A model to determine payments associated with radiology procedures

Highlights

• Radiology departments currently receive operational reports only at an aggregate level, typically at a cost-center level.

• There is little visibility into how the transactional nature of the radiology business relates to the financial rewards.

• Having visibility into procedure level payments can contribute to economic success, especially in a capitated system.

• Charge-to-total charge ratio can be used to approximate radiology payments at a procedure level.

Abstract

Objective

Across the United States, there is a growing number of patients in Accountable Care Organizations and under risk contracts with commercial insurance. This is due to proliferation of new value-based payment models and care delivery reform efforts. In this context, the business model of radiology within a hospital or health system context is shifting from a primary profit-center to a cost-center with a goal of cost savings. Radiology departments need to increasingly understand how the transactional nature of the business relates to financial rewards. The main challenge with current reporting systems is that the information is presented only at an aggregated level, and often not broken down further, for instance, by type of exam. As such, the primary objective of this research is to provide better visibility into payments associated with individual radiology procedures in order to better calibrate expense/capital structure of the imaging enterprise to the actual revenue or value-add to the organization it belongs to.

Materials and methods

We propose a methodology that can be used to determine technical payments at a procedure level. We use a proportion based model to allocate payments to individual radiology procedures based on total charges (which also includes non-radiology related charges).

Results

Using a production dataset containing 424,250 radiology exams we calculated the overall average technical charge for Radiology to be $873.08 per procedure and the corresponding average payment to be $326.43 (range: $48.27 for XR and $2750.11 for PET/CT) resulting in an average payment percentage of 37.39% across all exams.

Discussion

We describe how charges associated with a procedure can be used to approximate technical payments at a more granular level with a focus on Radiology. The methodology is generalizable to approximate payment for other services as well. Understanding payments associated with each procedure can be useful during strategic practice planning.

Conclusions

Charge-to-total charge ratio can be used to approximate radiology payments at a procedure level.

Introduction

With a multitude of healthcare payment related reforms currently underway in the United States, there has been a strong focus towards integrated care delivery. The United States health care spending reached $3 trillion in 2014, accounting for 17.5% of GDP, and although the rate of increase has slowed, it is still projected to be close to 20% of GDP by 2024 [1]. Faced with such unsustainable increases in healthcare related spending, a departure from the traditional fee-for-service payment model has emerged as the primary remedial strategy. As such, legislators and regulators have been driving toward alternative reimbursement models, such as Accountable Care Organizations (ACOs) [2] and bundled payments, in an attempt to contain or drive down costs [3].

In the traditional fee-for-service payment model, providers are reimbursed by insurers for each service provided. Since each service gets reimbursed, there is no major incentive for hospitals to minimize the number of procedures while the payer has an open-ended economic risk as there is no limit on the number of services that can be ordered when treating a patient. On the other hand, with capitated payment models, the economic risks shifts to the provider entity since it would only get reimbursed a fixed amount to treat a specific condition [4] independent of the number of procedures used to manage the patient’s condition.

The Centers for Medicare & Medicaid Services (CMS) which administers the Medicare and Medicaid programs to collectively provide health insurance to over 50 million Americans recently announced its new payment models which will begin to reward value-based care, rather than continuing volume-based payments regardless of quality of care delivered. Hospitals may be rewarded with additional Medicare payments for good quality and responsible spending performance or be required to repay Medicare in the case of poor quality services or overspending. Bundled payments have become more prevalent in recent years where various radiology procedures now get paid under ‘bundled codes’ when two or more related imaging studies are performed together. The American College of Radiology routinely monitors changes to radiology-related payments and recently reported that the bundled code payments are falling short of the payment levels of the sum of the individual predecessor codes and values; for instance, computed tomography (CT) abdomen-pelvis without contrast exams were paid at $418.43 prior to using bundled codes; in 2013, under the bundled payment model this was reduced to $306.05 and in 2014, this was further reduced to $241.79 [5]. Analysis of imaging payments is further complicated by a particular current payment practice: when imaging is performed on inpatients, the payment occurs at a hospital account level instead of a procedure level, meaning that an entire hospital stay for a given patient will be billed under a single hospital specific account with charges itemized by procedure, but will be paid by insurance only as a single transaction at the account level.

With declining revenues per work unit, increasing prevalence of risk contracts with payers and the introduction of new value-based payment models, radiology is poised to eventually shift from one of the primary profit-centers for a hospital to a cost-center. Radiology departments are increasingly being asked to do more with a smaller annual budget and are challenged to remain competitive with regard to asset base, human talent and access to care, while managing decreasing bottom lines. As such, Radiology departments need to increasingly understand in near real-time how the transactional nature of the business relates to the financial rewards. The main challenge with current financial reporting systems is that the information is usually presented only at an aggregated level (typically at a cost center level), and it is not often broken down further, for instance, by type of exam. As a result, it is challenging for Radiology administrators to understand which exams are driving increase or decrease in the profitability of the business or the financial impact of each referring service. Furthermore, resource allocation in hospitals is often somewhat uncoupled from actual service line revenue streams and profit margins, because reliable and contemporaneous profit/loss statements and cost information for service lines is often not available. As a result, radiology leaders may be challenged to justify the necessary (or any additional) investments into the service line unless they are able to demonstrate or even estimate the related revenue streams. To address some of these limitations with existing reporting systems, in this paper we describe a generic methodology that can be used to determine the payments at a procedure level as well as its applicability in practice.