A Yawning Void

As Ezequiel Silva III, MD, makes perfectly clear in his guest editorial in this issue, the entire continuum of radiology delivery services is inches away from getting slammed—again. The root of radiology’s latest problem is in a 2007 report¹ (based on data of an even earlier vintage) from RTI International, LLC, that recommends separate cost centers for MRI and CT. Those cost centers just became the method for calculating cost-to-charge ratios under the Inpatient Prospective Payment System (IPPS). CMS has proposed using the same methodology in its proposed rule for the Hospital Outpatient Prospective Payment System (HOPPS). The objective of the mind-numbing 2007 report makes perfect sense: “The purpose of the project is to develop more accurate estimates of the costs of Medicare inpatient hospital stays that can be used in calculating relative resource weights per . . . DRG under the . . . IPPS. The project revisits the links between costs and charges as reported on hospitals’ Medicare Cost Reports and examines methods of refining the cost-to-charge ratios . . . that are the conversion factors used to transform Medicare claims data into estimates of average cost per DRG.”¹ I don’t fault CMS for wanting to get a handle on the cost of the health-care services that we, the people, finance; do you? The author points out that DRG weights were originally constructed from claims-level cost estimates derived from hospital cost-to-charge ratios for ancillary services and per-diem nursing costs. This system subsequently was changed to the current system of using departmental cost-to-charge ratios to convert charges to cost. This was largely because the original system was believed to overvalue surgical procedures and undervalue other types of care. The Opposite Effect Now, the pendulum has swung back the other way, and concerns have arisen anew over weight compression, in which low-cost DRGs are overvalued and high-cost DRGs are undervalued. Unfortunately for radiology, CMS has used cost data for MRI and CT that even the report’s author acknowledges as unrealistically low. The new cost centers for MRI and CT do the exact opposite of their intention: undervalue the most cost-intensive services. The impact on the IPPS is that payments for the most common CT procedures are reduced from 20% to 34%. Payments for MRI procedures are reduced slightly less than 15%, Shaun Lillard of the Advisory Board Co Imaging Performance Partnership calculates.² There’s a silver lining for hospital radiology departments, Lillard writes. In breaking out MRI and CT into their own cost centers, CMS makes other codes receive what he says are more accurate cost estimates, and some procedures would see significant bumps in reimbursement: Ultrasound payments will increase between 42% and 62%, and payments for level II cardiac imaging would nearly double from the 2012 rate, he estimates. If (as proposed) the new cost centers are applied to HOPPS, outpatient imaging would not share in the upside, due to the DRA effect: A procedure’s technical component is paid for at the lower of the HOPPS and Medicare Physician Fee Schedule rates. Coming at a time of contraction in the freestanding–imaging-center sector and of sharp declines in per-center procedure volumes (see article, page 28), this effect could be dire. Lillard believes that CMS policy is shaped by a March 2013 Medicare Payment Advisory Commission report3 that recommends bringing reimbursement for hospital-based outpatient imaging and freestanding imaging centers closer to parity. Financial Charades Why hospital CFOs don’t pay more attention to the cost basis of individual DRGs is an ongoing mystery to me—though someone has to be taking an interest, now that hospitals are assuming more risk, at the request of payors, and as they launch health plans of their own (radiology practices, too, will need to understand all costs of providing service as they move into risk assumption). Maybe it’s the complexity of the task, and maybe it’s complicity in the game of financial charades that underpins the US health system. If payors, including patients, knew what things cost, they might demand a fair price. In the editorial pages of the Wall Street Journal,4 a general surgeon wrote about a patient in his 60s who almost canceled a hernia surgery when he found out that his out-of-pocket cost would be $20,000. Because the patient had a low-cost insurance plan without provider-network requirements, the surgeon was free to counsel the patient to bypass his insurance and negotiate self-pay rates for the outpatient procedure directly with the surgeon, anesthesiologist, and hospital—for a grand total of $3,000. If you don’t know what things really cost, then you can continue to hold onto the creaking, makeshift, petrified reimbursement system that offers the comfort of the status quo. It’s not easy to let go of something that you’ve always known—and to embrace the unknown. It’s time, however, to find out what services cost—even if it means that you are on the losing side of a revalued code or two. The ability to get a price that covers costs is at the heart of the fiscal solvency of the specialty. I know that there are radiology administrators and practice CEOs who understand activity-based cost accounting. Help CMS do that. Cheryl Proval cproval@imagingbiz.com References 1. Dalton K. A study of charge compression in calculating DRG relative weights. http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/Reports/downloads/dalton.pdf. Published January 2007. Accessed August 22, 2013. 2. Lillard S. http://www.advisory.com/Research/Imaging-Performance-Partnership/The-Reading-Room/2013/07/Proposed-HOPPS-2014-Rule-Slashes-CT-and-MR-How-to-Guard-Your-Revenue-Stream. Proposed HOPPS 2014 rule slashes CT and MR—how to guard your revenue stream. Published July 15, 2013. Accessed August 22, 2013. 3. Medicare Payment Advisory Commission. Report to the Congress: Medicare payment policy. http://www.medpac.gov/documents/Mar13_entirereport.pdf. Published March 2013. Accessed August 22, 2013. 4. Singer JA. The man who was treated for $17,000 less. Wall St J. http://online.wsj.com/article/SB10001424127887324139404579017113415486176.html. Published August 21, 2013. Accessed August 22, 2013.