Thinking AheadReimbursement reductions in '09 and the certainty of more cuts in

2010 are prompting imaging entities to take bold steps to remain

competitive and innovative. By Steven R. Renard, MBA, CHE

Neverbefore has assessing a sector ofrhe healrh care industry been so dif-ficult. Bits and pieces of information,rumor and innuendo regarding radi-

ology's future trickle down through magazines,Web articles, e-blasts and industry chatter. Someof rhis exceedingly vague information has hada chilling effect on rhe upgrade and expansionplans of radiology facilities. In fact, fear is nowrhe power player in imaging.That should remain rhe case in 2010, which

is sure to bring additional changes of an as-yet-undetermined nature. This much is certain: Awatered-down Senate bill will bring further re-imbursement cuts--and anxiety.

Also, expect more private payers to adapt

pricing strategies that are more in line withMedicare's strategies. That's bad news, as manyoutpatient centers depend on the often higherreimbursements of private payers, while theindustry relies on rhem to make up for Medi-care's draconian cuts. If these rates fall withMedicare-or are tied to Medicare-manycenters that already teeter between rhe red andrhe black may fail.

An example to avoidMost providers have cut variable costs such aslabor, supplies and markering as much as pos-sible, leaving only fixed costs such as equip-ment payment, service contracts and rent. Theonly feasible strategy lies in revenue protection,

RADIOLOGY IN 2010

expansion of services or efficient throughput,new lines of business, further mergers, consolida-tions and joint venture activities between radiol-ogy groups and with hospitals.These familiar tactics come from the air-

line industry. Many airlines ceased operations,merged, or froze or cut salaries-and then at-tempted to ensure rhat every seat was filled be-fore takeoff. Much like rhe imaging industry,airlines are a highly fixed-cost business. For thisreason, they've deployed innovative ways tostay alive, including cutting routes and creatingmatrixes and dashboards to maximize top-linerevenue growth and stabilize rhe business. Theairlines also implemented cost-cutting measuressuch as limiting snacks, renegotiating supplycontracts and playing in oil futures to stabilize jetfuel prices.The problem: Many of rhose cuts resulted in

quantifiable customer service losses. Healrh caresimply can't put patient service in rhe same cat-egory rhat airlines have placed passengers.

Challenging cutsRecent numbers show rhat declining Medicareand potential private pay reimbursements areforcing many imaging centers to make drasticcuts. The 2010 Medicare Physician Fee Sched-ule (MPFS) increases rhe equipment utilizationrate ftom 50 to 90 percent, primarily for MRIand cr equipment exceeding $1 million. Theincrease will be phased in over a four-year transi-tion period, which began Jan. 1. Seventy-fivepercent of the practice expense (PE) will be paidbased on rhe old 50 percent usage rate, and 25percent will be based on rhe new 90 percent rate.The prior usage rate will consist of 50 percent ofrhe payment's PE component in 2011 and 25percent in 2012, wirh complete implementationin 2013.These changes make radiology an even

tougher operational challenge. Medicare cutscaused by rhe MPFS utilization rate hike rangefrom an additional 2 percent to as much asan anticipated 33 percent for a brain MRIby 2013. Radiology is still reeling from theDeficit Reduction Act (DRA) of 2005, whichslashed prices as much as 35 percent. Theselatest cuts-coupled wirh a potential publichealth care option, and talk rhat private paypayers follow the Medicare cuts merely to re-main competitive-have placed radiology onrhe same shaky ground as the airlines.

Making preparationsHowever, we can't deny rhat rhe airline industry ~

www.advanceweb.com/imaging JAN 2010 I ADVANCE FOR IMAGING & RADIATION ONCOLOGY 15

RADIOLOGY IN 2010

became a leaner, srronger and eventually slightly profitable entity. Here'show imaging entities are similarly preparing themselves:

• Comolidating. Radiology groups that once competed---driving down

prices by stealing each other's contracts-are now considering joining forc-es. Such alliances bring more contracts and volume as well as bargainingpower with payets and economies of scale with vendors. Gone is the needfor two group managers, conrrollers and other additional professional andnonprofessional staff. Center operations can be consolidated along withbilling, purchasing, staffing, ete. While it's one of the best ways to recoverlost monies, rransitioning from fierce rival to parmer isn't easy.

• Leaving behind the ID TF model. Many independent diagnostic test-ing facilities (IDTFs) will continue to feel the reimbursement cuts intonext year. Unlike radiology physicians groups, IDTFs can't charge formany supplies and procedures. This lost revenue adds up, as many ofthe study fees are bundled within a code. For example, if a practice wereto perform a thyroid biopsy as an IDTF, it would receive significantly

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lower reimbursements than if it were to bill as a radiology group. Radi-ology practices bill, read and take ownership in the IDTF. The IDTFbenefits through better contracting and higher reimbursement rates on

supplies and certain procedures. Consult a health care attorney regard-ing the proper structure and compliance relations that must be satisfiedto make the switch from an IDTF billing entity to a radiology physi-cians group billing structure.

• Developing joint ventures. More IDTFs and radiology groups areforging joint ventures with hospitals, primarily because hospitals of-fer a shelter for reimbursement protection by way of negotiation clout,and by leveraging existing pricing structures and economies of scalewith vendors. Contrary to payment cuts made to physicians, physiciangroups and IDTFs under the 2010 MPFS Rule, hospital outpatientdepartments-including radiology-will receive a 2.1 percent inflationupdate in payment rates under the 2010 Hospital Outpatient Perspec-tive Payment System (HOPPS) Rule. The downside to the joint venturemodel: Groups must adjust to the bureaucracy and compliance standardsimposed by hospitals systems.

• Offiring new service lines. After years of stagnation, women's heathservices continue to explode. Advances in breast MRI technology haveprompted a boom in women's centers, which offer that modality in addi-tion to mammography, stereotactic breast biopsy, bone densitomerry andultrasound. These facilities also offer the internal infrastructure to rrackpatients and ensure proper follow-up care. Groups will also continue toexpand their teleradiology services to grow their revenues.

• Dioersifying investments. In preparation for cuts, many groups aretaking less in partnership distribution payouts to seek investment op-portunities outside of radiology. These opportunities include purchas-ing land close to hospitals, purchasing or building medical office build-ings, and employing other nonmedical-related strategies. Some arealso opening vertically integrated services lines like equipment servicecompanies that not only control their costs but also produce income.

• Consolidating FTEs. A growing rrend among groups is to reorganizebased on revenue-generating full-time equivalent (FTE) units and theimportance of a particular service offered by the radiologist. Consider thisexample: A full parmer reads primarily general X-rays and ulrrasounds atan annual cost of approximately $400,000, and the group is contracted toprovide these services. Many radiologists are looking to eliminate that posi-tion and subcontract to teleradiology companies specializing in X-ray andulrrasound for nearly a third to half the cost. The other scenario involvesoutsourcing lower-end modalities like X-ray so personnel can focus onmore revenue-generating studies such as MRI, posirron emission tomogra-phy (PET), cr, interventional radiology and women's imaging.

Forward lookingAs the industry encounters more reimbursement cuts and additionalreferring physicians fold into hospital systems, competing as an indepen-dent outpatient group becomes much more daunting. Furthermore, tomaintain radiology's traditionally high standards of patient service with-out falling into the same mousetrap as many airlines, radiology groupswill need to become more strategic, creative and innovative this year andbeyond .•

Steven R Renard, MBA, CHE, is chairman, president and CEO of DiagnosticRadiology&OncologySeroicesInc., a Roseville,Calif-based development, manage-ment and consultingfirm.

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