Imaging Economics – What’s in the Cards?

Practice Management

For radiology providers, 2014 will be a year of learning and preparation. The big changes in payment models and practice models will come to fruition in 2015 and beyond.

By Steven R. Renard

Renard

In order for the radiology industry tosustain success, it must look over the horizon toward 2015. The Affordable Care Act (ACA), also known as Obamacare, has had your practice in its crosshairs since President Obama signed the ACA in March 2010. The healthcare industry has typically strategized and forecasted 12 months ahead, living on the fee-for-service model that enabled profit margins to exist even in the face of draconian reimbursement cuts.

As providers and consultants jammed into meetings, read books, and listened to analysts, the industry remains static. Strategically, radiology and healthcare have been cycling in and out of optimism, hoping that the worst is over. However, many providers became myopic and so focused on costs that they lost sight of strategy. Rather than planning 2 years ahead, it became quarter-by-quarter and year-to-year planning. Similar to manycountries that are struggling to addresincreasing costs, poor or inconsistenqualitycare, and inaccessibility to timely care, the issues are systemic and the only cure is afundamental transformation of healthcare.1a

Then, in March 2010, the ACA was passed with provisions set in motion so that any margin left in healthcare will be shifted from quantity to quality. It signified the biggest social reform this country has seen in 50 years, making the Deficit Reduction Act (DRA) of 2006 look as though it was nothing more than a bad accident in which the airbags saved the industry. All things considered, radiology adapted quite well to the DRA. It taught “where to cut costs” and would provide the foundation to prepare the industry for Obamacare. Without these lessons, pain, and hardships caused by the DRA, the ACA would be a devastating transition.

 Assuming that our healthcare system can achieve comprehensive winwintransformations in the next 5 years mabe unrealistic.  expect the following changes will impact the overall environment in piecemeal, incremental approachesto healthcare change and this disruptive process will result in poor results and unintended consequences.

New Payment Models

The healthcare marketplace has become extremely competitive over the past two decades, containing large, highly operational, and well-funded competitors. Therefore, its very existence, the internal and external environments, must beanalyzed by an experienced and knowledgeable third-party who is best equippedto achieve positive results, and deliver recommendations based on facts in order to properly strategize or diversify the business.  Since one of the most significant shifts will be in how providers are reimbursed for their services, to date, it’s not clear which one of the many possible payment models will exist. So far, it seems that the likely payment system will be a two-tired system between government and retail-private pay.

For several decades, radiology has received reimbursement through the fee-for-service model, an unbundled payment system that pays for services individually. This reimbursement method has been criticized by leaders both inside and outside of radiology for driving up the overall cost of healthcare, as well as placing emphasis on the quantity of health services rendered rather than the quality.  However, it is a system providers are largely comfortable with. Bundled payment systems, which group services usually performed together into one reimbursement amount, are already moving to cover inpatient imaging services within the next 2 yearsCMS is also considering whether to expand the value modifier program to radiology, as it is currently applied to primary care services. Under this program, beginning in 2015, practitioners in groups of more than 100 eligible providers are required to submit their 2013 performance data through a physician quality reporting system (PQRS).

A Year to Learn

2014 will be merely a learning year for Obamacare, exchanges, accountable care organizations (ACOs), and, lastly, the providers. However, it is important to understand how 2014 will play out but also what has happened to the original law. Most of the ACA has dramatically changed since it was passed. Both the good and bad portions of the ACA have changed, been placed on hold, or been eliminated to a degree and sit simply as a placeholder. These changes are nothing more than a continuing evolution of the 2,700-page ACA law, a preliminary blueprint. To the ACA’s credit, it has played out in stages so that disruptions in the margins of all healthcare providers will be slow, and by 2015 only the core of the plan will exist:Provide access to care for all that need preventative care.

First, let’s glimpse at what is coming in 2014. In short, 2014 will focus on getting the exchanges—which got off to a bumpy start—up and running with as many enrollees as possible. In 2014, Americans will be introduced to the exchanges, and there will be an evaluation process of the performance and the quality of the exchanges and ACOs.

Simply put, a health insurance exchange is a marketplace very much like your neighborhood grocery store. If you need to purchases groceries, you visit various stores and purchase products based on need, quality, and price. These exchanges are the heart of the Affordable Care Act, or also known as the “American Health Benefit Exchange.” The difference between the exchange and the grocery store analogy is that exchanges are government regulated based on quality and some Americans will be given monies to pay for their products at the exchange.  But will these exchanges change the shopping experience? From the patients’ prospective, they will have many options to choose from and plans will all be very standardized and “apples to apples.”

At this point, all that is certain is that the ACA will be implemented and the government will spend millions keeping providers in the status quo while the exchanges populate, the nation settles, and there is an assessment of what will and will not work.

The Obama administration has decided to delay the implementation of Obamacare’s employer mandate—the requirement that all firms with 50 or more employees offer health coverage, or pay steep fines—until 2015. The mandate was supposed to go into effect on January 1, 2014. This development will have a significant impact on the rollout of Obamacare, the private health insurance market, and the nation’s economy, as I detail below. In the short term, the delay will have several effects.

First, the mandate drives up the cost of labor, and therefore increases unemployment; delaying the mandate by 1 year may modestly mitigate that disincentive. Most importantly, the delay of the mandate means that more people will want to enroll in Obamacare’s subsidized insurance exchanges. Every year, fewer and fewer employers offer health coverage; given one more year to restructure their workforces, this process could accelerate.

The government is going with what many call “the honor system.” It has concluded that the ACA proposed rule is not feasible for implementation for the first year of operations, according to the Centers for Medicare and Medicaid Services. “The exchange may accept the applicant’s attestation regarding enrollment in an eligible employer-sponsored plan…without further verification, instead of following the procedure in §155.320(d)(3)(iii).”

The government also will allow people to gain means-tested subsidized coverage on the exchanges without having to test their means. “For income verification, for the first year of operations, we are providing exchanges with temporarily expanded discretion to accept an attestation of projected annual household income without further verification.”

Many on the forefront of keeping the entirety of Obamacare believe it should be delayed for a year until the severe operational problems with the law have been sorted out. Not long ago, I thought this was a quixotic idea, one that the White House would never accept because of their objective of enrolling as many people under Obamacare exchanges as they can.

However, at this point, it is hard to argue that even Obamacare’s supporters will benefit from activating this law in 2014. A smooth rollout of the law at least has a fighting chance of winning over the skeptics. My hunch is that conservative opposition to Obamacare will only intensify.

These problems will make it harder for advocates of market-based insurance exchanges—like me—to bridge the partisan divide. For true health reformers, a delay wouldn’t just be the responsible thing to do. It would be the ethical thing to do.

Status quo is not an option for radiology or healthcare providers. Period!

Prepare for 2015

In 2015, expect more alignment, mergers, and consolidation of ACOs and exchanges. Ultimately, the transformation of healthcare systems and the radiology providers that serve them will require commitment and follow-through on coordinated, collaborative efforts amonkey stakeholders, particularly with ACOsanclinicians at the epicenter of efforts tcreate more value-focused healthcare.1

The increasing focus on value, the rising need to activate responsible citizens, and the changing requirements of care delivery will force many ACOs to adopt and develop service delivery models with new and sharper strategic focus. Regardless of their chosen service delivery models, ACOs also will require a core set of enhanced and expanded competencies.

Most ACOs already fit into one or morof four generic service delivery models:

  • Community health networks, focusing on optimizing access across a definedgeography
  • Centeroexcellence, focusinon optimizing clinical quality and safety for specificmedical conditions
  • Medical conciergesfocusing on optimizing the citizen/patient experience andrelationship
  • Price leaders

Each of these models places different emphasis on the value dimensions of access, clinical quality, service quality, and cost. Even though they already exist, each model’s traditional focal points may be refined, redirected, or expanded to match the demands of a transformed healthcare environment. Now, radiologists and imaging centers are preparing for a new payment model under Obamacare, which will require them to demonstrate value in their services.

The radiology and healthcare industry knows that, going forward, it will be paid differently for different services and some are worried about being able to pay their bills.

 Some radiology groups are adopting a gain sharing reimbursement strategy. If the practice reaches a target set for selected imaging services, it receives a portion of the savings earned by the insurance provider. As the demands on care providersshiftso will the models for promoting health and delivering care. By 2015, ACOs andclinicians will need to develop or improve a set ounderlying competencies tosuccessfully implement the service delivery modelsAll providers should develop fivestrategic competencies:

  • Empower and activate citizens
  • Collaborate and integrate
  • Innovate
  • Optimize operational efficiencies
  • Use it to increase workflow and quality

The radiology community can assert itself into the process of helping to coordinate care and also influence how it will be paid through their ACO. The time to do so is now. Fortunately, there are strategies in place that can help doctors through this transition process. Two of the most significant of these strategies involve becoming a “good citizen” within the ACO and making the case for the adoption of clinical decision support software. In a recent article on how radiologists can become good citizens within the medical community, Lee et al emphasized the need to become part of medical boards and committees at the hospitals with whom they contract. They write, “In multidisciplinary institutions, radiologists serving on boards and hospital committees can advocate on behalf of their practices and help shape the institutional policies and practices with regard to medical imaging.”3

Consultants, along with the radiologists, can help guide the referring physician during complex encounters in which the ACO does not provide clear guidance, or when a referring physician wishes to override criteria for compelling clinical reasons. This will help the ACO hold down imaging costs and will contribute to shared savings. 

An example of how radiologists in ACOs might be paid in a hybrid fee-for-service and shared savings model may be where the radiologists will likely get paid at the time of service on a fee-for-service basis. Then a percentage of the savings in which they share will come at the end of the year and the goal is to participate in the distribution of the savings. That is one place where radiology will make money in 2015.

In addition, historically, diversification into new growth areas protects businesses by emerging into growth products or services. Radiology has proven examples of growing strategically. For example, expanding services into women’s health, neuro IR, cardiac imaging, and teleradiology.

Pending Proposals, Future Policy

The plans that are going to be sold in the new exchanges that Obamacare creates will largely be lowbrow services. Under the new rules, insurers need to keep the value of their health plans matched to relatively low financial (actuarial) targets. At the same time, the law mandates that health plans cover a broad range of services. To accommodate these costly mandates, and still keep the health plans affordable, insurers need to control what providers do, and limit what they are paid.

For the government, to help make this math work, the Medicare billing rates are an obvious target. Much of the private market is priced off these schedules, but physician pay is likely to be in the crosshairs for a long time.

Last year, the Medicare Payment Advisory Commission proposed to cut what Medicare pays specialists and then freeze these lower rates for years. Under that plan, everyone except primary care physicians would see payments for their services cut by 5.9% a year for 3 years (totaling a 16.7% cut in income), followed by a 7-year freeze at the reduced levels. Primary care providers would have their reimbursement rates frozen at today’s pay levels for the whole decade.

While these are just proposals, they have to be taken seriously. The Medicare Commission’s recommendations are typically a harbinger of future policy decisions.The proposal went well beyond past attempts by the Medicare Commission to try to bring outpatient fees more closely in line with the rates paid to hospitals for the same services. Citing an “increased urgency,” the Commission said that the “current payment disparities had created incentives for hospitals to buy physician practices, driving up costs for the Medicare program and for beneficiaries.”

This reckoning was inevitable. Physician reimbursement needs to come down to accommodate Obamacare.

New practice models from the solo “micropractice” to the patient-centered medical home, to direct-pay practice, hold promise both for diversifying physicians’ service offerings and for improving physician productivity. Moreover, digital technologies that enable real-time claims management and payment, automatic dictation and coding, and improving physicians’ communication with one another and their patients could lower overhead costs and enable a more efficient practice. Medical practice innovation holds the key to private practice being a viable alternative to salaried employment for the next generation of physicians.

In closing, a radiology group that is part of an ACO will have a portion of Medicare patients who are in the ACO’s shared savings model. Treating all patients equally and committing to giving those patients high value care for the year while also delivering care at a lower cost just to win lives with the ACO and exchanges is a very risky and challenging way to practice radiology. A radiology group will get paid to deliver the service on some kind of discounted fee-for-service basis, but at the end of the year, if there are savings, the ACO will get some money back; therefore, one must be prepared to negotiate to share in the distribution of those savings. The ACO also may have negotiated a bundled payment with commercial payors for procedures such as knee replacements, and the radiologists in a particular group will share that payment. That amount at the end of the year is where skilled negotiators who can sell the cost and value of the imaging care that was delivered saved the ACO hundreds of thousands of dollars. At first, many groups may try to negotiate themselves and use in-house contractors. A word of caution to radiologists as we enter a whole new realm of payor negations in 2014: Do not be penny wise and pound foolish when it come to this area of your practice. Go along with the consultant and learn. Use a proven consultant that has both payor experiences in the HMO/capitated world.

As stated earlier, a well-rounded radiology group also will likely still see fee-for-service patients who are not in the shared savings model and are not part of any bundled payment plan, although I expect the relative numbers of those patients to decline over time. However, radiology will be a booming business with additional lives that require a good skill set to manage both the care and ultimately the cost. Radiology can be the “key” to a win-win national health system and to a growing number of concierge business that will soon grow more systemically  in 2015-2016.

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Steven R. Renard is founder, CEO, and President of Diagnostic Radiology & Oncology Services based in Roseville, Calif.

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Bibliography

Jim Adams, Edgar L. MounibAditya Pai, Neil Stuart, Randy Thomas, PaigeTomaszewicz. Healthcare 2015: Winwin or lose-lose?” IBM Institute for BusinessValueOctober 2006. http://www.ibm.com/healthcare/hc2015

Becker’s Hospital Review. Punke H. 5 Payment Models for ACO Providers. Available at: http://bit.ly/ACOPayModels. Accessed June 17, 2013.

Centers for Medicare & Medicaid Services. More Doctors, Hospitals Partner to Coordinate Care for People with Medicare. Available at: http://bit.ly/ACRCMS. Accessed June 17, 2013. 

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