Further TC Cuts Ahead?

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Due to inequities in payment methodology, are providers of imaging services overpaid?

That question is raised, along with others, in a provocative article by Winter and Ray,¹ two analysts for the Medicare Payment Advisory Commission (MedPAC), that was published in a recent issue of Health Affairs. In examining the growth in imaging and Medicare’s method of paying for imaging, the authors identify several weaknesses in the payment methodology that may lead to inaccurate rates, and they suggest some options to improve the system. While much of the information in the report had been previously published, the MedPAC analysts take this opportunity to reply in the affirmative to the above question.

The authors first review the now-familiar data charting the outlier growth of imaging (61%), compared with all physician services (31%), between 2000 and 2005, as paid under the Medicare Physician Fee Schedule (MPFS). In fact, Medicare spending on imaging paid under the MPFS practically doubled between 2000 and 2005, from $6.4 billion to $12.3 billion.

After describing the mechanics of physician reimbursement under the MPFS, the authors identify what they characterize as inaccuracies in the distribution of payments among all physicians, even after accounting for the DRA cuts, the discount for contiguous body parts, and impending declines in payment that will accrue through 2010 due to a recent revision to the methodology CMS uses to calculate practice-expense RVUs.

Until 2007, payment for practice expenses not involving physician work—including imaging services—was based on physician charges from 1998. CMS began phasing in new methodology in 2007; when it is fully implemented in 2010, this will result in an estimated 9% decline in practice-expense RVUs for all imaging services. This decline notwithstanding, practice-expense RVUs for imaging services may still be overvalued due to the following shortcomings, the authors contend.

Three System Weakness

One weakness in the system, the authors believe, is the overstatement of equipment costs. Due to the expensive nature of high-end imaging technology, equipment costs account for a large percentage of practice expenses. The authors offer the example of an MRI of the brain, for which equipment costs account for 90% of the total direct cost of the procedure. For a chest radiograph, equipment costs account for just slightly more than half of the direct cost of such a procedure.

The per-unit cost of a procedure is based on the number of minutes that the equipment is used multiplied by its cost per minute. The authors posit that recent advances in imaging technology that have resulted in shorter scanning times, such as 64-slice CT and 3T MRI, mean that the times per scan generated in 2002 and 2003 by the AMA’s RVU Update Committee (RUC) may result in an overvaluing of the practice expense for some procedures.

They also point out that CMS uses a formula that spreads the cost of the technology over the number of minutes that the scanner is expected to be operating during its useful lifetime to derive the equipment cost per minute. Another fundamental assumption used by CMS is that the equipment is in operation 50% of the time that the site is open for business.

The authors report that a MedPAC-sponsored survey in six markets found that MRI scanners are used during 91% of operating hours and CT scanners are used during 73% of operating hours (MedPAC recently voted to recommend that the secretary of HHS increase the equipment-use standard to 90% for MRI, CT, and PET scanners). The authors believe that CMS would be encouraging the efficient use of high-tech equipment with a 90% use rate.

A second inequity of the system that favors higher costs for imaging services is the fact that CMS began using new practice-expense data in 2007 for the eight specialties that responded to CMS’ invitation to submit new data. The authors believe that this has resulted in all of those eight specialties, including radiology and cardiology, receiving a higher value for practice expenses than those specialties that did not submit new data.

Cardiology’s hourly practice costs, for instance, more than doubled, from $82 per hour to $184 per hour. The authors believe that, had radiology not submitted new practice-expense data, imaging practice-expense RVUs would have declined by 20% instead of 9% by 2010. The authors believe that CMS needs current practice expense data from all specialties in order to achieve