Practice expense makes up approximately 70% of total radiology reimbursement under the Medicare Physician Fee Schedule (MPFS). This is compared to 45% across all specialties in the non-facility setting.1 Typically, changes in practice expense reimbursement occur slowly on a code-by-code basis. As individual procedures get nominated for revaluation, practice expense may be changed due to adjustments in clinical staff time, supplies, or equipment. Since only several radiology codes get revalued ever year, the overall impact to radiology reimbursement tends to be gradual. That may soon change, as CMS is looking at ways to broadly update practice expense reimbursement, akin to the redistributions that occurred after the 2007–2008 Physician Practice Information Survey. In particular, CMS is interested in changing how indirect expense is calculated.
Practice expense reimbursement is divided into two categories: direct and indirect expenses. Direct expenses are things that can be easily quantified for each procedure. This includes cost such as clinical staff labor time, one-time supplies, and amortization for equipment. Indirect expenses are more challenging to estimate. This includes costs such as administration, rent, and other forms of overhead. While direct expense is grounded in individual units, indirect expense is estimated by using both direct practice expense and physician/staff costs as inputs. While direct expense can only be updated on an individual code-by-code basis, changes to the indirect expense methodology would broadly impact the entire code set. How important is indirect practice expense? Consider that of total practice expense reimbursement, indirect costs account for 57% of CT Head Without Contrast (code 70450) and 56% of Chest X-ray (code 71046). Recalling that practice expense is a full 70% of total fees, it becomes clear that indirect practice expense is a significant source of radiology reimbursement.
Updates to indirect practice expense calculations are important both when considering the broad impact across the entire code set and the total dollar amount of reimbursement at stake. So, how did radiology fair in 2007, the last time indirect practice expenses were surveyed? Not well. Overall practice expense reimbursed dropped significantly — and radiology was not alone. The shift in reimbursement was so great that CMS decided to phase in the update over several years to mitigate the impact.
How does radiology prevent this from happening again? While CMS dismissed stakeholder concerns during the last update, the agency seems ready to value medical society input. The ACR is actively engaged with CMS and associated stakeholders to ensure our concerns are heard. While it is unclear how the update will occur, it is likely that practice expense surveys will again be used to estimate costs. That means it will be important for the ACR, its members, and associated radiology organizations to be active survey participants. As more information becomes available, the ACR will proactively communicate with members about upcoming surveys. Until then, please stay engaged and respond to future updates on how to help with this effort.
The shift in reimbursement was so great that CMS decided to phase in the update over several years to mitigate the impact.
- An average of approximately 45% of MPFS reimbursement is spent on practice expense. This number is closer to 70% for radiology.
- Of this, indirect expense accounts for 50–60% of practice expense reimbursement.
- The methodology for updating indirect practice expense relies on values not updated since 2007. CMS is interested in updating both the indirect practice expense methodology and the data on which it relies. This means that every procedure code and a large percentage of practice expense reimbursement could be impacted.
- An additional significant shift in practice expense reimbursement, addressed by CMS in the 2022 MPFS Proposed Rule, is the updating of Clinical Labor Pricing, another important policy with large potential impact on radiologists. This will be covered in an upcoming Bulletin article.