CMS' proposed cuts to
freestanding clinics and doctors'
offices could slash almost
a quarter of reimbursement
income for imaging services

CMS Cuts Worse Than Deficit Reduction Act for Clinics, Physicians

October 08, 2009
by Brendon Nafziger, DOTmed News Associate Editor
Expected changes to the Centers for Medicare & Medicaid Services reimbursements could cause more financial mayhem to freestanding clinics and physicians' offices than the Deficit Reduction Act of 2005 (DRA), according to a recent analysis by 3d Health, a Chicago-based consulting firm.

Analysts at 3d Health believe the proposed changes to how CMS pays physicians for services, the Medicare Physician Fee Schedule, could gut reimbursements to doctors and non-hospital clinics by an average of 26 percent across all imaging modalities.

That's higher than the 18.5 percent reduction freestanding imaging units were hit with as result of the DRA, at least according to recent estimates, published this summer in the Journal of the American College of Radiology.

MRI, CT expecting the worst pain

"[The cut from the CMS rules] varies by modality, with CT and MR taking some big cuts and nuclear cardiology as well," Jon Geise, a principal at 3d Health, tells DOTmed News.

The DEXA bone-density scan is particularly hard hit, with an expected 43 percent reduction in reimbursements, while CT (down 38 percent), nuclear cardiology (32 percent) and MRI (31 percent) all take a drubbing, according to 3d Health's figures.

For example, while hospitals will get an average of $238 per CT unit, clinics or doctors' offices only get $152. And for MRI, clinics will receive only $277, compared to a hospital's $391 average reimbursement per unit.

Cause for alarm

"There are several moving parts," says Geise, noting that the cause of the reductions are manifold, though the now-infamous reduction in assumed utilization rates is a big part of it.

The Medicare Physician Fee Schedule bases its reimbursement rates on complex nation-wide assessments called relative value units, or RVUs.

CMS plans to overhaul the imaging malpractice RVUs -- reimbursements to offset insurance premiums for each procedure paid by doctors and clinics. CMS will move cash from the technical component, the facility fee covering staff, equipment and overhead, to the physician fee shelled out to interpreting radiologists and other doctors, whom CMS believes carry more of the malpractice risk.

This means physicians who have their own equipment and are only billing the technical component will lose some income. "The previous malpractice RVUs generated some technical component revenue," Geise says. "[It] was a small part, and now it's shifted down to almost zero."

Utilization rates

Of course, one of the biggest blows is the predicted change in utilization rates for equipment costing more than $1 million.

CMS plans to change their reimbursements to reflect 90 percent utilization of expensive equipment, like MRIs. That is, they assume, given a 50-hour work week, clinics with imaging equipment are using their machines around 90 percent of the time (or 45 hours a week), up from the 50 percent utilization (25 hours a week) currently expected. Higher utilization rates, means CMS will fork out less per unit of service.

"In determining how to value the expenses associated with equipment used in furnishing the service, CMS has to make certain assumptions about utilization to allocate the costs of equipment across the services furnished," Ellen Griffith, a spokesperson for CMS, explains to DOTmed News. "If actual utilization is above the assumed utilization, the payment for the service will be too high. On the other hand, if actual utilization is below the assumed utilization, the payment will be too low. The proposed change in the equipment utilization assumption is intended to improve the accuracy of payment by aligning the assumed utilization more closely with the actual utilization."

But Geise questions that accuracy. "90 percent is probably at the really high end," he says. "What we see anecdotally is closer to 75 or 80 percent."

Geise speculates that CMS could be overshooting the utilization rates, so when a compromise is reached in November, when the final rules are due, the number will be closer to 75 percent, which perhaps is what they wanted in the first place. The 75 percent utilization rate is also the one health care reform bills passing through Congress are expected to call for.

Nonetheless, 3d Health says even this reduced utilization rate translates into a 19 percent cut in payments for many clinics.

Reason for changes

"The primary driver [for change] is that the costs for imaging have just skyrocketed," Geise says, "especially in the freestanding setting."

One reason for the rising costs -- and one of the presumed targets of the CMS cuts -- is self-referral abuse on the part of doctors. When the DRA cut the payments per procedure for imaging services, some physicians apparently responded by simply ordering more procedures.

Evidence for this comes from a study conducted this summer, published in the Journal of the American College of Radiology, which found that when DRA cut the payments for each imaging service, volumes of cases rose among non-radiologist physicians (who can self-refer) but not among radiologists (who can't).

Pulling through

Hospitals, as with DRA, are mostly unaffected by the changes.

"It's a bigger issue if hospitals own free-standing imaging centers and do not bill as hospital-based departments. They're taking the same cut that radiologist-owned centers will be taking," he says.

And as 3d Health notes in their report, the biggest fear among freestanding clinics is that private insurance companies, who usually take their cue from Medicare, might follow suit and cut back on reimbursements. After all, it's what happened after DRA passed.

But nothing's certain: although the proposed changes to the Medicare Physician Fee Schedule for 2010 were released in July, the final rules aren't expected until sometime before November 2, when CMS will have had a chance to go over feedback from industry groups and others.

"CMS is in the process of reviewing all of the comments received on the proposed rule, and will be responding to them in the final rule," Griffith explains.

Once the final rules are announced, Congress then has at least 60 days to consider them, before they take effect next year.