Calculating Reimbursement for CTs and MRIs: The Utilization Assumption

There are various ways in which the U.S. government has chosen to reduce Medicare payments to medical imaging centers. One of them is that reimbursement for medical imaging services is based, in part, on an equipment utilization assumption (see: ACR: Reducing medical imaging costs requires a short term investment). Below is an excerpt from this article, a guest post on KevinMD written by Dr. James Thrall representing the American College of Radiology (ACR):

The Administration recently recommended a radical change to the Medicare reimbursement formula for imaging services. Specifically, it called for increasing the formula’s utilization assumption to 95 percent — even more extreme than Medicare Payment Advisory Commission’s suggested increase to 90 percent. The utilization assumption is the percentage of a facility’s operating time that the equipment is assumed to be in use and is a key component of the Medicare formula used to calculate reimbursement. If the assumption is dramatically higher than the actual time a facility’s machines are in use, the center will be significantly underpaid for their services. According to data recently collected by the Radiology Business Management Association, imaging centers in rural areas operate equipment approximately 48 percent of the time their offices are open. Imaging centers in non-rural areas operate equipment approximately 56 percent of office hours. A 90-95 percent utilization rate for CT and MRI scans would result in an additional 30+ percent reimbursement cut for these modalities, on top of an average 23 percent hit resulting from imaging provisions in the Deficit Reduction Act of 2005 and even more reductions called for in the CMS’ proposed Physician Fee Schedule Rule. With cuts this deep, there will be minimal if any access to advanced imaging in rural America. Even suburban and urban providers may find it hard to continue to offer the same level of service — all leading to longer travel for care and longer wait times.

Although I think that this note was designed to engender support for the plight of the owners of imaging centers, particularly in rural areas, it seems to have had an opposite effect on me. First of all, I was struck by the relatively small difference between the utilization rate of rural centers compared to the non-rural ones -- only 8%. Secondly, I was also impressed by the fact that the overall average utilization rate in the U.S. for CT and MRI scans was only about 50%. These data suggest to me that too many of these expensive imaging devices have been deployed in the country. This is not a novel insight. It was probably the basis for the adoption of the utilization assumption in the first place.

One of the basic planks of healthcare reform is that U.S. consumers are not going to get all of the services that they feel they deserve or need in the future. As the reimbursement system reduces the compensation for CT and MRI images, the business model for some of the current imaging centers, perhaps disproportionately in rural areas, will no longer be viable. Some of these centers may go out of business. The remaining imaging centers will probably try to modify their patient work-flow and extend their operating hours in order to stay afloat and serve a larger number of patients. In rural areas, this may result in longer trips for some patients. Because of their reduced population density, rural areas cannot be served by the broad range and ready availability of services that are offered in more populated areas. This applies to retail shopping malls as much as it does to healthcare delivery. This idea will not appeal to politicians from the less populated states.