Operators of standalone imaging centers are expecting to take a big hit when the 2014 Medicare Physician Fee Schedule takes effect Jan. 1, with cuts approaching 40 percent for some MRI procedures, according to industry leaders.

The Centers for Medicare & Medicaid Services' final rule for the Medicare Physician Fee Schedule, released Nov. 27, includes more severe reductions for frequently performed exams, including MRI and CT scans of the neck, brain stem, chest, and lumbar spine, than the initial CMS proposal released over the summer.

The biggest cuts come from CMS decreasing its estimate of the amount of time a room would be used for the scans, thereby cutting the reimbursement for those common procedures. As a result, freestanding imaging centers are taking more of a hit, Michael Mabry, executive director of the Radiology Business Management Association, an industry membership group based in Fairfax, Va., told DOTmed News.
"If you're a multi-modality imaging center, the impact isn't going to be as great," Mabry said. "If a vast majority of your revenue is from CT and MR, you're going to see much more of an impact."

RadNet, a Los Angeles company with a network of 251 outpatient imaging centers on the East and West Coasts, estimates its 2014 Medicare revenue will be slashed by between $20 million and $22 million based on the final rule.

"We anticipated a significant hit in 2014 just from the implications of that proposed rule over the summer," said Mark Stolper, RadNet's chief financial officer. "There have been slight cuts, but never anything like this."

Other cuts that are going into effect next year were expected, Mabry said. The equipment utilization rate is going up to 90 percent from 75 percent for MRI and CT. The Affordable Care Act raised the utilization rate to 75 percent from 50 percent but the American Taxpayer Relief Act of 2012 pushes the utilization rate for advanced imaging services even higher to 90 percent to reflect a higher presumed utilization of imaging equipment priced at more than $1 million.

CMS is also adopting new interest rate assumptions, part of its formula for determining equipment costs. The previous assumption was that equipment was financed at a rate of 11 percent. The CMS will now use rates in the 5.5 percent to 8 percent range, which means the cost of the equipment goes down and facilities will be paid less.

Hospital-based imaging centers, paid through the Hospital Outpatient Prospective Payment System, will see less drastic rate cuts .

Despite the surprise, RadNet was forward thinking, and before the CMS final rule was announced, it began a cost savings initiative to reduce operating expenses by about $30 million a year. This included RadNet buying out some rented equipment, eliminating lease payments, and moving to new information technology solutions, Stolper said. The company also had to cut staff.

"Because we are the largest outpatient operator in the country, and we are a scale business and we have a lot of leverage with our suppliers, we're able to go back to them and share some of that pain," Stolper said.

Mabry said imaging centers, especially smaller operations, are going to have to consider similar cost-saving measures.

"You may forgo buying that new MRI or CT," Mabry said. "You may try to negotiate better rates with your non-Medicare insurance companies."

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