MedPAC’s 2008 Report

March 13th, 2008 | Income Approach & Methods | Medicare

I have been reviewing the Physician chapter of MedPAC’s newly released Report to Congress http://www.medpac.gov/documents/Mar08_EntireReport.pdf.  There are a number of significant findings and recommendations, notably – again – aimed at the excessive growth in imaging. The growth rate in High Tech Imaging (MR, CT) has slowed considerably in the 2005 to 2006 year compared to prior years, particularly Brain MR. Importantly, MedPAC attributes this slowing to the actions taken by Congress aimed at same, such as the DRA.

An analysis of the Report and its recommendations for imaging give considerable insight into what future legislation might look like and MedPAC has an excellent batting average when it comes to getting its recommendations adopted.  Page 96 reminds one of the fact that the practice expense component of imaging will decline (by a total of 9%) thru 2010.  More significantly, MedPAC is now suggesting that the 50% utilization assumption for physician-based equipment be increased – a provision that was in one version of last year’s SCHIP legislation – which would have a dramatic downward effect on technical component revenue. A short example helps illustrate the dramatic effect this provision could have.

For MR, the technical component represents about 80% of the global fee. That technical component assumes that the equipment is being used 50% of the time.  Last year’s failed SCHIP legislation would have raised that 50% to 75%. Assume the fixed costs of an MR are $300,000 per year and expected volume at 50% is 1000 cases; this nets a reimbursement of $300 per case. If the volume assumption is raised to 75%, the expected cases are 1500 which nets a reimbursement of $200 per case, a drop of 33%!

Next, the Table at the top of page 100 and the recommendation immediately below it are what drive reimbursement decisions and therefore potential future cashflow growth rates. Bottom line is that the indicated 2.6% estimated increase in costs leads to a 1.1% increase in fees because of increased utilization; thus, increased utilization is offset by decreased fees because technical component costs are recovered over a higher volume – that is what also underlies the recommended change in the utilization assumption for physician-based equipment.

Finally, what might be considered an obscure observation if one was not familiar with MedPAC’s successful track record also appears on page 97. Here, there is a suggestion that those portions (equipment and supplies!) of the practice expense component which do not vary geographically be dropped from the geographic adjustment! This could lead to considerable cuts in high cost areas such as Florida, New York, Boston, San Francisco and the like.

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