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Practical Business Aspects of Radiology

¹ Department of Radiology, The Western Pennsylvania Hospital, 4800 Friendship Ave., Pittsburgh, PA 15224.

Received September 2, 1999; accepted after revision February 16, 2000.

 
This is the fourth in a continuing series on noninterpretive skills for residents in diagnostic radiology from the American College of Radiology and the Association of Program Directors in Radiology. Editor: Jannette Collins.

Address correspondence to H. L. Neiman.

Introduction

Top Introduction Current Procedural Terminology Health Care Terminology Professional Costs Technical Costs APPENDIX 1 : Payment... APPENDIX 2 : Professional... References

 
Interpretive skills and procedural proficiency remain the cornerstone of a successful career in radiology. However, an understanding of a variety of other topics, including the business and administrative aspects of medicine, is important to financial success. This article will address many aspects of this part of your practice and give you an understanding of where the money comes from, how it gets to you, and where it goes.

A variety of employment opportunities exist for radiologists: a faculty practice plan of a university (medical school), direct employment by a university (medical school) or hospital, multispecialty group practice, radiology professional corporation, professional corporation (as a partner), self-employment (in an office or imaging center), for-profit corporation (free-standing imaging center), or an industry. Although there are pros and cons to each opportunity, no matter which one a radiologist chooses to pursue, the salary comes almost entirely from the reimbursement of clinical work. The few exceptions are industries or funded research that cover most or all of the salary. For radiologists, both of these situations are rare. In both private and academic practices, reimbursement flows from studies that are supervised and interpreted (diagnostic procedures) or procedures performed (interventional procedures). From this clinical work, charges are generated and transmitted to the payers of health care (insurance companies, managed care companies, Medicare, and so forth) who then reimburse the organization for which the radiologist works. This reimbursement may go to a hospital, practice plan, private professional corporation, group practice, or clinic. The cost of doing business is subtracted from the revenue and the remainder is available for salary and other benefits (Fig. 1).

View larger version (15K): [in this window] [in a new window] [as a PowerPoint slide]   Fig. 1. —Flow of money.

When a study or procedure is performed, supervised, and interpreted, the generated charges may be of three types. The first type, the technical component of a bill, is the portion that relates to the production of the radiograph, sonogram, or MR image. This portion goes to the individual or organization that owns the equipment and pays the technologists, the transcriptionists, and so forth. The second type, the professional component, is paid by the purchaser of health care for the supervision and interpretation of a study or the performance of a procedure and relates to the physician's work, practice expense, and malpractice expense. The third type of reimbursement is a global fee, which is an approximate combination fee of the other two components that represents the entire charge. This fee is used when the owner of the equipment also carries out the professional component, such as an imaging center owned by a radiologist or an imaging center owned by investors with a salaried radiologist. For most radiologists who are hospital-based, a generalization may be made that the technical component goes to the hospital and the professional component goes to the professional corporation or practice plan that employs the radiologist. However, the situation is significantly more complex because the actual flow of money relates to the type of payer, site of service (inpatient or outpatient), and ownership of the equipment. Appendix 1 summarizes these differences. Note that for a hospital and a hospital-based radiologist dealing with indemnity insurers (regular insurance), the method of payment is fee-for-service. Therefore, the interests of both the hospital and the radiologist are concordant. Namely, from a business aspect (quality aside), the more studies the better. However, this is not true in a prospective payment system for inpatients, such as Medicare. The professional component under Medicare is billed by and reimbursed to radiologists; therefore, the greater the number of studies, the greater the reimbursement. The situation for the hospital is different. Under a prospective payment system, as the diagnosis-related groups are, the hospital receives a set fee related to the illness and intensity of that illness but unrelated to specific clinical activity. In this scenario, radiology becomes a cost center and not a profit center. From the hospital's standpoint, the fewer studies (one or two most appropriate studies to quickly arrive at the diagnosis), the better.

Currently, for outpatients under Medicare, the system is analogous to the indemnity payer situation just described, albeit the actual payment to the hospital, radiologist, or both may be different than that paid by an indemnity insurer. However, this is changing because the Health Care Financing Administration (HCFA) is embracing an outpatient prospective payment system termed "ambulatory patient classifications." This concept attempts to group the technical component of services according to similar equipment types and resource use. Rather than having a variety of charges as defined by the Current Procedural Terminology (CPT) codes for individual procedures [1], the charges are grouped into 20 or 30 codes such that a single ambulatory patient classification (APC) may cover the entire gamut of MR imaging charges. This method simplifies the payment process and is intended only for the technical component of a hospital's outpatient department. It may eventually be extended to free-standing imaging centers and the professional component. This method, if done well, may have little impact on the utilization of imaging procedures. However, the volume of procedures may shift from the hospitals to free-standing centers and from regularly performed uneconomic to more lucrative imaging procedures.

In a radiologist-owned imaging center, the entire reimbursement goes to the radiologist. If the center is investor-owned, there may be a variety of scenarios, as detailed in Appendix 1.

Finally, note that managed care plans have their own unique complexity in terms of reimbursement. For inpatients, the radiologist is generally compensated on a discounted fee-for-service basis but may be part of a capitation in that the radiology group receives a set sum of money per month for each enrollee in the plan and then provides all the care that individual requires. The hospital may receive reimbursement either via a schema that approximates a diagnosis-related group or perhaps on a per diem basis, but in either situation the reimbursement is unrelated to the actual volume of clinical service that the patient received during that day of admission or during the total admission. In either situation, from the hospital's perspective, the fewer examinations, the lower the costs in radiology, the more optimum the situation. Lower costs may be achieved by fewer examinations or by the radiologist working with the referring physician to choose the most appropriate study or studies.

Current Procedural Terminology

Top Introduction Current Procedural Terminology Health Care Terminology Professional Costs Technical Costs APPENDIX 1 : Payment... APPENDIX 2 : Professional... References

 
For all payment methods discussed, it is important to understand how examinations are identified and how the unique indication for that study is tracked for purposes of billing. There is a separate CPT code for each study and procedure performed by physicians [1]. The CPT is now in its fourth edition and provides a set of five-digit codes that apply to medical services. The 70,000 series of codes is often referred to as the radiology codes, but any physician who performs the services that are identified in this group can also use these codes. In a similar fashion, interventional radiologists use some surgical codes (the 30,000 series) to identify a large number of the procedures they perform. The American Medical Association (AMA) developed the CPT system for coding purposes and it is maintained by an editorial panel of 16 health care professionals assisted by AMA staff. The American College of Radiology is represented on this panel by one of the 11 physicians representing a variety of specialties. Also included are five nonphysicians, with one member each from Blue Cross and Blue Shield, the Health Insurance Association of America, the HCFA, the American Hospital Association, and the Health Care Professional Advisory Committee. The panel meets quarterly to consider requests for codes for new procedures (e.g., MR angiography of the renal arteries), code revisions and deletions, and other issues.

The editorial panel receives extensive input from the CPT advisory committee. Every organization that has a seat in the AMA House of Delegates—namely, every specialty and subspecialty in medicine—is allowed one advisor who may request changes in the CPT and comment on requests for changes. Radiology has 10 of the 90 positions on the advisory committee.

The CPT Editorial Panel decides when a new or modified procedure is of significant value to warrant a unique identifier and writes the description that specifically addresses that procedure. However, this panel does not assign any remunerative value to the CPT code. Virtually all third-party payers use the CPT codes to identify what physician services were performed but have their own fee schedules for reimbursement for that particular procedure. What a particular insurance company or managed care company pays for a procedure is related to its own fee schedule and willingness to negotiate variances from it.

Medicare's process is somewhat more complex but with the 1992 institution of resource-based reimbursement for physicians, the Relative Value Update Committee (RUC) was formed. This multispecialty group assesses the relative physician work of the various CPT codes. As one can imagine, each specialty considers its work to be of greater intensity or value than that of another specialty; therefore, the need for a multispecialty committee to reach consensus opinion is imperative. Unlike the CPT editorial panel, which has no designated seats for specific specialties, the RUC has seats for the major specialty organizations, including the American College of Radiology. The RUC serves as an advisory body to the HCFA, which makes the final decision on values for each of the codes. The RUC concerns itself with physician work, but two other components also go into the Medicare fee schedule: practice and malpractice expenses. Congress has mandated that the practice expense component be converted from the old charge-based values to resource-based values, and a specific committee of physicians called the Practice Expense Advisory Committee has been assigned this task. This group is attempting to determine the actual expenses that an average physician incurs when performing a particular procedure and to factor this cost into the reimbursement that Medicare pays for a particular CPT. The fees paid to physicians by Medicare generally define a standard for other carriers; therefore, it is important for radiologists to actively participate in the workings of all of these panels. Table 1 lists a sample series of CPT codes and the values associated with them, and Table 2 shows how this converts to reimbursement by multiplying the professional component relative value unit or the associated technical component relative value unit by an assigned dollar conversion rate.

Finally, another important coding system is the International Classification of Diseases, or ICD-9 (representing the 9th edition of this publication) [2]. These are usually referred to as diagnostic codes and identify the sign or symptom that is the indication for a particular procedure. Figure 2 shows a portion of a sample billing form that a radiology practice might use on which the radiologist checks off the CPT code associated with the study performed, such as 70450 (unenhanced head CT) and also checks an ICD-9 code such as 434.91 (if an infarct is clinically suspected). Charging is significantly more complex when it relates to procedures, such as interventional radiology. The American College of Radiology and the Society of Cardiovascular and Interventional Radiology have written coding guides to aid radiologists in this process [3, 4].

View larger version (100K): [in this window] [in a new window] [as a PowerPoint slide]   Fig. 2. —Sample list of 70,000 series Current Procedural Terminology codes.

The CPT codes and associated ICD-9 codes are then conveyed to the patient's insurance carrier or Medicare either on paper using the HCFA 1500 form or by electronic billing.

Health Care Terminology

Top Introduction Current Procedural Terminology Health Care Terminology Professional Costs Technical Costs APPENDIX 1 : Payment... APPENDIX 2 : Professional... References

 
This section defines key terms for understanding the current health care environment [5].

Indemnity Insurance
The insured or insured's physician is directly reimbursed by the insurance carrier for the patient's medical expenses. Typically, the patient chooses the physician and hospital. The physician is paid on a fee-for-service basis. The patient may have to pay a deductible and coverage may be limited.

Managed Health Care
This is any system that integrates the financing and delivery of medical care by means of the following four features: contracts with selected physicians and hospitals that furnish a comprehensive set of health care services to enrolled members, usually for a predetermined monthly premium; utilization and quality controls that the contracting providers (physicians and hospital) agree to accept; financial incentives for patients to use providers and facilities associated with the plan; and assumption of some financial risk by doctors and hospitals [5].

Managed care, specifically capitation, shifts the financial risk of excessive use from the payer (employers, insurers, or both) to the provider. Theoretically, capitated systems reward providers who operate most efficiently and penalize those who do not. With capitation, a health plan such as a health maintenance organization (HMO) pays the health care provider a fixed amount, usually each month, for each person eligible to receive services, regardless of the extent or type of services used by any individual. This is most frequently used with primary care physicians but certainly is also used with radiologists. The group or practice plan receives a fixed dollar amount per member per month, often termed a "PM/PM." The provider agrees to offer a specific spectrum of services (sonography, radiography, and CT but perhaps excluding MR imaging) in exchange for a fixed amount of money per patient per month. If on a statistical basis you can determine the use of services by the insured group, then capitation becomes, in essence, a fee-for-service plan.

HMO
This health plan provides or arranges comprehensive health services for its enrolled members, usually at a discount to the purchaser of health care (i.e., the employer of the insured individual) and with limitations as to the patient's site and extent of services. Several types of HMO schema exist [5]. An HMO-independent practice association (IPA) is an HMO that contracts directly with physicians in independent practice to provide care for its enrollees. An HMO network is an HMO that contracts with multiple independent group practices to provide coverage. An HMO staff model is an HMO that delivers health services through a salaried panel of physicians that are employed by the HMO itself.

Point of Service Plans
This hybrid plan combines characteristics of indemnity insurance and HMOs. Generally, at the time health care is needed, the insured can elect to receive the service from either an HMO network provider at a discount and no out-of-pocket costs or any other physician (nonnet-work provider), but is subject to substantially higher patient cost sharing [5].

Preferred Provider Organization (PPO)
This is a contractual arrangement between independent or institutionally based physicians and another entity, usually an insurance company but sometimes an employer. The purpose is to deliver health care services to a defined population at established fees. A PPO contains a panel of physicians and health care institutions that constitute the preferred providers. Health care services are delivered to the patients on a discounted fee-for-service basis [5].

Societal Changes
We often hear about managed care and its effect on both health care and our lives as physicians, but it is important to recognize that this is only one of many aspects of change that is occurring. Managed care penetration throughout the United States varies greatly from state to state and from city to city. For example, in Alabama, managed care represents approximately 8-10% of the market, whereas in California it is greater than 50% [6].

What is occurring nationally is a reflection of what is seen throughout all industries in this country. We are seeing capitalism at work [7,8,9]. In some areas, vibrant competition has developed with pressure on the payers and the providers. In other areas of the country, we still have what can be viewed as a monopsony, or control by a buyer. These competitive shifts are occurring because the actual payers of health care (industry, small business owners, and government) have all decided that health care costs are too high and must be lowered [10]. As a result, alternative and, in some cases, innovative approaches are being put in place that presumably will decrease overall health care costs or at least decrease the rate of cost increase while preserving quality care. Simultaneously, health service planners are looking at all medical care and asking if there is value in it. Does the operation, drug, or imaging procedure change the outcome for the patient? The question is no longer "Is the test sensitive and specific?" as we have traditionally asked in radiology but rather, "Is there value?" We as radiologists, including residents and young practitioners, must determine the answer to this question or others will do it for us.

Quality must always be our first priority, but we must also be dedicated to using our various imaging tools in an appropriate fashion with a clear understanding of costs. The issue of appropriateness will be discussed in another article in this series. Cost is a separate issue to be discussed. In most business sectors, the price of a product or service equals direct costs plus indirect costs plus intangible cost plus an expectation of reasonable profit. In health care, charges (prices) are unrelated to cost. There are three terms that are frequently used interchangeably and are thus confusing to physicians: charges, cost (expense), and reimbursement. These terms are often used synonymously for various aspects of what we as physicians do or for the sum total of a procedure, as in "the cost of nonionic contrast material is $80.00 per 50-ml vial" or "the cost of an MR imaging scan is $1800.00 per examination." The latter refers to the charges that the hospital or imaging center sends to the payer but which, as already stated, is unrelated to anything other than some arbitrary price list and is probably not paid in full. Cost (expense) is defined as the actual price of a product or service and is subdivided into two major groups, direct and indirect costs, which are each subdivided into fixed and variable costs. Direct cost can be uniquely identified with a specific product or service. Examples include cost of the CT scanner (direct and fixed) and contrast material and X-ray film (direct and variable). Indirect cost cannot be uniquely identified with a specific product or service. Examples include electricity for the sonography room, housekeeping, and library. Reimbursement is the actual price that the payer pays for the product or service. This may be as little as 35-50% of what the charge is. Thus, the charge for the MR imaging may be $1800, the reimbursement $800, and the total cost $500. Cost is an illusive concept that changes with the perspective of society, third-party payers, providers, and patients (Fig. 3).

View larger version (10K): [in this window] [in a new window] [as a PowerPoint slide]   Fig. 3. —Chart shows differing perspectives of cost.

Professional Costs

Top Introduction Current Procedural Terminology Health Care Terminology Professional Costs Technical Costs APPENDIX 1 : Payment... APPENDIX 2 : Professional... References

 
As already noted, when a radiologist supervises and interprets a chest radiograph, CT scans, or other images, a charge is generated. This charge is conveyed to the payer, and in some fashion remuneration is paid to the professional corporation or practice plan for which the radiologist works. The sum total of this reimbursement represents the gross revenue that is received; however, there are additional costs that are involved in practicing radiology that also need to be considered (Appendix 2). The costs of doing business are significant; the radiology practice may have additional expenses of 20-40% of the gross revenue yielding the net revenue that can then be disbursed for salaries. Among the most significant expenses are billing and collection, insurances (health, malpractice, and disability), legal and accounting fees, and office management. Billing and collection fees range from 6% to 12% of the net revenue (bottom line). The net revenue may be as little as 30-50% of the gross charges generated by the radiologists. It is this money that is available for distribution as salary, pension, profit sharing, and possible bonus money.

Technical Costs

Top Introduction Current Procedural Terminology Health Care Terminology Professional Costs Technical Costs APPENDIX 1 : Payment... APPENDIX 2 : Professional... References

 
It is extremely important for a radiologist to understand the cost basis of a practice on the technical side as well as the professional side. This connection is clear for the radiologist who owns an imaging center; however, it is perhaps less apparent to the hospital-based radiologist in private practice or academia. One can argue that in the latter settings understanding the technical costs is equally important because it puts the radiologist in a position of strength. In the marketplace environment in which medicine finds itself, other specialties have the advantage on the revenue side of the equation. Aside from interventional radiology, diagnostic radiology has little impact on growing revenue from admissions. However, we can have a significant advantage over other specialists who want to perform imaging by our understanding of the costs of our services. Rarely can the accounting system of a hospital identify the costs of individual procedures (again, we are not talking about charges), much less perform a micro cost accounting of the components of those costs. Cost associated with the performance of an imaging or interventional procedure or both include direct costs and indirect costs. Also included as part of indirect costs are those that are sometimes referred to as overhead and include radiology's share of the cost of maintaining a human resource or legal department, radiology's share of the cost of the hospital library or the CEO's salary, and so forth. Radiologists should involve themselves in performing micro cost accounting of individual procedures to better understand each component's impact on the overall cost and the overall profitability of the organization. Better yet would be to benchmark these costs against an institution of similar size and type. In this way the radiologist can readily participate in the business process and be proactive when competitive pressures require adjustments.

APPENDIX 1 : Payment Methodologies

Top Introduction Current Procedural Terminology Health Care Terminology Professional Costs Technical Costs APPENDIX 1 : Payment... APPENDIX 2 : Professional... References

 

Top Introduction Current Procedural Terminology Health Care Terminology Professional Costs Technical Costs APPENDIX 1 : Payment... APPENDIX 2 : Professional... References

Top Introduction Current Procedural Terminology Health Care Terminology Professional Costs Technical Costs APPENDIX 1 : Payment... APPENDIX 2 : Professional... References

1. American Medical Association, CPT 1999. Chicago: AMA, 1999:255 -288
2. Physician ICD 9 CM 1999, vol. 1 and 2. Salt Lake City: Medicode, 1999
3. American College of Radiology. Ultrasound coding user's guide. Reston, VA: American College of Radiology, 1999
4. Society of Cardiovascular and Interventional Radiology, American College of Radiology, Radiology Business Management Association, American Health Care Radiology Administrators. Interventional radiology coding users' guide, 4th ed. Reston, VA: American College of Radiology, 1995
5. Kongstvedt PR. The managed care handbook, 3rd ed. Gaithersburg, MD: Aspen, 1996
6. Managed care digest series. Kansas City, MO: Hoechst Marion Roussel, 1996:16 -17
7. Neiman H. The US experience with managed care. Canadian Association of Radiologists' Forum February 1998, vol. 42, no. 1
8. Neiman H. The US experience with managed care. Canadian Association of Radiologists' Forum April 1998, vol. 42, no. 2,5 -8
9. Neiman H. The US experience with managed care. Canadian Association of Radiologists' Forum June 1998, vol. 42, no. 3,7 -8
10. American College of Radiology. The American College of Radiology appropriateness guidelines. Reston, VA: American College of Radiology, 1995

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This Article Figures Only Full Text (PDF) Alert me when this article is cited Alert me if a correction is posted Services Email this article to a friend Similar articles in this journal Similar articles in PubMed Alert me to new issues of the journal Download to citation manager Citing Articles Citing Articles via HighWire Citing Articles via Google Scholar Google Scholar Articles by Neiman, H. L. Search for Related Content PubMed PubMed Citation Articles by Neiman, H. L. Social Bookmarking                      What's this?