Over the last decade, freestanding outpatient imaging centers have grown in numbers by approximately 10% annually, and most have been able to achieve and sustain some level of economic success by providing quality imaging services in a user-friendly environment as opposed to the traditional hospital inpatient or outpatient setting. However, with the ever-increasing velocity of technological, certification, legal, legislative, and payor-driven changes, we can anticipate the difficult but navigable waters of the marketplace to become far more treacherous in the future. What lies ahead clearly appears to harbor economic disaster for many.
The rapid evolution of technology has reduced significantly the useful life of equipment requiring capital investments of a million dollars or more, consuming resources beyond the ability of many to sustain. Technological advancements introduced by equipment manufacturers at one annual meeting of the Radiological Society of North America are seemingly reduced to yesterday’s news before the next gathering in Chicago. As a result, return on investment analysis must include consideration that the useful life of a new equipment purchase will not extend through the depreciable life of the equipment under current tax codes. In addition, a much more knowledgeable health care consumer continues to elevate their expectations for access to the most current technology, even without the direct to consumer advertising campaigns that have recently been launched by equipment manufacturers.
The American College of Radiology (ACR), the Mammography Quality Standards Act, the Food and Drug Administration, and state and other certifications for both equipment and staff continue to evolve and expand to include more modalities. While the underlying justification for these certifications may be to assure quality care for our patients, they have added significant costs and complexity to imaging center operations.
The legal environment for health care providers has driven costs for professional liability coverage and prevention to unprecedented levels. Provider productivity has been compromised due to ever-increasing defensive medical practices, which yield questionable benefit to patients and consume resources better directed to diagnosis and effective treatment. Since the advent of Stark I and even more so with the expanded Stark II regulations, legal costs for providers have increased to ensure that previously commonplace relationships with referring physicians and others fall within the safe harbors that will not expose either the provider or the referrer to potential expulsion from Medicare participation or run afoul of similar state regulations.
WAVES OF UNCERTAINTY
While we have operated in an industry replete with acronyms for years, none of these acronyms has resulted in more waves of economic uncertainty than the most recent, the DRA, or federal Deficit Reduction Act of 2005. The impact of the reduced reimbursement for imaging studies performed on contiguous body parts will result in a significant reduction in revenue for most providers. However, that reduction pales in comparison to the dramatic reimbursement reductions that will be thrust upon outpatient imaging providers by the move to the lesser of RBRVS (resource-based relative value scale) or HOPPS (hospital outpatient prospective payment system), which are estimated at some 30% for MRI technical component with lesser reductions for other modalities. A recently published restatement of revenue for 2006 and projected revenue impact for 2007 by a national publicly traded imaging provider projected a $13 million reduction in revenue for 2007, directly resulting from DRA 2005. In addition, states facing enormous budget deficits such as New Jersey have instituted a gross receipts tax of 2.9% for imaging and other licensed ambulatory facilities under the guise of compensating for charity care.
If previous experience is any measure of the future, we can expect private payors to follow closely behind government payors with further reimbursement reductions. Private payors and utilization managers not only continue to ratchet down reimbursement levels but also have established much more restrictive precertification processes that make it increasingly complex for referring physicians to obtain authorization to order imaging studies they believe are medically necessary. Recent actions by payors and utilization managers in several northeastern states dictate a minimum number of modalities that must be provided to credential imaging centers and most recently are dictating the minimum age of equipment hardware and software in order to remain in or become credentialed for their networks even with ACR or other certifications. In some cases, these entities represent 50% or more of the non-Medicare insured population. With continued consolidation of large insurance carriers throughout the country, we can likely expect these selective practices to spread.
Given these looming issues, an active imagination is not required to anticipate what hopefully will not result in a disastrous perfect storm for many outpatient imaging providers. These threats to our businesses dictate a need for those of us who expect to survive the turmoil to become activists in raising these issues to our local, state, and national legislators as issues that if allowed to continue uncontrolled will result in decreased access to outpatient imaging services to their constituents due to attrition of quality providers who are unable to survive this tsunami of change.
James T. Breland, FACMPE, is president and COO of Sonix Diagnostic Imaging, a diagnostic imaging center chain based in Hauppauge, NY, operating 16 imaging centers in New York and New Jersey.
