Imaging centers hit with surprise 30% cut for MRI codes

The American Taxpayer Relief Act in January averted the planned 26.5% cut to the Medicare Physician Fee Schedule (MPFS), but it didn't prevent reimbursement for two "bread and butter" MRI codes from being slashed by 30%. Some freestanding imaging centers are only now becoming painfully aware of the cut.

Because of adjustments made by the Centers for Medicare and Medicaid Services (CMS) in its assumptions about room use time for 2013, reimbursements for CPT code 73721 (lower extremity joint MRI) and 73221 (upper extremity joint MRI) have been cut dramatically, according to Mike Mabry, executive director of the Radiology Business Management Association (RBMA).

"To calculate [relative value units (RVUs)], Medicare estimates labor, medical supply, and equipment costs associated with every procedure," Mabry told "For these two codes, CMS decreased its estimate of the amount of time the room would be used, from 63 minutes to 33 minutes. They cut the room time in half for those two codes, which results in lower equipment and direct costs and a lower technical component. That's why freestanding centers are seeing cuts in the range of 30% for these two MRI codes."

Rick Davis, vice president of Palm Coast Imaging, a freestanding center in Palm Coast, FL, was shocked when he saw his center's Medicare explanation-of-benefits report.

"In 2012, reimbursement for CPT code 73721 was $427.21," Davis told "This year, the Centers for Medicare and Medicaid Services reduced the reimbursement to $297.58. If managed care companies follow suit, freestanding centers will find it difficult to remain open."

PPIS and interest rate changes

The cuts are one of three factors influencing 2013 reimbursement rates, according to Mabry: Also as of January 1, CMS entered the final year of phase-in for Physician Practice Information Survey (PPIS) data and changed the interest rate method it uses to calculate payment values.

What is the PPIS? In its 2010 MPFS final rule, CMS implemented a four-year transition to new practice expense RVUs, using PPIS practice expense (PE) per hour data taken from 2006 American Medical Association research. Since the PPIS data caused payment reductions for some specialties, CMS gradually shifted from the previous PE RVUs to the new PE RVUs developed using the PPIS data:

  • 2010: 75% old data, 25% new data
  • 2011: 50% old data, 50% new data
  • 2012: 25% old data, 75% new data
  • 2013: 100% new data

Calendar year 2013 is the final year of the transition to the new full PE values, according to CMS.

And the interest rate adjustment? When CMS calculates the estimated costs for a procedure, it uses a formula that includes an interest rate assumption, Mabry said. Up until this year, that assumption was that equipment was financed at a rate of 11%. But in its final rule for 2013, the agency adopted a sliding scale interest rate methodology borrowed from the Small Business Administration and linked to the prime rate. As a result of the new methodology, the interest rates CMS now uses are in the 5.5% to 8% range, with the lowest rates assigned to the more expensive equipment.

Although this is a good thing when it comes to financing the equipment, it's not so great when it comes to CMS' RVU calculations, according to Mabry.

"The interest rate is Medicare's estimate of the cost of capital," he said. "With a lower interest rate, there's a lower cost of capital, and with a lower cost of capital, there are fewer dollars flowing into Medicare's equipment calculation."

The end of the free market?

Industry knew about and opposed the change in the interest rate methodology and the gradual shift to full use of PPIS data -- but there was little prior warning about the change in room use time that affected MRI codes 73721 and 73221, according to Mabry.

"These cuts are just one more challenge that freestanding imaging centers are facing," he said. "And they're already under stress because of the [multiple procedure payment reduction (MPPR)] technical component, the vagaries of the conversion factor, and the fact that next year the utilization rate is going up to 90% for CT and MRI."

There are many benefits to the freestanding imaging center market, Mabry said. But if the government continues to crack down on the technical component, it makes staying open a lot more difficult for these centers.

"If you restrict the freestanding option, patients are going to go to higher cost centers -- which can mean hospitals," he said. "Hospital rates tend to be higher than imaging center rates, so the cost of care goes up."

These cuts to lower-extremity MRI codes are the deepest freestanding centers have seen since the Deficit Reduction Act of 2005, Palm Coast Imaging's Davis said.

"Freestanding centers are noted for their cost-effectiveness when compared to imaging cost at hospitals," Davis told "It may be CMS' intention to punish overutilizers of MRI with these cuts, but it has the unintended consequences of hurting radiologists who have no ability to refer patients to themselves."

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