Article Date: 6/1/2009

Reimbursement Scenario Evolves With New Practice Patterns

Reimbursement Scenario Evolves With New Practice Patterns

Pravin U. Dugel, MD (Moderator): The following discussion focuses on intravitreal injection for the treatment of neovascular age-related macular degeneration (AMD), a topic of great interest to every retina specialist in the country. Most would agree that no treatment has changed retina practices to a greater extent. When anti-vascular endothelial growth factor (VEGF) therapy was introduced, it significantly increased the number of patients eligible for treatment as well as the frequency with which they need to be treated.

These changes came upon us quickly and we are still trying to understand the financial impact they are having on our practices. Given the results of the Horizon Extension Trial of Ranibizumab — that prn dosing is not as effective as monthly dosing — it is important for us to address these practice impact issues. We may be delivering treatment in this manner indefinitely, and we must devise ways to do it efficiently. As one of our panelists has repeatedly stated, to do good, we must do well. Of course, we will always do what is right for our patients, but we have to survive and prosper in order to continue taking care of them.

As the managing partner of Retinal Consultants of Arizona in Phoenix, it was clear to me that we did not have enough data to guide us. Recently, however, Quorum Consulting, Inc. of San Francisco and several retina practices, collaborated to conduct several practice efficiency studies, which have provided us with some very enlightening information.

Mr. Tong, I would like to begin by asking you two questions. One, why is it difficult to precisely determine practice profitability? Two, can you describe in layman's terms the activities-based costing (ABC) methodology Quorum employed in the Practice Efficiency Studies and its relevance to our situation?

Kuo Bianchini Tong, MS: Evaluating the financial status of a medical practice can be difficult, because practices are typically enterprises that involve multiple physicians and multiple partners. In addition, healthcare providers, particularly physicians, are often reluctant to discuss issues, such as financial performance, revenue, expenses and ultimately profitability. They are not necessarily trained in those disciplines, and their main focus is to do right by their patients. These factors tend to be barriers when we attempt to examine issues related to finances and profitability.

The ABC methodology does not focus on the traditional concepts of fixed and variable and direct and indirect costs. Instead, it focuses on where the activities of the practice are centered.

Kuo Bianchini Tong, MS

However, if we are interested in applying financial tools and financial disciplines to healthcare providers and healthcare practices, we need to have a robust, objective methodology for evaluating revenue and expenses, so we can determine the profitability of different services. This can be difficult and labor intensive, but successful techniques and methodologies do exist. They have been well described in other fields and are now being applied to health care.

The ABC methodology, which was used in the practice efficiency studies, does not focus on the traditional concepts of fixed and variable and direct and indirect costs. Instead, it focuses on where the activities of the practice are centered. It primarily allocates expenses to the activities, which provides a better sense of not only revenue but also expenses and profitability.


Dr. Dugel: Ophthalmic physicians, in terms of our numbers, occupy a relatively small part of the overall medical landscape in this country. However, we occupy a relatively large part in terms of healthcare dollars. In the past, this revenue was generated mostly from cataract surgery. Today, however, other services and therapies, such as pharmaceuticals and injections, are playing a role.

Dr. Rich, what is the general outlook for the healthcare system at this time? How will the new administration in Washington impact health care? Also, how are the changes in our practice patterns over the past few years affecting the system?

William L. Rich III, MD, FACS: The two most important issues to consider are manpower and financing. Every indication at this time leads me to believe that our manpower numbers will remain fixed. Despite some good evidence that we have a shortage of ophthalmologists, immense competition for training programs exists among other medical and surgical subspecialties. Primary care has a surplus but they are not going to give them up. Therefore, we can assume our pipeline for manpower is frozen.

In addition, the number of ophthalmologists per 100,000 patients is declining because the number of elderly people is increasing. Furthermore, disease indications are dramatically changing for our profession, specifically the retina profession. The rate of growth in diagnostic and office-based testing for diabetic eye disease and AMD is growing four-fold more than the rate of growth of the population.1 The number of new cases of neovascular AMD diagnosed each year is now 200,000.2

The picture all of this paints is one of a fixed manpower pool and a dramatic increase in demand. This is what the entire profession is facing, but the most glaring example of the increase in demand is the use of office-based intravitreal injections to treat AMD.

Regarding finances, the way we have been paid has changed dramatically since 1997. In that year, ophthalmologists and retina specialists received 65% of their revenue from performing procedures and 35% of their revenue from diagnostic testing and office visits.3 Now, the ratio is entirely reversed. With 65% of our revenue3 now coming from office-based tests, injections, minor procedures, diagnostic testing and evaluations, I believe there will be, under President Obama, physician payment reform starting with Medicare. As you know, that will trickle down to third-party payers. What has emerged so far is a general consensus that procedures, evaluation and management codes and consultation codes are undervalued. Also, there is consensus that major procedures are undervalued and office-based testing is grossly overvalued.

With that being the prevailing thinking, unfortunately, I believe we will see a devaluation of the services we provide for office-based treatment of AMD and diabetic retinopathy. Hopefully, that devaluation will be offset by a significant increase in payment for major procedures. Even so, we are faced with a dramatically increasing demand on our resources in the office, and those resources will be tested by increased pricing pressure in the next 2 years. I anticipate cuts between 30% and 35% for all office-based diagnostic testing across the board for all of medicine, but a 45% increase for major procedures and a small increase for cognitive services. Unfortunately for the retina community, intravitreal injections are considered minor procedures, which likely means we will see substantial cuts in payment for these, in the 20%–30% range within 8 years.

The cost of treating wet AMD patients with intravitreal injections is also a major part of the equation. Including the cost of injections, office diagnostics, drugs and OCT testing, the 2-year cost of treating a patient with ranibizumab is approximately $55,000. Treating a patient with bevacizumab for 2 years is estimated to cost $2,000. Obviously, in the case of ranibizumab, the vast majority of revenue goes to the pharmaceutical industry. So I see significant pressure being put on the retina subspecialty in the next 5 to 10 years.


Dr. Dugel: In other words, the reimbursement pressures are going to be felt in exactly the same areas to which our patients are being driven. If our treatment model remains the same, more patients will be forced into our offices; we will be performing more injections and more diagnostic testing, and we will have less time to devote to major procedures.

Dr. Rich: That is correct. These are big picture issues that are largely independent of AMD. The feeling among healthcare economists and policymakers is that office-based testing lacks a solid evidence base. For example, macular and optic nerve imaging is the fastest growing code in all of Medicare. The number of tests performed has increased from 175,000 to approximately 7 million in a period of 5 years.1 When officials see a rate of growth that large, they begin to question if the service is overvalued. RP

1. AMA Relative Update Committee Database.
2. Bressler NM, Bressler SB, Congdon NG and AREDS Research Group. Potential public health impact of age-related eye disease study results: AREDS report no. 11. Arch Ophthalmol. 2003;121:1621-1624.
3. CMS 5% Part B Data File.

Retinal Physician, Issue: June 2009