At no other time in history has there been such rapid change in healthcare -- particularly in radiology, according to a May 21 talk at the Radiology Business Management Association (RBMA) meeting. To thrive in such an environment, imaging centers need to understand the options for restructuring their business.
The impetus toward restructuring is driven by several factors, presenter W. Kenneth Davis Jr., an attorney with Katten Muchin Rosenman, told session attendees at the RBMA 2013 meeting in Colorado Springs, CO.
The Deficit Reduction Act (DRA) of 2005 reduced technical component reimbursement for imaging providers ("suppliers" in Medicare parlance), and multiple procedure discounts under Medicare have also reduced reimbursement. Nongovernmental payors have followed suit, reducing payments either through fee provisions or by negotiation. But "providers" (that is, hospitals) often receive higher reimbursements, from both the government and insurers.
"Restructuring isn't being driven by Medicare -- the DRA equalized outpatient reimbursement for both suppliers and providers," Davis said. "Rather, it's the advantages for providers on the nongovernmental side that's the big driving force. Everyone is looking for ways to squeeze out additional revenue and boost profits."
Choosing the right structure
What is the best structure for imaging centers in this new environment? There are a number of options, according to Davis, including converting to a provider-based (or "under-arrangement") structure, merging (or "rolling up") with other imaging centers, and, of course, selling the business entirely.
Hospitals tend to have strategic reasons for restructuring, rolling up, or buying imaging centers, including the following:
- Reaching out into the community to provide a better, more expansive continuum of care
- Competing with other providers and/or eliminating competitors
- Attracting referrals from physicians
- Creating more effective and efficient coverage and service relationships with radiology groups
- Developing a better technology investment
- Building for a future under accountable care organizations (ACOs)
Imaging suppliers may have many of the same reasons, according to Davis. Some radiology groups need to generate new income sources, and these sources may be easier to find as part of a restructuring.
"Radiology groups are constantly looking for ways to better ally themselves with their hospitals," Davis said. "But in the end, for some imaging providers, a restructuring, roll-up, or sale of the imaging center may present the last, best hope for the center's survival."
Provider-based and "under-arrangement" deals
In a provider-based structure, an existing hospital or radiology group imaging center -- enrolled with Medicare as an independent diagnostic testing facility (IDTF) or a diagnostic radiology group practice -- is restructured and converted to a provider-based service, a Medicare enrollment concept, according to Davis.
"If you want to be reimbursed like a provider by nongovernmental payors, you're probably going to need to find a way to be reimbursed as a provider by Medicare," he said.
It's easier to qualify as a provider-based entity if the imaging center is physically on the campus of the hospital, Davis said. But whether a center is on campus or off, there are requirements a center must meet: licensure, clinical and financial integration with the hospital, and fulfilling specific hospital outpatient department obligations.
"If you're trying to get provider-based status, you've got to look, smell, and act like you're part of the hospital," Davis told AuntMinnie.com.
Under-arrangement structures are defined by who bills Medicare -- in this case, the hospital, according to Davis. The hospital exercises professional responsibility for the services obtained under arrangement.
"In under-arrangement agreements, the hospital bills Medicare, and the imaging provider cannot then go back and bill Medicare for services," he said.
The bottom line is that if the imaging practice is on the campus of a hospital, restructuring as a provider-based entity works well. But if the practice is off campus (no more than 35 miles from the hospital), it should restructure as under arrangement, Davis said.
"Check state hospital licensing requirements to determine whether provider-based or under arrangements will work and what compliance steps, if any, will need to be taken -- either before or after closing," he told session attendees. "Do market research, and analyze a sample billing and collection dataset. Decide whether the conversion makes financial sense and whether the financial justification is sustainable for the mid- to long-term."
Roll up or sale?
In a roll-up scenario, existing provider-based outpatient imaging centers, owned by one or more hospitals, and other imaging supplier-based centers, owned by one or more physician groups, merge into a new imaging center, Davis said. The previous owners become new owners of the imaging center in proportion to the value of the assets contributed, and the center then operates as provider-based or under arrangement.
"Again, do market and related research, and analyze a sample billing and collection dataset," he said. "Expect that the provider-based and/or under-arrangement analysis will be even more complex because there are more centers included. And the overall process will also be more complicated if multiple hospitals and multiple radiology groups are involved."
Selling the center is the last restructuring option, Davis said. In this scenario, the hospital acquires the imaging center from a radiology group and operates it as a provider-based entity. Savvy imaging center owners seeking to sell will get their practice valued by an expert familiar with diagnostic imaging who can look over the hospital's valuation and give a good sense of the market rate.
If a major restructuring isn't in the cards, Davis encouraged RBMA 2013 session attendees to think about other ways to work with hospitals for support, including coverage, comanagement and medical agreements, or recruitment support.
"The hospital might be the last -- even the best -- option for staving off potential downward trends in a radiology group and surviving into the future," he concluded. "And despite anecdotal evidence replete with stories of hospitals' indifference toward radiology groups, many hospitals recognize the value of their radiology groups within the care continuum and don't want to see them fail."