The following article was originally published by the American Association of Provider Compensation Professionals.

The radiology marketplace is facing increasingly stronger economic headwinds as independent groups navigate declining reimbursements and escalating operating costs. This challenging environment threatens the sustainability of historical practice models, forcing many groups to seek financial support from their hospital and operator partners. Understanding the economic reality of these challenges is critical to documenting and assessing any potential financial support to maintain these essential services. 

Top-Line Reimbursement Erosion 

One of the most significant financial challenges facing radiology groups is the steady erosion of reimbursement rates. Medicare reimbursement, which often serves as a benchmark for private insurers, has seen consistent downward pressure. The Centers for Medicare and Medicaid Services (CMS) finalized the Calendar Year 2025 conversion factor at $32.3465, which reflects a ~(2.9%) deduction from 2024, though CMS estimates the impact to diagnostic radiology to be neutral. This furthers a documented trend of reimbursement erosion over the past few decades. As documented in a 2023 study published by the Journal of the American College of Radiology, Part B Medicare reimbursement to radiologists has declined by ~(24.9%) from 2005 to 2021 after adjusting for inflation.  

Additionally, the implementation of the No Surprises Act has further complicated the reimbursement landscape. While protecting patients from unexpected medical bills, the legislation has impacted radiology groups’ ability to collect on services rendered to out-of-network patients. The arbitration system required to negotiate reimbursement has resulted in higher costs of collecting and less overall reimbursement.  

Operating Cost Pressures 

Physician Compensation Trends 

The radiology physician workforce has undergone significant changes, directly impacting compensation structures and costs. According to the Merritt Hawkins 2023 Review of Physician and Advanced Practitioner Recruiting Incentives, the average radiologist starting salary in 2023 was approximately $472,000, which has increased by 17.7% since 2020.  

Subspecialty radiologists, particularly in interventional radiology and neuroradiology, are seeing large starting salary pay increases as well. The Medical Group Management Association’s (MGMA) 2024 Provider Placement Starting Salary dataset indicates that 2023 median starting salaries increased from 2022 by 8.9% and 11.8%, respectively, for neuroradiologists and interventional radiologists.   

These compensation increases are primarily driven by supply issues, as the rising demand for imaging services has been compounded by an aging workforce across the nation. Currently, 56.4% of diagnostic radiologists are aged 55 or older with new trainees estimated to increase by just 2.5% annually. 

With demand outpacing supply growth and the cost of sourcing new physicians steadily on the rise, time and again, the question for independent groups becomes one of sustainability.  

Staffing Model Rebalancing  

As practices weigh risks on physician burnout, the burden of nighttime read coverage often becomes a critical decision point. Outsourcing nocturnal coverage responsibilities has become incredibly expensive thanks to skyrocketing demand in the market. Often, the price point of working with a night-hawk locums vendor is prohibitive; for some, it is worth the expense to maximize a medical group’s physician resources for day-time read needs.  

IT & Cybersecurity Costs 

The advancement of artificial intelligence has created tech-enabled opportunities for radiology groups to optimize workflows, enhance dictation capabilities, and improve efficiencies. However, those opportunities require potentially costly investment and adoption expenses, both of which pale in comparison to cybersecurity expenditures. 

 In 2023, the healthcare industry average cost of a data breach in a cyberattack was $10.93 million. With radiology groups handling high volumes of sensitive healthcare information, larger investments in IT infrastructure are becoming essential—driven by the nationwide surge of cyberattacks, particularly within the healthcare industry. Those investments come with a price tag, and though health systems often shoulder the brunt of those necessary costs, medical groups are not insulated from the rise in IT infrastructure and cybersecurity expenditures. 

Assessing FMV Radiology Subsidy Support  

Given the reality of today’s marketplace for operating an independent radiology practice, many groups are approaching their hospital and operator partners for financial subsidy support to maintain required coverage levels. As hospitals consider such requests, it is prudent to document and assess all viable options. The first question to address is whether the contracted radiology coverage can be procured or bifurcated in a more cost-effective manner. Hospitals or affiliated medical groups with the ability to recruit providers directly may be able to structure a coverage model that offloads the volume pressures burdening their contracted group. Despite the turbulent recruiting environment, documenting all viable alternative options and models is an important first step. 

If financially subsidizing an independent group for necessary coverage is required, diligence around the following factors should be considered: 

  • Provider Staffing Expenditures: Documenting a market-driven range of provider staffing costs requires analyzing how many physician full-time equivalents (FTEs) are reasonably required to provide the contracted coverage. Physician compensation and production surveys offer helpful metrics, such as compensation ranges and work relative value unit (WRVU) productivity per FTE, enabling meaningful comparisons. Additionally, CMS annually publishes work-time statistics per CPT® code, which can be applied to a service-line or hospital-wide scan volume figure to imply a total number of physician hours. These figures vary based on the modality and scan type, but most range between 5–15 minutes per scan. This data can inform how much staffing is reasonably needed to adequately cover a service line or facility.  
  • Professional Collection Rates: Analyzing whether the group is reasonably collecting what they should is a prudent step in any subsidy review. A collections build-up approach applies known governmental (Medicare and Medicaid) reimbursement rates with assumption-driven commercial ranges to determine a reasonable collection proxy. There are a variety of potential avenues for documenting reasonable, commercial, third-party insurance ranges, but a consistent data source is the Medicare Payment Advisory Commission’s Annual Report to Congress, which indicated commercial PPO payment rates of 136% of Medicare reimbursement in their 2024 report. Considering the payer mix of the service line or facility and published governmental reimbursement rates, a market reimbursement build-up at the CPT® code level can provide a helpful marker to vetting a group’s historical collections.  
  • Operating Overhead: Operating an independent medical practice necessitates certain overhead expenses in addition to provider staffing costs (e.g., compensation, benefits, and malpractice insurance). Billing and collection expenses are typically the largest cost category, and many groups outsource these functions, along with certain practice management tasks. Proper diligence on overhead includes vetting those cost categories for reasonability relative to industry standards, documenting the reason behind the incurred costs, and determining and documenting whether they are necessary for the functions outlined in the professional services agreement with the facility. 

Conclusion 

Navigating the radiology marketplace has become more difficult over time. The convergence of tightened third-party reimbursement, lopsided physician demand versus supply dynamics, and rising costs presents a significant challenge to the traditional independent radiology practice model. Hospitals working toward an optimal model with their radiology partners can do so through a combination of strategic planning, market testing and diligence. By proactively adapting to industry changes and embracing innovative solutions, these organizations can position themselves for long-term success, ensuring both operational efficiency and continued high-quality patient care in a rapidly evolving healthcare environment. 

References

  1. American College of Radiology. ACR Preliminary Summary of the 2025 Medicare Physician Fee Schedule Final Rule. Published November 2024. Available at: https://www.acr.org/-/media/ACR/Files/Advocacy/AIA/ACR-Preliminary-Summary-2025-MPFS-FR-Final.pdf
  2. Budget Neutrality and Medicare Physician Fee Schedule Reimbursement. Journal of the American College of Radiology. Published online 2023. Available at: https://www.jacr.org/article/S1546-1440(23)00521-5/abstract
  3. Independent Dispute Resolution Under the No Surprises Act: The Basics. ACR Bulletin. Published July 2024. Available at: https://www.acr.org/Practice-Management-Quality-Informatics/ACR-Bulletin/Articles/July-2024/Independent-Dispute-Resolution-Under-the-No-Surprises-Act-The-Basics
  4. 2023 Review of Physician and Advanced Practitioner Recruiting Incentives. AMN Healthcare. Published 2023. Available at: https://www.amnhealthcare.com/siteassets/amn-insights/physician/mha2023incentivereviewfinal.pdf
  5. 2024 MGMA DataDive Provider Compensation Report. Medical Group Management Association. Published 2024. Available at: https://www.mgma.com/data-report-provider-comp-2024
  6. The radiologist shortage: addressing the gap between supply and demand. Medicus Healthcare Solutions. Published January 2025. Available at: https://medicushcs.com/resources/the-radiologist-shortage-addressing-the-gap-between-supply-and-demand
  7. IBM Security. Cost of a data breach 2023: Insights for the healthcare industry. Security Intelligence. Published July 31, 2023. Available at: https://securityintelligence.com/articles/cost-of-a-data-breach-healthcare-industry/ 
  8. Centers for Medicare & Medicaid Services. Medicare program: physician fee schedule for calendar year 2024. Final rule CMS-1807-F. Published November 1, 2023. https://www.cms.gov/medicare/payment/fee-schedules/physician/federal-regulation-notices/cms-1807-f
  9. Medicare Payment Advisory Commission. Report to the Congress: Medicare Payment Policy. Published March 2024. https://www.medpac.gov/wp-content/uploads/2024/06/Jun24_MedPAC_Report_To_Congress_SEC.pdf