The Radiology Department: From Cost to Profit Center

Radiology is a prime target for payment cuts and the overall shift from fee-for-service to bundled payments, value-based purchasing, pay-for-performance and accountable care. How can you best position it to operate and compete?


For years, the radiology service line has been the primary profit engine for hospitals but that will change as the federal government, following on the heels of private insurers, accelerates efforts to curb one of the fastest-growing expenses for Medicare: diagnostic imaging costs.

Between 1999 and 2009, imaging procedures increased from 117 million to 172 million, making outpatient radiology the biggest contributor to the profit margin of U.S. hospitals, costing Medicare $14 billion. According to The Advisory Board, imaging services account for $24.1 billion, or 37 percent of hospitals’ profit. That is about three times greater than cardiology, the next closest service line.

As imaging volume has surged, concern about overuse and appropriateness of studies has increased among healthcare purchasers. This trend put radiology in the crosshairs – a prime target for payment cuts and the overall shift from fee-for-service to bundled payments, value-based purchasing, pay-for-performance and accountable care that is transforming radiology from a profit center into a cost center.

Reimbursement Cuts on the Horizon

Meanwhile, hospitals will face continued pressure in the near term and beyond as the executive and legislative branches seek to reduce federal spending. For example, the proposed $3.8 trillion budget the Obama administration released in February 2012 calls for imaging cuts that will save Medicare an estimated $820 million over a 10-year period starting 2013.

To survive, remain competitive, manage the bottom line and do more with less, hospitals must optimize quality of radiologic care, patient service, outcomes, and efficiency and throughput of their radiology department. Given the rapidly aging population, the faster facilities act, the better.

Currently, 70 to 75 percent of patients referred to a hospital require imaging services that help physicians diagnose people and develop treatment plans. However, that figure will likely increase as more than 75 million people are expected to turn 65 years of age or older over the next 18 years.

Inadequate Infrastructure, Utilization of Radiologists

Unfortunately, many facilities nationwide are woefully unprepared to improve quality of care without increasing costs, or cut spending without lowering quality for seniors and other patients. This is because they use picture archiving and communications systems (PACS) and radiology information systems that do not talk to each other. Exacerbating the problem is that most of those solutions require radiologists to be physically at a hospital to access and interpret studies. Thus, a radiology group serving, for example, six facilities often finds itself handcuffed when radiologists stationed at one hospital are overwhelmed with a heavy workload while doctors at other locations lack work due to low imaging volume. Hospitals could easily help balance radiologist workload, prevent care delays and boost physician productivity by providing anywhere, anytime access to images through a cloud-based imaging system.

The faster and more accurately hospitals are able to interpret images and treat patients, the greater the likelihood that they will achieve better outcomes and lower healthcare costs. Additionally, cloud-based systems save facilities money directly through more efficient operating costs and indirectly by increasing radiologic throughput within a hospital system.

Addressing the Situation

Besides technology, other critical steps hospitals can adopt to deliver high-quality and cost-effective diagnostic imaging services include:

  • Setting and tracking clinical performance objectives. These goals will vary from one hospital to another, but providers at a minimum should strive for a turnaround time of 30 minutes and 2 hours for emergency department and non-emergency cases, respectively. Moreover, organizations should track, report and benchmark performance daily.
  • Ensuring a study is read by the right radiologist. Before they contract with a radiology practice, hospitals should ask what processes and tools the practice uses to route the right study to the right radiologist. They also should question what measures groups have taken to gain access to subspecialists who have expertise their physicians lack.
  • Determining operational and clinical capacity. In order to support surges and variance in imaging, hospitals should ensure that there are enough radiologists covering enough subspecialties to ensure high quality with a fast turnaround time. They must balance this against fixed cost, fixed FTE models that cause unnecessary costs during times of low demand.
  • Establishing a quality assurance process or methodology. Hospitals or radiology practices can achieve this by forming a peer review committee of radiologists to review and address differences or disagreement with interpretations.

Steadily declining reimbursement, demographic trends, healthcare delivery and payment reforms are clearly eroding the profitability of radiology departments and overall hospital revenues. Although imaging remains a profitable service line, it is likely to become a cost center. Providers that take proactive measures to manage quality, timeliness, accuracy and cost-effectiveness of interpretations will be better positioned to operate and compete in an environment that will reward and penalize them based on their ability to provide better care at lower cost.

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