Radiology Practices Still Faltering Despite Temporary DRA Relief

Jonathan Breslau, M.D. Radiology Associates of Sacramento Medical Group	John Buckhalter AGI Healthcare Group
Richard Jensen, M.D. Radiation Associates of Tarrant County	Cynthia Moran American College of Radiology

While many radiologists applaud recent action by Congress to end an on-again, off-again Medicare reimbursement drama and extend the June 2008 physician pay rates with an additional 1.1 percent update for 2009, many said they still await a permanent healthcare financing fix that remains a distant hope.

Focusing laser-like on the growth of outpatient imaging for nearly two years, the Deficit Reduction Act (DRA) legislation is slowly changing the radiology landscape. Enacted to bring Medicare costs to heel, its effect has been considerable—some say enormous—and many radiologists and their practices are feeling the pain more than ever.

The 18-month fix leaves a future 21 percent cut still on the table. Meanwhile, a September 2008 Government Accountability Office report on the effects of the DRA on medical imaging reimbursement revealed that the DRA cuts were far deeper than the Congressional Budget Office (CBO) initially stated. The American College of Radiology (ACR) issued a statement noting that the report confirms a 2005 ACR statement that cuts are approximately three times that of the initial CBO estimates.

"It's pretty obvious that imaging has already been tapped for more than its fair share of any budget neutrality initiative," said James H. Thrall, M.D., chair of the ACR Board of Chancellors and radiologist-in-chief at Boston's Massachusetts General Hospital.

Dr. Thrall acknowledged that all medical societies have an interest in crafting a permanent approach to a sustainable growth rate but finds the current sustainable growth rate (SGR) formula "fundamentally flawed."

Expenses Escalate as Revenues Fall

AGI Healthcare Group, a radiology-niche consulting firm in San Ramon, Calif., reports that the DRA has affected all of its clients, even the well established. "Everybody saw a 2007 revenue drop and it's continuing in 2008, while expenses are escalating at historic rates," said AGI vice-president John Buckhalter. "It's certainly becoming less attractive going forward."

The DRA came in the wake of reports from numerous federal data collectors showing dramatic increases in imaging volume. Many in the specialty, however, doubt the DRA can provide effective and equitable solutions that harness costs arising from technological innovation, new diagnostic and clinical applications, more beneficiaries, defensive medicine and patient demand.

"Survival" Strategies Sought

"Our DRA hit was $2.5 million," said Richard Jensen, M.D., chairman and president of Dallas-Fort Worth-based ASI consulting company and its parent, Radiology Associates of Tarrant County. In a growing Texas market, the companies managed to salvage a good year, he said. It's a landscape of haves and have-nots, he said, "and the small operators are being devastated. We've been approached by practices looking to be bought out, while others have just gone out of business."

Dr. Jensen said he sees very few entrants in the market and little investment or upgrading of equipment.

With a 45 percent Medicare population, "the DRA was a pretty big hit for us," said Alan Budzier, administrator of Mt. Baker Imaging in Bellingham, Wash. "Roll all the negative factors together and we're feeling the pain." Budzier said he has worked to reduce expenses on "the big cost things—medical liability, our teleradiology services contract and maintenance agreements, with individual strategies targeted at each of those in an effort to reduce costs." Mt. Baker has also self-insured and, while maintaining competitive salaries, is offering employees health savings accounts. "It's not going to turn around in a year," Budzier said. "There'll be more bad patient debt for us. You have to adjust your internal policies based on the larger market. Those are the survival strategies."

Teleradiology Firms Seen to Benefit

In a climate of cost-cutting, national teleradiology firms are benefiting, said neuroradiologist Jonathan Breslau, M.D., of Radiological Associates of Sacramento Medical Group, Inc., and newly installed president of the California Radiological Society. "If you have just a few people and you have to cover 24/7, it's nice to have someone doing the nighttime work," he said. "But telerad firms represent an existential threat to independent radiology practices by constituting a large, aggregating, financial intermediary with real power in the marketplace and economies of scale with respect to the most expensive resource—radiologists." They also move into desirable daytime work, Dr. Breslau said, often negotiating directly with hospital administrations.

Accreditation, Appropriateness Criteria Tapped to Control Growth

A new Government Accountability Office (GAO) report released this past June—showing that imaging costs doubled between 2000 and 2006 to reach a record $14 billion—served to amplify and support steps Congress was already acting to address the rapid growth in Medicare imaging services, said Cynthia Moran, ACR assistant executive director for government relations and economic health policy. However, while the GAO recommended accreditation and pre-authorization for imaging services as cost controls, Congress declined to embrace pre-authorization. Instead, with the help of ACR, Congress developed legislation that focuses on accreditation and appropriateness criteria.

The Medicare Improvements for Patients and Providers Act of 2008 (HR 6331) requires physicians and others who furnish advanced diagnostic imaging services to meet Medicare accreditation standards by January 1, 2012. It also establishes a 2-year project examining models of appropriateness criteria—provisions ACR pushed aggressively. "In fact, it's fair to say that the provisions concerning accreditation and appropriateness criteria came off an ACR typewriter," said Dr. Thrall.

The GAO Report noted various self-referral arrangements as significant contributors to overutilization, a practice that Dr. Thrall said "drains resources out of the healthcare system with no benefit to patients." The GAO Report concludes, "Not all of these services were appropriate ... [and] more healthcare services do not necessarily lead to better outcomes."

While self-referral remains—in Dr. Breslau's estimation—"the 800 pound gorilla in the room," it's gaining new scrutiny. In response to the GAO Report, Sen. Chuck Grassley (R-Iowa) introduced the Medicare Imaging Disclosure Sunshine Act of 2008 (S 3343), which, effective Jan. 10, 2010, would tighten restrictions found in the Stark Law. ACR has focused on self-referral for quite some time, said Dr. Breslau. "Congress long considered it a turf battle among physicians. Now they understand we're talking about billions, and 'Hey, radiologists are helping lower the cost of healthcare.'"

The DRA energized industry, physician and patient groups to consider long-term strategies to avoid future DRAs, said Moran.

"Yes, we were extremely successful this year in convincing the Congress that across the board reimbursement cuts were not going to deal with the underlying concerns of overutilization," she said. "This year the good forces came together, but victory lasts as long as you can spell it." She said she sees continued uncertainty without some very dramatic policy changes.

For those wondering how practices should react, Dr. Breslau recommended caution, cost control and diversification of revenue sources. "The answer is, 'You don't know what changes are coming over the next five to 10 years,'" he said. "And I mean you really, really don't know."