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entitled 'Medicare: Trends in Fees, Utilization, and Expenditures for 
Imaging Services before and after Implementation of the Deficit 
Reduction Act of 2005' which was released on September 26, 2008.

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GAO-08-1102R: 

United States Government Accountability Office: 
Washington, DC 20548: 

September 26, 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: 

Subject: Medicare: Trends in Fees, Utilization, and Expenditures for 
Imaging Services before and after Implementation of the Deficit 
Reduction Act of 2005: 

Rapid spending growth for Medicare Part B--which covers physician and 
other outpatient services--has heightened concerns about the long-range 
fiscal sustainability of Medicare.[Footnote 1] Medicare Part B 
expenditures are expected to increase over the next decade at an 
average annual rate of about 8 percent, which is faster than the 
projected 4.8 percent annual growth rate in the national economy over 
this time period.[Footnote 2] As we noted in our June 2008 report, 
spending on physician imaging services has been one of the fastest- 
growing sets of services paid for under the Medicare Part B physician 
fee schedule (PFS),[Footnote 3] the payment system used to determine 
fees for Medicare physician-billed services. From 2000 through 2006, 
Medicare spending for physician imaging services doubled from about $7 
billion to about $14 billion--an average annual increase of 13 percent, 
compared to an 8 percent increase in spending for all Medicare 
physician-billed services over the same time period.[Footnote 4] We 
also found that by 2006 about two-thirds of spending on physician 
imaging services occurred in physician office settings--an indicator of 
a shift toward providing imaging services in physicians' offices as 
opposed to providing such services in hospital or other institutional 
settings.[Footnote 5] 

In our June 2008 report, we also noted that the growth in Medicare 
spending on imaging services has been more rapid among what are known 
as advanced imaging modalities--computed tomography (CT), magnetic 
resonance imaging (MRI), and nuclear medicine--when compared with the 
growth in spending among other, less advanced imaging modalities such 
as x-ray or ultrasound.[Footnote 6] We also observed that although 
advances in imaging technology have enabled physicians to perform a 
wide range of less-invasive medical tests and procedures and to 
diagnose and treat disease more quickly, substantial geographic 
variation in the utilization of imaging services indicates that not all 
of the increased spending may have been warranted.[Footnote 7] 

Congress has recently acted to address the rapid growth in spending on 
imaging services. Under a provision in the Deficit Reduction Act of 
2005 (DRA),[Footnote 8] Medicare fees for certain imaging services 
covered by the physician fee schedule may not exceed what Medicare pays 
for these services under Medicare's hospital outpatient prospective 
payment system (OPPS),[Footnote 9] which is used to pay for hospital 
outpatient services. The provision applies only to the fee physicians 
receive for performing--as opposed to interpreting--an imaging test. To 
the extent that PFS fees for imaging services were higher than OPPS 
fees, the DRA provision--known as the OPPS cap--would reduce PFS fees 
for such services. The Centers for Medicare & Medicaid Services (CMS), 
the agency within the Department of Health and Human Services (HHS) 
that administers Medicare, implemented the OPPS cap for imaging tests 
performed on or after January 1, 2007, as required by the DRA. 

The OPPS cap sparked intense reaction from the imaging provider 
community. Specifically, physician organizations and imaging 
manufacturers have suggested that reduced fees as a result of the cap 
may inhibit physicians' willingness to provide imaging services for 
Medicare beneficiaries, which in turn could affect Medicare beneficiary 
access to such services.[Footnote 10] You asked us to provide you with 
information on the impact of the DRA provision on utilization and 
spending on physician imaging services in Medicare's fee-for-service 
(FFS) program. In this report we 1) examine the extent to which fees 
for performing imaging tests were affected by the OPPS cap in 2007 and 
2) analyze trends in expenditures and utilization for physician imaging 
services under Medicare FFS through 2007. 

To examine the extent to which fees for imaging tests were affected by 
the OPPS cap in 2007, we relied on three data sources. We obtained data 
from the 2007 physician fee schedule, which we used to identify, by 
modality, the imaging services to which the OPPS cap applied--that is, 
the imaging services for which the OPPS fee was less than the PFS fee 
and were therefore paid at the lower OPPS rate in 2007. We also 
obtained claims data for 2007 from CMS's Physician Supplier Procedure 
Summary (PSPS) Master File to determine the share of tests associated 
with imaging services subject to the OPPS cap.[Footnote 11] We obtained 
data on the number of Medicare FFS beneficiaries from the 2008 Medicare 
Trustees report.[Footnote 12] (For more detail on our data and methods, 
see enc. I.) 

To analyze trends in expenditures and utilization for physician imaging 
services under Medicare, we used the same data sources and included 
data on the number of FFS beneficiaries from the Trustees report and 
PSPS claims data for 2000 to 2006. For the purposes of this report, we 
measured utilization of imaging services in terms of the volume--or 
number--of tests performed, as this component of imaging services was 
subject to the OPPS cap beginning in 2007. The expenditure data we 
report represents Medicare Part B FFS spending associated with the 
provision of all imaging services--the performance of the test, the 
interpretation of the test, and related ancillary services.[Footnote 
13] We analyzed national trends in expenditures and utilization but did 
not examine these trends for smaller geographic areas. In order to more 
directly assess the impact of the OPPS cap on the change in imaging 
expenditures from 2006 to 2007, we performed an analysis of the factors 
that may have affected these expenditures, such as the number of 
beneficiaries in the Medicare FFS program, the volume of services 
provided per beneficiary, and the fees Medicare pays for those 
services. Although these factors affected expenditures simultaneously, 
our analysis allowed us to isolate each factor and determine the extent 
to which it alone likely affected expenditure changes from 2006 to 
2007. 

We examined the reliability of the claims data used in this report by 
performing appropriate electronic checks and checks for obvious errors 
such as values outside of expected ranges. We determined that the 
claims data we used were sufficiently reliable for the purposes of our 
analysis. We conducted our work from February 2008 through August 2008 
in accordance with generally accepted government auditing standards. 
Those standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe that 
the evidence obtained provides a reasonable basis for our findings and 
conclusions based on our audit objectives. 

Results In Brief: 

In 2007, the OPPS cap reduced the fee for the performance of about one 
in four physician imaging tests overall, and fees for advanced tests 
were more likely than other imaging tests to be paid at the OPPS rate. 
All advanced imaging modalities had a higher percentage (about 65 
percent) of tests paid at the OPPS rate than other imaging modalities 
(about 13 percent). In particular, nearly all MRIs and CTs were paid at 
the OPPS rate. Among advanced imaging tests, the fee reductions because 
of the OPPS cap varied extensively. For example, among the three most 
commonly performed MRIs subject to the cap, fee reductions ranged from 
about 21 to 40 percent. 

From 2000 through 2006 both expenditures for and utilization of 
Medicare physician imaging services increased, but in 2007 expenditures 
declined while utilization continued to rise. From 2000 to 2006, on a 
per-beneficiary basis--a measure which accounts for the change in size 
of Medicare's FFS population--expenditures increased 11.4 percent per 
year and in 2007 declined 12.7 percent. The implementation of the OPPS 
cap had the greatest impact on the decline in Medicare physician 
imaging expenditures in 2007, although other factors also contributed 
to this trend. Per-beneficiary utilization rose 5.9 percent per year 
from 2000 to 2006 and continued to increase in 2007, although at a 
slower rate of 3.2 percent. In comparing the changes from 2006 to 2007 
in per-beneficiary utilization of tests paid at the OPPS rate with 
tests paid at the PFS rate, we found that the volume of imaging tests 
subject to the cap grew almost four times faster than the volume of 
those not subject to the cap. In commenting on a draft of this report, 
CMS noted that our finding of significant reductions in spending for 
imaging services in 2007 was consistent with its own estimate. CMS also 
stated it was pleased that our findings suggested that overall 
beneficiary access to imaging services was maintained and remains 
concerned about the high volume of imaging services. 

Background: 

Medicare generally pays for physician services using a resource-based 
fee schedule. The fee schedule contains billing codes for more than 
7,000 services. For each billing code, Medicare has determined the 
resources required to provide the service and expresses these resource 
requirements in relative value units (RVU), which account for a 
physician's time, expertise, and operating costs required to deliver 
one service compared to other services.[Footnote 14] Because the 
resources required to deliver services may change over time, CMS 
reviews RVUs every 5 years. In 2007, as part of its periodic review, 
CMS revalued the RVUs so that physician payments more accurately 
reflected the cost of providing services. 

In 2007, there were 839 billing codes for imaging services in the 
Medicare physician fee schedule. These codes fall into six modalities 
which can be grouped into two subcategories. The CT, MRI, and nuclear 
medicine modalities comprise advanced imaging tests, while ultrasound, 
standard imaging (which includes x-rays), and procedures that use 
imaging comprise other imaging tests. 

In addition to the OPPS cap, in 2006 CMS implemented a reduction in 
payment for certain imaging services when multiple images are made of 
contiguous body parts during the same office visit, known as the 
multiple procedure reduction (MPR). The estimated impact of the MPR was 
small,[Footnote 15] and all the procedures subject to the MPR were also 
subject to the OPPS cap. 

In implementing the OPPS cap, CMS identified the services that would be 
subject to the cap, effective in 2007. Under the cap, the Medicare fee 
a physician receives for performing an imaging test in the physician's 
office or independent diagnostic testing facility (IDTF) may not exceed 
the fee for the same test performed under OPPS.[Footnote 16] As a 
result, if the fee under OPPS is less than the PFS fee, the physician 
is paid at the OPPS rate for the test. If the fee under OPPS is greater 
than the PFS fee, the physician is paid at the PFS rate. Because fees 
paid under the PFS and OPPS systems are revised each year, the services 
to which the OPPS cap applies may change. 

The OPPS Cap Resulted in Fee Reductions for About One in Four Imaging 
Tests, with a Larger Impact on Advanced Tests than Other Tests: 

In 2007, the OPPS cap resulted in reduced physician fees for the 
performance of about one in four imaging tests overall, and fees for 
advanced imaging tests were more likely than fees for other imaging 
tests to have been paid at the OPPS rate. Of the 65.9 million physician 
imaging tests performed in 2007, about 23 percent were paid at the OPPS 
rate. Fees for about 65 percent of the 13.3 million advanced imaging 
tests--which comprised about 20 percent of the total volume of imaging 
tests performed in 2007--were paid at a lower rate as a result of the 
OPPS cap (see fig. 1). In contrast, the fees for relatively few other 
imaging tests were affected by the cap, as about 13 percent of the 52.7 
million other imaging tests performed in 2007 were paid at the OPPS 
rate. 

Figure 1: Percentage of Physician Imaging Tests Paid at OPPS Rate and 
PFS Rate in 2007: 

[See PDF for image] 

This figure is a stacked vertical bar graph depicting the following 
data: 

Advanced imaging: 
PFS rate: 4.7 million tests; 
OPPS rate: 8.6 tests (64.8%); 
Total: 13.3 million tests. 

Other imaging: 	46.0673	6.58851
PFS rate: 46.1 million tests; 
OPPS rate: 6.6 million tests (12.5%); 
Total: 52.7 million tests. 

Source: GAO analysis of Medicare Part B claims data and physician fee 
schedule data. 

[End of figure] 

All advanced imaging modalities had a higher proportion of fee 
reductions resulting from the OPPS cap when compared with other imaging 
modalities. Fees for over 90 percent of all CTs and MRIs were reduced 
as result of the OPPS cap in 2007, while only about 20 percent of the 
fees for ultrasounds were paid at the OPPS rate--the highest percentage 
among other imaging modalities (see table 1). 

Table 1: Percentage of Imaging Tests Paid at the OPPS Rate by Modality, 
2007: 

Modalities: Advanced: MRI; 
Total tests (in millions): 3.1; 
Percentage of tests paid at OPPS rate: 98.8. 

Modalities: Advanced: CT; 
Total tests (in millions): 3.8; 
Percentage of tests paid at OPPS rate: 90.8. 

Modalities: Advanced: Nuclear Medicine; 
Total tests (in millions): 6.3; 
Percentage of tests paid at OPPS rate: 32.4. 

Modalities: Other; Ultrasound; 
Total tests (in millions): 18.7; 
Percentage of tests paid at OPPS rate: 20.1. 

Modalities: Other; Imaging Procedures; 
Total tests (in millions): 5.5; 
Percentage of tests paid at OPPS rate: 15.2. 

Modalities: Other; Standard Imaging; 
Total tests (in millions): 28.5; 
Percentage of tests paid at OPPS rate: 7.0. 

Source: GAO analysis of Medicare Part B claims data and physician fee 
schedule data. 

[End of table] 

Among the advanced imaging modalities CMS identified as subject to the 
cap, the magnitude of the specific fee reductions in 2007 varied 
extensively. For example, as a result of the OPPS cap, the fees for the 
three most commonly performed MRIs subject to the cap--MRI of the 
lumbar spine without dye, MRI of the joints of the lower extremity 
without dye, and MRI of the brain with and without dye--were reduced 
between about 21 and 40 percent. In contrast, the fees for the three 
most commonly performed CTs subject to the cap--CT of the pelvis with 
dye, CT of the thorax with dye, and CT of the thorax without dye--were 
reduced between about 7 and 15 percent. The fees for two of the three 
most commonly performed nuclear medicine tests subject to the cap were 
not reduced as a result of the OPPS cap in 2007, because the OPPS rate 
was greater than the PFS rate (see table 2). 

Table 2: Impact of OPPS Cap on the Most Commonly Performed Advanced 
Imaging Tests, 2007: 

Imaging test description: MRI of the lumbar spine w/o dye; 
PFS rate: $557.09; 
OPPS rate: $419.90; 
Percentage difference: -24.6. 

Imaging test description: MRI of joints of the lower extremity w/o dye; 
PFS rate: $519.57; 
OPPS rate: $413.08; 
Percentage difference: -20.5. 

Imaging test description: MRI of the brain w/ and w/o dye; 
PFS rate: $1,025.51; 
OPPS rate: $611.29; 
Percentage difference: -40.4. 

Imaging test description: CT of the pelvis w/dye; 
PFS rate: $327.81; 
OPPS rate: $306.21; 
Percentage difference: -6.6. 

Imaging test description: CT of the thorax w/dye; 
PFS rate: $342.59; 
OPPS rate: $310.38; 
Percentage difference: -9.4. 

Imaging test description: CT of the thorax w/o dye; 
PFS rate: $289.54; 
OPPS rate: $245.2; 
Percentage difference: -15.3. 

Imaging test description: Heart wall motion add-on; 
PFS rate: $79.96; 
OPPS rate: $119.00; 
Percentage difference: Unaffected. 

Imaging test description: Heart image (3d), multiple; 
PFS rate: $532.84; 
OPPS rate: $472.58; 
Percentage difference: -11.3. 

Imaging test description: Heart function add-on; 
PFS rate: $72.01; 
OPPS rate: $111.04; 
Percentage difference: Unaffected. 

Source: GAO analysis of 2007 Medicare physician fee schedule data. 

Note: These fees represent a national average of amounts paid for 
globally billed physician imaging services. These tests were the most 
commonly performed imaging tests of those identified by CMS as subject 
to the OPPS cap in 2007. 

[End of table] 

Expenditures for and Utilization of Imaging Services Increased until 
2007, When Expenditures Declined While Volume Continued to Increase: 

From 2000 through 2006 both expenditures for and utilization of imaging 
services in Medicare Part B increased, but in 2007 expenditures 
declined while utilization continued to rise. The implementation of the 
OPPS cap was the largest of several factors that contributed to the 
decline in Medicare expenditures for imaging services in 2007. Although 
expenditures declined in 2007, utilization continued to increase that 
year, as the volume of imaging tests subject to the OPPS cap grew 
almost four times faster than the volume of tests that were not subject 
to the cap. 

After Years of Growth, Imaging Expenditures Declined in 2007, with the 
OPPS Cap the Largest of Several Factors Influencing the Decline: 

From 2000 through 2006, total Medicare expenditures for physician 
imaging services increased from $6.7 billion to $13.8 billion, an 
increase of 12.9 percent per year. Expressed in terms of imaging 
expenditures per beneficiary--a measure which accounts for the size of 
Medicare's FFS population--imaging expenditures increased from $220 to 
$419, an increase of 11.4 percent per year. From 2000 through 2006, the 
rate of growth in spending for advanced imaging was twice the rate of 
growth for other imaging. Expenditures per beneficiary for advanced 
imaging services increased 15.4 percent between 2000 and 2006, compared 
with an increase of 7.7 percent over this time period for other imaging 
services. 

In 2007, the increase in spending on physician imaging services 
reversed, as Medicare's expenditures fell to $12.1 billion--a decline 
of 12.7 percent from 2006. Per beneficiary, Medicare's expenditures on 
physician imaging services declined 10.5 percent in 2007 to $375. 
Despite this decline, per beneficiary expenditures in 2007 for 
physician imaging services were 70.7 percent higher than they were in 
2000. In 2007, expenditures per beneficiary for advanced imaging 
services fell 14.8 percent, compared with a 5.4 percent decline in 
expenditures for other imaging services (see fig. 2). 

Figure 2: Imaging Expenditures per Medicare FFS Beneficiary, 2000 to 
2007: 

[See PDF for image] 

This figure is a multiple line graph depicting the following data in 
expenditures per beneficiary in dollars: 

Year: 2000; 
Total imaging expenditures: $219.88; 
Other imaging expenditures: $124.56; 
Advanced imaging expenditures: $95.32. 

Year: 2001; 
Total imaging expenditures: $255.39; 
Other imaging expenditures: $137.59; 
Advanced imaging expenditures: $117.81. 

Year: 2002; 
Total imaging expenditures: $268.46; 
Other imaging expenditures: $141.3; 
Advanced imaging expenditures: $127.16. 

Year: 2003; 
Total imaging expenditures: $303.48; 
Other imaging expenditures: $154.56; 
Advanced imaging expenditures: $148.92. 

Year: 2004; 
Total imaging expenditures: $352.69; 
Other imaging expenditures: $175.89; 
Advanced imaging expenditures: $176.8. 

Year: 2005; 
Total imaging expenditures: $391.57; 
Other imaging expenditures: $185.27; 
Advanced imaging expenditures: $206.29. 

Year: 2006; 
Total imaging expenditures: $419.21; 
Other imaging expenditures: $194.24; 
Advanced imaging expenditures: $224.97. 

Year: 2007; 
Total imaging expenditures: $375.27; 
Other imaging expenditures: $183.66; 
Advanced imaging expenditures: $191.62. 

Source: GAO analysis of Medicare Part B claims data. 

[End of figure] 

Our analysis shows that the implementation of the OPPS cap was the 
factor that had the greatest impact on the change in Medicare physician 
imaging expenditures, which declined 12.7 percent in the aggregate in 
2007. Specifically, we estimate that in 2007 the implementation of the 
OPPS cap caused spending on physician imaging services to decline 11.1 
percent. In addition, a decrease in the size of Medicare's FFS 
population caused a 2.5 percent decline in expenditures,[Footnote 
17]and a change in PFS fees for imaging services caused an additional 
3.6 percent decline.[Footnote 18] 

Partially offsetting the factors that contributed to the overall 
decline in imaging expenditures in 2007 was an increase in per- 
beneficiary volume of imaging services (which included tests and 
interpretations). This increase in volume---or utilization---exerted 
upward pressure on expenditures for physician imaging services in 2007. 
Specifically, the increase in volume of imaging services paid at the 
OPPS rate increased expenditures 2.6 percent, and the increase in 
volume of services paid at the PFS rate increased expenditures 1.9 
percent (see fig. 3). 

Figure 3: Relative Impact of Factors Affecting Imaging Expenditures 
from 2006 to 2007: 

[See PDF for image] 

This figure is a vertical bar graph depicting the following data in 
percentage change in expenditures: 

Relative impact of factors affecting expenditures: 

Change in FFS enrollment: -2.5%; 
Fees for services paid at OPPS rate: -11.1%; 
Volume of services paid at OPPS rate: 2.6%; 
Fees for services paid at PFS rate: -3.6%; 
Volume of services paid at PFS rate: 1.9%. 

Source: GAO analysis of Medicare Part B claims data and physician fee 
schedule data. 

Note: The impact of ancillary services, such as radiopharmaceuticals 
and iodine supplies, is excluded from these results because it 
increased total expenditures less than 0.5 percent. 

[End of figure] 

Utilization of Imaging Tests Increased from 2000 through 2007, with 
Utilization of Tests Paid at the OPPS Rate Increasing Almost Four Times 
Faster Than Tests Paid at the PFS Rate: 

Similar to expenditures for physician imaging services, utilization of 
imaging services increased from 2000 through 2006, from 42.6 million 
tests to 65.5 million tests. This increase represented an annual growth 
rate of 7.4 percent. Per beneficiary, the volume of imaging tests 
increased over this time period from 1.41 to 1.99, or an annual growth 
rate of 5.9 percent (see fig. 4). However, unlike Medicare's 
expenditures for imaging services, which declined in 2007, the volume 
of imaging tests continued to increase to 65.9 million tests in 2007. 
This increase represents a 0.6 annual rate of growth for 2007. The 
relatively slower growth rate for 2007 in the volume of imaging tests 
is largely attributable to the 2.5 percent decrease in Medicare's FFS 
population for that year. On a per-beneficiary basis, the volume of 
tests increased from 1.99 to 2.05, or 3.2 percent in 2007. 

From 2000 through 2007, utilization of advanced imaging tests grew more 
rapidly than utilization of other imaging tests. This trend continued 
in 2007 as the number of advanced tests per beneficiary increased 3.9 
percent, whereas the volume of other imaging tests increased 3.0 
percent. Because of the more rapid growth in volume for advanced 
imaging tests, the proportion of all tests that were advanced imaging 
increased from 12 percent in 2000 to 20 percent in 2007. 

Figure 4: Imaging Tests per Medicare FFS Beneficiary, 2000 to 2007: 

[See PDF for image] 

This figure is a multiple line graph depicting the following data in 
number of tests per beneficiary: 

Year: 2000; 
Total tests: 1.41; 
Advanced tests: 0.2; 
Other tests: 1.2. 

Year: 2001; 
Total tests: 1.52; 
Advanced tests: 0.2; 
Other tests: 1.3. 

Year: 2002; 
Total tests: 1.55; 
Advanced tests: 0.24; 
Other tests: 1.31 

Year: 2003; 
Total tests: 1.62; 
Advanced tests: 0.28; 
Other tests: 1.34. 

Year: 2004; 
Total tests: 1.77; 
Advanced tests: 0.33; 
Other tests: 1.44. 

Year: 2005; 
Total tests: 1.89; 
Advanced tests: 0.36; 
Other tests: 1.53. 

Year: 2006; 
Total tests: 1.99; 
Advanced tests: 0.40; 
Other tests: 1.59. 

Year: 2007; 
Total tests: 2.05; 
Advanced tests: 0.41; 
Other tests: 1.64. 

Source: GAO analysis of Medicare Part B claims data. 

[End of figure] 

As part of our analysis of utilization trends, we examined the change 
in utilization of tests paid at the OPPS rate compared to the 
utilization of tests paid at the PFS rate from 2006 to 2007. We found 
that the per-beneficiary volume of tests paid at the OPPS rate 
increased 7.4 percent, almost four times faster than the 2.0 percent 
rate of growth in the volume of tests paid at the PFS rate. 

Concluding Observations: 

Although implementing the OPPS cap raised concerns that reduced fees 
might curtail beneficiary access to physician imaging services, our 
analysis suggests that this did not occur in 2007. Our results apply to 
the national level only and may not be indicative of trends in smaller 
geographic areas. Although spending for imaging services declined from 
2006 to 2007, utilization of tests increased. In fact, utilization 
increased more for imaging tests subject to the OPPS cap than for 
imaging tests not subject to the cap. 

Agency Comments: 

In commenting on a draft of this report, CMS noted that our finding of 
significant reductions in spending for imaging services in 2007 was 
consistent with its own estimate of a 20 percent reduction in payments 
for imaging services subject to the OPPS cap. CMS also stated it was 
pleased that our findings suggested that overall beneficiary access to 
imaging services was maintained during the first year the DRA was in 
effect. According to CMS, the agency remains concerned about the high 
volume of imaging services and their value to beneficiaries. 

CMS suggested that our analysis should include two additional 
comparisons that, in its view, would provide further support for our 
concluding observations. The first was a comparison of growth rates for 
tests subject to the OPPS cap versus those that were not from 2000 to 
2006. The second was a comparison of growth rates for capped and non- 
capped tests by modality from 2006 to 2007. 

While further research could be interesting, we do not believe either 
comparison is necessary to bolster our concluding observations, which 
focused on the impact of the OPPS cap on beneficiary access. Despite 
the decline in fees for tests subject to the OPPS cap and total 
expenditures, the volume of tests continued to rise and the volume of 
tests subject to the cap rose more rapidly than the volume of tests not 
subject to the cap. 

We are sending copies of this report to the Secretary of HHS, the 
Administrator of CMS, appropriate congressional committees, and other 
interested parties. We will 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. Jessica Farb, Assistant Director; Todd D. Anderson; Manuel 
Buentello; Iola D'Souza; Krister Friday; and Julian Klazkin made key 
contributions to this report. 

Signed by: 

A. Bruce Steinwald: 
Director, Health Care: 

[End of section] 

Enclosure 1: Scope and Methodology: 

Under a provision in the Deficit Reduction Act of 2005 (DRA), Medicare 
fees for certain imaging services covered by the physician fee schedule 
(PFS) may not exceed what Medicare pays for these services under 
Medicare's hospital outpatient prospective payment system (OPPS), which 
is used to pay for hospital outpatient services.[Footnote 19] The 
provision applies only to the fee physicians receive for performing--as 
opposed to interpreting--an imaging test. To the extent that PFS fees 
for imaging services were higher than OPPS fees, the DRA provision-- 
known as the OPPS cap--would reduce PFS fees for such services. The 
Centers for Medicare & Medicaid Services (CMS), the agency within the 
Department of Health and Human Services (HHS) that administers 
Medicare, implemented the OPPS cap for imaging tests performed on or 
after January 1, 2007. To measure the effects of the OPPS cap on fees 
for, spending on, and utilization of, Medicare physician imaging 
services, we relied on several data sources. 

* We analyzed Medicare claims data from 2000 through 2007 to determine 
trends in expenditures for and utilization of physician imaging 
services from CMS's Physician Supplier Procedure Summary (PSPS) Master 
File --a data source that aggregates data to the billing code 
designated under the Healthcare Common Procedure Coding System (HCPCS). 
[Footnote 20] We analyzed national trends in expenditures and 
utilization and did not examine these trends for smaller geographic 
areas.[Footnote 21] 

* We analyzed data on fees from the 2007 Medicare PFS to identify codes 
to which the OPPS cap applied. 

* We obtained data on the number of Medicare fee-for-service 
beneficiaries from the 2008 Medicare Trustees report.[Footnote 22] 

We relied on the Berenson-Eggers Type of Service (BETOS) codes assigned 
to our claims data to determine which services could be classified as 
imaging.[Footnote 23] We extracted data if the first digit of the BETOS 
code was equal to "I" in a given year, indicating that the service was 
imaging. We also used the BETOS code to group HCPCS codes into imaging 
modalities and the broad subgroups of advanced and other imaging 
services. Of the 652 HCPCS codes: 

identified by CMS as being subject to the OPPS cap in 2007, 631 were 
classified as imaging using the BETOS code. Because the other 21 codes 
were not classified as imaging using the BETOS code, we excluded them 
to establish a consistent code classification method across years 
[Footnote 24] 

In analyzing the effect of the DRA provision on fees, spending, and 
utilization of Medicare physician imaging services, we classified the 
HCPCS code as having an OPPS fee if the OPPS fee was below the PFS fee. 
If the PFS fee for these services was based on relative value units 
(RVU),[Footnote 25] we determined the national facility and nonfacility 
PFS and OPPS fee.[Footnote 26] If the fee was not based on RVUs--that 
is, it was set by Medicare's claims processing contractors or by some 
other method--and it was on the list of codes CMS identified as subject 
to the OPPS cap, we classified the code as having an OPPS fee. Using 
the alphanumeric HCPCS codes, we differentiated tests from other 
imaging services including interpretations and separately billed 
services, such as radioactive agents and iodine supplies that accompany 
the imaging exam.[Footnote 27] For the purposes of this report, we 
measured utilization of imaging services in terms of the volume--or 
number--of tests performed, as this component of imaging services was 
subject to the OPPS cap beginning in 2007. The expenditure data we 
report represents Medicare Part B fee-for-service (FFS) spending 
associated with the provision of all imaging services--the performance 
of the test, the interpretation of the test, and related ancillary 
services. 

To analyze the factors that influenced the change in expenditures from 
2006 to 2007, we examined the three primary elements that determine 
Part B physician spending: the size of the FFS beneficiary population, 
services per beneficiary, and the average fee for each service. 
Specifically, we examined the influence of changes in the FFS 
beneficiary population, OPPS fees, the volume of services paid at the 
OPPS rate, PFS fees, and the volume of services paid at the PFS rate, 
for a total of five factors.[Footnote 28] To measure the effect of each 
factor, we allowed that factor to change while holding other factors 
constant. The percentage difference between the estimated spending as a 
result of allowing one factor to change relative to actual 2006 
spending is our estimate of the impact of that factor. The difference 
between the sum of all factor impacts and the actual change is a 
residual that we were unable to measure directly. 

We examined the reliability of the claims data used in this report by 
performing appropriate electronic checks and checks for obvious errors 
such as values outside of expected ranges. We determined that the 
claims data we used were sufficiently reliable for the purposes of our 
analysis. We conducted our work from February 2008 through August 2008 
in accordance with generally accepted government auditing standards. 
Those standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe that 
the evidence obtained provides a reasonable basis for our findings and 
conclusions based on our audit objectives. 

[End of section] 

Enclosure 2: Comments from the Centers for Medicare & Medicaid 
Services: 

Department Of Health & Human Services: 
Office Of The Secretary: 
Assistant Secretary for Legislation: 
Washington, DC 20201: 

September 16, 2008: 

A. Bruce Steinwald: 
Director, Health Care: 
Government Accountability Office: 
441 G Street NW: 
Washington, DC 20548: 

Dear Mr. Steinwald: 

Enclosed are the Department's comments on the U.S. Government 
Accountability Office's (GAO) draft report entitled: "Trends in Fees, 
Utilization, and Expenditures for Medicare imaging Services Before and 
After the Implementation of the Deficit Reduction Act of 2005" (GAO-08-
1102R). 

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

Sincerely, 

Signed by: 

Jennifer R. Luong, for: 
Vincent J. Ventimiglia, Jr. 
Assistant Secretary for Legislation: 

Attachment: 

Department Of Health & Human Services: 
Centers for Medicare & Medicaid Services: 
200 Independence Avenue, SW: 
Washington, DC 20201: 

Date: September 12, 2008: 

To: Vincent J. Ventimiglia, Jr. 
Assistant Secretary of Legislation: 

From: [Signed by] Kerry Weems: 
Acting Administrator: 

Subject: Government Accountability Office (GAO) Draft Report: "Trends 
in Fees, Utilization, and Expenditures for Medicare Imaging Services 
Before and After the Implementation of the Deficit Reduction Act of 
2005" (GAO-08-1102R): 

Thank you for the opportunity to review and comment on the GAO report 
entitled "Trends in Fees, Utilization, and Expenditures for Medicare 
Imaging Services Before and After the Implementation of the Deficit 
Reduction Act of 2005" (GAO-08-1102R). 

Effective January I, 2007, the Deficit Reduction Act of 2005 (DRA) 
(P.L. 109-171) capped the payment for the technical component of many 
imaging services paid under the Medicare physician fee schedule at the 
amount paid under Medicare's outpatient prospective payment system 
(OPPS). GAO reviewed the effects of the OPPS cap on the spending and 
utilization of imaging services. 

Between 2000 and 2006, Medicare spending on imaging services doubled, 
reaching approximately $14 billion. During that time span, the average 
increase in Medicare spending was approximately 16 percent. Utilization 
of imaging services varied widely from one geographical area to 
another. The Centers for Medicare & Medicaid Services (CMS). the 
Medicare Payment Advisory Commission (MedPAC), and the imaging industry 
are unable to definitively explain the growth and geographic variation 
in imaging spending. MedPAC has suggested that the trend has been 
driven by a number of factors, such as the availability of costly and 
sophisticated new equipment, patient demand, flaws in the payment 
system that led to more scans being performed in doctor's offices, 
"defensive medicine" practiced by doctors fearful of malpractice 
lawsuits, or simply the desire of physicians to increase their incomes. 

Still, the trend suggested cause for concern, from both a fiscal and a 
clinical standpoint. The rapid increase in Medicare spending for 
imaging services, coupled with extensive geographic variation in their 
use, raised questions about whether such growth is appropriate and 
whether all imaging services are used appropriately. 

In response to this trend, Congress enacted in the DRA reductions in 
payment rates for the technical component of certain imaging services 
paid under the physician fee schedule, capping them at the OPPS payment 
rates. CMS estimated that the DRA changes resulted in a 20 percent 
decrease in payments for these services. Consistent with this estimate, 
the GAO found significant reductions in payments for imaging services 
during 2007, particularly advanced imaging services. While imaging 
expenditures in 2007 declined, GAO found that the utilization of 
imaging services increased. GAO also found that the volume of imaging 
services subject to the cap grew almost 3.7 times faster than the 
volume of imaging services not subject to the cap. 

We believe the GAO's analysis of the issue should include two 
additional comparisons. First, the GAO analysis should present data 
comparing the rate of growth in imaging services subject to the cap and 
not subject to the cap for the 2000-2006 period. This time trend 
analysis would present valuable information about the underlying growth 
trend for DRA cap vs. non-cap imaging services. Second, the GAO 
analysis should present data comparing the rate of growth from 2006 to 
2007 for DRA cap and non-cap imaging services by type of imaging 
modality. This analysis would present a more detailed picture of the 
sources of imaging service growth. These analyses should provide 
information for more robust Concluding Observations. 

We are pleased that GAO's findings suggest that overall beneficiary 
access to imaging services was maintained under the DRA payment rate 
reductions. We continue to be concerned about the high volume of 
imaging services and their value to beneficiaries. We appreciate the 
work the GAO has done on this issue and we will continue to monitor the 
effects of imaging payment reforms on beneficiary access to quality 
imaging services, as well as implement the accreditation requirements 
for advanced diagnostic imaging services and appropriateness 
demonstration that were included in the Medicare Improvement for 
Patients and Providers Act of 2008 (P.L. 110-275) provisions. 

[End of section] 

Footnotes: 

[1] Medicare is the federally financed health insurance program for 
persons aged 65 and over, certain individuals with disabilities, and 
individuals with end-stage renal disease. In addition to services 
covered under Part B, Medicare covers hospital and other inpatient 
stays through Medicare Part A. Medicare Parts A and B are known as 
original Medicare or Medicare fee-for-service (FFS). 

[2] These rates of growth are based on nominal dollars. See 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). 

[3] Throughout this report we define "physician imaging services" as 
services billed by physicians and paid for under the physician fee 
schedule. 

[4] See GAO, Medicare Part B Imaging Services: Rapid Spending Growth 
and Shift to Physician Offices Indicate Need for CMS to Consider 
Additional Management Practices, [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO-08-452] (Washington, D.C.: June 13, 2008). 

[5] Depending upon the setting, Medicare pays for imaging services 
under different payment systems. For example, when a physician provides 
imaging services in an office setting, the physician may bill for and 
receive, under Medicare PFS, one fee for performing the imaging test 
and another fee for interpreting the test. If the physician bills for 
both, it is known as a "global bill." In contrast, when a patient 
receives imaging services in an institutional setting, such as a 
hospital outpatient department, the physician receives a fee under PFS 
only for the interpretation of the test, while the fee for the 
performance of the test is paid to the institution under Medicare's 
hospital outpatient prospective payment system (OPPS). 

[6] Nuclear medicine is the use of radioactive materials in conjunction 
with an imaging modality to produce images that show both structure and 
function within the body. 

[7] [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-08-452]. See also 
Medicare Payment Advisory Commission, Report to the Congress: Medicare 
Payment Policy (Washington, D.C.: March 2005). 

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

[9] If the PFS fee exceeds the OPPS fee, providers will be paid the 
OPPS fee. If the OPPS fee exceeds the PFS fee, payment will be based on 
the PFS fee. 

[10] Some health policy analysts dispute the assertion that payment 
reductions necessarily result in a lower volume of services. Some 
studies have suggested there is a "behavioral offset," that is, a 
tendency by providers to increase the volume of services to counter the 
loss of revenue from individual fee reductions. See Congressional 
Budget Office, Factors Underlying the Growth in Medicare's Spending for 
Physicians' Services (Washington, D. C.: June 2007); and Stephen 
Zuckerman, Stephen A. Norton, and Diana Verrilli, "Price Controls and 
Medicare Spending: Assessing the Volume Offset Assumption," Medical 
Care Research and Review, vol 55, no. 4 (December 1998). 

[11] The PSPS file contains an estimated 98 percent of claims from the 
calendar year. 

[12] The Boards of Trustees, 2008 Annual Report. 

[13] Ancillary services for imaging include items such as 
radiopharmaceuticals and iodine supplies. These items are necessary to 
provide certain imaging tests. 

[14] RVUs for each service are determined relative to a benchmark 
service defined as a mid-level office visit. For example, if a midlevel 
office visit had an RVU value of 1.000, a service with 1.475 RVUs is 
estimated to be 47.5 percent more costly to provide. 

[15] Using 2004 data, CMS analyzed the impact of MPR. Based on this 
analysis, we estimate the MPR would have reduced expenditures by 1.6 
percent had the provision been in effect in that year. 

[16] IDTFs are facilities that are independent of a hospital or 
physician office and only provide outpatient diagnostic services. 

[17] The decline in FFS expenditures in 2007 did not necessarily 
represent a net savings to the Medicare program, as the decrease in FFS 
enrollment that year was attributable to higher enrollment in Medicare 
Advantage--Medicare's private health plan option. 

[18] CMS revalued RVUs in 2007. Although these RVU revaluations are 
designed to leave aggregate Medicare PFS expenditures largely 
unchanged, they can result in increases or decreases in spending for 
specific services. In fact, CMS projected expenditures for services 
provided by radiologists--physicians who primarily perform imaging 
services--would decline 5 percent as a result of these RVU changes. 

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

[20] The PSPS file contains an estimated 98 percent of claims from the 
calendar year. 

[21] Our analysis of trends in expenditures and utilization includes 
tests performed in physician offices or independent diagnostic testing 
facilities (IDTF). In addition our analysis of expenditures includes 
ancillary services and physician interpretations for tests performed in 
physician offices, IDTFs, and institutional settings. 

[22] 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). 

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

[24] Including these additional HCPCS codes in our analysis would have 
increased total 2007 expenditures about 1.1 percent. 

[25] RVUs measure the relative costliness of each service compared to a 
benchmark service defined as a mid-level office visit. For example, if 
a midlevel office visit had an RVU value of 1.000, a service with 1.475 
RVUs is estimated to be 47.5 percent more costly to provide. 

[26] Under the physician fee schedule, the RVUs for each HCPCS billing 
code are adjusted to account for geographic differences in the cost of 
providing services. National fees do not account for these geographic 
adjustments. Each fee can be facility-based or nonfacility-based. 
Facility-based fees are paid for services that are provided in an 
institutional setting such as a hospital. Nonfacility-based fees are 
paid for services that are provided in an office-based setting such as 
a physician clinic. 

[27] Services for which the first digit of the HCPCS code was numeric 
or "G" and had no modifier to indicate that the claim was for the 
physician interpretation, were classified as imaging tests. 

[28] We also examined, as a separate factor, the combined effect of 
volume and fees for ancillary services, such as radiopharmaceuticals 
and iodine supplies, but ultimately excluded this factor from our 
results because it increased total expenditures less than 0.5 percent. 

[End of section] 

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