GAO-08-452, Medicare Part B Imaging Services: Rapid Spending Growth and Shift to Physician Offices Indicate Need for CMS to Consider Additional Management Practices


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Report to Congressional Requesters: 

United States Government Accountability Office: 

GAO: 

June 2008: 

Medicare Part B Imaging Services: 

Rapid Spending Growth and Shift to Physician Offices Indicate Need for 
CMS to Consider Additional Management Practices: 

Medicare Part B Imaging Services: 

GAO-08-452: 

GAO Highlights: 

Highlights of GAO-08-452, a report to congressional requesters. 

Why GAO Did This Study: 

The Centers for Medicare & Medicaid Services (CMS)—an agency within the 
Department of Health and Human Services (HHS)—and the Congress, through 
the Deficit Reduction Act of 2005 (DRA), recently acted to constrain 
spending on imaging services, one of the fastest growing set of 
services under Medicare Part B, which covers physician and other 
outpatient services. GAO was asked to provide information to help the 
Congress evaluate imaging services in Medicare. In this report, GAO 
provides information on (1) trends in Medicare spending on imaging 
services from 2000 through 2006, (2) the relationship between spending 
growth and the provision of imaging services in physicians’ offices, 
and (3) imaging management practices used by private payers that may 
have lessons for Medicare. To do this work, GAO analyzed Medicare 
claims data from 2000 through 2006, interviewed private health care 
plans, and reviewed health services literature. 

What GAO Found: 

From 2000 through 2006, Medicare spending for imaging services paid for 
under the physician fee schedule more than doubled—increasing to about 
$14 billion. Spending on advanced imaging, such as CT scans, MRIs, and 
nuclear medicine, rose substantially faster than other imaging services 
such as ultrasound, X-ray, and other standard imaging. 

GAO’s analysis of the 6-year period showed certain trends linking 
spending growth to the provision of imaging services in physician 
offices. The proportion of Medicare spending on imaging services 
performed in-office rose from 58 percent to 64 percent. Physicians also 
obtained an increasing share of their Medicare revenue from imaging 
services. In addition, in-office imaging spending per beneficiary 
varied substantially across geographic regions of the country, 
suggesting that not all utilization was necessary or appropriate. By 
2006, in-office imaging spending per beneficiary varied almost eight-
fold across the states—from $62 in Vermont to $472 in Florida. 

Figure: Medicare Part B Spending on Imaging by Setting, 2000 and 2006: 

This figure is a combination of two pie charts showing Medicare B 
spending on imaging by setting, 2000 and 2006. 

2000 Medicare Part B imaging spending: 

Physician offices: 58%; 
Hospital settings: 35%; 
Independent Diagnostic Testing Facility: 7%; 
Total: $6.89 billion. 

2006 Medicare Part B imaging spending: 

Physician offices: 64%; 
Hospital settings: 25%; 
Independent Diagnostic Testing Facility: 11%; 
Total: $14.11 billion. 

[See PDF for image] 

Source: GAO analysis of Medicare Part B claims data. 

[End of figure] 

Private health care plans that GAO interviewed used certain practices 
to manage spending growth that may have lessons for CMS. They relied 
chiefly on prior authorization, which requires physicians to obtain 
some form of plan approval to assure coverage before ordering a 
service. Several plans attributed substantial drops in annual spending 
increases on imaging services to the use of prior authorization. In 
contrast, CMS employs an array of retrospective payment safeguard 
activities that occur in the post-delivery phase of monitoring services 
and are focused on identifying medical claims that do not meet certain 
billing criteria. The private plans’ experience suggests that front-end 
management of these services could add to CMS’s prudent purchaser 
efforts. 

What GAO Recommends: 

To address the rapid growth in Medicare Part B spending on imaging 
services, GAO recommends that CMS examine the feasibility of expanding 
its payment safeguard mechanisms by adding more front-end approaches, 
such as prior authorization. HHS stated that it would need to examine 
the applicability of prior authorization for Medicare. 

To view the full product, including the scope and methodology, click on 
[http://www.gao.gov/cgi-bin/getrpt?GAO-08-452]. For more information, 
contact A. Bruce Steinwald at (202) 512-7114 or steinwalda@gao.gov. 

[End of section] 

Contents: 

Letter: 

Results in Brief: 

Background: 

In Recent 6-Year Period, Medicare Part B Expenditures for Imaging 
Services More Than Doubled, as Use of Advanced Imaging Services Grew: 

Several Spending Trends Associated with In-Office Imaging Raise 
Concerns about Incentives for Physicians to Overuse Services: 

To Manage Imaging Expenditures, Private Health Care Plans in Our Study 
Use Certain Practices to Constrain Spending Growth: 

Conclusions: 

Recommendation for Executive Action: 

Agency and Professional Association Comments and Our Evaluation: 

Appendix I: Scope and Methodology: 

Appendix II: Medicare Spending on Imaging Services Paid for under the 
Physician Fee Schedule by Modality, 2000 through 2006: 

Appendix III: Medicare Imaging Use by Modality, 2000 and 2006: 

Appendix IV: Characteristics of GAO Sample of Private Plans That 
Actively Manage Imaging Services (February 2008): 

Appendix V: Comments from the Department of Health and Human Services: 

Appendix VI: GAO Contact and Staff Acknowledgments: 

Tables: 

Table 1: Imaging Modalities: 

Table 2: Medicare Physician Fees for Most Commonly Billed Imaging 
Services in 2006, by Imaging Modality: 

Figures: 

Figure 1: Total Medicare Expenditures for Imaging Services Paid under 
the Physician Fee Schedule, 2000 through 2006: 

Figure 2: Factors Associated with Growth in Total Medicare Spending on 
Imaging Services Paid for under the Physician Fee Schedule, 2000 
through 2006: 

Figure 3: Medicare Part B Spending on Imaging by Setting, 2000 and 
2006: 

Figure 4: Share of Total Medicare Part B Revenues Derived from In- 
Office Imaging Services by Physician Specialty, 2000 and 2006: 

Figure 5: Per Beneficiary Spending on In-Office Imaging Services, 2006: 

Figure 6: Steps That Typically Occur in the Prior Authorization 
Process: 

Abbreviations: 

ACR: American College of Radiology: 

AHIP: America's Health Insurance Plans: 

AMIC: Access to Medical Imaging Coalition: 

BESS: Medicare Part B Extract Summary System: 

BETOS: Berenson-Eggers Type of Service: 

CMS: Centers for Medicare & Medicaid Services: 

CPT: current procedural terminology: 

CT: computed tomography: 

DRA: Deficit Reduction Act of 2005: 

FDA: Food and Drug Administration: 

FEHBP: Federal Employees Health Benefits Program: 

HCPCS: Healthcare Common Procedure Coding System: 

HHS: Department of Health and Human Services: 

IAC: Intersocietal Accreditation Commission: 

IDTF: independent diagnostic testing facility: 

MedPAC: Medicare Payment Advisory Commission: 

MRI: magnetic resonance imaging: 

NRC: Nuclear Regulatory Commission: 

OPPS: Medicare hospital outpatient prospective payment system: 

PET: positron emission tomography: 

RBM: radiology benefits manager: 

RVU: relative value unit: 

United States Government Accountability Office: 

Washington, DC 20548: 

June 13, 2008: 

The Honorable Gordon H. Smith: 
Ranking Member: 
Special Committee on Aging: 
United States Senate: 

The Honorable John D. Rockefeller IV: 
Chairman: 
Subcommittee on Health Committee on Finance: 
United States Senate: 

Federal budget experts--including the Comptroller General, the 
Congressional Budget Office Director, and the Medicare Trustees--agree 
that the Medicare program is unsustainable in its present 
form.[Footnote 1] Because of rising health care costs and the baby boom 
generation's aging into eligibility for Medicare, future program 
spending is projected to encumber an untenable share of the 
government's resources. In their 2008 annual report, the Medicare 
Trustees project that expenditures for Part B, which covers physician 
and other outpatient services,[Footnote 2] will increase over the next 
decade at average annual rates that far outpace the national economy's 
growth rate for that period (about 8 percent for Part B, compared with 
4.8 percent for the national economy). 

Policymakers face a particular dilemma with respect to spending for 
imaging services, one of the fastest-growing set of services paid for 
under the Medicare Part B physician fee schedule. On the one hand, 
cutting-edge imaging technology, such as computed tomography (CT) and 
magnetic resonance imaging (MRI) scans, help diagnose and treat life- 
threatening diseases like cancer and heart disease; these technologies 
enable physicians to perform a wide range of less-invasive medical 
tests and procedures and can foster earlier diagnosis, quicker 
recovery, shorter hospital stays, and reduced disability than more 
invasive surgical or other procedures. On the other hand, in recent 
years, spending for CT scans, MRIs, and other imaging services paid for 
under the Medicare physician fee schedule has experienced double-digit 
growth. 

In 2005, the Medicare Payment Advisory Commission (MedPAC) reported to 
the Congress on growth in the volume (number) of imaging services 
provided and the intensity (complexity) of these services--for example, 
the greater use of MRIs instead of X-rays in diagnostic 
testing.[Footnote 3] The report attributed this growth to technology 
advances that improve physicians' ability to diagnose disease, but it 
also pointed to two trends suggesting that not all of this growth may 
be desirable. First, the site of care has shifted substantially from 
hospital inpatient and outpatient settings, where national Medicare 
standards relating to patient safety and quality govern the provision 
of imaging services, to physician offices, where there is less quality 
oversight. Second, the number of imaging services provided across the 
country varies threefold--a difference that raises concerns about the 
potential overuse of these services in some areas.[Footnote 4] 

MedPAC's 2005 report included recommendations to the Centers for 
Medicare & Medicaid Services (CMS)--the agency within the Department of 
Health and Human Services (HHS) that administers Medicare--to address 
concerns about quality and efficiency with respect to imaging services. 
Certain of the recommendations incorporated approaches similar to those 
other health care payers have adopted to constrain rapid growth in 
spending on imaging services. CMS adopted some of MedPAC's 
recommendations, and beginning in January 2006, among other things, 
reduced physician fees under certain conditions for multiple images 
taken during the same session.[Footnote 5] 

The Congress, through the Deficit Reduction Act of 2005 (DRA), also 
took action to restrain the growth in spending for Medicare imaging. 
The DRA required, among other things, that Medicare payment for certain 
imaging services under the Medicare physician fee schedule, including 
those services performed in physician offices, not exceed what Medicare 
pays for these services performed in hospital outpatient 
departments.[Footnote 6] This provision was effective for services 
furnished after January 1, 2007. The DRA changes sparked intense 
reactions by interest groups with a stake in Medicare's payment for 
imaging services, which included representatives of imaging 
manufacturers, diagnostic imaging facilities, physician specialties, 
and patient advocacy groups. 

In light of these concerns and MedPAC's findings on imaging services, 
you asked us to provide additional data to help the Congress evaluate 
the provision of these services in the Medicare program and examine 
management practices other payers use to ensure appropriate spending 
for these services. In this report, we provide information on (1) 
trends in Medicare Part B spending on imaging services from 2000 
through 2006, (2) the relationship between spending growth and the 
provision of imaging services in physician offices, and (3) imaging 
management practices used by private payers that may have lessons for 
Medicare. 

To determine trends in Medicare spending for imaging services paid for 
under the physician fee schedule, we analyzed Medicare Part B claims 
data from 2000 through 2006. We examined trends in aggregate spending 
and by the six major categories of imaging services.[Footnote 7] Our 
spending totals include the two parts of the imaging service paid under 
the Medicare physician fee schedule--the examination itself and the 
physician's interpretation of the examination. CMS refers to the 
performance of the image examination as the "technical component" and 
the physician's interpretation of the image as the "professional 
component." Our spending totals do not include the technical component 
when the image examination is performed in an inpatient hospital or 
other institutional setting, as an examination performed in these 
settings is paid for under Medicare Part A. In addition, our spending 
totals do not include the technical component when an examination is 
performed in a hospital outpatient department setting, as an 
examination performed in this setting is paid for under Medicare's 
hospital outpatient prospective payment system (OPPS). 

To examine the relationship between spending growth and the provision 
of imaging services in physician offices, we analyzed Medicare claims 
data from 2000 and 2006. We examined the extent to which Medicare Part 
B spending on imaging services shifted to physician offices from 
hospital settings and how physicians' shares of their Medicare revenue 
from imaging services have changed during this period. We supplemented 
our quantitative analyses with interviews with physician specialty 
groups and private health care payers and reviewed the health services 
literature. To determine the share of Medicare beneficiaries who 
received any imaging services or a specific imaging service and, for 
those beneficiaries, the average number of services provided, we used 
Medicare Part B Physician/Supplier claims data for 2000 and 2006 and 
Denominator File data for those same years. 

To examine the management practices used by private payers to manage 
spending on imaging services, we selected a combination of 17 national 
and regional private health plans known to be active in managing 
imaging benefits. We also interviewed radiology benefits managers 
(RBM)--organizations hired by private payers to manage radiology 
services for their enrollees. We also conducted interviews with CMS 
officials and several companies that contract with Medicare to process, 
review, and pay Medicare Part B claims. 

We examined the reliability of the claims data used in this report by 
performing appropriate electronic data checks and checks for obvious 
errors such as missing values and values outside of expected ranges. We 
also interviewed officials who were knowledgeable about the data, 
including CMS and Medicare contractor officials. We determined that the 
claims data we used were sufficiently reliable for purposes of our 
analysis, as they are used by the Medicare program as a record of 
payments to health care providers. As such, they are subject to routine 
CMS scrutiny. Appendix I provides more detailed information on our 
methodology. 

We conducted our work from January 2007 through May 2008 in accordance 
with generally accepted government auditing standards. 

Results in Brief: 

From 2000 through 2006, Medicare Part B spending for imaging services 
paid for under the physician fee schedule more than doubled--increasing 
to about $14 billion. Spending on CT scans, MRIs, and nuclear medicine, 
which are generally more complex and therefore more costly, rose 
faster--17 percent a year, on average--than ultrasound, X-ray and other 
standard imaging, and procedures that use imaging--which grew at an 
average 9 percent annually. Overall, about 4 of every 5 dollars of the 
spending growth for imaging services was associated with the growth in 
volume and complexity of imaging services rather than other factors, 
such as changes in physician fees or beneficiary population increases. 

Our analysis of the 6-year period showed certain trends linking 
spending growth to the provision of imaging services in physician 
offices. First, the proportion of Medicare spending on imaging services 
performed in-office--where physicians receive payment for both the 
technical and professional components of the service--rose from 58 
percent to 64 percent. Second, physicians obtained an increasing share 
of their Medicare revenue from imaging services. For example, in 2006 
cardiologists obtained 36 percent of their total Medicare revenue from 
in-office imaging, compared with 23 percent in 2000. Third, during the 
6-year period, in-office imaging spending per beneficiary varied 
substantially across geographic regions of the country, suggesting that 
not all utilization was necessary or appropriate. In 2006, in-office 
imaging spending per beneficiary varied almost eight-fold across the 
states--from $62 in Vermont to $472 in Florida. Together these trends 
raise concerns about whether Medicare's physician payment policies 
embody financial incentives for physicians to overuse imaging services. 
While some of this growth may represent appropriate increases in 
clinical applications of imaging to diagnose and treat diseases and 
medical conditions of Medicare beneficiaries, the increased provision 
of imaging services in physician offices also has potential 
implications for quality. Several studies we reviewed have shown 
quality concerns such as inadequate staff credentials, poor image 
quality, failure to monitor radiation exposure, and inadequately 
maintained equipment. 

Similar to Medicare, private health plans in recent years have 
experienced rapid growth in imaging services, particularly in advanced 
imaging. To manage expenditures for these services, private health care 
plans in our study used certain management practices that have helped 
constrain their spending growth on imaging services. The private plans 
adopted a prospective, or preapproval, orientation toward managing 
physicians' use of imaging services that was in addition to 
retrospective payment safeguards used to identify medical claims that 
do not meet certain billing criteria. For their prospective approach, 
they relied chiefly on prior authorization, which requires physicians 
to obtain some form of plan approval to assure coverage before ordering 
imaging services--generally, advanced imaging services. Plans approve 
requests based on consistency with recommended clinical guidelines, 
including those developed by physician specialty societies. Several 
plans attributed substantial drops in annual spending increases on 
imaging services to the use of prior authorization. To a lesser extent, 
the plans used privileging, by which a plan limits its approval for 
ordering certain imaging services to physicians in certain specialties, 
and profiling, which entails a statistical analysis of medical claims 
data measuring an individual physician's use of services relative to a 
desired benchmark. In contrast, CMS's management practices are not 
oriented toward controlling spending prospectively through preapproval 
practices. Instead, CMS employs, through its claims administration 
contractors, an array of retrospective payment safeguards, which are 
activities that occur in the post-delivery phase of monitoring 
services. Although the agency has the tools to do profiling, it 
currently has no policies in place specifically to profile physicians' 
use of imaging services. CMS's profiling and other review activities 
are focused on identifying medical claims that do not meet certain 
billing criteria. The private plans' experience suggests that front-end 
management of these services, in addition to retrospective safeguards, 
could add to CMS's prudent purchaser efforts. 

To address the rapid growth in Medicare Part B spending on imaging 
services, we recommend that CMS examine the feasibility of expanding 
its payment safeguard mechanisms by adding more front-end approaches to 
managing imaging services, such as using privileging and prior 
authorization. In its written comments on a draft of this report, HHS 
stated that Medicare contractors, through post-payment claims review, 
have identified imaging services as an area that poses a high risk to 
the Medicare Trust Fund, and are continuing to conduct ongoing medical 
review and provider education in this area. The department raised 
concerns about the administrative burden of implementing prior 
authorization, as well as its applicability for Medicare. HHS stated 
that the use of proprietary systems to deny payment for imaging 
services may not be feasible under Medicare's claims appeals process, 
which usually requires an explanation of the basis for the denial. It 
noted that these circumstances may limit the effectiveness of radiology 
benefits managers and prior authorization as a policy tool. We do not 
dispute HHS's reservations about prior authorization, and agree that 
these concerns will require careful examination within the context of 
Medicare statutes and regulations. Because we believe that post-payment 
claims review alone is inadequate to manage one of the fastest growing 
parts of Medicare, addressing these concerns should be incorporated 
into CMS's feasibility analysis of adding front-end approaches to its 
prudent purchasing efforts. 

In oral comments, two organizations representing a broad array of 
industry and other stakeholders, offered contrasting views on prior 
authorization. Specifically, officials from America's Health Insurance 
Plans (AHIP)--a trade group representing about 90 percent of health 
insurers--suggested prior authorization was primarily a tool to improve 
quality and ensure appropriate use rather than strictly a cost-cutting 
measure. Representatives of the Access to Medical Imaging Coalition 
(AMIC)--a diverse group of stakeholders including imaging providers, 
manufacturers and patient advocacy groups--suggested prior 
authorization had been tried and proven unfeasible for Medicare. 

Background: 

Medical imaging services, grouped into six major modalities, use 
different types of imaging equipment and media for creating an image. 
Physicians bill for providing these services under the Medicare 
physician fee schedule, which, for payment purposes, divides an imaging 
service into two components: the technical component, which pays for 
the performance of the imaging examination, and the professional 
component, which pays for the physician's interpretation of the image. 
Recently, CMS implemented two payment changes in 2006 and 2007 that 
reduce physician payments for certain imaging services. 

Imaging Services Fall into Six Modalities: 

Medical imaging is a noninvasive process used to obtain pictures of the 
internal anatomy or function of the anatomy using one of many different 
types of imaging equipment and media for creating the image. Imaging 
tests fall into six modalities: CT, MRI, nuclear medicine, ultrasound, 
X-ray and other standard imaging, and procedures that use imaging. 
Depending on the service, imaging equipment uses radiation, sound 
waves, or magnets to create images. X-rays and other standard imaging 
services, CT, and certain nuclear medicine services, such as positron 
emission tomography (PET), use radiation; ultrasound uses sound waves; 
MRI uses magnets and radio waves. For certain X-rays, CTs, and MRIs, 
contrast agents, such as barium or iodine solutions, are administered 
to patients orally or intravenously. By using contrast, sometimes 
referred to as "dye," as part of the imaging examination, physicians 
can view soft tissue and organ function more clearly. Table 1 provides 
further details on each imaging modality. 

Table 1: Imaging Modalities: 

Imaging modality: CT; 
Description: An imaging modality which uses ionizing radiation and 
computers to produce cross-sectional images of internal organs and body 
structures. 

Imaging modality: MRI; 
Description: An imaging modality which uses magnets, radio waves, and 
computers to create images of internal body tissues. 

Imaging modality: Nuclear medicine; 
Description: The use of radioactive materials in conjunction with an 
imaging modality to produce images that show both structure and 
function within the body. 

Imaging modality: Ultrasound; 
Description: An imaging modality which uses high-frequency sound waves 
to create images of internal body organs and blood flow. 

Imaging modality: X-ray and other standard imaging; 
Description: Imaging modalities which use ionizing radiation to produce 
images of bones and tissue. For example, the most common standard 
imaging modalities are X-rays and mammography. 

Imaging modality: Procedures that use imaging; 
Description: Medical procedures that incorporate the use of an imaging 
modality which provides the physician with information at the time the 
procedure is performed. For example, using ultrasound to localize a 
needle when performing a biopsy. 

Source: GAO analysis of medical literature. 

[End of table] 

Imaging equipment using radiation poses more potential risk to patients 
than other imaging mediums. The amount of radiation patients are 
exposed to varies based on whether the image is obtained by X-ray or 
CT. CTs emit the largest amount of radiation, but estimates of the 
radiation dose--or the amount of radiation absorbed--from a diagnostic 
CT procedure can vary by a factor of 10 or more, depending on the type 
of CT procedure, patient size, and the CT system and its operating 
technique. For example, the typical dose in a CT of the abdomen is 
about five times that of the head, and about eight times that of an X- 
ray of the spine. 

Physicians Bill for Imaging Services under the Medicare Physician Fee 
Schedule: 

Medicare generally covers medically necessary services provided by 
physicians operating within the scope of practice allowed by their 
state licensure, without regard to their specialty or specific 
qualifications. All diagnostic tests are required to be provided under 
at least general physician supervision--that is, a physician is 
responsible for the training of the technical staff performing the 
test, and the maintenance of the necessary equipment and supplies. 

Medicare's physician fee schedule in 2006 included more than 7,000 
services--together with their corresponding payment rates. About 900 of 
these services are associated with imaging. Each imaging service on the 
fee schedule has three relative value units (RVU), which correspond to 
the three components of physician payment: (1) physician work--the 
financial value of physicians' time, skill, and effort that are 
associated with providing the service, (2) practice expense--the costs 
incurred by physicians in employing office staff, renting office space, 
and buying supplies and equipment, and (3) malpractice expense--the 
premiums paid by physicians for professional liability insurance. 

Each RVU measures the relative costliness of providing a particular 
service. For example, in 2006, the three RVUs for performing and 
interpreting a standard chest X-ray summed to .74.[Footnote 8] In 
contrast, the RVUs for CT of the head/brain without dye summed to 
6.15,[Footnote 9] indicating that this service, on average 
nationally,[Footnote 10] consumed more than eight times more resources 
than the standard chest X-ray. To determine Medicare payment for a 
particular service, the sum of the RVUs is multiplied by a conversion 
factor, which is a dollar amount that translates each service's RVUs 
into a payment rate. For example, in 2006, Medicare paid $233, on 
average nationally, for physicians performing and interpreting a CT of 
the head/brain without dye (6.15 multiplied by a conversion factor of 
$37.8975). Some items paid under the physician fee schedule that are 
used in the provision of imaging services--such as 
radiopharmaceuticals--do not have RVUs associated with them. Instead, 
these items are priced locally by Medicare's Part B contractors and 
billed separately from the imaging services paid for under the Medicare 
physician fee schedule. 

Physicians under the Medicare physician fee schedule can be paid for 
performing the imaging examination--the technical component--and 
interpreting the image examination--the professional component. The 
payment for the technical component is intended to cover the cost of 
the equipment, supplies, and nonphysician staff and is generally 
significantly higher than the payment for the professional component, 
which is intended to cover the physician's time in interpreting the 
image and writing a report on the findings. Medicare allows physicians 
to bill for these services separately because performing and 
interpreting the examination could be done by different physicians and 
in different settings. If the same physician performs and interprets 
the examination, the physician can submit a global bill to Medicare. 
The same rules apply under the physician fee schedule if the imaging 
services are completed by radiologists in independent diagnostic 
testing facilities (IDTF)--facilities that are independent of a 
hospital and physician office or "free-standing" and only provide 
outpatient diagnostic services. 

When the imaging examination is performed in an institutional setting, 
such as a hospital or skilled nursing facility, the physician can bill 
Medicare only for the professional component, while payment for the 
technical component is covered under a different Medicare payment 
system, according to the setting in which the service is provided. For 
example, the technical component of an imaging examination in a 
hospital inpatient setting is bundled into a facility payment paid 
under Medicare Part A, whereas the technical component of an 
examination in a hospital outpatient department is paid under 
Medicare's hospital outpatient payment system, which is financed 
through Part B.[Footnote 11] 

CMS Recently Implemented Two Payment Changes Related to Imaging 
Services: 

In recent years, CMS has implemented two payment changes to the way 
Medicare pays for imaging services under the physician fee schedule. 
Starting January 1, 2006, CMS reduced physician payments when multiple 
images are taken on contiguous body parts during the same visit. CMS 
adopted a recommendation made by MedPAC in 2005 as a way to ensure that 
fee schedule payments took into account efficiencies, such as savings 
from technical preparation and supplies, which occur when multiple 
imaging services are furnished sequentially.[Footnote 12] Physicians 
receive the full fee for the highest paid imaging service in a visit, 
but fees for additional imaging services are reduced by 25 percent. The 
reduction is applied only to the technical component. 

Beginning January 1, 2007, CMS implemented two provisions in the DRA: 
it (1) established a cap on the physician fee schedule payments for 
certain imaging services at the payment levels established in 
Medicare's OPPS and (2) in certain cases, eliminated the Medicare 
budget neutrality requirement, which is designed to ensure that the 
result of specific payment changes neither increase nor decrease the 
total amount of Medicare payments to physicians beyond a specified 
amount. The first provision, in practice, requires that payment for the 
technical component of an image in the physician office does not exceed 
what Medicare pays for the technical component of the same service 
performed in a hospital outpatient department. For example, in 2006, 
Medicare paid $903 under the physician fee schedule for an MRI of the 
brain, yet paid $506 for the same test under OPPS. Under the DRA 
payment change, in 2007, Medicare paid the lesser amount for this 
examination, regardless of whether it was performed in a hospital 
outpatient department or in a physician's office. The second provision, 
excluding the two imaging payment reductions from the calculation of 
budget neutrality, results in Medicare savings as a practical matter. 
Savings attributed to the 25 percent multiple payment reduction and the 
capping of certain payments at the OPPS levels are not offset by 
increases for other services under the physician fee schedule.[Footnote 
13] 

In Recent 6-Year Period, Medicare Part B Expenditures for Imaging 
Services More Than Doubled, as Use of Advanced Imaging Services Grew: 

From 2000 through 2006, Medicare spending on imaging services paid for 
under the Part B physician fee schedule more than doubled. About 80 
percent of the spending growth was associated with growth in the volume 
and complexity of imaging services. Compared with 2000, in 2006 more 
beneficiaries obtained imaging services, and average use per 
beneficiary also increased. 

Medicare Spending on Imaging Increased across the Six Imaging 
Modalities but Grew Faster for Advanced Imaging Services: 

Medicare spending on imaging services paid for under the Part B 
physician fee schedule more than doubled from 2000 through 2006, 
increasing to about $14 billion. (See fig. 1.) This increase represents 
a growth rate of 13 percent a year on average, compared to 8.2 percent 
for all Medicare physician-billed services during that period.[Footnote 
14] Although spending increased each year since 2000, the rate of 
growth slowed in 2006. In that year, CMS implemented a payment change 
for imaging that reduced physician fees by 25 percent for additional 
imaging services involving contiguous body parts imaged during the same 
session.[Footnote 15] (See app. II for total expenditures for imaging 
services paid for under the physician fee schedule and expenditures by 
imaging modality for each year from 2000 through 2006.) 

Figure 1: Total Medicare Expenditures for Imaging Services Paid under 
the Physician Fee Schedule, 2000 through 2006: 

This figure is a multiple line graph showing total medicare 
expenditures for imaging services paid under the physician fee 
schedule, 2000 through 2006. The lines represent all imaging, advanced 
imaging (CT, MRI, and nuclear medicene), and other imaging (ultrasound; 
X-ray, and other standard imaging; and procedures that use imaging). 
The X axis represents the year, and the Y axis represents dollars in 
millions. 

Fiscal year: 2000; 
Other imaging (ultrasound; X-ray and other standard imaging; and 
procedures that use imaging): $3.94; 
Advanced imaging (CT, MRI, and nuclear medicine): $2.95; 
All imaging: $6.89. 

Fiscal year: 2001; 
Other imaging (ultrasound; X-ray and other standard imaging; and 
procedures that use imaging): $4.51; 
Advanced imaging (CT, MRI, and nuclear medicine): $3.78; 
All imaging: $8.3. 

Fiscal year: 2002; 
Other imaging (ultrasound; X-ray and other standard imaging; and 
procedures that use imaging): $4.77; 
Advanced imaging (CT, MRI, and nuclear medicine): $4.2; 
All imaging: $8.97. 

Fiscal year: 2003; 
Other imaging (ultrasound; X-ray and other standard imaging; and 
procedures that use imaging): $5.37; 
Advanced imaging (CT, MRI, and nuclear medicine): $5.02; 
All imaging: $10.39. 

Fiscal year: 2004; 
Other imaging (ultrasound; X-ray and other standard imaging; and 
procedures that use imaging): $6.05; 
Advanced imaging (CT, MRI, and nuclear medicine): $6.05; 
All imaging: $12.11. 

Fiscal year: 2005; 
Other imaging (ultrasound; X-ray and other standard imaging; and 
procedures that use imaging): $6.38; 
Advanced imaging (CT, MRI, and nuclear medicine): $7.12; 
All imaging: $13.5. 

Fiscal year: 2006; 
Other imaging (ultrasound; X-ray and other standard imaging; and 
procedures that use imaging): $6.53; 
Advanced imaging (CT, MRI, and nuclear medicine): $7.57; 
All imaging: $14.11. 

[See PDF for image] 

Source: GAO analysis of Medicare Part B claims data. 

Note: Expenditures include fees for physicians' interpretation of 
imaging services in hospital settings, and fees for interpretation and 
provision of services in physician offices and independent diagnostic 
testing facilities. When the imaging examination is performed in an 
institutional setting, such as a hospital or skilled nursing facility, 
the physician can bill Medicare only for interpreting the examination, 
while payment for performing the examination is covered under a 
different Medicare payment system. 

[End of figure] 

Advanced imaging services--CT, MRI, and nuclear medicine--saw the 
highest growth rates. Spending on these advanced imaging modalities 
increased almost twice as fast, at an average annual rate of 17 
percent, as spending on services in the three other imaging modalities-
-ultrasounds, standard imaging (mostly X-rays), and procedures that use 
imaging. 

The faster-growing advanced imaging services are more complex and 
therefore more costly. Medicare pays physicians more for both the 
technical component and the professional component for these services, 
on average, than it pays for other imaging services. (See table 2.) The 
payment is higher, in part, because advanced imaging equipment is more 
costly to obtain and requires more skilled technicians to operate. For 
example, in 2006, Medicare paid $1,118 for the most commonly physician- 
billed MRI imaging test--an "MRI brain without and with dye"--of which 
$995 was for performing the examination. In contrast, Medicare paid $28 
for the most commonly performed standard imaging service, a chest X- 
ray. 

Table 2: Medicare Physician Fees for Most Commonly Billed Imaging 
Services in 2006, by Imaging Modality: 

Imaging modality: MRI; 
Most commonly billed imaging test: MRI brain without and with dye; 
Fee for performing the test: $995; 
Fee for interpreting the test: $123; 
Total fee: $1,118. 

Imaging modality: Nuclear medicine; 
Most commonly billed imaging test: Heart image (3D), multiple; 
Fee for performing the test: $471; 
Fee for interpreting the test: $77; 
Total fee: $548. 

Imaging modality: CT; 
Most commonly billed imaging test: CT of the head/brain without 
contrast; 
Fee for performing the test: $189; 
Fee for interpreting the test: $44; 
Total fee: $233. 

Imaging modality: Ultrasound; 
Most commonly billed imaging test: Doppler echo examination, heart; 
Fee for performing the test: $69; 
Fee for interpreting the test: $20; 
Total fee: $90. 

Imaging modality: X-ray and other standard imaging; 
Most commonly billed imaging test: Chest X-ray; 
Fee for performing the test: $19; 
Fee for interpreting the test: $9; 
Total fee: $28. 

Imaging modality: Procedures that use imaging; 
Most commonly billed imaging test: Injection for coronary X-ray; 
Fee for performing the test: [A]; 
Fee for interpreting the test: [A]; 
Total fee: $22. 

Source: GAO analysis of Medicare Part B claims data. 

[A] The physician fee schedule does not include separate fees for 
performing and interpreting this imaging procedure. 

[End of table] 

As a result of faster growth in the more expensive services, advanced 
imaging accounted for 54 percent of total imaging expenditures, up from 
43 percent in 2000. In dollar terms, spending on advanced imaging 
increased from about $3 billion to about $7.6 billion, with spending on 
MRI services accounting for nearly half of this increase. In contrast, 
spending on ultrasounds, standard imaging (mostly X-rays), and 
procedures that use imaging grew more slowly, from about $4 billion to 
about $6.5 billion. 

Most Spending Growth on Imaging Services Associated with Volume and 
Complexity Increases: 

Overall, 77 percent of Medicare's spending from 2000 through 2006 on 
imaging services paid for under the physician fee schedule was 
associated with the growth in volume and complexity of imaging services 
(as measured by growth in RVUs) rather than other factors. Compared 
with 2000, in 2006 more beneficiaries obtained imaging services and 
average use per beneficiary also increased. The proportion of Medicare 
beneficiaries receiving at least one imaging service increased from 63 
percent to 66 percent during this period. Moreover, beneficiaries' 
average annual use of imaging services from 2000 through 2006 increased 
about 25 percent, from 5.6 to 7 imaging services, for those who 
received at least one imaging service. More complex advanced imaging 
modalities generally showed the fastest growth. For the same period, 
the proportion of beneficiaries using CT scans increased 39 percent, 
and use of CT scans on a per beneficiary basis increased 22 percent. 
(See app. III for beneficiaries' use of imaging services for 2000 
compared with 2006.) 

Several factors account for the rest of the growth in Medicare spending 
for imaging services. Growth in ancillary items, such as 
radiopharmaceuticals, which are required to provide certain imaging 
tests, represents 7 percent of the spending growth. Physicians bill 
separately for these items. Growth in the number of beneficiaries and 
changes in Medicare's physician fees from 2000 through 2006 account for 
another 16 percent of the spending growth (see fig. 2). 

Figure 2: Factors Associated with Growth in Total Medicare Spending on 
Imaging Services Paid for under the Physician Fee Schedule, 2000 
through 2006: 

This figure is a vertical bar graph showing factors associated with 
growth in total medicare spending on imaging services paid for under 
the physician fee schedule, 2000 through 2006. The X axis represents 
factors affecting growth, and the Y axis represents contribution to 
total spending. 

Volume and complexity (RVUs): 77; 
Number of Medicare beneficiaries: 11; 
Separately billed ancillary items (no RVUs): 7; 
Medicare physician fee increase: 5. 

[See PDF for image] 

Source: GAO analysis of Medicare Pat B claims data. 

[End of figure] 

Contrasting explanations have been offered for why imaging use and use 
of advanced imaging services, in particular, have grown rapidly during 
this period. In interviews with physician specialty organizations that 
use imaging services, representatives cited the following as 
contributors to imaging growth: technological innovation (such as 
equipment becoming smaller and more portable), patient demand 
influenced by direct-to-consumer advertising, defensive medicine to 
protect physicians from malpractice suits, and an increase in clinical 
applications.[Footnote 16] Representatives from physician specialty 
organizations also stated that older invasive diagnostic procedures are 
being replaced in some cases with new less invasive imaging procedures 
that are less costly, reduce patients' discomfort, and reduce patients' 
recovery time.[Footnote 17] While representatives from private health 
plans and the companies they contract with specifically to manage 
imaging services concurred that some of these factors were key 
contributors to growth, they cited two other factors for the growth in 
spending. First, they noted that the ability of physicians to refer 
patients to their own practices for imaging was a major spending 
driver. Second, they noted that primary care physicians often lacked 
knowledge about the most appropriate test to order for a patient, and 
therefore tended to order a significant portion of imaging tests that 
would be considered unnecessary based on clinical guidelines. 

Several Spending Trends Associated with In-Office Imaging Raise 
Concerns about Incentives for Physicians to Overuse Services: 

From our analysis of data from the 6-year period, we observed several 
trends regarding spending growth and the provision of imaging services 
in physician offices. First, a larger share of Medicare Part B spending 
for imaging services has shifted from the hospital settings--where the 
institution receives payment for the technical component of the 
service--to physician offices, where physicians receive payment for 
both the technical and professional components of the service. Second, 
consistent with this shift, physicians who provided in-office imaging 
services obtained an increasing share of their Medicare Part B revenue 
from imaging services. Third, in-office imaging spending per 
beneficiary varied substantially across geographic regions of the 
country, suggesting that not all the spending was necessary or 
appropriate. These trends raise concerns about whether Medicare's 
physician payment policies contain financial incentives for physicians 
to overuse imaging services. In addition, the increased provision of 
imaging services in physician offices may have implications for 
quality. 

Imaging in Physician Offices Accounted for Increasing Share of Part B 
Imaging Spending: 

A large share of Medicare Part B spending for imaging services has 
shifted to physician offices from institutional settings, such as 
hospital outpatient departments. As a result, physician office settings 
accounted for about two-thirds of spending for imaging services paid 
for under the physician fee schedule in 2006 (about $9 billion), 
compared with 58 percent in 2000 (about $4 billion). In contrast, the 
share of Medicare Part B spending for the professional component for 
imaging in hospital settings--inpatient and outpatient departments and 
emergency rooms--declined from 35 percent to 25 percent during this 
period (see fig. 3). Increased spending in the physician office setting 
resulted from a combination of increased services provided in this 
setting and payment for the technical component of imaging examinations 
that were previously performed and paid for in the hospital 
setting.[Footnote 18],[Footnote 19] 

Figure 3: Medicare Part B Spending on Imaging by Setting, 2000 and 
2006: 

This figure is a combination of two pie charts showing Medicare B 
spending on imaging by setting, 2000 and 2006. 

2000 Medicare Part B imaging spending: 

Physician offices: 58%; 
Hospital settings: 35%; 
Independent Diagnostic Testing Facility: 7%; 
Total: $6.89 billion. 

2006 Medicare Part B imaging spending: 

Physician offices: 64%; 
Hospital settings: 25%; 
Independent Diagnostic Testing Facility: 11%; 
Total: $14.11 billion. 

[See PDF for image] 

Source: GAO analysis of Medicare Part B claims data. 

Notes: Hospital settings include inpatient and outpatient departments 
and emergency rooms. The independent diagnostic testing facility 
category also includes imaging services provided in other outpatient 
facilities such as mammography screening centers and independent 
physiological laboratories that are paid under the physician fee 
schedule. Expenditures include fees for physician interpretation of 
imaging services in hospital settings, and fees for interpretation and 
provision of services in physician offices and independent diagnostic 
testing facilities. When the imaging examination is performed in an 
institutional setting, such as a hospital or skilled nursing facility, 
the physician can bill Medicare only for interpreting the examination, 
while payment for performing the examination is covered under a 
different Medicare payment system. 

[End of figure] 

During the period from 2000 through 2006, radiologists accounted for a 
declining share of in-office imaging spending--36 percent in 2000 
compared to 32 percent in 2006. Physicians in specialties other than 
radiology accounted for an increasing share of in-office imaging--64 
percent in 2000 compared to 68 percent in 2006. Cardiologists' spending 
on imaging services represented the largest share of in-office imaging 
spending of physician specialties other than radiology, growing from 
about $1.2 billion to about $3.0 billion--29 percent in 2000 compared 
to 35 percent in 2006. An array of physician specialties--including 
primary care, orthopedics, and vascular surgery--accounted for the 
remainder of in-office spending. 

The growth in spending by physicians in specialties other than 
radiology is partly due to an increasing proportion of these physicians 
billing for in-office services. While still small, this proportion has 
grown rapidly--more than doubling from 2000 to 2006 (from 2.9 to 6.3 
per 100 physicians), and is much higher for certain specialties, such 
as cardiology. For example, the proportion of cardiologists who billed 
for advanced in-office services nearly doubled between 2000 and 2006, 
rising from about 24 per 100 physicians to about 43 per 100 physicians. 
Although physicians generally are prohibited from referring Medicare 
beneficiaries for imaging services to an entity with which the 
physician has a financial relationship, there is an "in-office 
ancillary exception." Under this exception physicians may be paid by 
Medicare, for example, if the services are provided by the referring 
physicians in the same building where the physicians provide other 
services unrelated to the furnishing of imaging services.[Footnote 20] 

MedPAC and others have reported on the recent emergence of leased or 
other shared arrangements whereby "in-office" imaging services are 
actually delivered at another site.[Footnote 21],[Footnote 22] For 
example, physicians may rent an imaging center's services (employees 
and machinery) for a specific day of the week and refer their patients 
to that center on that day. The referring physician bills Medicare for 
providing the test, in turn paying the provider or center that actually 
performed the test a lower fee. In other instances, physicians may 
purchase imaging equipment which is then leased to an imaging center. 
In this case, the physician refers patients to the imaging center which 
bills for the service and then pays the physician a fee. MedPAC has 
expressed concerns that such arrangements create financial incentives 
that could influence physicians' clinical judgment, leading to 
unnecessary services. 

Physicians Generated an Increasing Share of Revenue from In-Office 
Imaging Services: 

Consistent with these trends, physicians in specialties other than 
radiology who billed Medicare for in-office imaging services obtained 
an increasing share of their Medicare revenue from imaging services 
from 2000 to 2006. For example, cardiologists' share of Medicare 
revenue attributable to in-office imaging services increased from about 
one-quarter in 2000 to over one-third in 2006 (see fig. 4). During this 
period, vascular surgeons also saw a large increase--from 10 percent to 
about 19 percent--in the share of their Medicare revenue generated from 
in-office imaging services. The same trend was evident for orthopedic 
surgeons, primary care physicians, and urologists. 

Figure 4: Share of Total Medicare Part B Revenues Derived from In- 
Office Imaging Services by Physician Specialty, 2000 and 2006: 

This figure is a combination bar graph showing share of total medicare 
Part B revenues derived from in-office imaging services by physician 
specialty, 2000 and 2006. The X axis represents the physician 
specialty, and the Y axis represents the percentage of total Medicare 
Part B revenue. Each bar represents a year. 

Physician specialty: Cardiology; 
2000: 23.2; 
2006: 36. 

Physician specialty: Vascular surgery; 
2000: 10.3; 
2006: 19.1. 

Physician specialty: Orthopedic surgery; 
2000: 8.5; 
2006: 9.5. 

Physician specialty: Primary care[A]; 
2000: 4.1; 
2006: 5.9. 

Urology; 
2000: 3.4; 
2006: 5.4. 

[See PDF for image] 

Source: GAO analysis of Medicare Part B claims data. 

[A] Includes general and family practitioners and internists. 

[End of figure] 

Substantial Variation of In-Office Imaging Use across Geographic 
Regions Raises Concerns about Appropriate Use: 

Substantial variation in imaging use across geographic regions of the 
country suggests that not all utilization of in-office imaging services 
may be appropriate. We found that per beneficiary spending on imaging 
services provided in physician offices varied almost eight-fold across 
the states in 2006--from $62 in Vermont to $472 in Florida (see fig. 
5). Physician spending on in-office imaging was the highest in the 
South, Northeast, and in certain states in the West.[Footnote 23] Given 
the magnitude of the differences in imaging use across geographic 
areas, variation is more likely due to differences in physician 
practice patterns rather than patient health status. Further concerns 
about the appropriateness of imaging use are raised by research on 
geographic variation showing that, in general, more health care 
services do not necessarily lead to improved outcomes.[Footnote 24] 

Figure 5: Per Beneficiary Spending on In-Office Imaging Services, 2006: 

This figure is a picture of a United States map showing per beneficiary 
spending on in-office imaging services, 2006. 

[See PDF for image] 

Source: GAO analysis of Medicare Part B claims data, Map Resources 
(map). 

Notes: Per beneficiary spending across states is adjusted to account 
for differences in Medicare fees across geographic areas. Data for 
Maryland, Virginia, and Washington D.C., were not available separately; 
therefore, we used the average of the three for each state. We excluded 
data from Hawaii because spending per beneficiary appeared to be too 
low based on a comparison with other states of similar size and 
Medicare beneficiary population. 

[End of figure] 

The shift in imaging services to physician offices has the potential to 
encourage overuse, given physicians' financial incentives to supplement 
relatively lower professional fees for interpretation of imaging tests 
with relatively higher fees for performance of the tests. Physician 
ownership of imaging equipment can generate additional revenue for a 
practice, even after taking into account the high costs of purchasing 
advanced imaging equipment. MedPAC has expressed concern about whether 
Medicare's payment methodology overpays physicians for imaging 
equipment, because of outdated estimates of equipment use.[Footnote 25] 
An analysis published in 2005 of private insurance claims data on X-ray 
services concluded that orthopedists, podiatrists, and rheumatologists 
were two to three times more likely to order imaging services if the 
ordering physician also performed the examination, compared with those 
who referred patients to a radiologist. In addition, the authors found 
that podiatrists and rheumatologists were also more likely to order 
more intensive tests.[Footnote 26] Another study showed that physicians 
who refer patients for imaging in their own office are at least 1.7 to 
7.7 times more likely to order imaging than those physicians in the 
same specialty who do not self-refer.[Footnote 27] 

Increasing Provision of Imaging Services in Physician Offices Raises 
Additional Concerns about Quality: 

In addition to concerns about incentives for inappropriate use of 
imaging services, the shifting of services from hospital and other 
institutional settings to physician offices may have implications for 
quality. Hospitals must comply with Medicare's "conditions of 
participation" rules, which include general standards for imaging 
equipment and facilities, staff qualifications, patient safety, record- 
keeping, and proper handling of radioactive materials. In contrast, no 
comprehensive national standards exist for services delivered in 
physician offices other than a requirement that imaging services are to 
be provided under at least general physician supervision--that is, a 
physician is responsible for the training of the technical staff 
performing the imaging service, and the maintenance of the necessary 
equipment and supplies. CMS, however, has expanded existing quality and 
business performance standards for IDTFs. For example, CMS has 
explicitly prohibited hotels and motels from being considered 
appropriate sites for an IDTF setting.[Footnote 28] 

Regulatory responsibilities relating to imaging devices and services 
are divided among federal agencies as well as the states. The Food and 
Drug Administration (FDA) and the Nuclear Regulatory Commission (NRC) 
each have regulatory responsibilities for devices that are used to 
provide imaging services. For example, FDA is responsible for 
establishing quality standards for mammography equipment,[Footnote 29] 
and ensuring that manufacturers of radiation-emitting imaging equipment 
are in compliance with applicable performance standards. While FDA does 
not regulate the practice of medicine, such as the establishment of 
patient radiation dose limits, it is responsible for ensuring that 
medical imaging systems are safe and effective. NRC does not regulate 
medical products, but does oversee the medical uses of nuclear 
materials used by physicians, hospitals, and others through licensing, 
inspection, and enforcement programs. Regarding licensing, in many 
cases NRC has transferred this authority to the states. While all 
states have radiation control boards that monitor the use of radiation 
by imaging facilities, they do not regulate nonradiation imaging such 
as MRI or ultrasound, nor do they monitor the quality of imaging. Their 
primary mission is to ensure patient safety. In addition, officials 
from the Conference of Radiation Control Program Directors, Inc.--whose 
primary membership is made up of radiation professionals in state and 
local government who regulate the use of radiation sources--told us 
that states vary in the comprehensiveness of their rules as well as 
their ability to monitor compliance, often lacking the resources to 
perform all of their functions. Further, officials from the American 
Society of Radiologic Technologists told us that states also vary in 
their licensure requirements for imaging providers--some do not have 
any licensure or certification laws for radiology technologists, and 
most states also allow technicians to perform advanced imaging without 
additional training. In a 2007 report we recommended that CMS require 
sonographers--technologists that perform ultrasound examinations--paid 
by Medicare to be credentialed or work at accredited 
facilities.[Footnote 30] 

Although physicians can seek to have their facility accredited--a 
process by which facilities and providers are recognized as meeting 
certain quality, safety, and performance thresholds by one of the three 
primary accreditation organizations for imaging--officials we 
interviewed from these organizations estimated that very few physician 
offices are accredited.[Footnote 31] Studies of the provision of 
imaging tests in this setting showed quality concerns in several areas 
such as staff credentials, poor image quality, failure to monitor 
radiation exposure, and inadequately maintained equipment.[Footnote 32] 
Officials from some of the health plans, accreditation organizations, 
and other industry groups that we interviewed indicated similar 
concerns. For example, a health plan official told us that 25 percent 
of facilities in its network, including physician offices, failed 
credentialing, most commonly because of a lack of a board certified 
radiologist on staff, or problems with imaging equipment. Two of the 
three primary accreditation organizations told us that general problems 
encountered during the accreditation process of facilities, including 
physician offices, related to failure of staff to keep up with 
professional education requirements, lack of documentation of quality 
assurance policies, poor quality of the images, and incomplete or 
inadequate interpretation. The third accreditation organization told us 
that the failure rate for initial applications was about half, although 
the majority of reapplicants passed after correcting deficiencies. 
Typically, the main deficiency was equipment that needed to be 
recalibrated, and a lack of quality control programs. The officials 
from this organization were concerned about the implications for 
quality of the vast majority of providers who did not apply for 
accreditation, given a 50 percent initial failure rate for providers 
self-selecting to apply for accreditation.[Footnote 33] 

To Manage Imaging Expenditures, Private Health Care Plans in Our Study 
Use Certain Practices to Constrain Spending Growth: 

Similar to Medicare, private health plans in recent years have 
experienced rapid growth in imaging services, particularly in advanced 
imaging. We examined a sample of 17 private health care plans which 
were selected because they were known to take steps to actively manage 
imaging services. Most of the plans in our study contracted with 
companies called radiology benefits managers (RBM) to perform imaging 
management activities on their behalf. Officials of the plans or the 
RBMs they use told us that prior authorization, which requires 
physicians to obtain some form of plan approval before ordering a 
service, was the practice most important to managing their physicians' 
use of imaging services. Other practices they noted included 
privileging, by which a plan limits its approval for ordering certain 
imaging services to physicians in certain specialties, and profiling, 
which entails a statistical analysis of medical claims data measuring 
an individual physician's use of services relative to a desired 
benchmark. 

With respect to managing the growth in Medicare physician expenditures 
on imaging services, CMS does not employ the practices used by the 
plans in our study. The agency's focus is largely on physician billing 
practices, and its management activities therefore occur at a point 
when services have already been ordered and performed. CMS conducts 
profiling activities, but these are consistent with the agency's focus 
on identifying improper billing rather than on targeting services 
showing high spending growth rates. CMS officials indicated that 
approaches such as prior authorization would likely require significant 
administrative resources, and that the agency would have to consider 
any specific initiatives in light of its existing legal authority. 

Plans' Management of Imaging Services Relies Mostly on Prior 
Authorization: 

All the health plans in our study used prior authorization, the 
practice of determining whether to grant physicians approval to order 
some or all imaging services before they are delivered, to manage 
spending on imaging services.[Footnote 34] This practice was in 
addition to retrospective payment safeguards commonly used to identify 
medical claims that do not meet certain billing criteria. Under prior 
authorization, plans only pay physicians for imaging services rendered 
that have received plan approval. Almost all of the plans--16 of 17-- 
conducted their prior authorization activities through an RBM. The 
steps plans typically use in the prior authorization process are shown 
in figure 6. 

Figure 6: Steps That Typically Occur in the Prior Authorization 
Process: 

This figure is a flowchart showing the steps that typically occur in 
the prior authorization process. 

[See PDF for image] 

Source: GAO analysis of information from RMBs and private plans. 

Note: In this figure, the term plan is used to refer to either a health 
plan or its RBM contractor. 

[End of figure] 

For example, prior authorization is typically used by RBMs for 
physicians requesting imaging services for lower back pain, a common 
condition for which physicians inappropriately request MRIs. Typically, 
the process works as follows: A physician requests an MRI of the lumbar 
spine with contrast for a patient with symptoms of lower back pain and 
no other symptoms. In considering this request, the RBM's nurse manager 
follows a protocol of questions based on the ACR clinical guidelines 
for "acute low back pain, uncomplicated." Such questions could include 
"How long has the patient had symptoms? Have you tried conservative 
management?" These questions are aimed at discouraging the use of 
advanced imaging at the condition's onset, unless certain other 
symptoms or conditions are present.[Footnote 35] The physician has the 
option of consulting with one of the RBM's board-certified radiologists 
or its medical director if there is disagreement with the initial 
decision to deny a request. If the physician still disagrees with the 
decision and proceeds with the request, the RBM will likely deny it. 
Alternatively, if the physician's request for an MRI of the lumbar 
spine with contrast is made for a patient with low back pain and the 
other specified symptoms or conditions, the RBM waives conservative 
management and approves the request. 

The plans in our study varied in their prior authorization policies. 
For example, officials we interviewed from almost all of the plans 
reported that they targeted prior authorization for technologically 
complex or high-cost imaging tests, but varied in what specific tests 
were included under their programs. In addition, to determine the 
appropriateness of a given diagnostic test or procedure, most plans 
relied on criteria developed by the American College of Cardiology or 
the ACR, but they also customized these criteria to their 
specifications. Three of the plans used a variant of prior 
authorization, called prior notification, which requires the physician 
to contact the plan prior to sending a patient for an imaging scan. If 
the plan determines that another test is more appropriate, based on 
clinical guidelines or other criteria, the plan can make this 
suggestion to the physician, but the physician has ultimate discretion 
to choose among options. 

Plan officials reported significant decreases in utilization after 
implementing a prior authorization program. For example, several of the 
plan officials we interviewed reported that annual growth rates were 
reduced to less than 5 percent after prior authorization; these annual 
growth rates had ranged for these plans from 10 percent to more than 20 
percent before prior authorization programs were implemented. The 
biggest utilization decreases occurred immediately after 
implementation. One plan's medical director said that prior 
authorization was the plan's most effective utilization control 
measure, because it requires physicians to attest to the value of 
ordering a particular service based on clinical need. Plan officials 
noted that there were costs associated with implementing a prior 
authorization program. Under a typical arrangement, plans paid a per- 
member per-month fee to an RBM to conduct prior authorization on their 
behalf. 

The plan and RBM officials we spoke with indicated that outright denial 
rates for requests to order imaging services were low, primarily 
because requesting physicians typically agree to a more clinically 
appropriate test or decide to forgo the test after they are shown 
countervailing evidence. These officials also contended that a 
spillover effect exists with respect to future ordering. That is, the 
interaction between plans and physicians that occurs during the prior 
authorization process enables physicians to make more educated 
decisions about what services to order for future patients with the 
same condition. The net effect has been to reduce unnecessary 
utilization to levels that are lower than they would have been in the 
absence of prior authorization. 

An official at one plan told us about the plan's experience using RBM- 
performed prior authorization. To control rapid spending growth, the 
plan contracted with an RBM in the late 1990s to perform prior 
authorization for advanced imaging services. After 3 years, when 
expenditures for these services stopped growing, the plan discontinued 
using the RBM for prior authorization, assuming that a lasting change 
had been achieved in physicians' ordering of the services. However, 
over the subsequent 3 years, annual growth in imaging services climbed 
to more than 10 percent, on average. In 2006, the plan reinstated the 
RBM's prior authorization program and 6 months after implementation, 
growth had again declined to single digits. 

To a lesser extent, plans in our study used privileging and profiling 
to manage utilization and spending on health care services in general, 
which include imaging services in particular. Over one-third of the 
plans used privileging, a practice which limits, according to 
specialty, a plan's pool of physicians who can order certain imaging 
services. For example, one plan in our study allowed orthopedic 
surgeons to perform CT scans of body joints, but did not allow 
endocrinologists to perform these scans. One of the RBMs we interviewed 
permitted ear, nose, and throat physicians to perform CT scans of the 
sinuses, head, or neck but none below the neck. Plan and RBM officials 
told us that their privileging rules were based on established medical 
practice guidelines and research and that physicians received advance 
notice of the plan's privileging rules--that is, which specialties were 
permitted to perform specific services. Plans enforced adherence to 
these rules through their claims adjudication systems: if a physician 
was not privileged to order or perform a specific imaging service, the 
plans would not pay for the images taken or interpreted. Typically, 
radiologists were allowed to perform all imaging services because of 
their imaging-specific education and training. 

Profiling is a practice that is carried out through a statistical 
analysis of paid claims. Eight of the plans in our study used profiling 
to collect information about individual physicians' ordering history 
and provision of imaging services. Using this information, the plans 
compare a physician's practice patterns against a benchmark, or norm, 
based on the practice patterns of the plan's other physicians in the 
same specialty. Typically, the plans inform physicians of their 
relative performance based on these profiling analysis results and 
provide additional education to physicians who order inappropriately or 
order at rates higher than their peers. An official at one RBM we 
interviewed noted that in addition to the contemporary peer 
comparisons, the firm's profiling activities include longitudinal 
analyses to determine if a physician's ordering of services has 
increased over time relative to the physician's peers regionally and 
nationally. The official noted that after implementing its profiling 
program, the RBM observed a reduction in the number of images ordered 
by physicians who provide high-technology imaging in their own offices. 
Prior to profiling, these physicians provided three to five times more 
imaging services than their counterparts who referred the imaging 
services to other practitioners or facilities. 

CMS's Management Activities, Focusing on Improper Billings, Have a 
Retrospective Rather Than Prospective Orientation: 

Unlike the private plans in our study, CMS's management practices are 
not oriented toward controlling spending prospectively--that is, 
through preapproval practices, such as prior authorization and 
privileging. Instead, CMS employs, through its claims administration 
contractors, an array of retrospective payment safeguards, or 
activities, that occur in the post-delivery phase of monitoring 
services. These activities are designed to achieve payment accuracy; in 
fact, CMS evaluates contractors' performance in terms of a payment 
error rate.[Footnote 36] 

In general, the contractors responsible for administering Part B 
payments are required to perform ongoing data analyses and take action 
on the services or physicians that present the greatest risk of 
improper payments. The contractors use various techniques, such as 
profiling, to examine unexplained increases in utilization, abnormally 
high utilization of services by an individual physician relative to the 
physician's peers, and other indicators of aberrancies. Some of the 
analyses result in recovering overpayments from individual physicians 
who have been found to bill the program inappropriately. They have also 
resulted in producing the evidence needed to modify coverage or payment 
policies at the local contractor level--referred to as a local coverage 
determination.[Footnote 37] For example, with respect to imaging 
services, one contractor that had conducted reviews of echocardiograms, 
nuclear medicine, and PET and CT scans, modified its coverage policies 
for these services by limiting the number of times the services could 
be billed for an individual patient within a certain time frame. 

In a 2007 report,[Footnote 38] we concluded that CMS's existing 
physician profiling and educational outreach activities, while focused 
largely on improper billing practices and potential fraud, put the 
agency in a favorable position to adopt profiling as a strategy to curb 
inappropriate spending resulting from physicians' inefficient 
practices. As with the private plans we reviewed for this study and the 
health care payers in our 2007 study, a consequence of profiling for 
efficiency could be to achieve physician compliance with clinical 
practice standards and, in doing so, reduce inappropriate ordering and 
use of services. In response to our recommendation to adopt an 
efficiency-oriented profiling program, CMS commented that this program 
fit into efforts the agency was pursuing to improve quality and 
efficiency in Medicare.[Footnote 39] 

To that end, CMS has contracted with a firm to develop efficiency 
measures for certain anatomically-specific imaging services with an 
anticipated completion date of December 2008.[Footnote 40] These 
measures are to be based on clinical evidence and are designed to 
provide the agency, in the firm's words, "the ability to more 
effectively manage the rapid diffusion of new technologies and patient- 
driven demand." The firm plans to test these measures and provide 
insight into their development and use. In the case of lumbar MRI, for 
example, the plan is to track physicians' behavior with respect to the 
conventionally accepted use of this service--namely, that the service 
is not typically indicated unless the patient has received a period of 
conservative therapy. Using a coding system, the firm will track 
whether the physician (1) provided documentation that the patient had a 
trial of conservative therapy prior to the MRI, (2) provided no 
documentation or conservative therapy prior to the MRI, or (3) 
documented that the patient did not require conservative therapy. The 
codes, in this instance, are intended to capture whether appropriate 
evidence-based guidelines were adhered to. 

CMS officials indicated that approaches, such as prior authorization, 
would likely require significant administrative resources. In addition, 
they stated that they were not aware of any statutory provision either 
explicitly authorizing or prohibiting the use of such approaches. 
Accordingly, they stated that if they were to pursue prior 
authorization, they would need to evaluate any specific initiatives in 
light of CMS's overall authority with respect to the Medicare program. 

Conclusions: 

The rapid increase in Medicare spending on imaging services paid for 
under the physician fee schedule from 2000 to 2006 poses challenges for 
CMS in managing the spending growth on these services. While much of 
this growth may be appropriate, the pace of increase and shift towards 
more costly advanced imaging; a shift towards providing imaging in 
physician offices, where there is generally less oversight; broader use 
of imaging by physician specialties other than radiologists; and the 
substantial variation of in-office imaging spending per beneficiary 
across geographic regions of the country raise concerns. Our 
examination of private plans--selected because they were known to take 
steps to actively manage imaging services--provides examples of 
practices to constrain spending growth. Unlike CMS, the private plans 
in our study had management practices oriented toward controlling 
spending prospectively rather than solely focusing on activities that 
occur after the imaging service has been provided to the beneficiary. 
Specifically, our examination of these plans found a common thread that 
requiring prior authorization of certain imaging services, such as 
advanced imaging services, was effective for them in reducing spending 
growth in this area. 

Given the pressures of a fiscally unsustainable Medicare program, CMS 
has undertaken several initiatives aimed at improving its performance 
as a purchaser of health care services. With respect to rapidly growing 
imaging services, the experience of the private plans in our study 
suggests that the benefits of front-end management of these services 
exceeded their costs. We believe CMS may be able to improve its prudent 
purchaser efforts by adopting strategies such as prior authorization 
and privileging. To do this, CMS would need to assess the feasibility 
of using these approaches for imaging services under the Medicare Part 
B program, including the costs or staffing resources needed to carry 
out these activities and the potential savings that might accrue from 
these activities. Moreover, CMS would also need to assess any specific 
activities in light of its authority under the Medicare program and 
determine if additional legislation is necessary. 

Recommendation for Executive Action: 

To address the rapid growth in Medicare Part B spending on imaging 
services, we recommend that CMS examine the feasibility of expanding 
its payment safeguard mechanisms by adding more front-end approaches to 
managing imaging services, such as privileging and prior authorization. 

Agency and Professional Association Comments and Our Evaluation: 

We obtained written comments on a draft of this report from HHS (see 
app. V). We obtained oral comments from representatives of two 
organizations, AHIP and AMIC, selected because they represent a broad 
array of stakeholders with specific involvement in the imaging 
industry. 

HHS Comments: 

HHS stated that, through ongoing data analysis and evaluation, Medicare 
contractors have identified imaging services as an area that poses a 
high risk to the Medicare Trust Fund, and are therefore continuing to 
conduct ongoing medical review and provider education. We are pleased 
that CMS contractors are scrutinizing imaging services through post- 
payment claims review; however, as we noted in the draft of this 
report, we believe that more front-end approaches to managing these 
services may also be desirable. 

Regarding our recommendation, HHS raised several concerns about the 
administrative burden, as well as the advisability of prior 
authorization for the Medicare program. First, the agency said there 
was no independent data--other than self-reported--on the success of 
RBMs in managing imaging services. Second, it stated that RBMs' use of 
potentially proprietary information, including clinical guidelines and 
protocols for approval of services, may be inconsistent with the public 
nature of Medicare. Third, the effectiveness of a prior authorization 
program could be diminished if a high proportion of denied services 
were overturned through Medicare's statutory and regulatory appeals 
process. HHS also raised a question about how prior authorization would 
fit within its current post-payment review program. 

Regarding the effectiveness of prior authorization and use of RBMs in 
the private sector, as we noted in the draft report, all the plans in 
our study had implemented some form of a prior authorization program, 
and all but one had hired an RBM to manage imaging services for its 
enrollees. It is unlikely that these plans--ranging in size from small 
FEHBP plans to nationwide private sector plans with up to 34 million 
covered lives--would incur RBM fees to implement prior authorization 
unless they believed it to be effective. As we also noted in the draft 
report, the use of prior authorization as a tool to manage imaging is a 
growing trend in the private sector. We do not dispute HHS's 
reservations about prior authorization, and agree that these concerns 
will require careful examination within the context of Medicare 
statutes and regulations. Because we believe post-payment claims review 
alone is inadequate to manage one of the fastest growing parts of 
Medicare, addressing these concerns should be incorporated into CMS's 
feasibility analysis of adding front-end approaches to its prudent 
purchasing efforts. If Medicare is to become a "value-based" purchaser 
of health services, for the sake of both its beneficiaries and 
taxpayers, it should consider going beyond its traditional methods of 
managing benefit payments to achieve this result. 

Professional Association Comments: 

AHIP and AMIC representatives presented contrasting concerns about our 
discussion of prior authorization in the draft report. AHIP 
representatives characterized prior authorization as primarily an 
educational tool to persuade physicians to prescribe imaging studies in 
conformance with practice standards, while AMIC representatives 
characterized it as a cost-cutting tool that achieves savings by 
imposing burdens on physicians, with little or no educational benefit. 
Their views on the value of RBMs as implementers of prior authorization 
are similarly contrasting. 

Specifically, AHIP representatives' primary concern was our 
characterization of prior authorization as a cost-control measure 
rather than a tool used by plans to improve quality and ensure 
appropriate use of imaging services by adherence to evidence-based 
guidelines. Officials we interviewed from plans and RBMs generally 
viewed prior authorization as the most effective tool to reduce 
inappropriate utilization and spending growth rather than to improve 
quality--many of the representatives described it as a utilization 
management tool. AHIP representatives said the draft report did not 
include provider consultations with radiologists as another strategy 
that plans employ. We have revised the report to note that providers 
have that option if they disagree with a plan's initial decision to 
disapprove a requested imaging service. AHIP representatives also 
raised concerns that the draft report did not give sufficient attention 
to market structure incentives, such as leasing arrangements and 
manufacturers' attempts to increase acquisition of imaging equipment. 
Our report does address the topic of incentives for inappropriate use 
of imaging; however a detailed analysis is beyond the scope of our 
work. AHIP representatives also provided technical comments, which we 
incorporated as appropriate. 

AMIC representatives raised four principal concerns about the draft 
report. First, they stated the draft report should have focused on 
strategies such as accreditation (which improves quality), and 
adherence to clinical practice guidelines (that result in appropriate 
use of imaging services), rather than private sector strategies such as 
use of RBMs, prior-authorization, and other techniques which focus 
solely on controlling costs. Specifically, AMIC representatives 
expressed several concerns about RBMs. They stated that the for-profit 
structure and lack of transparency in sharing appropriateness 
guidelines make RBMs incompatible with the Medicare program. They also 
contended that there is no evidence that RBMs improve care or add 
value, and RBMs involve physicians in lengthy interactions. Moreover, 
they stated that prior authorization had been tried and proven 
unfeasible for Medicare for lack of sufficient administrative 
resources. In the draft report, we noted plans' increasing use of 
accreditation to assure quality of imaging services. With regard to 
prior authorization and RBMs, we are recommending that CMS consider the 
feasibility of these and other front-end approaches. We would also note 
that while HHS indicated that prior authorization might be inconsistent 
with the Medicare program, the department did not rule it out as a 
strategy that had been tried and proven unfeasible for Medicare. 

Second, AMIC representatives stated that in emphasizing spending growth 
we had failed to recognize the benefits of imaging and its effects in 
reducing overall health costs by substituting for more invasive 
procedures or treatments. We acknowledged the benefits of imaging 
throughout the draft report and noted that while some of this spending 
growth may be appropriate, financial incentives inherent in Medicare's 
payment policies for potentially inappropriate use of imaging in 
physicians' offices, and their implications for a fiscally 
unsustainable Medicare program cannot be ignored. We are not aware of 
any peer-reviewed studies that conclusively show the role of imaging in 
reducing overall health care costs. 

Third, AMIC representatives stated that by focusing only on Part B 
spending under the physician fee schedule, the draft report did not 
acknowledge growth in imaging across other sites of care such as 
hospitals. As we stated in the draft report, Medicare's physician 
payment policies contain financial incentives for physicians to 
directly benefit from higher fees paid for the provision of imaging 
services in their offices, while receiving lower fees for 
interpretation of in hospitals. However, we have added additional 
information to the report, noting that about two-thirds of all imaging 
services were delivered in the hospital setting in 2006, and that 
spending on imaging services delivered in physician offices grew twice 
as fast compared to spending on services delivered in the hospital 
setting. 

AMIC's fourth concern was that the draft report did not discuss the 
fairness of the payment reductions resulting from the changes mandated 
in the DRA. As noted in the draft report, we will examine the effects 
of payment changes mandated by the DRA in a separate report. 

As agreed with your offices, unless you publicly announce the contents 
of this report earlier, we plan no further distribution of it until 30 
days from the date of this report. We will then send copies to the 
Secretary of HHS, the Administrator of CMS, appropriate congressional 
committees, and other interested parties. We will also make copies 
available to others upon request. This report is also available at no 
charge on GAO's Web site at [hyperlink, http://www.gao.gov]. 

If you or your staff have any questions about this report, please 
contact me at (202) 512-7114 or steinwalda@gao.gov. Contact points for 
our Offices of Congressional Relations and Public Affairs may be found 
on the last page of this report. GAO staff who made contributions to 
this report are listed in appendix VI. 

Signed by: 

A. Bruce Steinwald: 

Director, Health Care: 

[End of section] 

Appendix I: Scope and Methodology: 

To determine trends in Medicare Part B spending, we analyzed Medicare 
claims data from 2000 through 2006 using the Part B Extract Summary 
System (BESS)--a data source that aggregates data to the billing code 
designated under the Healthcare Common Procedure Coding System (HCPCS). 
We extracted claims where the first digit of the Berenson-Eggers Type 
of Service (BETOS) code was equal to "I", indicating the line item was 
an imaging service.[Footnote 41] On the basis of data from the 
Denominator File--a database that contains enrollment data and 
entitlement status for all Medicare beneficiaries enrolled and/or 
entitled in a given year--we excluded beneficiaries who had 12 months 
of enrollment in a health maintenance organization in a given 
year.[Footnote 42] We aggregated the 18 BETOS categories into six major 
categories of imaging services, also referred to as modalities: CT, 
MRI, nuclear medicine, ultrasound, procedures that use imaging, and X- 
rays and other standard imaging. Our spending totals include two parts 
of the imaging service paid for by Medicare: (1) the technical 
component--the performance of the examination itself, and the (2) 
professional component--the physician's interpretation of the 
examination.[Footnote 43] 

We also examined the association between growth in total Part B imaging 
spending and various factors, including the growth in the volume and 
complexity of services, the number of Medicare fee-for-service 
beneficiaries, and Medicare fees for imaging services. To do this, we 
first calculated the growth in total Part B spending from 2000 through 
2006 and then estimated the relative contribution of each factor to the 
growth in total Part B imaging spending. To estimate the effect of 
volume and intensity on the growth in total spending, we totaled the 
Relative Value Units (RVU) associated with each imaging service from 
2000 and 2006. Because RVUs for imaging services may change from year 
to year, we used RVUs for the most recent year for which data were 
available, 2006. We estimated the effect of separately billed items 
used to deliver imaging services, such as radioactive agents and iodine 
supplies, by comparing total spending on these items in 2000 and 2006. 
Physicians submit separate bills for these items and are paid based on 
prices established by Medicare's claims administration contractors. 
These services are not assigned RVUs in the physician fees schedule. We 
compared the number of Medicare beneficiaries from 2000 to 2006 to 
determine the effect of their growth and compared changes in Medicare 
fees for imaging services using the Medicare conversion factor in 2000 
compared with 2006.[Footnote 44] To determine the share of Medicare 
beneficiaries who received any imaging services and, for those 
beneficiaries, the average number of services provided, we used 
Medicare Part B Physician/Supplier Claims data for 2000 and 2006 and 
Denominator File data for those same years. 

To supplement our quantitative examination of spending trends and to 
understand stakeholder perspectives on these trends, we obtained 
information from 19 physician specialty groups, including the American 
College of Cardiology and the American College of Radiology.[Footnote 
45] These 19 specialties were chosen because imaging is integral to 
their practices. In addition, we interviewed officials from two 
organizations, the Access to Medical Imaging Coalition and the Medical 
Imaging & Technology Alliance (a division of the National Electrical 
Manufacturers Association), that represent a diverse and large number 
of stakeholders including equipment manufacturers, physician 
specialties, patient-advocacy organizations, and others. We also 
interviewed representatives from America's Health Insurance Plans 
(AHIP), a trade association that includes about 90 percent of health 
insurers, 17 private plans, and five of the largest RBMs that manage 
imaging services for health plans. 

To examine the relationship between spending growth and the provision 
of imaging services in physician offices, we analyzed Medicare claims 
data from 2000 and 2006. We first examined the extent to which Medicare 
Part B spending on imaging services shifted to physician offices from 
Independent Diagnostic Testing Facilities (IDTF) and hospital 
inpatient, outpatient, and emergency room settings. To examine 
geographic variation in per beneficiary spending on in-office imaging, 
we divided total in-office spending for each state by the number of 
Medicare beneficiaries for that state. However, since total in-office 
spending may vary across states because of Medicare's geographic price 
differences, we derived an adjusted spending total by multiplying the 
total RVUs for in-office imaging in each state by the national Medicare 
physician fee schedule conversion factor.[Footnote 46] For this 
analysis, we excluded data from Hawaii because spending per beneficiary 
appeared to be too low compared with other states of similar size and 
Medicare beneficiary population. 

We also examined how physicians' share of their Medicare Part B revenue 
from imaging services has changed during this period and its 
relationship with certain physician specialties. Specifically, by 
physician specialty, we examined the number of non- 
radiologists[Footnote 47] who submitted bills that included the 
provision of the imaging examination, and the share of overall allowed 
charges that were attributable to imaging services provided in 
physician offices. To do this, we used Medicare Part B claims data from 
the National Claims History files and constructed data sets for 100 
percent of Medicare claims for physician services performed by 
physicians in the first 28 days of April 2000 and April 2006. We 
established a consistent cutoff date (the last day of the year) for 
each year's data file and only included those claims for April services 
that had been submitted by that date. Because claims continue to 
accrete in the data files, this step was necessary to ensure that the 
earlier year was not more complete than the later year. If non- 
radiologist physicians performed imaging examinations, either billed 
separately or in conjunction with an interpretation, and the place of 
service was "physician's office," then they were deemed to be 
performing those services in-office. We focused on non-radiology 
specialties that had at least 500 individual physicians who billed 
Medicare for any service and at least 5 percent of those billed for any 
imaging in the period examined, which yielded 297,000 physicians in 
2000 and 353,000 in 2006. 

To examine the approaches used by private payers that may have lessons 
for Medicare in managing spending on imaging services, we selected 17 
private payers known to be active in managing imaging benefits that 
included a combination of national and regional payers. We selected 
five plans because they had publicly presented information to the 
Congress or MedPAC on prior occasions about their imaging management 
practices, or had descriptions of their programs appear in the medical 
literature. We selected six private plans offered to federal employees 
under the Federal Employees Health Benefits Program (FEHBP), and six 
private plans identified through our interview with AHIP. Appendix IV 
provides characteristics of our sample of private plans. We conducted 
interviews with, or submitted questions to, these plans.[Footnote 48] 
We also interviewed five radiology benefits managers--organizations 
hired by private payers to manage radiology services for their 
enrollees--to learn about the management practices that they use to 
manage spending on imaging services. To determine what management 
practices the Centers for Medicare and Medicaid Services (CMS) uses for 
imaging services, we interviewed CMS officials including those from the 
Office of Clinical Standards and Quality, the Coverage and Analysis 
Group, and the Program Integrity Group, and officials from Medicare 
Part B contractors that together process claims for nine different 
states. 

We conducted our work from January 2007 through May 2008 in accordance 
with generally accepted government auditing standards. 

[End of section] 

Appendix II: Medicare Spending on Imaging Services Paid for under the 
Physician Fee Schedule by Modality, 2000 through 2006: 

Table 3: 

Dollars in millions. 

Imaging modalities: CT; 
2000: 975; 
2001: 1,205; 
2002: 1,308; 
2003: 1,521; 
2004: 1,818; 
2005: 2,076; 
2006: 2,171. 

Imaging modalities: MRI; 
2000: 1,002; 
2001: 1,316; 
2002: 1,451; 
2003: 1,768; 
2004: 2,155; 
2005: 2,738; 
2006: 2,982. 

Imaging modalities: Nuclear medicine; 
2000: 973; 
2001: 1,263; 
2002: 1,439; 
2003: 1,735; 
2004: 2,080; 
2005: 2,303; 
2006: 2,418. 

Imaging modalities: Ultrasound; 
2000: 1,842; 
2001: 2,116; 
2002: 2,204; 
2003: 2,490; 
2004: 2,823; 
2005: 3,208; 
2006: 3,334. 

Imaging modalities: X-ray and other standard imaging; 
2000: 1,711; 
2001: 1,925; 
2002: 2,013; 
2003: 2,189; 
2004: 2,391; 
2005: 2,464; 
2006: 2,485. 

Imaging modalities: Procedures that use imaging; 
2000: 386; 
2001: 473; 
2002: 555; 
2003: 686; 
2004: 840; 
2005: 708; 
2006: 715. 

Imaging modalities: Total for advanced imaging; 
2000: 2,951; 
2001: 3,783; 
2002: 4,197; 
2003: 5,025; 
2004: 6,052; 
2005: 7,116; 
2006: 7,571. 

Imaging modalities: Total for standard imaging; 
2000: 3,939; 
2001: 4,515; 
2002: 4,771; 
2003: 5,366; 
2004: 6,054; 
2005: 6,380; 
2006: 6,534. 

Imaging modalities: Overall total; 
2000: 6,891; 
2001: 8,298; 
2002: 8,969; 
2003: 10,390; 
2004: 12,106; 
2005: 13,496; 
2006: 14,105. 

Source: GAO analysis of Medicare Part B claims data. 

Note: Advanced imaging includes MRI, nuclear medicine, and CT. Standard 
imaging includes ultrasound, X-ray and other standard imaging, and 
procedures that use imaging. 

[End of table] 

[End of section] 

Appendix III: Medicare Imaging Use by Modality, 2000 and 2006: 

Table 4: 

Imaging modalities: CT; 
Percentage of beneficiaries: 2000: 16.0; 
Percentage of beneficiaries: 2006: 22.2; 
Percentage of beneficiaries: Percentage change: 39; 
Services per beneficiary for those who received at least one service in 
each category: 2000: 2.1; 
Services per beneficiary for those who received at least one service in 
each category: 2006: 2.5; 
Services per beneficiary for those who received at least one service in 
each category: Percentage change: 22. 

Imaging modalities: MRI; 
Percentage of beneficiaries: 2000: 6.8; 
Percentage of beneficiaries: 2006: 12.0; 
Percentage of beneficiaries: Percentage change: 76; 
Services per beneficiary for those who received at least one service in 
each category: 2000: 1.4; 
Services per beneficiary for those who received at least one service in 
each category: 2006: 1.6; 
Services per beneficiary for those who received at least one service in 
each category: Percentage change: 15. 

Imaging modalities: Nuclear Medicine; 
Percentage of beneficiaries: 2000: 9.4; 
Percentage of beneficiaries: 2006: 11.6; 
Percentage of beneficiaries: Percentage change: 23; 
Services per beneficiary for those who received at least one service in 
each category: 2000: 2.0; 
Services per beneficiary for those who received at least one service in 
each category: 2006: 2.6; 
Services per beneficiary for those who received at least one service in 
each category: Percentage change: 27. 

Imaging modalities: Ultrasound; 
Percentage of beneficiaries: 2000: 27.7; 
Percentage of beneficiaries: 2006: 32.7; 
Percentage of beneficiaries: Percentage change: 18; 
Services per beneficiary for those who received at least one service in 
each category: 2000: 2.7; 
Services per beneficiary for those who received at least one service in 
each category: 2006: 3.2; 
Services per beneficiary for those who received at least one service in 
each category: Percentage change: 19. 

Imaging modalities: X-ray and other standard imaging; 
Percentage of beneficiaries: 2000: 55.8; 
Percentage of beneficiaries: 2006: 57.0; 
Percentage of beneficiaries: Percentage change: 2; 
Services per beneficiary for those who received at least one service in 
each category: 2000: 3.6; 
Services per beneficiary for those who received at least one service in 
each category: 2006: 4.0; 
Services per beneficiary for those who received at least one service in 
each category: Percentage change: 12. 

Imaging modalities: Procedures that use imaging; 
Percentage of beneficiaries: 2000: 5.7; 
Percentage of beneficiaries: 2006: 8.7; 
Percentage of beneficiaries: Percentage change: 53; 
Services per beneficiary for those who received at least one service in 
each category: 2000: 3.6; 
Services per beneficiary for those who received at least one service in 
each category: 2006: 3.2; 
Services per beneficiary for those who received at least one service in 
each category: Percentage change: -11. 

Imaging modalities: Total for advanced imaging; 
Percentage of beneficiaries: 2000: 25.0; 
Percentage of beneficiaries: 2006: 33.0; 
Percentage of beneficiaries: Percentage change: 34; 
Services per beneficiary for those who received at least one service in 
each category: 2000: 2.5; 
Services per beneficiary for those who received at least one service in 
each category: 2006: 3.1; 
Services per beneficiary for those who received at least one service in 
each category: Percentage change: 27. 

Imaging modalities: Total for standard imaging; 
Percentage of beneficiaries: 2000: 61.0; 
Percentage of beneficiaries: 2006: 64.0; 
Percentage of beneficiaries: Percentage change: 4; 
Services per beneficiary for those who received at least one service in 
each category: 2000: 4.8; 
Services per beneficiary for those who received at least one service in 
each category: 2006: 5.7; 
Services per beneficiary for those who received at least one service in 
each category: Percentage change: 18. 

Imaging modalities: Overall total; 
Percentage of beneficiaries: 2000: 63.2; 
Percentage of beneficiaries: 2006: 66.4; 
Percentage of beneficiaries: Percentage change: 5; 
Services per beneficiary for those who received at least one service in 
each category: 2000: 5.6; 
Services per beneficiary for those who received at least one service in 
each category: 2006: 7.0; 
Services per beneficiary for those who received at least one service in 
each category: Percentage change: 24. 

Source: GAO analysis of Medicare Part B claims data. 

Note: Advanced imaging includes MRI, nuclear medicine, and CT. Standard 
imaging includes ultrasound, X-ray and other standard imaging, and 
procedures that use imaging. 

[End of table] 

[End of section] 

Appendix IV: Characteristics of GAO Sample of Private Plans That 
Actively Manage Imaging Services (February 2008): 

Table 5: 

Plan name: American Postal Workers Union; 
Approximate number of covered lives affected: 143,000; 
Locations: Nationwide; 
RBM used: Yes; 
Imaging management practices used by plan or RBM: Prior auth/ pre-cert 
used: Yes; 
Imaging management practices used by plan or RBM: Privileging used: No; 
Imaging management practices used by plan or RBM: Profiling used: Yes. 

Plan name: Highmark Blue Cross Blue Shield; 
Approximate number of covered lives affected: 1.8 million; 
Locations: PA; 
RBM used: Yes; 
Imaging management practices used by plan or RBM: Prior auth/ pre-cert 
used: Yes; 
Imaging management practices used by plan or RBM: Privileging used: 
Yes; 
Imaging management practices used by plan or RBM: Profiling used: No. 

Plan name: Blue Cross Blue Shield of Massachusetts; 
Approximate number of covered lives affected: 1.3 million; 
Locations: MA; 
RBM used: Yes; 
Imaging management practices used by plan or RBM: Prior auth/ pre-cert 
used: Yes; 
Imaging management practices used by plan or RBM: Privileging used: 
Yes; 
Imaging management practices used by plan or RBM: Profiling used: Yes. 

Plan name: Blue Cross Blue Shield of Michigan; 
Approximate number of covered lives affected: 5 million; 
Locations: MI; 
RBM used: Yes; 
Imaging management practices used by plan or RBM: Prior auth/ pre-cert 
used: Yes; 
Imaging management practices used by plan or RBM: Privileging used: 
Yes; 
Imaging management practices used by plan or RBM: Profiling used: No. 

Plan name: Blue Cross Blue Shield of Texas; 
Approximate number of covered lives affected: 2.2 million; 
Locations: TX; 
RBM used: Yes; 
Imaging management practices used by plan or RBM: Prior auth/ pre-cert 
used: Yes[A]; 
Imaging management practices used by plan or RBM: Privileging used: No; 
Imaging management practices used by plan or RBM: Profiling used: Yes. 

Plan name: CIGNA; 
Approximate number of covered lives affected: 4.5 million; 
Locations: Nationwide; 
RBM used: Yes; 
Imaging management practices used by plan or RBM: Prior auth/ pre-cert 
used: Yes; 
Imaging management practices used by plan or RBM: Privileging used: No; 
Imaging management practices used by plan or RBM: Profiling used: Yes. 

Plan name: Government Employees Health Association, Inc; 
Approximate number of covered lives affected: 423,000; 
Locations: Nationwide; 
RBM used: Yes; 
Imaging management practices used by plan or RBM: Prior auth/ pre-cert 
used: Yes; 
Imaging management practices used by plan or RBM: Privileging used: No; 
Imaging management practices used by plan or RBM: Profiling used: No. 

Plan name: Harvard Pilgrim; 
Approximate number of covered lives affected: 1 million; 
Locations: MA, NH, and ME; 
RBM used: Yes; 
Imaging management practices used by plan or RBM: Prior auth/ pre-cert 
used: Yes[B]; 
Imaging management practices used by plan or RBM: Privileging used: No; 
Imaging management practices used by plan or RBM: Profiling used: Yes. 

Plan name: HealthPartners; 
Approximate number of covered lives affected: 438,000; 
Locations: MN, ND, SD, and WI; 
RBM used: Yes; 
Imaging management practices used by plan or RBM: Prior auth/ pre-cert 
used: Yes; 
Imaging management practices used by plan or RBM: Privileging used: No; 
Imaging management practices used by plan or RBM: Profiling used: No. 

Plan name: Humana CoverageFirst; 
Approximate number of covered lives affected: 1 million; 
Locations: LA, KY, parts of IN, and OH; 
RBM used: Yes; 
Imaging management practices used by plan or RBM: Prior auth/ pre- cert 
used: Yes; 
Imaging management practices used by plan or RBM: Privileging used: 
Yes; 
Imaging management practices used by plan or RBM: Profiling used: No. 

Plan name: Independence Blue Cross; 
Approximate number of covered lives affected: 1.9 million; 
Locations: PA and NJ; 
RBM used: Yes; 
Imaging management practices used by plan or RBM: Prior auth/ pre-cert 
used: Yes; 
Imaging management practices used by plan or RBM: Privileging used: No; 
Imaging management practices used by plan or RBM: Profiling used: No. 

Plan name: Panama Canal Area Benefit Plan; 
Approximate number of covered lives affected: 17,000; 
Locations: Panama Canal area; 
RBM used: No; 
Imaging management practices used by plan or RBM: Prior auth/ pre- cert 
used: Yes; 
Imaging management practices used by plan or RBM: Privileging used: No; 
Imaging management practices used by plan or RBM: Profiling used: No. 

Plan name: Tufts Health Plan; 
Approximate number of covered lives affected: 507,000; 
Locations: MA; 
RBM used: Yes; 
Imaging management practices used by plan or RBM: Prior auth/ pre-cert 
used: Yes; 
Imaging management practices used by plan or RBM: Privileging used: 
Yes; 
Imaging management practices used by plan or RBM: Profiling used: No. 

Plan name: UniCare[C]; 
Approximate number of covered lives affected: 10,000; 
Locations: Chicagoland area, IL, and IN; 
RBM used: Yes; 
Imaging management practices used by plan or RBM: Prior auth/ pre-cert 
used: Yes; 
Imaging management practices used by plan or RBM: Privileging used: 
Yes; 
Imaging management practices used by plan or RBM: Profiling used: Yes. 

Plan name: UnitedHealthcare; 
Approximate number of covered lives affected: 18 million; 
Locations: Nationwide; 
RBM used: Yes; 
Imaging management practices used by plan or RBM: Prior auth/ pre-cert 
used: Yes[D]; 
Imaging management practices used by plan or RBM: Privileging used: No; 
Imaging management practices used by plan or RBM: Profiling used: No. 

Plan name: Wellpoint[E] (FEHBP); 
Approximate number of covered lives affected: 78,000; 
Locations: MO, OH, and CA; 
RBM used: Yes; 
Imaging management practices used by plan or RBM: Prior auth/ pre-cert 
used: Yes; 
Imaging management practices used by plan or RBM: Privileging used: No; 
Imaging management practices used by plan or RBM: Profiling used: Yes. 

Plan name: Wellpoint (Commercial); 
Approximate number of covered lives affected: 34 million; 
Locations: CA, CO, CT, GA, IL, IN, KY, MA, ME, MO, NV, NH, NY, OH, TX, 
VA, and WI; 
RBM used: Yes; 
Imaging management practices used by plan or RBM: Prior auth/ pre-cert 
used: Yes; 
Imaging management practices used by plan or RBM: Privileging used: 
Yes; 
Imaging management practices used by plan or RBM: Profiling used: Yes. 

Source: GAO interviews and analysis of plan data. 

[A] These covered lives are part of BCBS-TX's Radiology Quality 
Initiative (RQI), which only requires prior notification for an imaging 
test. BCBS-TX also has a separate program that requires prior 
authorization of imaging services and affects 50,000 covered lives. 

[B] Harvard Pilgrim employs prior notification for some imaging tests, 
and does not deny services on a clinical basis; 
however, it may deny for administrative reasons. 

[C] UniCare is owned by Wellpoint. 

[D] UnitedHealthcare employs prior notification for some imaging tests. 

[E] Includes BlueChoice HMO in MO, Blue Cross HMO in CA, and Blue HMO 
in OH. 

[End of table] 

[End of section] 

Appendix V: Comments from the Department of Health and Human Services: 

Department Of Health & Human Services: 
Office of the Assistant Secretary for Legislation: 

Washington, D.C. 20201: 

April 10, 2008: 

A. Bruce Steinwald: 
Director, Health Care: 
U.S. Government Accountability Office: 
Washington, DC 20548: 

Dear Mr. Steinwald: 

Enclosed are the Departments comments on the Government Accountability 
Office Draft Report Entitled: "Medicare Part B Imaging Services: Rapid 
Spending Growth and Shift to Physician Offices Indicate Need for CMS to 
Consider Additional Management Practices," (GAO-08-452). 

The Department appreciates the opportunity to review and comment on 
this report before its publication. 

Sincerely, 

Signed by: Jennifer R. Luong: 

for: 

Vincent Ventimiglia: 

Assistant Secretary for Legislation: 

General Comments Of The Department Of Health And Human Services (NHS) 
On The U.S. Government Accountability Office's (GAO) Draft Report 
Entitled: "Medicare Part B Imaging Services: Rapid Spending Growth And 
Shift To Physician Offices Indicate Need For CMS To Consider Additional 
Management Practices" (GAO-08-452): 

The GAO examined the extent to which Medicare Part B spending on 
imaging services shifted to physicians' offices from hospital settings 
and how physicians' shares of their Medicare revenue from imaging 
services have changed. GAO analyzed claims data and also interviewed 
physician specialty groups and private health care payers and reviewed 
health services literature. 

The GAO noted that private health care plans use the practice of 
privileging and profiling to manage their physicians' use of imaging 
services. Privileging entails the plan limiting its approval for 
ordering certain imaging services to physicians in certain specialties. 
Profiling entails a statistical analysis of medical claims data 
measuring an individual physician's use of services related to a 
desired benchmark. 

Through the Deficit Reduction Act of 2005 (DRA), Congress and CMS acted 
to constrain spending on Part B imaging services. The DRA required that 
Medicare payment for imaging services under the Medicare physician fee 
schedule not exceed what Medicare pays for these services performed in 
hospital outpatient departments. This provision was effective for 
services furnished after January 1, 2007. In addition, effective 
January 1, 2006, we implemented a multiple procedure payment reduction 
on certain diagnostic imaging procedures paid under the physician fee 
schedule. When two or more procedures in the same family of codes are 
furnished for the same patient in a single session, payment for the 
technical component of the second and subsequent procedures is reduced 
by 25 percent. 

The CMS has taken significant steps to address concerns over improper 
payments in the Medicare program and in the imaging services area. 
Through data analysis, our contractors determine which areas seem 
problematic and have high risk potential to the Medicare Trust Fund. 
The most egregious areas are selected for validation by probe review. A 
probe review is used to validate the hypothesis that such claims are 
billed in error. A random or stratified sample of generally 20-40 
claims is reviewed. The results of the probe review aid the contractor 
in determining the nature and scope of these problem areas, and which 
problem areas warrant further action. Then the contractor prioritizes 
the problem areas and focuses on the ones with the largest 
vulnerabilities, given their limited resources. Contractors do this by 
developing strategies annually to focus their resources on those claims 
that pose the largest vulnerabilities to the Medicare Trust Fund. For 
example regarding imaging services, for 2007 and 2008, many of our 
contractors, after performing data analysis, have found imaging 
services to be vulnerabilities in their jurisdiction (relative to other 
services) and thus are performing ongoing medical review and giving 
education to the provider community. Our contractors will continue to 
include imaging services in their analysis and prioritization 
activities in the future.

GAO Recommendation: 

GAO recommends that CMS should examine the feasibility of expanding its 
payment safeguard mechanisms by adding more front-end approaches to 
managing imaging services, including using privileging and prior 
authorization. 

HHS Response: 

The CMS would have to consider a more robust set of issues dealing with 
the advisability of prior authorization techniques that the GAO has 
recommended before considering their feasibility and the administrative 
burden that this would place on our contractors. The report relies on 
plans' experience with radiology benefit managers (RBMs) as self- 
reported to GAO by the RBMs. It does not appear that GAO conducted any 
independent review of the methodology or data used by plans to 
determine that the use of RBMs was successful or of the manner in which 
RBMs make their prior authorization determinations. 

We are particularly concerned that the approval or disapproval 
determinations of RBMs could be based on proprietary systems, the use 
of which could be inconsistent with the public nature of the Medicare 
program. Further, the report does not indicate how the protocol of 
questions were developed or the extent to which such protocols deviate 
from the clinical guidelines of the physician professional societies. 
These are important questions in considering the use of private 
entities and their methods to make Medicare payment/non-payment 
determinations and something we would need to closely examine before we 
could consider adopting such a system. For example, Medicare may have a 
statutory and regulatory appeals infrastructure that is more favorable 
to Medicare beneficiaries than which exist for members of private 
health insurance plans. Services that are denied by an RBM, using a 
confidential proprietary system, could be overturned on appeal if a 
beneficiary or physician argue that a service they believe was 
medically appropriate was denied without an explanation of the basis 
for the denial. RBMs would not be considered an effective policy tool 
if a high proportion of imaging claims denied by RBMs are overturned on 
appeal. Similarly, the report might address the issue about how prior 
authorization might relate to post-payment review. Post-payment review 
could be nullified in a case where prior authorization was granted. 

We appreciate the effort that went into this report and the opportunity 
to review and comment on these issues.

[End of section] 

Appendix VI: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

A. Bruce Steinwald, (202) 512-7114 or steinwalda@gao.gov: 

Acknowledgments: 

In addition to the contact name above, Jessica Farb and Thomas A. 
Walke, Assistant Directors; Todd Anderson; Iola D' Souza; Hannah Fein; 
Julian Klazkin; Emily Loriso; and Richard Lipinski made key 
contributions to this report. 

[End of section] 

Footnotes: 

[1] See GAO, 21st Century: Addressing Long-Term Fiscal Challenges Must 
Include a Re-examination of Mandatory Spending, GAO-06-456T 
(Washington, D.C.: Feb. 15, 2006); Congressional Budget Office, The 
Long-term Outlook for Health Care Spending, Pub. No. 3085 (Washington, 
D.C.: November 2007); and The Boards of Trustees of the Federal 
Hospital Insurance and Federal Supplementary Medical Insurance Trust 
Funds, 2008 Annual Report of the Boards of Trustees of the Federal 
Hospital Insurance and Federal Supplementary Medical Insurance Trust 
Funds (Washington D.C.: Mar. 25, 2008). 

[2] Medicare Part B pays for physician, outpatient hospital, home 
health care, and certain other services. 

[3] Medicare Payment Advisory Commission, Report to the Congress: 
Medicare Payment Policy (Washington, D.C.: March 2005). MedPAC was 
established by the Balanced Budget Act of 1997 (Pub. L. No. 105-33) to 
advise the Congress on issues affecting the Medicare program. 

[4] Medicare Payment Advisory Commission, Report to the Congress: 
Variation and Innovation in Medicare (Washington D.C.: June 2003). 
MedPAC measured variation in the number of imaging services across 
metropolitan statistical areas and rural areas using Medicare data from 
1999 through 2002. 

[5] 70 Fed. Reg. 70116, 70262 (Nov. 21, 2005). 

[6] Pub. L. No. 109-171, § 5102(b), 120 Stat. 4, 39-40 (2006). 

[7] The six major categories of imaging services--also referred to as 
modalities--include: CT, MRI, nuclear medicine, ultrasound, X-ray and 
other standard imaging, and procedures that use imaging. For the 
purposes of this report, we classify the first three modalities listed 
as advanced imaging services. 

[8] A more complete description of this current procedural terminology 
(CPT) code--number 71010--is radiologic examination, chest, single 
view, frontal. CPT codes and descriptions are copyrighted by the 
American Medical Association. 

[9] The CPT code for this service is 70450 and it is described as 
computed tomography, head or brain, without contrast material. 

[10] In practice, payment rates are adjusted for variations in 
physicians' costs of providing care in different geographic areas or 
payment localities. These adjustments raise or lower Medicare fees, 
depending on whether the payment locality's average cost of operating a 
physician practice is above or below the national average. The locality 
adjustments are made to each of the three RVUs before they are totaled 
and multiplied by the conversion factor, which converts the RVUs into a 
dollar payment amount. 

[11] In 2006, about two-thirds of all imaging services were performed 
in a hospital setting. 

[12] MedPAC, March 2005. 

[13] CMS estimated that the elimination of budget neutrality for the 
multiple payment reduction would result in a 0.3 percent decrease in 
payment for all physician fee schedule services in 2007, while the 
additional effect of capping of payments at the OPPS level would result 
in a total 0.9 percent decrease. 71 Fed. Reg. 69,766 (2006). 

[14] Average annual spending growth on physician-billed imaging 
services was also greater than spending growth for all services paid 
under Medicare Part B during this period, which was 8.9 percent and 
included spending on Part B institutional services such as outpatient 
hospital and home health services. 

[15] We have work underway examining the effect of the 2006 payment 
change as well as the imaging payment changes established in the 
Deficit Reduction Act of 2005 and implemented in 2007. 

[16] In February 2007, we reported on the potential multiplier effect 
resulting from the diffusion of new technology and increases in 
diagnostic capability, which in turn may increase the identification 
and treatment of diseases and conditions. In some cases, this 
capability can lead to overdiagnosis and the excessive use of health 
care resources. See GAO, Health Care Spending: Public Payers Face 
Burden of Entitlement Program Growth, While All Payers Face Rising 
Prices and Increasing Use of Services, GAO-07-497T (Washington D.C.: 
Feb. 15, 2007). See also Richard A. Deyo, "Cascade Effects of Medical 
Technology," Annual Review of Public Health, vol. 23 (May 2002). 

[17] For example, a study of inpatient costs at a Chicago-area breast 
center found that in treating cancer, mastectomies and lumpectomies 
that use image-guided core biopsies were less expensive than those 
using surgical biopsies. See Robert M. Golub et al., "Cost Minimization 
Study on Image-guided Core Biopsy Versus Surgical Excisional Biopsy for 
Women with Abnormal Mammograms," Journal of Clinical Oncology, vol. 22, 
no. 12 (June 15, 2004). 

[18] We estimate that about one-tenth of the growth in Part B spending 
on imaging from 2000 through 2006 resulted from this shift in settings. 

[19] From 2000 through 2006, spending on imaging increased in both 
treatment settings. However, spending in physicians' offices grew twice 
as fast--at an average annual rate of 14 percent--compared with 
spending in the hospital setting which grew at an average annual rate 
of 7 percent. 

[20] 42 U.S.C. § 1395nn (a), (b)(2). 

[21] Statement of Glenn M. Hackbarth, J.D., Chairman of MedPAC, at a 
hearing entitled: "Use of Imaging Services: Providing Appropriate Care 
for Medicare Beneficiaries," on July 18, 2006, for the Subcommittee on 
Health, Committee on Energy and Commerce, House of Representative, 
109th Cong. 

[22] A recent study of imaging providers in California estimated that 
about 60 percent of providers billing for in-office imaging did not 
actually own the imaging equipment, but were involved in leasing or 
other arrangements designed to take advantage of the in-office 
ancillary exemption. Jean M. Mitchell, "The Prevalence of Physician 
Self-Referral Arrangements After Stark II: Evidence from Advanced 
Diagnostic Imaging," Health Affairs, Web exclusive (Apr. 17, 2007). 

[23] Mirroring trends in spending on in-office imaging, total spending 
per beneficiary across all settings--including hospitals, physician 
offices, and IDTFs--also varied widely across states. The variation 
across these settings ranged about five-fold across the states in 2006-
-from $150 in Vermont to $684 in Florida. 

[24] Elliot S. Fisher et al., "The Implications of Regional Variation 
in Medicare Spending: Part I: The Content, Quality, and Accessibility 
of Care," and "The Implications of Regional Variation in Medicare 
Spending: Part II: Health Outcomes and Satisfaction with Care," Annals 
of Internal Medicine, vol. 138, no. 4 (February 2003). 

[25] Medicare Payment Advisory Commission, Report to the Congress: 
Increasing the Value of Medicare (Washington, D.C.: June 2006). MedPAC 
conducted an equipment capacity study in six markets across the country 
to determine the average usage levels for MRI and CT equipment. MedPAC 
found that providers used CT and MRI equipment more than 70 percent of 
the time they were open for business, rather than CMS's current 
estimate of 50 percent. 

[26] Andrew W. Litt et al., "Relative Procedure Intensity with Self- 
Referral and Radiologist Referral: Extremity Radiography," Radiology, 
vol. 235 (2005): 142-147. Also, we reported in 1994 that physicians 
with equipment within their practices ordered three times as many MRI 
scans and twice as many CT scans for their patients than physicians 
without such equipment. See GAO, Medicare: Referrals to Physician-Owned 
Imaging Facilities Warrant HCFA's Scrutiny, GAO/HEHS-95-2 (Washington, 
D.C.: Oct. 20, 1994). 

[27] Brian E Kouri et al., "Physician Self-Referral for Diagnostic 
Imaging: Review of the Empiric Literature," American Journal of 
Roentgenology, vol. 179 (October 2002). 

[28] 42 C.F. R. § 410.33(g)(3) (2007). 

[29] Under the Mammography Quality Standards Act of 1992, as amended, 
FDA implements quality assurance standards for mammography equipment, 
personnel, and facility practices. 42 U.S.C. § 263b(f). 

[30] GAO, Medicare Ultrasound Procedures: Consideration of Payment 
Reforms and Technician Qualification Requirements, GAO-07-734 
(Washington, D.C.: June 28, 2007). In its written response, CMS stated 
that while it would consider our recommendation, it would rather have 
states engage their own licensing bodies in implementing sonographer 
licensure programs. 

[31] The three primary accreditation organizations in imaging are the 
American College of Radiology (ACR), the Intersocietal Accreditation 
Commission (IAC), and the American Institute of Ultrasound in Medicine. 

[32] Kouri et al., "Physician Self-Referral for Diagnostic Imaging: 
Review of the Empiric Literature," pp. 843-850. (This article contains 
a compilation and empirical review of several studies on quality of 
imaging services, including those provided in physician offices.) 

[33] Private payers are increasingly requiring that all providers 
obtain accreditation of their imaging facilities from one of the three 
main accrediting agencies. For example, United Healthcare Group, one of 
the nation's largest private purchasers, requires that all independent 
diagnostic testing facilities and physician offices performing 
outpatient advanced imaging services for their enrollees will have 
obtained ACR or IAC accreditation as of March 1, 2008. 

[34] This is a growing trend among private health plans. For example, 
on the basis of its 2007 Community Tracking Surveys of health care 
trends in 12 markets across the country, the Center for Studying Health 
System Change reported an increasing use of prior authorization as a 
tool to manage advanced imaging services in the private sector. 

[35] Such symptoms or conditions include recent significant trauma, or 
milder trauma for individuals older than 50; unexplained weight loss; 
unexplained fever; immunosuppression; history of cancer; intravenous 
drug use; prolonged use of corticosteroids for osteoporosis; age over 
70; focal neurological deficit progressive or disabling symptoms; and 
duration of symptoms greater than 6 weeks. 

[36] GAO, Medicare Payment: CMS Methodology Adequate to Estimate 
National Error Rate, GAO-06-300 (Washington, D.C.: Mar. 24, 2006). 

[37] CMS also makes determinations or policies on whether certain 
imaging services are covered at the national level--referred to as a 
national coverage determination. For example, CMS has a national 
coverage determination that describes under what circumstances CMS will 
cover PET scans for dementia and neurodegenerative diseases such as 
Alzheimer's. 

[38] GAO, Medicare: Focus on Physician Practice Patterns Can Lead to 
Greater Program Efficiency, GAO-07-307 (Washington, D.C.: Apr. 30, 
2007). 

[39] CMS has several ongoing demonstrations examining alternative 
methods to pay physicians, which combine Medicare fee-for-service 
payments with new incentive payments. For example, in the Physician 
Group Practice demonstration that began in April 2005, 10 physician 
groups (groups with 200 or more physicians) may earn annual bonus 
incentive payments by achieving cost savings and meeting quality 
targets on conditions such as diabetes. 

[40] The services are MRI and magnetic resonance angiography (MRI of 
the blood vessels) of the brain, MRI lumbar spine, CT in combination 
with pelvic CT, mammography, and cardiac single photon emission 
computed tomography. 

[41] The BETOS categorization system was developed by CMS primarily for 
analyzing the growth in Medicare expenditures by broad service 
categories. Each billing code is assigned to only one BETOS category. 
There are 18 distinct BETOS categories for imaging services. 

[42] For beneficiaries with less than 12 months of enrollment in 
Medicare Part B, we totaled the number of months they had been enrolled 
and divided this by 12. 

[43] Our spending totals are in nominal dollars and do not include the 
technical component of services provided in hospitals or other 
institutions that fall under Medicare Part A. 

[44] Medicare fees for each service are determined by multiplying the 
RVUs for each service by a "conversion factor" expressed in dollars. 
Thus, fees could change from year to year due to changes in both the 
conversion factor and the RVUs for each service. 

[45] Specifically, we interviewed representatives from the following 18 
physician specialty groups: American Academy of Orthopaedic Surgeons, 
American Academy of Ophthalmology, American Academy of Family 
Physicians, American Association of Neurological Surgeons, American 
Academy of Neurology, American College of Cardiology, American College 
of Emergency Physicians, American College of Obstetricians and 
Gynecologists, American College of Physicians, American College of 
Radiology, American Gastroenterological Association, American Society 
of Clinical Oncology, American Society of Echocardiography, Society of 
Nuclear Medicine, American Society for Therapeutic Radiology and 
Oncology, American Society of Radiologic Technologists, Society of 
Interventional Radiology, and Society for Vascular Surgery. In 
addition, the American Urological Association provided us written 
comments on imaging services in lieu of an interview. We also 
interviewed representatives from the American Medical Association, a 
physician-member advocacy organization. 

[46] Some services, including separately billed ancillary services, do 
not have RVUs; therefore we used the actual spending in each state for 
these services unadjusted for Medicare's geographic price differences. 
Spending on these services provided in physician offices accounted for 
about 5 percent of total in-office imaging spending in 2006. 

[47] Some physicians billed under more than one specialty. To avoid 
double counting, we grouped these physicians into the specialty that 
comprised a plurality of their allowed charges. 

[48] We used the Office of Personal Management to assist us in 
collecting information from the six FEHBP plans and AHIP to assist in 
collecting information from the six private plans. 

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