Published by ImagingBiz
It’s no secret that freestanding imaging providers are expecting to see revenues decrease in 2014. The final rule for the 2014 Medicare Physician Fee Schedule, which was released by the Centers for Medicare and Medicaid Services (CMS) in November, announced significant reductions in reimbursement for imaging-heavy specialties, and these reimbursement cuts will have major effects on future revenue streams for imaging facilities all over the country.
A noteworthy change in the 2014 final rule is that CMS has created separate cost-to-charge ratios for CT and MRI procedures and increased the utilization rate for CT and MRI from 75 percent to 90 percent. While this change has resulted in a positive reimbursement effect for many other diagnostic imaging modalities, it has a significant negative effect on CT and MRI reimbursement. This will result in an overall negative impact to revenue for all types of freestanding imaging providers but will have a more substantial impact on those imaging centers heavily dependent on CT and MRI.
When valuing a business with recent or expected declines in reimbursement, it is important to understand the operating expenses and capital requirements at the disposal of management that can (and we should assume will) be reduced in order to maintain positive margins. Assuming the business has competent managers, there will be a reaction to declining revenue, and the inputs available to management to maintain margin are numerous. Some of the ways to maintain positive margins are soundly described by Howard Berger, CEO of RadNet, when describing how the publicly traded imaging company is expecting to reduce costs by an estimated $30 million in response to expected reimbursement declines.