I don’t mean to be dramatic, but beginning January 1, 2027, imaging directors should expect a 60% reduction in Medicare reimbursement for all imaging without contrast services. And while there are exceptions, the Centers for Medicare and Medicaid Services (CMS) projects that this policy will reduce Medicare Part B spending by $7.2 billion over 10 years. In other words, this is a big policy change with major implications for our industry that will directly impact a significant portion of AHRA membership.

This cut, which was signaled by CMS in last year’s Hospital Outpatient Prospective Payment System (OPPS) rule, is part of a broader effort by CMS to expand site-neutral policies. The principle is that Medicare should pay the same amount for the same service across all healthcare sites. This policy is part of a proposed rule at the time of writing, and many associations will argue against it in their comments back to the government. Based on CMS’s record, though, it is likely to be finalized in November and in effect by January. 

The Policy History Behind Site-Neutrality 

There are two primary Medicare payment systems for outpatient services: the Physician Fee Schedule (PFS) and the Outpatient Prospective Payment System (OPPS). Which payment system applies depends on who owns the facility. If a hospital or hospital system owns the office, the facility bills OPPS. If any other entity owns the office, the facility bills PFS. Over time, the PFS reimbursement system became significantly worse than OPPS reimbursement (due to differences in how the two systems were adjusted annually), which created an incentive for offices to sell their practices to hospitals and consolidate into health systems. 

In 2015, Congress sought to end this financial incentive to consolidate by passing the Bipartisan Budget Act of 2015 which mandated that all newly established off-campus hospital outpatient departments (HOPDs) remain on the PFS reimbursement system. However, irreconcilable differences between OPPS and PFS billing meant CMS could not implement the law exactly as written. Instead of requiring newly established off-campus HOPDs to bill PFS, CMS decided to let HOPDs continue to functionally bill via OPPS but with something they call the “PFS relativity adjuster.” This adjuster is a blunt payment reduction (currently set at 60%) that applies across the board to all services CMS considered non-excepted.

To illustrate this point, Table 1 shows how a 60% reduction of OPPS reimbursement compares with PFS reimbursement. If we had perfect site neutrality, the PFS and site-neutral OPPS payment would always be the same. However, because CMS uses this blunt PFS relativity mechanism, you can see that payment for services still varies considerably. CMS acknowledges that this policy doesn’t achieve site neutrality on a service-by-service basis but argues that in the aggregate a facility with a 60% payment cut on OPPS will generate roughly the same amount of reimbursement revenue as a facility billing the full PFS. 

Table 1: Examples of disparate pay for specific imaging services between OPPS and PFS

*Download a list of codes and their descriptions here.

Identifying the Ripple Effects Across the Imaging Industry 

To date, most off-campus HOPDs have been protected by the grandfathering clause in the 2015 legislation. However, in 2019, CMS began unraveling that protection by expanding site-neutral policies to grandfathered off-campus HOPDs for office visit services. Last year, CMS expanded site-neutrality policy for drug administration, and this year CMS proposes to expand site-neutral policy for all imaging without contrast. In other words, if you are currently overseeing off-campus HOPDs with imaging and billing modifier PO to indicate your protected status, your Medicare reimbursement for imaging without contrast will be dramatically reduced next year.

There are exceptions, of course, and it is important for planning purposes to understand the extent of these cuts. On-campus (within 250 yards) HOPDs remain exempt, even for newly established facilities. The 2015 law and subsequent CMS actions have always focused on off-campus HOPDs. Freestanding imaging centers that already bill under the PFS will not be impacted by this, and inpatient reimbursement will also not be impacted. For 2027 at least, the cuts are limited to imaging without contrast APC categories (see Table 2). Grandfathered HOPDs billing imaging with contrast will continue to receive full OPPS payments for those services. Furthermore, off-campus HOPDs of Rural Sole Community Hospitals are exempt from this policy and may continue to bill full OPPS rates. 

Table 2: Ambulatory Payment Categories (APC) Impacted

*Download a list of codes and their descriptions here.

While these exceptions certainly limit the damage to imaging reimbursement, this policy will directly impact a large volume of outpatient imaging. Because Medicare reimbursement rates often serve as the basis for other provider/payer contracts, even if you have relatively low volume of traditional Medicare patients, you will likely feel the impacts of this policy as it cascades across other payers. 

There is a possible legal challenge to this policy that could ultimately reverse the site-neutral cuts. The American Hospital Association (AHA) sued the Department of Health and Human Services (HHS) in 2019 when CMS first started expanding the site-neutral cuts to facilities that were explicitly grandfathered in by Congress. While the AHA initially had success in the lower courts, the case was appealed by HHS and AHA ultimately lost the case at the D.C. Circuit court. While the government won this particular case, the D.C. Circuit court used something called the Chevron legal doctrine — a principle requiring federal courts to defer to an agency’s reasonable interpretation of an ambiguous law — to rule in favor of HHS. Since then, the Chevron doctrine has been struck down as unconstitutional by the Supreme Court, leaving open the possibility for the policy to be relitigated. 

Preparing for a New Financial Reality

What comes next? I am unsure. 

In the proposed rule, CMS frames this policy  as a “method to control the unnecessary increases in the volume of outpatient services furnished in excepted off-campus provider-based departments.” 

Will we see imaging volumes decline as CMS intends or will the orders for imaging continue to flow unabated? Does this move radiology from a traditional revenue center to a cost center for hospital systems? Will imaging volume re-route to on-campus HOPD imaging or to freestanding imaging centers? 

While the magnitude of revenue loss is concerning, it is unlikely that the burden of this policy will fall squarely on imaging. In theory, systems will absorb the cuts as a whole and not exclusively slash radiology department budgets, so you may not feel the effects of this policy immediately. However, these second-order effects are difficult to predict, and it may take years before we understand all the ramifications of this policy. Ultimately, I think that a relatively obvious long-term consequence is that, per usual, imaging leadership will be asked to do more with less.