Driving Top Performance: What Are the Defining Metrics?

1. Driving Top Performance: What Are the Defining Metrics? Sandy Elsass, President J.M. Woodworth RRG, Inc. Joe White, CPA, Principal LarsonAllen LLP Imaging 100 March 23, 2009

2. Where are Imaging Centers Today? Approximately 5,114 diagnostic imaging centers in the US in 2006[1] [1] US Census Bureau

3. Growth • Between 2002 and 2006, radiologists’ share of total imaging payments declined by 2.2% per year while the shares for other providers increased. For example: • Other specialty's’ share of payments grew by 3.2% per year • Independent diagnostic testing facilities grew by 3.0% per year, and • Cardiology by 2.4% per year. [4] [4] MedPAC A Data Book: Health care spending and the Medicare program, June 2008

4. Number of centers and volume of scans General • Imaging services paid for under physician fee schedule grew by 61 % from 2000 to 2005 (compared to 31% growth in physician services overall) [5] • Most costly services – MRI, CT and nuclear medicine – studies grew fastest [5] • Per enrollee cost for imaging services increased from $229(1997) to $463 (2006) in a study conducted in Washington State. [6] [5] Winter, Ariel and Nancy Ray, “Paying Accurately for Imaging Services In Medicare.” Health Affairs Vol. 27, No. 6 pp. 1479 -1490 [6] Smith-Bindman, Rebecca, Diana L. Miglioretti, and Eric B. Larson, “Rising Use of Diagnostic Medical Imaging In a Large Integrated Health System.” Health Affairs, Vol. 27, No. 6, pp. 1491 - 1502

5. Medicare spending • Imaging services paid for under the physician fee schedule doubled to $12.3 billion and resulted in increased Part B premiums -- $34 increase between 2000 & 2006 attributable to physician fee schedule imaging services for Medicare beneficiaries • Nearly 50% of $58B Medicare spent on physician fee schedule was for practice expense, which includes imaging and other medical equipment • Imaging spending breakdown: • 19% of MRI • 18% for Standard • 17% for CTs • 14% for Nuclear Medicine • 14% for echocardiography • 12% Ultrasound

6. Source: Congressional Budget Office report ,November 2007

7. Imaging Costs go from $4 PMPM to $12 between 1999 and 2005 in Tennessee

8. MRI • 7000 sites[8] • Number of scans has tripled[9] • From 2003-07, MRI growth was only 3% per year compared to 15% per year growth from 1999 to 2003[10] • 173 scans per 1000 Medicare beneficiaries in 2005 [11] vs. 0 scans per 1000 Medicare beneficiaries in 1985 vs. 50 scans per 1000 in 1995 [8], [9], [11] Baker, Laurence C.; Scott W. Atlas, and Christopher C. Afendulis. “ Expanded Use of Imaging Technology And The Challenge of Measuring Value.” Health Affairs, Vol. 27, No. 6 [10] Avalere report “Diagnostic Imaging: Spending Trends and the Increasing Use of Appropriateness Criteria and Accreditation”

9. MRI • Avg. Medicare payment = $713 [12] • MRI scanners are used 91% of the time based upon a six-market survey of 133 physician offices and freestanding imaging centers in: Boston, Miami, Greenville, SC; Minneapolis; Phoenix and Orange County, CA[13] [12]Baker, Laurence C.; Scott W. Atlas, and Christopher C. Afendulis. “ Expanded Use of Imaging Technology And The Challenge of Measuring Value.” Health Affairs, Vol. 27, No. 6 [13] Winter, Ariel and Nancy Ray, “Paying Accurately for Imaging Services In Medicare.” Health Affairs Vol. 27, No. 6 pp. 1479 -1490

10. CT • 10,000+ units nationally [14] • 2200 new procedures per year between 1995-2004[15] • 547 CT scans per 1000 Medicare beneficiaries in 2005 (doubled from 1995) [16] [14], [15], [16] Baker, Laurence C.; Scott W. Atlas, and Christopher C. Afendulis. “ Expanded Use of Imaging Technology And The Challenge of Measuring Value.” Health Affairs, Vol. 27, No. 6

11. CT • Avg. Medicare payment = $308 [17] • CT scanners are used 73% of the time on average based upon a six-marker survey of 133 physician offices and freestanding imaging centers in: Boston, Miami, Greenville, SC; Minneapolis; Phoenix and Orange County, CA[18] [17] Baker, Laurence C.; Scott W. Atlas, and Christopher C. Afendulis. “ Expanded Use of Imaging Technology And The Challenge of Measuring Value.” Health Affairs, Vol. 27, No. 6 [18] Winter, Ariel and Nancy Ray, “Paying Accurately for Imaging Services In Medicare.” Health Affairs Vol. 27, No. 6 pp. 1479 -1490

12. DRA “DRA cuts drove reimbursement below replacement cost for equipment.”

13. Future Medicare Payment Methodologies Questions being raised about whether Medicare is overpaying and if this drove the proliferation of imaging centers in the US. • By 2010, CMS will complete all RVU changes for physician work, and direct and indirect practice expenses for physician services. • 9% reduction in practice expense RVUs for imaging services. [23] • 8% reduction for major procedures [24] • 7% increase for practice expense RVUs for evaluation and management (E&M) [25] • 3% increase for other (nonmajor) procedures and tests[26] [23], [24]. [25], [26] Winter, Ariel and Nancy Ray, “Paying Accurately for Imaging Services In Medicare.” Health Affairs Vol. 27, No. 6 pp. 1479 -1490

14. MedPAC • “Proposed Medicare cuts are based upon bad data; they are throwing away all the work done on RVUs.” – Bob Baumgarner, CDI • “If approved, it is estimated to result in a 25% decrease in the technical component of Medicare imaging payments.” – Doug Smith, Barrington Lakes • Negative correlation between equipment utilization rate and Medicare’s technical component payment (particularly for procedures with expensive equipment). A higher utilization rate means more procedures are being done, which lowers the equipment cost per scan and decreases the technical component (total estimated cost per procedure). At a utilization rate of 90%, it is estimated that MRI and CT payments would be cut by 40%.[27] [27] Michael R. Mabry, Executive Director, Radiology Business Management Association in an email sent to RBMA Practice Management Forum on January 21, 2009.

15. Obama’s FY2010 Budget Proposal (2/27/09) • Proposal: “Ensure that Medicare makes appropriate payments for imaging services through the use of radiology benefit managers.” • GAO recommended strategy based upon private sector’s successful use of prior authorization/RBMs • Estimated to save $70M over 5 years, $260M in 10 years through the use of prior authorization • Legislation is unclear about to whom (ordering physicians vs. physicians with financial interest) or to which facilities (hospitals vs. outpatient clinics) prior authorization will apply • Industry would prefer use of “appropriateness criteria” as envisioned by pilot program provision in Medicare Improvements for Patients and Providers Act of 2008

16. Commercial Insurers Commercial Insurers’ approaches to Independent Imaging Centers benefit varies state by state “You have to fight plans to get them to pay you right. In some markets, that means putting a gun to their head before they will pay you.” –Anonymous

17. Commercial Payors • RBMs pushing folks from hospitals to imaging centers because it is cheaper. • Some plans in some states are offering “take it or leave it” rates • Doug Smith in reference to Highmark in Pennsylvania • Susan Cox, OIA confirms seeing it in several places. • In MI & MD, state health plans and some commercial carriers are establishing thresholds for an imaging center to be in the plan’s network. (Doug Smith) • Health plans in a number of states (IL, OH, IN, MS, NY, MI and others) are using “patient steering mechanisms” to drive utilization by offering patients lower co-pays and deductibles for using certain providers. (Doug Smith)

18. Commercial Payors Hospitals’ leverage with insurers usually places independent imaging centers at a disadvantage. • Hospitals can threaten to drop out of insurer’s network, if the plan doesn’t accept their conditions of participation – rates. • Rob Peter to Pay Paul: Insurers claim they must slash reimbursement to independent imaging centers to make up for steep increases they must pay to hospitals for imaging services. • Example of an exception: Hospitals used its leverage to insist that insurers reimburse their outpatient imaging center the same as the hospital.

19. Allowable by Zip Code Source LarsonAllen – Compiled from Ingenix Software

20. Ranking- The Index

21. Trends: Where are Imaging Centers headed? Volume is declining “Is anybody else seeing their volumes down?” RBMA list serve posting • Fewer elective services due to the economy and imaging services are often considered elective. • Given the slumping economy and patients’ increasing responsibility to pay a larger portion of the cost of services due to high deductibles, co-insurance or co-payments, imaging centers are seeing declining volumes. • Hospitals and imaging centers alike are experiencing a “traffic slowdown.” • Estimated 8-15% decrease and even greater decline in elective procedures. People are “living with the pain.” • Exception: Volume per imaging center continues to grow in those markets with CON laws where the number of centers is restricted.

22. Accreditation • Mandatory Accreditation in 2012: The American College of Radiologists negotiated mandatory accreditation in lieu of further cuts and to test the use of appropriateness criteria in 2010 for Medicare program. Move away from IDTF? • Appears to be a contracting bias against IDTFs in areas with a lot of competition (Doug Smith) • Some Imaging Centers are moving toward more physician-owned centers where the radiologist submits a global bill and pays a management fee.

23. Imaging Equipment Imaging equipment vendors are trying to entice imaging centers in these economic times by: • Lowering prices (i.e., Phillips, GE, Siemens) • Phillips and GE introduced low-cost, high-performance units • Siemens 1.5T Essenza price is less than $1M • Designing new, lower cost equipment • Siemens offering entry-level, upgradeable gamma camera • Toshiba’s Aquilion Premium (160-channel CT scanner) can be upgraded in the field to its 320-channel Aquilion One.

24. The Consumer • High deductibles, co-payments, co-insurance. • Customers asking, “What is your price?” • TV advertising campaign that states the hospital charges 3 times their imaging center’s price for the same scan; Why would you go to the hospital? • Same imaging center offers customers preliminary results of their scan before they leave the center. • If the news is bad, they consult with the referring physician first to see if s/he wants to deliver the news or have this done by center staff.

31. Medicare Spending Per Beneficiary - 2005 $10,300 to13,900 $8,600 to 10,300 $7,800 to $8,600 $6,900 to 7,800 $5,200 to 6,900 Congressional Budget Office based on data from the Centers for Medicare and Medicaid Services. Note: The data are for Medicare spending per beneficiary in the fee-for-service program on the basis of beneficiaries’ residences and adjusted for age, sex, and race. The geographic unit is the hospital referral region, as defined by the Dartmouth Atlas of Health Care. Areas labeled "Not Populated" include places without residents, such as national parks, forests, lakes, and islands.

32. Mayo Clinic • $6,900,000,000 in revenue • $200,000,000 net income • $3,000,000,000 in net assets • $55,000,000 in interest and dividends, $120,000,000 capital gains • $265,000,000 in contributions in 2005;$373,000,000 in 2007 • $1,600,000,000 endowment as of 12/31/07 Source: www.guidestar.org

33. Cleveland Clinic Foundation • 2006 Data • $1,900,000,000 in equity • $66,000,000 public support • $54,000,000 indirect public support • $91,000,000 in grants Source: www.guidestar.org

35. Non-profit Salaries Will Become An Issue

36. Major equipment vendors won’t even finance own equipment. More upfront capital is required for new acquisitions or projects. This is the result of not only the economy but the fact that imaging centers are going under and now pose a greater financial risk. Capital Markets

38. Interest Rates

39. Metrics and Critical Success Factors

40. Metrics of Top Performers • Customer satisfaction: patient and referring physician • “Retail-focused, patient-friendly needs to be part of the culture.” - Doug Smith • All surveyed centers focus heavily on patient satisfaction surveys. Some Centers ask each patient at every visit to complete a survey. • Strong partner: Needs to have influence in the given market. • Same store sales growth year to year • Number of new referral sources monthly

41. Metrics of Top Performers • Turnaround time – drives referrals • Norm = 2-4 hours • Best practice = 2 hours or less (Doug Smith) • OIA facilities goal is 24-hour turnaround or less for most centers and studies • MRIs are faster • Mammography is quick • Expenses per CPT code/ profitability per modality • Important to understand where the profitable modalities are, even if you keep the losers. • “This needs to be a focus of any successful practice and needs to be tracked down to the CPT code level.” Many of the chain imaging centers are just starting to do this.– Doug Smith

42. Metrics of Top Performers • Billing Cost per procedure Based upon RBMA 2007 Imaging Center Performance Survey Results: • Mean appears to have increased significantly between 2004 and 2005 ($6.95 to $10.75) • Range is $5.40 for Top performers to $15.87 for centers in the 25th percentile • The 2007 Mean was $10.38.

43. Metrics of Top Performers • # of Procedures per Imaging Machine Example: • Pre-DRA needed 4 – 4.5 MRIs per day • Post – DRA need 8.5 -9.5 MRIs per day to break even.

44. Metrics of Top Performers • # of Procedures per Tech

45. Metrics of Top Performers • Total RVUs per Imaging Machine.

46. Critical Success Factors • Multi-modality • Community/strategic partnerships: Strong partner in the market. • Volume/demand in the community: Is there a backlog in the market?

47. Critical Success Factors • Strong IT system – EMR, teleradiology, and physician ordering • Referrals or collaborative relationships with all constituents including payer, patient and referring physicians. • Who refers depends on the market, it may be the physician (e.g., Virginia), the patient (e.g. Philadelphia), or the “gals up front” in the doctor’s office - Susan Cox, OIA

48. Critical Success Factors • Turnaround times • Rates from insurers: often not known until days before opening; vary significantly by market even though markets may only be a few miles down the road (Susan Cox, OIA) • Good data/benchmarking drives improved performance and greater profitability: • Compare to other imaging centers within your group, state or nationally. • Understand billing cycle, what you should be paid by insurers, what needs to be documented to be paid.

49. Critical Success Factors In other words, customer service – patients, physicians -- that leads to referrals is the key. For example, if your competition’s turnaround time is better and they have an integrated IT system that allows the referring physician to submit an order online and receive the results through a portal before the patient leaves the imaging center, your competition will likely get more referrals and therefore, increased volume.

50. Key Factors Influencing a Diagnostic ImagingCenter’s Market Position What is your differentiator? What is your value proposition? • Volume • Should only enter the market if hospital and existing imaging centers can’t meet the current demand – Doug Smith.