Johnson B. Lightfoote, MD, MBA

Macroeconomics is the study of the overall economy of a nation; it addresses the relationship among major sectors of the economy, and the interaction of factors such as income, output, populations, employment, productivity, and technology. The major macroeconomic and demographic trends affecting radiology at the turn of the millennium include:

  • Health care expenditures will increase from $1.2 trillion in 1999 to $2.2 trillion in 2008, and the portion of the gross domestic product (GDP) provided by the health care industry will increase from 13.9% to 16.2% over the same period.
  • The number of US residents over the age of 65 years will double, increasing from 35 million in 1999 to 70 million in 2020.
  • The high clinical value of radiology may be increasing the share of medical care provided by radiologists. Spending for radiology services increased at a higher rate than spending for other specialty care during the 1980s, but trends during the 1990s are less clear. Technological advances will help expand disproportionately the share of health care resources commanded by radiology.
  • Some imaging technologies will be politically and demographically driven in their application and dissemination.
  • Federal budget surpluses and prosperity will likely mitigate, though not eliminate, some cost-containment pressures.
  • Health care expenditures not only account for 13.9% of the US GDP, but account for 21% of the federal government’s budget.1
  • Capitation rates decreased for radiology through 1998, but there are fewer providers using capitation, and more relationships are moving to reduced fee-for-service contracts as of 2000.

The engine of the economy

The productivity of US workers has fueled ongoing GDP growth. Since 1948, the first year when statistics were kept, labor productivity has been rising, but productivity from 1993 to date has been increasing at a substantially greater rate. Nonfarm business output, on a per hour basis, has shown in some recent years increases of more than 5%. This productivity is the source of national prosperity. From 1980 to 1990, productivity increased 16%, with growth driven by workforce diversification, expansion, and education. From 1990 to 1999, the increase (20%) was driven by information technology, the interoperation of that technology (with machines finally beginning to talk to other machines), and education. The overall productivity increase since 1980 has been 38%.2

National health expenditures as a percentage of GDP have also increased, and are expected to reach 16% by 2008. According to some analysts, there may be nothing wrong with such a large share of the US GDP being devoted to health care, and the spending of even 25% of the GDP for this purpose would be sustainable, if not even desirable.3

Demand and diversity

Figure 1. The ranks of the elderly will grow substantially in the coming decades.

The effect of the Baby Boom on the age profile of the population is, of course, one of the primary forces driving this increase in spending. The Baby Boom began in 1946 with the return of soldiers from World War II, and ended in 1964 with the availability of inexpensive reliable contraception in the form of The Pill. This 22-year period of higher than average birth rates also produces an echo of peaks in population every generation, every 25 years thereafter, as the children and grandchildren of the boom era babies are born.4 In addition, the effect of the Baby Boom moving through the population means that more people are substantially older than ever before, and this trend will continue. Life expectancy at age 65 is also increasing, as it did throughout the twentieth century. By 2040, for example, women reaching age 65 will be able to look forward to an average of 22 more years of life.4 The effects of greater longevity on programs such as Medicare will be profound. The population of the elderly (over 65 years old) and aged (over 75 years old) will double by 2030.6 The largest growth is occurring in the population 85 or more years old, and these seniors tend to consume more health care resources.

The US population will also become more diverse.5 The nonwhite (most significantly represented by African Americans, Asians, and Native Americans) and Hispanic populations are growing more quickly than any other segments of the population, and they will account for roughly one-third of the US population by 2010. Both average income and income disparity will increase. Today’s income distribution places the majority of US residents at midrange levels, but trends now operating are increasing the percentages of households earning more than $100,000 and less than $30,000 (in 1995 dollars): the middle class is shrinking. Unless it is addressed politically, this phenomenon may have an effect on health care by creating groups of haves and have-nots.5

According to the Robert Wood Johnson Foundation,5 there are four principal determinants of disease and health problems. Half of the need for medical care is caused by behavioral problems (such as smoking, excessive alcohol use, failing to wear automobile seat belts, obesity, and engaging in high-risk sexual activities). An individual’s environment and genetic factors each account for 20% of health problems. Lack of access to health care is believed to be responsible for only 10% of health challenges faced by individuals.

Price indices for medical care and the general economy show that the Medical Care Index has continued to increase more rapidly than the Consumer Price Index. Current predictions indicate that there will be a 4.5% inflation rate for medical care by 2008, as compared with a 3.3% rate of general inflation.

Funding for health care

Projections for health care spending as a share of GDP are based on two growth scenarios.6 First, health care costs have increased at a typical rate of 8% per year whenever the dissemination of a major new technology or broadening of access was in progress. This effect was seen in the public sector from 1960 to 1984 (the introduction of Medicare) and again from 1994 to 1999, and in the private sector from 1991 to 1994. Second, the costs of care have increased at an average rate of 5% whenever cost-containment strategies are being emplaced. This effect and low growth rate were seen in the public sector from 1984 to 1994 (prospective payment and DRGs) and in the private sector from 1994 to 1999 (managed care and capitation). The Health Care Financing Administration (HCFA) chose a growth rate divided equally between these two phenomena to yield its projection that 16.2% of the GDP will be spent for health care in 2008.

The nation’s sources of health care financing in 1998 were private insurance (32% of dollars paid), Medicare (19%), out of pocket payments by consumers (17%), Medicaid (15%), other public sources of funding (12%), and other private payment sources (5%). These funds were spent primarily on hospital care (33%), making hospitals the natural target of cost-containment measures. Other unspecified spending accounted for 26% of costs, physician services accounted for 20%, and nursing-home care accounted for 8%. Another 8% of national health care funding bought prescription drugs; as the fastest-growing segment of health care spending, this area is currently a common focus of cost reduction measures. Administration and profit were responsible for the remaining 5% of health care expenditures.7

Of federal health care expenditures in 1998, the portions attributable to Medicare and Medicaid were 14% and 7%, respectively. In 1999, the Medicare program covered 38 million US residents; by 2020, it is likely to have 60 million enrollees. In 1970, the federal government and private health insurance combined provided less than half of health care funding. Today, these are the sources of two-thirds of US health care expenditures. As a consequence, what both of those types of payors use as one of their main cost control technique is managed care. This private and public application of managed care has had a major impact on physicians and provider organizations. Three decades ago, the effects of managed care would have been much less widely felt because private and out-of-pocket funds were used to pay 40% of health care costs; private insurance and federal payments accounted for only 46% of health care costs in 1970.8

For the first time in 10 years, private health care spending has increased while public sector spending decreased. The most important factor slowing public spending has been the continuing impact of the Balanced Budget Act of 1997, passed in that year as a Congressional response to projected depletion of the Medicare trust fund. As a result, public sector spending grew at 4.1% in 1998, as compared with private sector growth of 6.9% (and health insurance premium growth of 8.2%) during the same year).9

Providers, payors, populations

Figure 4. HCFA payments under Medicare Part B during 1999.

Radiologists and hospitals are not profiting under capitation.10,11 Payment rates for capitated plans may have reached their lowest point, however, as insurers are now passing on premium increases to providers. Consumers are demanding more control, access, and choice in their health care. Many providers can now demand and receive increases in their per member per month capitation rates. A 3-year survey12 showed a mean commercial diagnostic radiology capitation rate of $2.23 per member (service baskets not specified), per month. For Medicare, the mean was $6.93.

Figure 5. Medicare Part B payments during 1999.

Clearly, there will be some relaxation of cost pressures in the near and intermediate term. Federal budget surpluses and the long “new economy” boom will mitigate cost-containment pressures. In April 2000, HCFA increased its Sustainable Growth Rate (SGR) from 2.1% to 5.8%. (This SGR is the percentage of increased disbursements that HCFA will accept without recommending to Congress that there be a change in Medicare conversion factors for the coming year.) HCFA’s 2001 fee schedule for physicians will increase radiology reimbursement 4%. Finally, the Balanced Budget Act Relief Bill (HR 2614) presently pending Congressional passage would provide for full Medicare inpatient inflation adjustments, and elimination of caps on Medicaid disproportionate share payments.

The newly implemented Medicare cost- containment initiatives, the Hospital Outpatient Prospective Payment System and its Ambulatory Payment Classifications, were enacted in 1986 and 1990 as parts of budget reconciliation acts. These will have little direct effect on reimbursement for the professional component of radiology; their effect on the technical component of radiology is still unclear. HCFA claims13 that there will be a 4.6% increase in the hospital revenues generated by the technical component of radiology, but some observers expect decreases of up to 60% for the technical component of outpatient hospital radiology.

Figure 6. Medicare and Radiology services expenditures in 1997: physician services payments.

Enrollment in HMOs grew rapidly in the 1990s, reaching roughly 30% by 1999. Many analysts predict that HMO enrollment will not exceed 35% of the US population, so it is possible that the growth of this sector is ending (despite the fact that historical data on this trend show only increases in its market share through 1999). The underinsured and uninsured, however, represent a chronic national crisis. Between 1990 and 1994, these categories enlarged dramatically, prompting the Clinton Administration’s design of federal intervention programs that were not enacted by Congress. There has been no drastic increase in the number of underinsured (Medicaid) patients since 1994, and the proportion of uninsured plus underinsured people in the population has remained steady since that time at about 27%. As a result, the political sense of urgency motivating drastic action to reduce the number of uninsured and Medicaid patients has been blunted. The United States remains, however, the only developed nation except South Africa that does not provide health care financing for all its citizens, and there still remains substantial political pressure to provide adequate coverage for the uninsured population.

Radiology: Central

Figure 7. HCFA payments for radiology (CPT 70000-79999) during 1999.

It seems clear that high value cross sectional imaging (CT, MRI, and ultrasound) and effective interventional procedures are increasingly central to patient care. CT utilization increased 35% between 1993 and 1998 and MRI utilization increased 41% during the same period, with future increases of 5% to 8% annually expected. It is an increasingly common experience today for radiologists who are interpreting a study to ask for the relevant patient history, only to be told by the referring clinician that the patient has not yet been seen because the physician wanted to obtain the radiology results before seeing the patient. In effect, some clinicians are coming to radiologists for primary diagnoses-they scan first and ask questions later.

Radiology provides a higher percentage of total patient care than it did in the past. According to James Thrall, MD, chairman of radiology, Massachusetts General Hospital, Boston,14 government spending for radiology services increased 50% faster than spending for the services of other medical specialties during the 1980s.15 At his institution, CT examinations increased 65% from 1993 to 1997, and MRI examinations increased 50%. The relative value units (RVUs) expended per examination increased 25% during that time. The RVUs per inpatient admission increased 20%, and those expended per ambulatory visit increased 50%.

Figure 8. Commercial diagnostic radiology capitation rates: dollars per member per month.

The Medicare program spent 6% of its 1997 budget for physician services on diagnostic imaging.16 HCFA’s 1999 payments for radiology (defined as Current Procedural Terminology [CPT] codes 70000 through 79999) were $189.9 million for the technical component (the ?TC modifier) and $1.4 billion for the professional component (the ?26 modifier).17 HCFA payments made under Medicare Part B during 1999 totaled $3.9 billion for radiology codes (all modifiers), as compared with $46.5 billion for all CPT codes.17 This indicates that slightly more than 8% of allowed charges and payments for Part B were attributable to radiology. There was no clear trend apparent for radiology Part B payments from 1997 to 1999, but payments for Part B services overall increased: slightly from 1997 to 1998 and sharply from 1998 to 1999. No trend was exhibited from 1994 through 1997 in Medicare physician service payments for diagnostic imaging (for 1997, 6.5%). There was a slight downward trend in physician service payments made to physicians who identified themselves as radiologists: this proportion fell from 5.5% in 1992 and 5.6% in 1994 to 5.0% in 1996.16

Figure 9. Medicare diagnostic radiology capitation rates: dollars per member per month.

Hospital outpatient radiology charges covered by Medicare in 1997 accounted for 20.1% of payments made for hospital outpatient care. This proportion has thus slightly decreased from a high of 22.8% seen in 1990.16 Thus, although we as radiologists may believe that we are accounting for a greater proportion of health care, economic data do not support such a conclusion: The percentage of charges and payments by the federal government for diagnostic imaging services is not increasing. No reliable data have been published for the private sector’s radiology versus nonradiology payment ratios. If radiologists believe that they indeed contribute an increasing share of patient care, then it is in the best interest of radiology to prove the differential value of its services.

So much technology, So few people

Figure 10. Macroeconomic effects on radiology practice.

Technological advances will expand the proportion of resources consumed by radiology because our procedures are increasingly effective, minimally invasive, and characteristically safer than the invasive procedures that they replace. Imaging-guided and computer-assisted procedures are associated with more rapid recoveries and shorter lengths of stay, as well as with diminished nursing and hospitalization costs. Cost-containment initiatives for health care promote the use of the minimum effective diagnosis and therapy, making imaging procedures attractive.

Politically and demographically driven technologies are also significant forces promoting increased use of radiology. These technologies include breast cancer screening, prostate ultrasonography, bone densitometry, coronary artery calcification scoring, CT screening for lung and colon cancer, CT and MRI diffusion and perfusion imaging, CT and MRI angiography, uterine artery embolization, vertebroplasty, and the use of stroke teams and protocols. Medical technology may be crossing a technological divide, from innovation driven by engineering (technology that comes in large boxes or on flatbed trucks) to biological innovations (technology that comes in vials or trays).18 Radiology clearly will continue to straddle this divide and avail itself of both paradigms: nuclear imaging immunologic and positron emission tomography (PET) agents, a greater understanding of the biochemistry of imaging, innovation spawned by the Human Genome Project, and software advances like spectroscopy, image fusion, and picture archiving and communications systems (PACS) will be equally important as our traditional “big iron” imaging hardware.

Information technology will also drive further developments in PACS, teleradiology, and Internet image transfers. These will be accompanied by clinically driven technology dissemination, especially of the minimally invasive diagnostics and therapeutics of interventional radiology.

Imaging procedure use is increasing, with more imaging being undergone by women in all age groups and, as might be expected, more procedures being provided to the old than to the young. In addition, the types of imaging provided are becoming more expensive as patients age and become more likely to need cross-sectional imaging. Some predictions suggest that procedural volumes will nearly double by 2030 among those 66 or more years old.

Changes in the demand for, and supply of, professional labor (as indicated by advertisements in radiology journals for radiologists to fill vacant positions) indicate that a shortage of radiologists began in 1997 and has now grown to encompass a huge number of vacancies.19 Our own practice of 60 radiologists in Southern California faces about a 10% professional person power shortage, particularly in specialties like breast imaging and interventional radiology. The United States civilian work force has enjoyed a steady increase in the employment rate since the 1960s, from 58% to 66% of those able to work. During the 1990s, unemployment fell, and is now at its lowest level since the 1960s. Together, these two trends have created a tight labor market that can result in what could be called compensation inversion (in which newly hired employees are paid more than the industry standard, and experienced equity partners earn more work instead of more money). This is particularly prevalent among information workers, and affects fields such as health care and radiology that have high information content and complexity.

Prospects for radiologists

Macroeconomic forces account for many of the changes we continue to see in our daily radiology practices. Like most radiology groups, since 1995 our group has enjoyed an increase in total practicewide RVUs (owing to demographics, technology and increased share of care), but suffered a decrease in reimbursement per RVU (owing to cost-containment initiatives). Only by increasing our productivity (RVUs per full time equivalent radiologist) and administrative efficiency can provider incomes be maintained.

There will be more than enough radiology work to go around: there is a near-term undersupply of qualified radiologists, and there will be long-term increasing demand for imaging services. Capitation may have reached its high water mark, but managed care is here to stay-in both the federal and private sectors. Most practices will face professional manpower challenges. Prosperity, productivity expansion, and federal surpluses will mitigate-but not eliminate-cost containment pressures.

Radiologists will be in demand, but it is likely that they will work harder to earn less. Radiology probably will provide an increasing proportion of total patient care. However, as radiologists, we must confirm, demonstrate, and demand recognition of our increasingly disproportionate contribution to health care: we must become advocates for our roles as central to the nation’s health care process. n

Johnson B. Lightfoote, MD, MBA, is medical director, Department of Diagnostic Imaging, Beverly Hospital, Montebello, Calif.


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