Technology and Industry: DRA and its effect on imaging centers

Passed by Congress in 2005, the Deficit Reduction Act of 2005 (DRA) placed limits on reimbursements for the technical component of imaging services performed in the office setting. Effective January 2007, under DRA, imaging services performed in the office are now reimbursed at a level equal to the lesser of the amount provided under the Medicare Physician Fee Schedule or the amount payable to hospitals under the Outpatient Prospective Payment System (Table 1). With several months of decreased reimbursement now behind them, independent imaging centers are beginning to feel the effects of this policy.

Decreased revenue

"The biggest effect, obviously, is diminished reimbursement," said David H. Stemerman, MD, Medical Director, Open High-Field MRI and CT of Westchester, an independent imaging center that offers magnetic resonance (MR) imaging, computed tomography (CT), ultrasound, and bone densitometry in Larchmont, NY. "Consequently, it means having to work a lot harder to maintain the same amount of dollars."

According to a study commissioned by the Access to Medical Imaging Coalition (AMIC)-a consortium that includes the American College of Radiology, physicians, patients, and manufacturers-and performed by The Moran Company (Arlington, VA), "the majority of those procedures whose payment is affected by the DRA caps would be paid, under those caps, an amount less than the estimated cost of performing the procedure in the office setting." ¹ Specifically, the report found that in 2007, 155 of 174 (89%) of the DRA-capped procedures for which complete data were available at the time of the study will be paid at rates below the estimated cost of performing the study. And the problem is only expected to increase. The same report found that by 2010, 99% of these procedures would be reimbursed below cost.

In addition to the federal cuts, some private payers are decreasing payments to independent imaging centers as well. "I can't attest that they are matching what the federal system did," said Stemerman, "but private payers definitely have cut their reimbursement. In some cases, some of the reimbursements don't even cover our costs. Yet the cost of supplies has not diminished proportionally. We're bringing in less, and our costs are getting higher."

So what can imaging centers do to remain viable in this era of decreased income? Most experts agree: imaging centers need to look for ways to reduce costs and maximize income. "Cost reduction is key," said Tim Jablonski, Vice President of Marketing at Codonics, Inc., Middleburg Heights, OH, a manufacturer of medical imagers. "Focus on the areas that give you the biggest return on investment. Be more competitive. Drive more referral business and concentrate on the 'cash cow' services."

Cutting costs

The first thing that most imaging centers must do is to conduct a thorough review of their entire practice to look for areas in which greater efficiencies can be achieved. "We spend a lot of time finding ways to work more efficiently with less, or we just cut out services altogether," said Stemerman. He noted that his organization has looked at all aspects of the business, even down to the cost of their phone service. "We're now working with a cable phone system because it is so much cheaper than traditional phone service. Until this point, we never gave it a second thought," he said.

Other overhead costs, such as staffing, have also come under the knife at Stemerman's center. "We work with less staff or less expensive staff, such as part-time students instead of full-time administrators or secretaries," he said.

Imaging centers must also thoroughly review their imaging workflow and search for potential cost savings there as well. For Stemerman's group, this meant converting almost entirely to digital imaging, with all studies stored on a PACS and output to CDs, DVDs, and/or paper, thereby eliminating the bulk of the cost for film and film processing. "We have nearly eliminated the use of film because it was too expensive," he explained. "We couldn't afford it. So we converted to a digital system, giving patients and doctors CDs because the cost is phenomenally cheaper."

Currently, Stemerman noted, approximately 90% of their studies are completely digital, with film printed only at the specific request of the referring physician or the patient. "We will print film only by request or under special circumstances, such as when somebody doesn't have a computer," he said.

Installing a CD/DVD burner for imaging studies can provide many benefits to an imaging center, according to Jablonski. "First and foremost, it offers reduced cost alternatives to film. You can send fewer films along with a CD or DVD that contains the entire study and still reduce your expenses for what you are sending to the referring physician."

When considering image output, it's important to look at the total cost of operating the system, he added. "Imaging centers must consider the cost of the equipment, the consumables, and servicing and support of that equipment throughout its entire lifespan. The equation is easy. Take the cost of the imager plus how many films per year you will use times the cost of film; add that to the service cost per year, and you have the total cost of printing," he explained. "You amortize all these costs into each patient's study. The lower your overhead, the more competitive you are going to be; and the more competitive you are, the better the return will be on your investment."

Jablonski also recommends that imaging centers consider equipment size and service concerns when choosing imagers. "I would draw a parallel to the cellular phone industry: years ago we had phones that were the size of a brick and did very little; today we have phones that are very small and do much more. Our impression at Codonics is that smaller is better in the imaging center environment. When you look at the cost equation, a 400- or 500-pound machine is very difficult to service, requiring repairmen to come onsite, whereas a 60-pound machine can be swapped if anything happens, and you get instant uptime."

Increasing revenue

In addition to trimming costs, it's essential that imaging centers optimize every revenue opportunity through increased referrals and maximum uptime on their imaging systems. "We are constantly looking for additional referrals," said Stemerman. "We spend a lot of time marketing ourselves. It's similar to running an airline: if the plane doesn't fly, it loses money. If our magnet isn't operating, it's lost revenue."

Take-home CDs/DVDs and color paper printouts of images can also be used as marketing tools, Jablonski noted. "In many cases, the user can provide a better marketing presentation to the referring physician," he said. "For example, if you previously sent a 4-film study on a typical CT exam, you might send only 1 film and a paper print, which is much easier for the referring physician to use to communicate the diagnosis to the patient. You can also send a CD or DVD containing the entire study. That whole package could cost less than half of what 4 films would cost. In addition, referring physicians see that as more value because they can communicate better with their patients and provide them with very high-tech images. It becomes a point of differentiation when one imaging center provides those tools and another doesn't."

CDs and DVDs can be used as a marketing tool for patients as well. "If a person like me has an executive study done, for example, or a 64slice CT of my heart, I'm seeing those images in color on the postprocessing workstation at the imaging center," Jablonski said. "If they then send me home with a film, I can hold it up to the light to show my family, but if they handed me a color picture of what was on the screen and I can take that home and show my family and friends, that is a very different thing. Imaging centers can be very smart in differentiating themselves and driving more business by giving patients marketing tools such as CDs and color output."

Once those patients have been referred and arrive at the imaging facility, it's important that the center receive maximum payment for the services rendered. "We've hired a person to abso-lutely confirm that when a patient comes in, we will get reimbursed for that study," said Stemerman. "That takes a lot of time and effort. When we first opened up, we just trusted that we would get reimbursed, but we've gotten burned so many times that now we cannot just trust. For every time slot, for every patient who comes in, it's important that we get paid."

Looking forward

Diminished revenues for imaging centers are also expected to decrease their ability to purchase new technology. "Already there have been things that I've wanted to do that have been put on hold indefinitely," explained Stemerman. "We had broader plans that we completely brought to a halt. We're making what we have work, rather than putting ourselves out there even more and risking even greater problems. I can't speak for equipment manufacturers directly, but I suspect they must be hurting a little bit too."

Jablonski noted that he is already seeing the effects of DRA in the number of new systems being acquired in the field. "When we are talking about the new systems being sold by the major manufacturers, where a peripheral like ours is included, fewer of those systems are being acquired."

Purchasing new equipment can put quite a strain on an imaging center, even during the best of times, Stemerman noted. "When purchasing new equipment, the time to pay off the lease is very aggressive, meaning that it is very short and the monthly payments are very high," Stemerman explained. "That puts a tremendous burden on the purchaser, especially on small groups like mine, to make sure that every month we make that number."

In addition to the lease payment, Stemerman noted, there is also the pressure of paying the monthly service fee. "In the next few years, I think manufacturers are going to see that the service fee is going to catch up," he said. "It's not all directly related to the DRA, but it's all just accumulating; everyone is just chipping away at an already sick system."

While some experts still hope for legislative relief to the concerns of DRA, most believe that these cuts will remain in place for the foreseeable future. Therefore, independent imaging centers will need to learn to do more with less. "As business is shrinking because of DRA, these are the key areas in which to concentrate," concluded Jablonski. "Decrease your costs, increase your business, and focus on the studies that provide the greatest income."