Regents Health Resources was formed in 1996 to assist hospitals and physicians in the development and management of their medical-imaging and oncology services. The consultancy has served more than 500 clients nationwide with a diverse range of services, from strategic planning and operational assessments to joint-venture planning, valuations, and imaging-center sales and acquisitions.
Introduction: CMS released the proposed rule¹ for the 2013 Medicare Physician Fee Schedule (MPFS) in July. This issue of the Imaging Market File estimates the impact on revenue and margins/losses for 18 imaging-center sites clustered in Washington, Missouri, and Florida (which performed 112,000 procedures) of the 2013 conversion rate and a presumed 27% sustainable growth rate (SGR) reduction.
CMS proposes expanding the Multiple Procedure Payment Reduction (MPPR) to the technical component from 119 codes to an additional 530 codes, as well as to the professional component of same-day subsequent studies of one patient read by any member of the practice. The potential loss of revenue due to the expansion of the MPPR has not been factored into the scenarios depicted in Tables 1–3.
SGR adjustment: The SGR is a statutory adjustment that has been overridden by Congress in each of the past five years. According to CMS, those reductions now are estimated at 27% and are scheduled to go into effect in the 2013 MPFS, unless Congress acts again to delay them. The reduction would be applied to the 2013 conversion factor, which affects both the technical and professional components of the MPFS. As demonstrated in Table 1, the reductions in the sample areas would be 29.62% to 30.12% if the CMS changes are adopted by all payors—a possibility for which there is ample precedent.
Conversion-factor changes: Several other proposed changes would affect reimbursement rates for 2013, resulting in a reduction of the 2012 conversion factor from $34.0376 to $24.7124. In order to fund reimbursement increases for family practice (7%), geriatrics (4%), internal medicine (5%), and pediatrics (5%), reimbursement is being reduced for radiology, diagnostic-testing facilities, radiation oncology, and radiation-therapy centers, to create a budget-neutral impact.
CMS has released an estimate¹ (Table 4) of the impact of the proposed changes. While CMS estimates a 4% cumulative impact of the conversion-rate reduction, our analysis of the sample data from 18 sites shows an impact of 4.47% to 5.25%, if all payors adopt the new conversion rate (Table 1).
In addition, the Geographic Practice Cost Index (GPCI) 1.0 floor is set to expire prior to the implementation of the 2013 MPFS, so the proposed physician-work GPCIs no longer will include the GPCI 1.0 floor; for many locations, this will mean adjustment down to the previous GPCI levels. As a result, those sites will experience further reductions in reimbursement.
Unsustainable: Should the proposed 2013 MPFS be implemented and adopted by all payors, Table 2 shows the impact on margins in each operation (where operations produce an approximate 15% contribution margin today). If those practices made no changes in operating budgets, the reductions based on the proposed conversion factor and the potential 27% SGR reduction would result in significant losses. The scenario represented by Table 3 assumes that the SGR and conversion factor reductions will not be adopted by private payors. In this case, potential losses to the profit margin range from 22.1% to 46.4%.
Conclusion: The proposed changes will have negative short- and long-term impacts on the technical and professional components of reimbursement. Given the current climate of intolerance for health-care cost increases, there is a possibility that following the November election, Congress will adopt the alternative solution to the SGR problem proposed by the Medicare Payment Advisory Commission.2 It includes a 5.9% reduction for each year of the next three years (applied to all specialties except primary care), followed by a seven-year freeze on the conversion factor.
1. US DHHS. 42 CFR parts 410, 414, 415 et al: proposed rules. Fed Regist. http://www.gpo.gov/fdsys/pkg/FR-2012-07-30/html/2012-16814.htm. Published July 30, 2012. Accessed August 24, 2012.