Imaging Fees for Physicians Get Pushed Over Fiscal Cliff

January 11, 2013

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Medicare Math on Calculating MRI and CT Use

Precisely how Congress reduced imaging revenue for physicians by $800 million is a journey into the byzantine world of Medicare fee-setting.

What looks as simple as a $658 Medicare fee — the national average — for a brain MRI with or without contrast is instead 2 separate fees. One is for performing the study, or the technical component (TC); the other is for interpreting the results and writing a report, or the professional component (PC). As with most other imaging services, the TC for this particular MRI, billed under CPT code 70553, represents the lion's share of the total fee — here, about 83%.

ATRA reduces reimbursement only on the TC side. Understanding that cut requires going deeper into Medicare math.

The Centers for Medicare & Medicaid Services (CMS) calculates the TC fee using the usual trio of relative value units (RVUs) — one for the work performed, one for the physician's practice expense (PE), and one that reflects the cost of malpractice insurance. CMS adds up these RVUs, multiplies the sum by a dollar figure called the conversion factor, and makes adjustments for geographical differences. What comes out is the Medicare allowable charge.

Lawmakers found their $800 million in savings in the PE RVU, which breaks down into its own components. For physicians performing diagnostic scans, one big expense is the cost of the machine, such as a $2 million MRI scanner. In 2009, the Medicare Payment Advisory Commission (MEDPAC) reported that the equipment needed for a 70553 MRI brain scan represented almost 90% of the TC fee.

CMS calculates the per-service cost of imaging equipment by multiplying how many minutes the machine is typically used for a particular scan by its cost per minute. The cost per minute equals the purchase price of the machine spread out over the number of minutes of likely use over its probable lifespan.

Originally CMS assumed that medical practices would use their equipment, diagnostic and otherwise, for 25 hours of a standard 50-hour week. This yielded a utilization rate of 50%.

The utilization rate is a key factor because spreading out a machine's purchase price over more hours or minutes per week deflates the TC fee. And that is just what MEDPAC recommended in 2009 regarding diagnostic equipment costing more than $1 million.

In its annual report to Congress that year, MEDPAC said that the original utilization rate of 25 hours per week, or 50%, was essentially a guess. Empirical evidence pointed to an actual usage rate of 45 hours per week, or 90%, for MRI and CT scanners. The artificially low rate of 25% meant that Medicare was overcompensating physicians, according to MEDPAC. Furthermore, this rate encouraged more physicians to buy expensive MRI and CT scanners and overuse them. MEDPAC recommended that CMS raise the rate to 90%.

Two years later, Congress remembered what MEDPAC said when it passed the Affordable Care Act (ACA). The law increased the utilization rate of advanced diagnostic equipment from 25% to 75%. That change slashed TC fees and helped pay for healthcare reform.

What ATRA will do beginning in 2014 is raise the utilization rate even higher, to the 90% level recommended by MEDPAC.

The ACR's Dr. Allen said his society has not yet determined how much lower TC fees for MRI and CT scans will go as a result of the new law. His rough estimate is 10% to 15% per scan.

"It is absolutely a significant cut," he said.