At modern supermarkets the cashier scans bar codes on purchases instead of ringing up prices. It is fast and convenient, and it is crucial to operations management at the store. Automated inventory control and stock ordering reduce cash flow and improve turnaround. Equally important are the marketing trends that these purchases disclose. That flickering red light seems to know when a customer is out of coffee, when the baby needs diapers, and what brands are preferred. Stores can assess the impact of advertising by measuring the time-delayed purchase of featured items. They can tailor coupons on sales receipts to individual needs, enticing customers to try new brands. In Japan, some convenience stores actually change shelf layout between morning and evening to optimize the visibility of certain products at the times they sell the best.
Although we are not yet tattooing patients with bar codes, the struggle to make ends meet at most MRI facilities is often as competitive as the mercantile trade. Gone are the days of $1,000 and higher technical reimbursements per examination. Preauthorization requirements now lengthen scan turnaround and often interpose gatekeepers with little medical training or diagnostic experience. Restriction of technical fees by managed care organizations and government fiat has markedly reduced revenue. To paraphrase the real estate dictum, the key to MRI financial viability is now volume, volume, volume. But how can MRI facility managers conjure up the additional patients to meet their costs?
A Powerful Tool
MRI volume analysis can be a powerful method to unveil ignored or underserved market segments. Local referral patterns often contain valuable information that, properly applied, can lead to enhanced patient services. However, applicable benchmarks must be available to facilitate the measurement of local performance. Through visits to hundreds of MRI facilities and more than 50 audits of MRI operations for clients ranging from nationally known academic medical centers to small freestanding MRI facilities, Robert A. Bell & Associates (RAB) identified three important areas where market analysis is often highly variable. Recognizing local anomalies can yield far more accurate market benchmarks.
1. Distribution by Age. Virtually all diagnostic examinations show a strong correlation between age and frequency of use. However, MRI does not appear to follow some trends established for general radiography or CT.
2. Referral Base. If your number of examinations per 1,000 of population is substantially lower than the national average, it can signal a need for more MRI education in the referral community. Sometimes referrers are unaware of advanced diagnostic methods or simply send patients for the wrong examination.
3. Payor Distribution. Service areas that have large managed care components may show lower than normal referral patterns due to payors’ utilization policies, but there are exceptions.
Why is examination volume important? Declining reimbursement per examination translates into declining revenue unless volume is increased. Over the past decade the diagnostic imaging industry has experienced a decrease of approximately 50% in non-inflation corrected MRI reimbursement per examination.1 Correcting for even modest inflation, the picture becomes even gloomier but fortunately most MRI expenses (equipment, supplies, personnel costs) have not increased substantially over this period, somewhat balancing this factor.
High Fixed Asset Investment
MRI is a high fixed asset investment in which a large majority of costs must be committed prior to any revenue generation.2 Fixed costs must be shared over the volume of examinations conducted annually, whereas variable costs are incurred only when an examination is conducted. Examples of each are shown in Table 1 (page 21). If a site is providing only 1,000 examinations per year and per annum fixed costs are $700,000, each study will cost $700 plus the variable component (typically about $75 to $100, excluding reading fees, which have decreased in about the same proportion as technical fees). If the same site conducts 3,000 examinations in the same year, the cost per study will be $233 plus the variable component. Since MRI variable costs are relatively low (less than 20% in most cases), expenses do not increase proportionally with examination volume (see Table 1). Indeed, in the example below, a doubling of examination volume from 1,000 to 2,000 per year generates only an 11% increase in technical expenses ($790 x 1,000 vs $440 x 2,000). Thus, low volume facilities that do not have the ability to pass higher costs to the payors must lose money, be supported with other funding sources, or increase volume to lower costs.
Paradoxically, the average number of MRI examinations per unit in the United States has declined since 1985 (see Table 2) and appears to be leveling at about 2,300 examinations per system. Reversing this trend is the key to financial viability.
Few data can offer more assistance than utilization rates. They can be used to project the volume of MRI examinations from a given referral population, address claims of overusage, persuade state certificate of need committees of the need for more MRI units, assess the sophistication vis-?-vis MRI of a referral base, anticipate the need for future MRI capacity (based on utilization growth), and identify potentially under- or over-served market segments. The only problem is the astounding number of variables on which they depend. Burkhardt and Sunshine found that diagnostic utilization rates were impacted by age cohort, sex, ambulatory or inpatient status, region of the country, payor mix, industry, and employment class.3 For the 1992-1993 period, they note rates as low as 7 examinations/1,000 for females age 0-17 under HMO coverage to as high as 44 examinations/1,000 for ambulatory plus inpatient Medicare recipients. Likewise, Kangarloo et al4 found MRI utilization rates more than doubled within 1 year from 17/1,000 to 36/1,000 in a patient population that shifted from fee-for-service to a capitated reimbursement system. Hillman et al5 have shown self-referral radically increases utilization rates for some diagnostic procedures, and Tierney et al6 have demonstrated variations in utilization rates when physicians are made aware of the costs of imaging studies. Therefore, in utilization analysis the selection of appropriate benchmarks is of crucial concern.
It is often helpful to compare local MRI rates against the US average and then to explore potential anomalies. In the United States, approximately 14.4 million MRI examinations were conducted last year. Dividing this number by the latest estimate of the 2000 US population, 281,421,906, one derives an average MRI utilization rate of 51 examinations per 1,000 of population per year. In 1999, the average rate was about 48.9. The Medicare community represents approximately 12.8% of the population and, in 1999, utilized MRI at the rate of 68 examinations/1,000. Therefore, the average non-Medicare MRI usage rate in 1999 was approximately 46/1,000. Over the past half-decade yearly increases for the non-Medicare fraction were typically in the range of 7% to 10%, while those for the Medicare group were about 15%.
VARIATION BY AGE COHORT
Utilization of imaging services increases with age. As we grow older, we require more medical services in general and more imaging procedures in particular. Typically, utilization rates within the 65+ (Medicare) community are three to four times those averaged by the 0-64 age group. Burkhardt and Sunshine3 explored this variation in the early 1990s, but could not reach definite conclusions regarding MRI due to wide variability in usage rates between managed care providers and conventional payors.
RAB has obtained the Part B Medicare yearly summaries for radiology payments and services allowed spanning 1996 through 1999 (BMAD, or Part B Medicare Annual Data procedure file). Additionally, we have also obtained the Medicare MRI reimbursement data for 1994 and 1995. Although it accounts for about 12.8% of the population, the Medicare segment in 1999 consumed 17.7% of MRI examinations. What is most surprising, however, is that this figure was not higher. Had Medicare usage of MRI paralleled that for CT or plain film radiographs (approximately 3.5-fold utilization increase over the non-Medicare group) the fraction should have been well over 33% and the total volume of MRI scans would have grown by more than 3.2 million additional procedures.
Utilization rates for MRI and CT are shown in Figure 1. Although MRI usage has grown within the Medicare community at about twice the rate averaged across the entire US population, its ratio to the non-Medicare MRI rate is far from the 3- to 4- fold difference seen here for CT and noted previously by Sunshine et al.7 This indicates that the Medicare population is not receiving a statistically equivalent portion of MRI examinations compared to CT and standard radiography.
|Figure1: Medicare and non-Medicare MRI and CT examinations/1,000.|
What are possible causes for such an aberration? One might argue that MRI is less applicable to the diseases of the aged, but this does not correlate with clinical experience. MRI is the technique of choice for tumors, spinal herniations, torn joint cartilage, and many other soft-tissue maladies common in the aged. Perhaps the large majority of Medicare CT usage is for acute trauma, an area where MRI has yet to have strong impact (argues for a higher ratio in CT than MRI). According to Burkhardt and Sunshine,3 less than half of CT utilization in the Medicare community is for inpatients so this explanation appears unlikely. If referring physicians do not send the aged to MRI because it is perceived as an expensive diagnostic test, it would follow that Medicare recipients are receiving inferior quality diagnostic care.
Whatever the causes of this anomaly, one must take care not to overestimate the anticipated MRI volume increase that should be expected in populations with higher than average Medicare fractions. It may be interesting to explore rate differences between Salt Lake City and Wheeling, WVa, to see if such influences are significant. According to the US Census Bureau, Utah has the youngest average age (65+ is 8.7% of the population) and West Virginia has the oldest (65+ is 15.1%).
This anomaly may also signal an opportunity for increasing MRI volume. A direct campaign to explore the referral patterns of physicians specializing in the elderly could clarify the reasons for their apparent lack of MRI volume. Education of this group could increase referrals of patients who would be best served by MRI studies.
Analyzing the REFERRAL BASE
Generally, more than 80% of referrals come from within a provider’s primary service area. Multiplying the population of this group by a reasonable estimate of local utilization (about 45/1,000 for this year), one can obtain a lower estimate of local 2001 MRI volume. If this result is much lower than the volumes actually seen, either the estimate of primary service area is too small or the local utilization rate is higher than average. If the number is higher than local experience, the referral population may benefit from targeted seminars on MRI applications. In most urban areas the specialties of neurosurgery, neurology, and orthopedics contribute at least 70% of MRI volume. It would be advisable to focus marketing efforts on these referrers first.
One might assume that the higher the fraction of managed care in a community, the lower the utilization rates for high-end imaging studies. However, this depends on the utilization review policies of each provider. Some, especially under capitated plans, show higher than average rates. It is imperative that the MRI facilities manager know the payor mix of the local referral market. Those payors with utilization rates substantially lower than 40 examinations/1,000 should be contacted so providers can understand the payor’s utilization review policy. An education effort may help to increase referrals.
RAB has found that MRI referrals within most health maintenance organizations are well below the 40/1,000 rate. This is surprising because these groups generally own their own systems and have the opportunity to run them extremely efficiently. One must conclude that they are either rather inefficient or they have too much capacity in MRI.
Those who make the effort to measure local utilization rates and assess their referral market against national standards will enjoy a clearer picture of their business. Often understanding the problem is 90% of the solution. Identifying those sectors where more referrals should arise gives direction and quantifiable benchmarks to the marketing program.
The nationwide average MRI utilization in 2000 was about 51 examinations per 1,000 of population. Within the Medicare community, it was approximately 68/1,000 in 1999 (last year available). By comparison, average CT usage in that year was about 105/1,000 and was 271/1,000 in the Medicare group. More MRI examinations should be expected from Medicare recipients, but this may require substantial efforts to determine the causes of underutilization and education to address them. Other sources of variation in usage rates are lack of education in local referral communities with respect to modern MRI applications and payor utilization review policies. n
NOTE: In a second article later this year, the author will discuss benchmark techniques to assess and improve the efficiency of MRI operations.
Robert A. Bell is president of RA Bell and
Associates, Encinitas, Calif; (858) 759-0150, [email protected]. He specializes in technical and operational services for diagnotic imaging equipment.
1. Bell RA. Tools of the trade for cost-effective MRI. Diagnostic Imaging. April 1997:49-52.
2. Bell RA. Economics of MRI technology. J Reson Imag. 1996;1:10-25.
3. Burkhardt JH, Sunshine JH. Utilization of radiologic services in different payment systems and patient populations. Radiology. 1996;200:201-207.
4. Kangarloo H, Ho BKT, Lufkin RB, et al. Effect of conversion from a fee-for-service plan to a capitated reimbursement system on a circumscribed outpatient radiology practice of 20,000 persons. Radiology. 1996; 201:79-84.
5. Hillman BJ, Joseph CA, Mabry MA, et al. Frequency and costs of diagnostic imaging in office practice-a comparison of self-referring and radiologist-referring physicians. N Engl J Med. 1990;323:1604-1608.
6. Tierney WM, Miller ME, McDonald CJ. The effect on test ordering of informing physicians of the charges for outpatient diagnostic tests. N Engl J Med. 1990;
7. Sunshine JH, Mabry MR, Bansal S. The volume and cost of radiologic services in the United States in 1990. AJR Am J Roentgenol. 1991;157:609-613.
Robert A. Bell is president of RA Bell and Associates, Encinitas, Calif