Provider-based Restructuring: Approach With Caution
Freestanding imaging has come under fire in recent years, with a series of Medicare Physician Fee Schedule reimbursement cuts decimating revenue. Hospital-based imaging, on the other hand, has not absorbed as much impact, a reflection of the aligned-care model promoted by President Obama during the development and passage of health-reform legislation. 
Freestanding imaging centers (either owned in part or wholly by radiologists) might, therefore, be considering provider-based restructuring as a means of capturing higher Hospital Outpatient Prospective Payment System and commercial payor reimbursement rates, but is this always the best option? Richard Townley, president and CEO of AGI Healthcare Group, San Ramon, California, advises both practices and hospitals to approach these arrangements with caution.
“One size doesn’t fit all,” Townley says. “Provider-based restructuring that might make sense in one market might not make sense in another.” Reimbursement benefits need to be weighed against the administrative and clinical requirements of a hospital-based service, the competitiveness of the local market, and the priorities of the deal’s participants. In general, provider-based restructuring stands the highest chance of succeeding in markets where the imaging center isn’t facing much competition from freestanding centers, Townley says. There are, however, other nuances to be considered, ranging from the location of the imaging center to its preferred governance structure.
“Take into account that these arrangements are incredibly complex,” Townley says. “The pros and cons need to be closely considered before any decision is made. Other big issues which will significantly impact the decision to restructure and the nature of the talks between the radiologists and hospital are whether the radiologists will continue to have an equity position or not, how the site will be managed and the reading relationship with the radiologists.”Geographical ImpactMedicare’s rules establish specific requirements that a facility must meet in order to be considered provider based and, accordingly, to gain hospital-level reimbursement rates. If the imaging center is located on or within 250 yards of the hospital’s main campus and is already a hospital joint venture, Townley says, it is possible for the center’s existing governance structure to remain essentially intact.
Having helped structure multiple arrangements of this kind, he adds, “The CMS stipulations allow a joint venture arrangement where the radiologists can still employ their own staff, or they can be employed by the joint venture. The JV can bill for their services, and while there is no requirement that the services be split-billed, they are likely to be—just as are the other hospital radiology services, given the nature of the commercial payer contracts. Other than the split-billed services, there’s very little difference from how they operated before. It is an integrated department of the hospital, but if the parties are willing to do so, we can effectively make it essentially the same as an off-campus 50/50 freestanding center JV.”
If, on the other hand, the center is located more than 250 yards from the hospital’s main campus, Medicare’s rules require that the hospital, not the imaging center, employ technologists and any other non-physician staff directly involved in the delivery of patient care—and that the hospital bill for the services.
“A key element to consider here is the strategic implication of any provider based restructuring, whether it is on-campus or off,” Townley says. He adds that a motivated hospital can often be persuaded to agree to an arrangement that both meets the CMS requirements and offers the radiologists control that is generally similar to what they enjoyed under a freestanding center joint venture. “However,” he says, “we do also encounter hospitals whose opinion is that they do need to maintain more control than is required by the provider based regulations.”
Even an off-campus, provider-based joint venture must be located within 35 miles of the hospital’s main campus, and would provide its facilities and equipment to the hospital under fair market value leasing arrangements. The leasing entity would either be compensated on a cost-plus-fixed-fee basis or a per-exam basis. “The services are provided under the hospital’s contracts as provider-based, and the JV leasing company provides the facility and equipment—and perhaps other services—under a technical services leasing agreement,” Townley summarizes.Analyzing the RisksThere’s no question that the provider-based model is often attractive to hospitals and radiologists, offering, as it does, the use of hospital HOPPS and commercial payor contracts and the opportunity to lower costs through consolidation of services. The model can also provide a compromise for hospitals where the first choice might be an employment model. “For the overwhelming majority of groups, employment is still viewed as something that’s not very attractive,” Townley says, “but the economic pressure is really being felt at the freestanding center, and the hospitals are saying they’re not going to put up with their radiologists competing with them.”
What about competition from the remaining freestanding imaging centers in a hospital’s market? Townley says that this is the factor that can make or break the viability of a provider-based arrangement for the imaging center. “If you were to try to roll out a provider-based restructuring in a very competitive market, where a lot of freestanding centers were providing competing services, you’d probably lose so much volume that your overall revenue would be significantly affected,” he notes.
In some cases, competing imaging providers might even suggest to their referring physicians that sending Medicare patients to a provider-based facility places an additional financial burden on them. “If your volume takes a big hit, the higher rates won’t do you much good, and the radiologists will not only lose the technical component revenue but the corresponding read fees as well,” Townley says.
Depending on the market, the copayment responsibility, for Medicare patients, can indeed be significantly higher under the Ambulatory Payment Classification Fee Schedule—as high as 40%, compared with the typical 20% for Medicare Part B. Although this means more revenue per exam for the imaging provider, it also means that more of the payment is shifted to the patient, making collection more difficult. “All of these factors should dictate the right strategy for the group, as it enters into discussion with the hospital,” Townley says.
In conclusion, Townley advises groups to approach the possibility of provider-based restructuring carefully, using a comprehensive analysis to determine whether it will truly be beneficial. “These are, by far, the most complex projects we’re involved in, because there are so many factors that come into play, and the willingness of the groups to move forward will be greatly dependent on factors like the reading agreement, the management agreement, and the dynamics within the group between doctors based on age, ownership in the center, risk tolerance, and so on,” he says. “These are much more complex than traditional joint ventures, and should be approached accordingly.”Cat Vasko is editor of ImagingBiz.com and associate editor of Radiology Business Journal.
Freestanding imaging centers (either owned in part or wholly by radiologists) might, therefore, be considering provider-based restructuring as a means of capturing higher Hospital Outpatient Prospective Payment System and commercial payor reimbursement rates, but is this always the best option? Richard Townley, president and CEO of AGI Healthcare Group, San Ramon, California, advises both practices and hospitals to approach these arrangements with caution.
“One size doesn’t fit all,” Townley says. “Provider-based restructuring that might make sense in one market might not make sense in another.” Reimbursement benefits need to be weighed against the administrative and clinical requirements of a hospital-based service, the competitiveness of the local market, and the priorities of the deal’s participants. In general, provider-based restructuring stands the highest chance of succeeding in markets where the imaging center isn’t facing much competition from freestanding centers, Townley says. There are, however, other nuances to be considered, ranging from the location of the imaging center to its preferred governance structure.
“Take into account that these arrangements are incredibly complex,” Townley says. “The pros and cons need to be closely considered before any decision is made. Other big issues which will significantly impact the decision to restructure and the nature of the talks between the radiologists and hospital are whether the radiologists will continue to have an equity position or not, how the site will be managed and the reading relationship with the radiologists.”Geographical ImpactMedicare’s rules establish specific requirements that a facility must meet in order to be considered provider based and, accordingly, to gain hospital-level reimbursement rates. If the imaging center is located on or within 250 yards of the hospital’s main campus and is already a hospital joint venture, Townley says, it is possible for the center’s existing governance structure to remain essentially intact.
Having helped structure multiple arrangements of this kind, he adds, “The CMS stipulations allow a joint venture arrangement where the radiologists can still employ their own staff, or they can be employed by the joint venture. The JV can bill for their services, and while there is no requirement that the services be split-billed, they are likely to be—just as are the other hospital radiology services, given the nature of the commercial payer contracts. Other than the split-billed services, there’s very little difference from how they operated before. It is an integrated department of the hospital, but if the parties are willing to do so, we can effectively make it essentially the same as an off-campus 50/50 freestanding center JV.”
If, on the other hand, the center is located more than 250 yards from the hospital’s main campus, Medicare’s rules require that the hospital, not the imaging center, employ technologists and any other non-physician staff directly involved in the delivery of patient care—and that the hospital bill for the services.
“A key element to consider here is the strategic implication of any provider based restructuring, whether it is on-campus or off,” Townley says. He adds that a motivated hospital can often be persuaded to agree to an arrangement that both meets the CMS requirements and offers the radiologists control that is generally similar to what they enjoyed under a freestanding center joint venture. “However,” he says, “we do also encounter hospitals whose opinion is that they do need to maintain more control than is required by the provider based regulations.”
Even an off-campus, provider-based joint venture must be located within 35 miles of the hospital’s main campus, and would provide its facilities and equipment to the hospital under fair market value leasing arrangements. The leasing entity would either be compensated on a cost-plus-fixed-fee basis or a per-exam basis. “The services are provided under the hospital’s contracts as provider-based, and the JV leasing company provides the facility and equipment—and perhaps other services—under a technical services leasing agreement,” Townley summarizes.Analyzing the RisksThere’s no question that the provider-based model is often attractive to hospitals and radiologists, offering, as it does, the use of hospital HOPPS and commercial payor contracts and the opportunity to lower costs through consolidation of services. The model can also provide a compromise for hospitals where the first choice might be an employment model. “For the overwhelming majority of groups, employment is still viewed as something that’s not very attractive,” Townley says, “but the economic pressure is really being felt at the freestanding center, and the hospitals are saying they’re not going to put up with their radiologists competing with them.”
What about competition from the remaining freestanding imaging centers in a hospital’s market? Townley says that this is the factor that can make or break the viability of a provider-based arrangement for the imaging center. “If you were to try to roll out a provider-based restructuring in a very competitive market, where a lot of freestanding centers were providing competing services, you’d probably lose so much volume that your overall revenue would be significantly affected,” he notes.
In some cases, competing imaging providers might even suggest to their referring physicians that sending Medicare patients to a provider-based facility places an additional financial burden on them. “If your volume takes a big hit, the higher rates won’t do you much good, and the radiologists will not only lose the technical component revenue but the corresponding read fees as well,” Townley says.
Depending on the market, the copayment responsibility, for Medicare patients, can indeed be significantly higher under the Ambulatory Payment Classification Fee Schedule—as high as 40%, compared with the typical 20% for Medicare Part B. Although this means more revenue per exam for the imaging provider, it also means that more of the payment is shifted to the patient, making collection more difficult. “All of these factors should dictate the right strategy for the group, as it enters into discussion with the hospital,” Townley says.
In conclusion, Townley advises groups to approach the possibility of provider-based restructuring carefully, using a comprehensive analysis to determine whether it will truly be beneficial. “These are, by far, the most complex projects we’re involved in, because there are so many factors that come into play, and the willingness of the groups to move forward will be greatly dependent on factors like the reading agreement, the management agreement, and the dynamics within the group between doctors based on age, ownership in the center, risk tolerance, and so on,” he says. “These are much more complex than traditional joint ventures, and should be approached accordingly.”Cat Vasko is editor of ImagingBiz.com and associate editor of Radiology Business Journal.