Health care is a business like no other because its very purpose is to extend and improve quality of life. It is a business, nonetheless, with revenues and costs, and with bills, lenders, and employees to pay. A common phrase, among even the most charitable of not-for-profit health-care organizations, is no margin, no mission. I am proud of the positive impact that our company has made on the lives of our patients, and I know that my fellow providers feel the same. As the health-care mission has become increasingly successful, with US residents living longer and better than ever, the health-care margin has been under siege, and no segment of health care has seen its margin targeted more than diagnostic imaging has.
For the past several years, freestanding imaging centers have been treated like so many piñatas at a child’s birthday party: Consider the 2006 cuts for imaging contiguous body parts, the 2007 DRA cuts, and the round of DRA-copycat cuts made by many third-party payors. Once the most recent CMS cuts have been fully phased in, Medicare payment rates for many procedures will have been cut by more than half over just a few years’ time, making this a level of payment reduction that is virtually unprecedented in health care.
In many ways, the challenges faced by imaging-center operators would seem familiar to leaders of commercial airlines. High fixed costs (a used 10-passenger turboprop will set you back about as much as an MRI scanner) and steadily declining prices make for a tough environment where selling every scan (or seat) is essential for continued success.
Unfortunately, the assault on reimbursement comes on the heels of other trends that would also be familiar to the airline industry: rapid growth in demand, leading to rapid growth in supply, followed by a slowdown in growth. For the first five years of this century, outpatient MRI, CT, and PET/CT volumes grew at 16%, 15%, and 122% compound annual rates, respectively. A combination of rising demand, relatively stable reimbursement rates, plentiful capital, and (in too many cases) liberal use of in-office exemptions led to a rough doubling of the number of freestanding OICs, from about 3,000 in 2000 to more than 6,000 in 2006, the year before the DRA went into effect.
Since then, a growing focus on utilization (coupled with the worst economy in a generation) has led to a moderation in scan-volume growth to levels in the mid-single digits. How will the confluence of declining prices and slowing growth affect independent freestanding imaging-center operators, their patients, referring physicians, and their communities? What will the future hold for diagnostic imaging as a whole, and for freestanding imaging centers in particular?
The demand for diagnostic imaging is likely to continue growing steadily, despite all the focus on utilization. Most projections that I’ve seen predict that MRI, CT, and PET/CT volume will grow by at least 5% per year for the foreseeable future, driven by demographics and by the importance of advanced imaging to clinical decisions.
Imaging centers will continue, however, to face high levels of the uncertainties that increase risk and complicate investment decisions. These will weigh particularly heavily on smaller, independent operators lacking the resources to make the needed investments in systems and infrastructure to support subspecialty radiology, ubiquitous PACS, electronic medical record connectivity, and seamless revenue-cycle management systems, all of which are becoming increasingly critical in a rapidly evolving and challenging market.
Greater uncertainty and risk will probably accelerate the ongoing consolidation of independent operators with either hospital systems or larger operators, shrinking the number of centers in many markets. This might reduce patient access to care in some markets, but it also should improve the prospects for the remaining centers, which will benefit from higher scan volumes.
The reimbursement gap between hospital-based and independent imaging centers will probably grow, with some predictable consequences. Some freestanding imaging centers are likely to be absorbed by hospital systems seeking to capitalize on their higher rates. At the same time, payors are likely to begin steering their enrollees more proactively toward lower-cost settings, such as independent, freestanding imaging centers. As high-deductible insurance policies and higher copayments become more common,