Proposed Medicare cut will reduce RadNet’s revenues by upward of $8M in 2025

The proposed Medicare cut under the physician fee schedule will reduce industry giant RadNet’s revenues by upward of $8 million in 2025, leaders revealed recently.

Last month, the Centers for Medicare & Medicaid Services announced a planned 2.8% reduction to the conversion factor. This multiplier is used to convert geographically adjusted work relative value units to determine Medicare payment for radiologist services.

Executives at Los Angeles-based RadNet Inc., which operates about 400 outpatient imaging centers, discussed the ramifications during the company’s second quarter earnings call Aug. 8.

The figure may seem sizable, but RadNet collects some $1.8 billion in annual revenue, with Chief Financial Officer Mark Stolper anticipating that other factors should blunt the reduction.

“While the $6 million to $8 million cut to RadNet's revenue next year is not insignificant, we have reimbursement increases scheduled from capitated and commercial payers that will fully mitigate this Medicare reduction, should it go into effect as currently promised,” he told investors, according to a transcript of the call filed with the Securities Exchange Commission.

Many advocacy groups from various medical specialties are already “aggressively opposing the cut,” Stolper added. These include radiology’s two main lobbying forces, the Association for Quality Imaging and the American College of Radiology.

“At this time, our experts believe there’s a high probability that the final rule governing next year's Medicare payments will be less severe than the current proposal as a result of congressional action that could take place later this year,” Stolper added.  

Medicare currently represents about 22% of RadNet’s business mix. In the first half of 2024, the company collected about $195.2 million from the federal payment program, up nearly 13% from $172.8 million earned during the same six months in 2023. Stolper offered details to investors on how CMS determined radiologists should face a Medicare cut in 2025, despite increasing demand for imaging services. Four years ago, the agency moved forward with increased reimbursement for evaluation and management CPT codes, which favor certain physician specialties that regularly bill for these services—particularly primary care docs. CMS proposed doing so through budget neutrality, meaning pay increases in one place necessitate cuts elsewhere. This had the agency reallocating reimbursement from physicians who rarely bill for E&M codes to others who do.

As a result, radiology and most other specialties experienced reimbursement reductions from 2021 through 2024. Cuts radiologists faced in 2024 were “substantially mitigated” by congressional legislation passed in March as part of the Consolidated Appropriations Act. With the 2025 proposed rule, Medicare is effectively phasing in the remainder of E&M code-related cuts avoided last year and this year.

“We’ll talk much more about this as we get into the third and fourth quarters and produce those quarterly results. But yes, so we will have a $6 million to $8 million Medicare headwind. That will be fully mitigated and then some based upon pricing increases that we’re getting from commercial insurance companies and capitated payors,” Stolper elaborated during the Q&A portion of the call.

Under such capitation arrangements with health plans, RadNet earns a per-member amount each month for making available diagnostic imaging services to all plan enrollees. RadNet collected about $71.5 million in revenue from these contracts in the first half of 2024, versus about $77.9 million in the same period last year. In previous earnings reports, the company estimated that about $135 million or 12% of its annual revenues come from capitation.