatively predicted that it could lead to some industry consolidation as highly leveraged providers become unable to keep up with their debt and go under. This, in turn, may also lead to more competitive new equipment pricing as more quality used equipment enters the market. “We would probably not order any new equipment right now and see what happens to pricing,” he said. Lower equipment pricing and a reduced demand for advanced equipment, such as 64-slice CT scanners, could also put a damper on research and development, cautions the ACR and some imaging center owners. Austin Radiological Associates, a radiology group that owns 14 imaging centers in the Austin, Tex, area, recently purchased $9 million worth of new equipment, including a 64-slice CT scanner and several 16-slice CT scanners to replace older 4-slice CT machines. But CEO Doyle Rabe says he would probably not have made that decision today. “We have competitors in town that still have single slice CT scanners and we may look upon them enviously before too long,” Rabe says. “But it is not as good a study. It will not find some of the things we are finding.” The largest cuts will fall in MRI and CT scanning, where Rabe says much of imaging’s profits are concentrated. He predicts that overall it will mean about a 22% cut in Medicare, and Medicare is 20% of his business. “If your profit margin is 10%, which it generally is if the center is run correctly without corners being cut for added profits, the profits just took a 40% cut,” he says. Of course an individual center’s unique patient and services mix makes all the difference. “Ballpark figure: on hospital-affiliated [not hospital-based outpatient] center MRI revenue you could be looking at a 40%-plus decrease in [Medicare] revenue,” said W. Cannon King, vice president of business development for Outpatient Imaging Affiliates, a Nashville, Tenn-based group of 13 imaging centers in nine states. “For just a standard outpatient imaging center with no hospital affiliation – which means less complicated studies – it could be in the ballpark of 20% on MR [Medicare] revenue.” One of Outpatient Imaging Affiliates centers may face as high as a 50% reduction in MRI-related Medicare revenue while another is only facing only a 20% cut, King said. For CT, which is not hit as hard as MRI on the reduction to hospital rates but is more subject to the reduction on multiple scans in the same session, he predicted a reduction of 12% to 20%. “It is not going to be a very pretty picture out there,” he said. Just to give a few examples, according to a comparison chart put out by the ACR, an axial CT bone density scan will now be paid for at the HOPPS rate of $72.70, a 38.51% reduction in payment for those previously paid at the MPFS rate, while reimbursement for CT angiography will go down 30.04% to 52.03% depending on the area scanned. On the MRI side, reimbursement for a neck and spine or neck and chest scan will now be $488.93 less, a reduction of 49.13%. Growth Plans Put On Hold To prepare for future cuts, Outpatient Imaging Affiliates has become more cautious with its expansion plans. “We have had to discontinue a couple of projects we were pretty far down the line with,” King said. “…build it and they will come is no longer going to play in imaging.” Rabe has also halted plans for two new imaging centers, even though land was already purchased for one of the two centers and the other was a partnership with an important hospital network. “That could affect the relationship with the hospital network,” Rabe said. In addition, Rabe is looking at reducing hiring. “I have put the edict out to my employees and my managers that we are going to do some slashing, not just cutting [of our budget],” he said.” He is asking for increases in productivity instead of increases in staff and, while he normally would have added 70 people to his staff of 700, he has allowed only 6 new positions. “Medicare is going to get what it pays for,” he said. Sonny Patidar, MD, radiologist, former imaging center consultant, imaging center founder, and teleradiology company manager, agreed. He predicts that if the cuts force a consolidation in the industry it could even lead to reduction in stand-alone imaging centers that take Medicare clients and an increase in concierge medicine where the most advanced treatments are reserved for those with the ability to pay for them privately or through health savings accounts linked to high-deductible insurance plans. “I think more and more centers are going to shut down and patients are going to have to go back to a hospital where the accessibility is much, much more decreased,” he said. But Baumgartner was still somewhat hopeful. “We are just celebrating our 25th anniversary this year and we have had 25 years of growth,” he said. “I think that the industry has gone through periods of ups and downs in the past and, as with any industry, the strong people who provide quality service will continue to survive and prosper moving forward.…For us it is not doom and gloom. For us it is another challenge.”