Radiology costing and consumerism

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Radiology costing and consumerism

November 25, 2020
Business Affairs X-Ray
From the November 2020 issue of HealthCare Business News magazine

By Adam Fairbourn

Overutilization of advanced diagnostic imaging procedures, such as MR and CT, has been scrutinized as one of the drivers of rising healthcare costs in the United Sates.
The Protecting Access to Medicare Act of 2014 and annual CMS Outpatient Prospective Payment Schedule rules continue to push payment reform for advanced imaging. Furthermore, alternative payment models and quality initiatives pressure radiology departments to show the value of their service line toward patient outcomes and overall population health. Public policy makers have paved the road for payment reform and the commercial payors will not be far behind.

With the rise of high-deductible health plans, savvy patients are shopping for health care, and payers are steering patients away from acute care hospitals toward less expensive ambulatory clinics. As the healthcare landscape moves closer to a retail-like model, the growing focus on pricing and cost is likely to intensify.

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Because outpatient radiological services are widely considered a shoppable product, outpatient imaging clinics are a prime target of price transparency from payors and the aims of consumerism. Furthermore, the largest consumer of health care in the U.S., the Centers for Medicare & Medicaid Services (CMS), places specific cost pressure on MR and CT scan services in its recent CY 2021 proposed Hospital Outpatient Prospective Payment System rule.

Impact of CMS Cost-Charge-Ratio (CCR) calculation for MR and CT cost centers
Over the last six years, CMS has required contracted providers to report costing for MR and CT scan as separate cost centers in order to calculate the cost-to-charge ratios (CCRs), which it uses to determine the claims payment amount related to these services. Unsurprisingly, the costing data reported to CMS for these services was highly varied depending on diverse cost-allocation methods used by providers’ financial accounting systems, according to the American College of Radiology. In particular, a large portion of reporting providers that average their overhead cost across facilities using a square-foot-allocation method severely underestimate the cost of CT and MR exams due to the high expense of the equipment.

Intuitively, spreading the cost of a multimillion-dollar MR system across all facilities allows other cost centers to share some of the capital cost burdens and provides a simple top-down accounting method. However, it also removes much of the direct capital cost of the equipment from the imaging cost center.

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