The implementation of the Deficit Reduction Act (DRA) of 2005 and the final phase of the U.S. Centers for Medicare and Medicaid Services (CMS) Multiple Procedure Discount (MPD) will have far-reaching consequences for freestanding imaging center operators next year. The best way to meet the threat of these reimbursement reductions is to develop and implement a strategic plan that gives your imaging business a clear path to maintain or maximize your profitability next year and in future years.
For most imaging centers, Medicare payments represent about 30% of total revenue. Assuming this payor mix, the revenue reduction for the average center next year would be about 10%. With average center profitability generally reported at between 8% and 10%, these reimbursement changes will reduce many imaging centers to a breakeven or loss position unless programs are developed to offset the revenue shift. In addition, this does not include other potential reduction factors such as private payor initiatives to cut spending on radiology services.
The DRA implementation and the final phase of the MPD in January next year are two of the most critical market issues that imaging centers have ever had to face. The obvious advice that an imaging center can follow is to increase revenue or decrease costs to meet the impending challenge. The only possibility for change in this scenario is regulatory relief, which may occur, but it is not something that you can count on.
The reality of upcoming revenue reductions strongly suggests that it is time to expand and formalize your strategic planning process -- if you have not already done so. Because all independent imaging centers face essentially the same set of challenges driven by these Medicare reimbursement changes, imaging centers are actually in a strategic planning competition. Those facilities that develop and implement the best strategic plans have the best chance of meeting the new reimbursement challenges.
For freestanding imaging centers, the threats are very real and the timing is well known. This is why it is extremely important to implement the product of your planning process in an effective way.
Keep the strategic planning process as simple as possible by addressing three main components:
- Planning to plan
- The planning exercise
- Follow-up and follow through
Planning to plan
Prior to conducting the planning exercise, think through several aspects of the planning effort. You need to consider the following questions:
- What are your goals for this effort?
- What are you willing to spend to support the planning process?
- Who will attend? Who are the stakeholders in your organization that can make a positive contribution to the planning process?
- What are the main threats to your business brought on by the DRA and MPD that your organization needs to address?
- Do you have the basic business information that your planning team will need to address during the planning exercise?
- Does someone in your organization have the skills to help organize and facilitate your planning process? Should you bring in a strategic planning consultant?
- Will you plan at your location or at an offsite location?
- What will your planning agenda include? Will it include team-building activities? How will you stimulate the planning discussion?
- How will you measure the outcome of the process?
The planning exercise
Once you have considered all the preplanning questions and have set your planning agenda, it is time to move forward with your planning exercise. By this point you will have selected the planning team. You have provided them with the basic business information that is critical to your company for review before the meeting begins. All the attendees will have received the agenda for the meeting and will understand what is expected of them. With these critical steps completed, you can begin the planning exercise.
The planning session has one main function: A focused brainstorming session to develop ideas to address the specific threats to your business is the key to a successful strategic planning meeting. It provides the opportunity to have critical discussions of the potential solutions to the threats identified.
It is important to stimulate the planning team to contribute all the ideas that they can come up with to address the specific threats to your organization. No idea is too small and all ideas, no matter how unusual they might initially sound, need to be addressed. A proven way to stimulate the creative process is to have the planning team develop a strengths, weaknesses, opportunities, and threats (SWOT) analysis on key issues that face your organization. This activity can help focus the team on the issues that should be included in your discussion.
As a part of the planning exercise, you may want to develop mission and value statements about your imaging business if you do not already have them. Well-crafted mission and value statements are excellent tools to communicate goals and strategies to the rest of your organization.
The next step of the planning exercise is equally important. Through discussion and debate, you and your strategic planning team need to select the best three to five ideas to consider for implementation.
Coming to a consensus with your planning team is important. The group needs to agree on the final ideas selected for further consideration and implementation. If they do not come to consensus, implementation will be difficult at best.
Once you have a consensus on how to proceed, you and the team must also make an honest assessment of your imaging center's capability to deliver these ideas in a timely manner. An honest assessment of the potential projects for implementation may reduce the final ideas selected. This should help improve your center's focus on the steps that need to be done to prepare for the impact of the new regulations.
Follow-up and follow through
Many companies have invested in the developing outstanding strategic planning documents that clearly focused on business changes. However, when the planning exercise was completed, there was no commitment to follow through. Follow-up and follow through are the most important parts of strategic planning and potentially the most difficult parts to complete. Making strategic goals a reality requires a commitment to change.
The ideas identified by your planning process will be the basis for the changes needed in your organization to survive and grow after the DRA and final phase of the MPD are applied. Their implementation needs to be supported by your management, embraced by your employees, and assigned to organization members who are capable of delivering them on a timely basis. Logically, these project leaders should be a part of the planning team that generates these valuable ideas. They need to be given responsibility for the projects, accountability for their implementation, and rewards for their successful completion.
If these projects do not get both the attention and support they need, then your 2007 operations will see a significant revenue reduction with no offsetting programs to mitigate the effects of the DRA and MPD.
Now is the time to develop plans and strategies that will help address the reimbursement changes that will go into effect next year. You can have continued success if you take the time and commit the resources necessary to meet the challenges posed by the DRA and MPD.
By Ed Eichhorn
AuntMinnie.com contributing writer
June 27, 2006
Eichhorn is president of Medilink Consulting Group, a Dumont, NJ-based healthcare management consulting company focused on radiology services. The firm provides strategic planning services and value-improvement programs and can be reached at 201-384-6179 or via its Web site.
Related Reading
House bill proposes repeal of DRA imaging cuts, May 3, 2006
House Democrats file suit against DRA, May 1, 2006
DRA 2005 in practice: Where the rubber meets the road, April 27, 2006
Opposition grows to DRA law within House, April 3, 2006
House resolution urges DRA investigation, March 31, 2006
Copyright © 2006 Medilink Consulting Group
