Teleradiology Costs Spurs Growing Trend: Restructuring Radiology Professional Services Agreements
By Joe Aguilar, MBA, MPH, MSN, CVA & Chip Hutzler, JD, MBA, CVA
Dr. Adams, the lead radiologist over the imaging service providing exclusive coverage to your system, approaches you again for the third time requesting an increase to the compensation under their professional services agreement (PSA). This time the group is saying that they can no longer provide the coverage without an increase to their stipend given the rising costs associated with employing radiologists as well as for after-hours read coverage. Not only is the group considering a raise to the stipend under their PSA, but are also willing to contemplate an employment arrangement with your system given the mounting financial challenges.
Does this sound familiar? There is a growing trend developing, where radiology practices are seeking to restructure their arrangements with health systems where they provide radiology coverage. The most prominent cause is financial – namely, increased costs for the radiology practices to ensure continuous coverage. The cost pressure is coming in large part from recent surges in staffing costs, most notably, the cost to secure after-hours read services or other gaps in coverage.
By way of background, health systems typically enter service arrangements with a radiology group to cover their facilities’ various radiology needs. Historically, these arrangements often involved little or no cash payments, but rather were primarily agreements that consisted of mutual promises. Specifically, the hospital would agree to utilize the group of radiologists exclusively, in exchange for the radiologists agreeing to ensure coverage of all the radiology needs of the hospital, and importantly, to provide that coverage regardless of a patient’s ability to pay. Unlike other hospital-based specialties (such as anesthesia, hospitalist, emergency medicine, etc.), where similar agreements often do include cash payments out of financial necessity, radiologists historically collected enough in their own professional fees to cover their costs.[1] With radiology, in effect, the mutual promises served as in-kind consideration.
Fast forward to the present, the medical profession is currently experiencing unprecedented staffing shortages, and corresponding staffing cost increases. For radiologists, the increase in costs means many practices are no longer able to cover their overhead with professional fees alone (reimbursement rates have also increased in some cases, but not at the pace of staffing cost increases, leaving a larger and larger gap). Based on the 2023 Medicare Physician Fee Schedule, the American College of Radiology calculated an estimated overall pay decrease of approximately 2%[2]. For many radiology groups, the financial problem is new, and is caused in part by the way they have historically ensured continuous radiology coverage, using NightHawk Radiology and other fill-in coverage services. Temporary coverage services have seen the greatest increase in demand recently due largely to the technological advances post-pandemic, the need to equalize workload for hospital-based radiologists, and the ability to access timely reads from multiple subspecialists in one place.
These financial / workload pressures can be seen in the survey data. Based on the Medical Group Management Association (MGMA) Provider Compensation Survey[3], Radiologists are working harder for less reimbursement. Therefore, to keep compensation in alignment, groups are requiring a greater subsidy.
| MGMA Provider Compensation Survey | |||||
| Radiology: Diagnostic | 2018 | 2019 | 2020 | 2021 | 2022 |
| wRVUs | 9,719 | 9,870 | 8,380 | 9,776 | 10,231 |
| Collections per wRVU | $61.68 | $64.59 | $64.17 | $55.73 | $58.10 |
| Compensation per wRVU | $53.77 | $56.48 | $60.26 | $55.73 | $56.37 |
| Total Compensation | $532,695 | $540,000 | $509,990 | $539,240 | $568,327 |
Whereas other hospital-based specialists often have existing deal mechanisms in place to adjust cash payments they already receive for fluctuation in collection shortages, most radiology PSAs are structured as a stipend, leading to a wave of requests for increased financial assistance from the health systems they cover. As a result, health systems are being expected to bear some or most of these additional costs. Depending on the magnitude of this additional expense, health systems may elect to employ radiologists as a solution, or contract directly with other radiology staffing services to attempt to get better rates.
Key points of consideration include:
- Buy vs build
As imaging services continue to price services high, at some amount they will reach a tipping point where it may make more sense to consider employing the radiologists then continuing with the PSA. With the rise in cost for teleradiology services, this point has arrived. While it is not without risk, health systems that reach this point are strongly considering bringing radiology services under their wing.
- Shift or share risk for financial performance
Hospitals have used either local radiology groups or imaging services to share the financial risk associated with staffing the service. With the option of employment, hospitals need to design the compensation model such that the radiologists are incentivized to continue producing at historical levels. If not, the hospital will be left with increasing teleradiology costs to maintain their current level of reads.
- Quality control assurance / improvement
Ensuring quality reads is critical when using an imaging service and/or an after-hours read service. The health system will need to establish a system in order to ensure all reads are performed timely, in a consistent manner, and accurately. Utilizing an employed group may provide greater control for the hospital.
- Align hospital goals with radiology goals
Only through the alignment of operational and financial goals between the relevant parties can a sustainable solution be created. Exclusive arrangements provide radiologists with predictable income and an efficient work environment. These arrangements provide hospitals with a stable, defined hours of coverage and more control. It is important that the group and the hospital operate with each other’s mutual benefit in mind.
Regardless of PSA or employment agreement, the transaction gives rise to the need to ensure that all cash payments are compliant with health law regulatory considerations (i.e., the “big 3” – commercial reasonableness, fair market value and the volume or value standard, among other requirements). Given the nature and subspecialties within radiology, it will be important for your teams to review the compensation in the context of all services provided by the radiology vendor. Given the exclusivity of these arrangements, this will help ensure compliance across the service line.
[1] Actually, there are some radiologists who do receive cash payments, because they are not able to successfully cover their costs with collections from their professional billings, but even in that case, payments tend to be smaller in magnitude than other hospital-based specialties, unless patient payor mix is especially unfavorable.
[2] Final 2023 physician fee schedule out from CMS; early reactions register exasperation, resolve. Pearson, D. Radiology Business, November 3, 2022. Final 2023 physician fee schedule out from CMS; early reactions register exasperation, resolve (radiologybusiness.com)
[3] 2019-2023 MGMA Provider Compensation Survey. MGMA
