The Invisible Radiologist Meets the New Math, Climate Change, and Business 101
These are challenging days to be a radiologist. Decreasing payment, financial uncertainties, market consolidation of imaging facilities, utilization controls, disrupted business plans, questionable business models, and turf and contract challenges have become commonplace concerns for radiology practices. Added to these issues are equally valid concerns about the growing commoditization of radiology services, enabled by decentralized reading services based on PACS and the explosion of teleradiology-based coverage services. The prospect of competing with $40 CT interpretation fees has triggered more than a few late-night radiology practice meetings.
Michael A. Silver, PhD
The hospital’s view of imaging is equally challenging in today’s market. For years, hospitals were overly cautious about investing in outpatient imaging services. Starting in 2001 to 2003, hospital investments in outpatient imaging services started to grow, just in time to collide with payor concerns about the growth and inappropriate utilization of imaging services, the market impact of the DRA, lower imaging-exam technical payments, the rise of radiology benefit management (RBM) companies, and the negative business impact of the worst recession in almost 80 years. The net result is that imaging has an image problem. Hospital executives frequently underappreciate imaging as a fundamental patient-management tool. Conversely, radiologists have frequently overestimated or underappreciated the clinical market value of the service that they deliver. Many Washington lawmakers and policy specialists view imaging as an overly entrepreneurial business in need of more discipline and lower profit margins. Some clinicians and surgeons might commonly overestimate their knowledge of imaging technologies, and who knows the name of the radiologist who is reading for them? Hence, we have the case of the underappreciated and invisible radiologist. The radiology market is facing more turbulent challenges than it has ever faced. On the positive side, more than half of radiologists earned, in 2008, an income greater than $400,000, and hospitals have been moving toward developing comprehensive inpatient and outpatient imaging strategies. On the negative side, radiologists are justifiably concerned about the impact of payor- and regulator-driven payment reductions as numerous hospitals stare into the financial abyss of Medicare cuts. Radiology is a small (but highly visible) segment of the health care market that has been characterized by high cost variability, entrepreneurial appeal, high profit margins, and lagging discipline. As a small portion of the overall health care system, however, it operates in a market shaped by politics and the new math of health care economics. The New Math The health care market of 2009 is faced with the challenge of adapting to a new math. This new math is characterized by a term that has rarely entered US health care policy and economics dialogue: a trillion dollars. The new math (Figure 1) is a potent driver of the health care policy agenda of the White House, Congress, the Congressional Budget Office (CBO), the Office of Management and Budget, the Institute of Medicine, numerous state governments, private payors and employers, Washington’s K Street lobbyists, and Republican and Democratic politicians.
Figure 1. The new math: health care 2009.
The current recession started during the fourth quarter of 2007. In late 2008, the Wall Street meltdown and subprime fiasco led to the implementation of the $700 billion Troubled Asset Relief Program, followed by the American Recovery and Reinvestment Act, which was signed in February 2009 and will have a direct, net federal budget impact of at least $800 billion between 2009 and 2019.
Figure 2. Projected health care spending as a percentage of gross domestic product, 2007–2082. Source: Congressional Budget Office.
The 2009 federal budget deficit is $1.8 trillion, while the total US federal debt is $11.6 trillion. US health care expenditures reached $2.5 trillion for 2008 (Figure 2), representing approximately 16% of the gross domestic product (GDP). According to the CBO, this number is projected to rise to almost 47% of the GDP if the current rate of health care spending is extrapolated forward to 2082 without any major funding and process corrections. The CBO also projects that the unfunded Social Security liability through 2082 will be $15 trillion; the estimated unfunded Medicare liability through 2082 is projected at $34 trillion, if spending remains linear. The net result of these trillion-dollar economic factors is that one way or another, the health care payment and delivery system of the United States is starting to undergo major changes. Whether President Obama’s vision of comprehensive health care reform or a far more moderate health-insurance reform is enacted, the day-to-day practice of medicine, including radiology, will undergo significant and permanent changes. What we are experiencing is less a market correction and more a climate change, and it will continue over the next five years and beyond. Climate Change Payors, employers, consumers, patients, and most policymakers want a system that provides high-value health care, which is a complex product of several factors that include good outcomes; affordability; access to care; high quality that is consistent across time, geography, and acuteness level; and care that works. The recession has placed significant burdens on hospital systems and on consumers. Volumes of highly profitable elective procedures started to decline during the first quarter of 2008, and inpatient volumes have continued to remain depressed. A survey¹ by the Hospital and Health System Association of Pennsylvania revealed that at the end of the first quarter of 2009, 30% of the state’s hospitals were considering mergers and 88% had reduced capital spending, including spending on radiology technology (Figure 3).
Figure 3. Changes made or planned by Pennsylvania hospitals to weather the financial crisis.¹
In the absence of comprehensive health care reform, we have pieces of programs being proposed or implemented by various federal and state agencies and private payors. CMS and private payors have implemented a range of test programs aimed at controlling health care costs and physician incentives. CMS is evaluating pay-for-performance models, gain sharing, bundled payment, the medical home concept, and targeted initiatives such as reducing postsurgical complications. Key health care solutions will undoubtedly include such tactics as standardization of leading practices, productivity initiatives, IT integration, e-care, utilization control, and two newer concepts. The first is hospital systemness, a term that California’s Integrated Healthcare Association coined to describe “shifting decision-making responsibility and authority away from the subsidiary operating units to the corporate level and centralizing or standardizing key management systems and processes.”² The second concept is clinical integration across what we at Sg2 (Chicago, Illinois) call Systems of Clinical Alignment and Resource Effectiveness (CARE)—strategies for effectively delivering wellness and disease-focused care across local markets and health care systems. Although the rate at which hospitals adopt these tactics is likely to be driven by the political outcome of the current health-reform debate, hospitals that adopt them will benefit from lower costs and will provide higher-quality care. The health care market is not undergoing a correction, as it did in 1997 with the Balanced Budget Act; rather, we are experiencing a more profound health care climate change. Hospitals and physicians able to adapt proactively will fare far better than those that wait for change to overtake them. Hospitals and radiology practices that work to reduce costs, improve productivity, eliminate unnecessary care and costs, and streamline care processes enough to generate a profit on Medicare-level payment will thrive, regardless of the specific programs initiated in Washington. The Invisible Radiologist One of the fundamental challenges facing radiologists is how the value of their services is perceived by those who use them. As a service business, radiology can only be successful by consistently delivering a product that is fundamental to its customers’ needs. Although radiologists are the only clinical specialists trained exclusively in the use of imaging technologies to diagnose disease and trauma, radiologists are relatively invisible to many in health care, including those shaping future health care policy and managing patient-care delivery. To highlight this challenging reality, Gary Glazer, MD, chair of radiology at Stanford School of Medicine in California, coined the term invisible radiologist in May 2009 in a presentation at the 11th Annual International Symposium on Multidetector-Row CT. The invisible-radiologist syndrome can be laid at the feet of three trends. The first is the widespread adoption of decentralized radiology services and PACS. After more than 25 years of PACS development, nearly 85% of US hospitals have adopted PACS. One of the biggest errors that radiologists have made is underappreciating the impact that PACS adoption has on the relationship between radiologists and referring physicians. In the absence of effective communications strategies, value-adding tactics, and customer-management initiatives, the radiologist might be perceived as an invisible, underappreciated technical commodity. The second trend is the evolution of subspecialty and market-specific teleradiology reading services. As imaging has evolved into a fundamental patient-management tool, specialists have developed increasing reliance on imaging services, while at the same time becoming more sophisticated in the use and interpretation of advanced imaging studies. For example, an orthopedic surgeon specializing in sports medicine might see far more knee MRI studies than a typical general-practice radiologist sees. Specialists commonly complain that reports from general radiologists provide too little value-added information that uniquely contributes to management of the patient. Too frequently, weakly crafted reports provide little more than liability protection for subspecialty clinicians and surgeons. The advent of teleradiology has made it far easier for hospitals and clinicians to obtain the services of a subspecialty radiologist for high-value reports, or those of a general-practice radiologist for lower-value risk-management/liability-protection reports. If Congress acts to limit self-referral for MRI, CT, and PET studies by nonradiologist clinicians and surgeons, it will decrease the volume of imaging performed by those physicians; however, it will not substantially eliminate the need for radiologists to deliver high-value reports that significantly and consistently improve patient management. If radiology practices feel that the elimination of self-referral will stabilize their markets, they are likely to be missing the major impact of teleradiology and of distributed-reading services offered by competing (and sometimes predatory) radiology practices. Over the next decade, radiology practices will probably experience growing competition as large groups merge and create larger, subspecialty-capable radiology networks that are able to meet the clinical-imaging requirements of entire hospital systems. The enhanced ability of large and very large radiology practices to recruit subspecialty radiologists effectively will probably present significant obstacles to the independence of smaller radiology practices over the next decade. The third trend is the evolution of Systems of CARE. As CMS payments become increasingly linked to clinical value and outcomes, hospital systems’ strategies will increasingly focus on more effective system integration. Rather than managing systems as holding companies characterized by high levels of hospital independence, health systems will move toward becoming integrated Systems of CARE designed to meet the disease-specific needs of patients across the entire system and across the clinical spectrum of the disease, from low to high levels of acuteness (Figure 4).
Figure 4. Sg2’s Systems of Clinical Alignment and Resource Effectiveness, or CARE, for health care, which features expert oversight, virtual or in-person care, and numerous points of patient engagement along the continuum of care;
Strategies involving Systems of CARE do not require hospitals to own all imaging resources, but they do require effective, systemwide integration strategies to meet the clinical diagnostic needs of all specialists, clinicians, and patients across the system. Increasingly, these needs will be met by larger radiology services capable of providing more comprehensive solutions for more facilities. The net result is that over the next decade, many longstanding hospital relationships with radiology practices might be displaced by regional system-focused services; familiar physician relationships might be threatened, further isolating some radiology practices. Business 101 What does this all mean to a radiology service? Regardless of the outcome of health-insurance and payment-reform efforts in Washington through 2010, imaging services are facing critical business imperatives. Radiology services will be under increasing pressure to do more with less, to perform more exams without significant payment increases, to operate under more disciplined utilization controls, to implement more evidence-based practices, and to increase productivity. In short, Sg2 suggests that all radiology services, whether independent or hospital-based, adopt three strategies (see table). Different types of radiology services might implement these strategies differently. First, add market value. In a world of choice, RBMs, self-referral, and teleradiology, it is incumbent on radiology services not to be complacent and not to illustrate the proverb that fat dogs don’t hunt. Continuously working to add market value that differentiates the service from others and earns future business is an essential strategy that should be standard operating practice. Different markets will reflect different drivers for adding value. Some markets will require a focus on subspecialty reports; others, a focus on 24/7 services. Continuously increasing clinical-service integration with specialists, primary care providers, and service lines also will drive market value. Adding value in an increasingly commoditized radiology market is challenging. PACS adoption has served to isolate many radiologists from their referring physicians; at the same time, many radiology practices have neglected to adopt new strategies to add value for their customers. In many cases, an effective communications strategy is successful in overcoming isolation and demonstrating added value. The strategy might include:
  • digital communication with clinicians via handheld devices;
  • report-turnaround times of less than two hours;
  • a thoughtful analysis of the report’s quality and value to referring physicians;
  • adoption of structured reporting, with specific strategies for specialists versus generalists;
  • communication of patient-safety initiatives; and
  • communication of the unique skills and knowledge of radiologists versus other clinicians.
An important value-adding lesson can be learned from observing the evolution of interventional radiology. For a number of years, interventional radiologists defended their control of the angiography suite as a contractual right. In contrast, cardiologists, neurosurgeons, and vascular surgeons often approached hospital management wanting access to angiography systems for improved, less-invasive patient management. The result, at many facilities, was that a focus on improving patient management trumped turf protection. Sg2 recommends that radiology practices evaluate and implement their market strategies in the context of being clinically integrated, image-based specialists who make an essential contribution to patient management, rather than assuming that radiology credentialing alone will protect their practices in the long term. Future competitors, even in local markets, will be other distributed-reading and hybrid radiology practices in growth mode, and local, high-value services might be the most valuable defensive strategy. Second, grow and diversify. For radiology services, independence versus growth and merger versus the security of employment will increasingly become strategic concerns. Highly integrated health care systems deliver higher-quality care at a lower total cost. Larger regional and system-dedicated radiology practices will be able to leverage their strengths more effectively to support consistently high-quality diagnostic procedures across an entire system.
Table. Radiology Business Strategies
As radiology residency requirements evolve, larger practices and system-integrated practices will also be likely to find it easier (compared with small radiology practices and services) to recruit new radiologists. Combined with the availability of distributed-reading services, this trend might facilitate the disappearance of the small, independent radiology practice and favor the shift to system-dedicated, employed, or large regional independent radiology practices. These challenges will not be likely to have the same impact on all regional markets due to local market variations and change drivers. As technical payments come under increasing pressure, smart radiology services will explore diversification of revenue sources, from acquiring other radiology practices to expanding teleradiology services to managing services for other clinical ventures to aligning with other clinical services (such as pathology) to nontraditional diagnostic modalities. The bottom line is that one should not assume future straight-line positive revenue growth without exploring new markets, new business models, and business diversification. Third, operate like a business. One of the most challenging strategic obstacles for hospitals has been to deliver outpatient imaging services with the same customer-focused service and productivity as their nonhospital competitors. In part, that might be due to real patient and payment differentiators; however, in many cases, there also is a dominant cultural difference. Imaging centers, including radiologist-owned imaging centers, are typically focused on delivering radiology services as a business, while many hospitals deliver imaging with the impersonal feel of an institutional service, less sensitive to customer needs and competitive pressures. As revenue from imaging studies is subject to increasing control, every radiology service needs to become a model of productivity and efficiency. The health care market of the past two decades has been characterized by the mindset that if you buy it, they will come, and if you build it, they will come. The market, however, is rapidly evolving into one based on the concept that if you can validate performance, they will come. This suggests that standardized performance metrics and practice- or service-specific performance metrics will help to determine patient volumes, strategic alliances, revenue, and recruitment success. It also suggests that radiology service contracts will more commonly reflect performance requirements, and that practices need to be able to validate and manage the performance of their physicians. As imaging volumes are increasingly subject to utilization control, well-run imaging services will seek to optimize billing and coding services while integrating billing with mission and market strategies. Conclusion Hospitals have long had captive markets for imaging services, and radiology practices have enjoyed considerable financial success during the past three decades. The health care market is changing, however, like many other markets such as banking, manufacturing, and telecommunications. Imaging services that aggressively and proactively prepare for these changing markets by focusing on adding value, seeking growth, and implementing effective business practices will fare better than those that wait for change to arrive. The invisible radiologist will become the integrated imaging subspecialist of the future. The successful hospital imaging executive will deliver clinically integrated services 24/7, systemwide, that meet the needs of all clinical service lines across the system and across the expanding IT network. Michael A. Silver, PhD, is vice president, Sg2, Chicago, Illinois, an international, future-focused health care intelligence company that provides expert-led resources, tools, and education to enhance performance, drive growth, and maximize clinical effectiveness;