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Medicare Imaging Cuts Could Push Patients Back to Hospitals

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Physician-owned imaging centers took a big hit in the Deficit Reduction Act of 2005. Passed in February, the measure cut Medicare reimbursement for some modalities by up to 30 percent beginning in January 2007, which should save $2.8 billion over five years. That’s expected to put a significant damper on the proliferation of physician-owned imaging centers and modalities. Commercial insurers have been trying to get a handle on such facilities’ burgeoning costs for years.

Hospitals hope the cuts will slow down referrals to physician-owned facilities because it ultimately will be less profitable for physicians to branch out into them.

“These cuts are actually quite significant,” says Randy Fuller, manager of market intelligence with GE Healthcare Financial Services in Orchard Park, N.Y. “With some of the more marginal players, we’re expecting significant declines in volume.”

That’s because the cuts lower the incentive for physicians to take their business outside the hospital, says Fuller.

“Imaging revenue might be only one factor driving doctors away from the hospital, but it’s an important one,” Fuller says. Business at outpatient centers, according to congressional testimony, has recently been growing up to 11 percent a year.

Some newer physician-owned centers unable to compete as reimbursements shrink beginning next January, especially those with limited modalities, might go out of business, Fuller says. But he’s advising many of his clients to do away with half-measures—meaning, for example, a physician office with limited volume offering only an MRI machine, and not PET or CT scanner. Better to offer all or none, he says.

“If I were managing these centers or practices I would like to increase my share of the market in some shape or form,” Fuller says.

—Philip Betbeze