The Benefits and Cost Savings of the In-Office Exception

As you have heard, some well-meaning bureaucrats and lawmakers in Washington, D.C., are taking a wrong-headed approach to saving money that hurts patients and, in fact, will actually increase costs. This policy debate is difficult for patients to understand, and yet it is vital that they do. This article will attempt to explain what is happening, and why it is not just unfair but ignorant, too.

President Obama’s proposed budget for 2014 specifically proposes taking away physicians’ ability to offer ancillary services like imaging and physical therapy within their own offices. If it passes in this form, patients will have to go to other facilities, most often at hospitals, to receive these same services. While his budget proposal claims this will save money, this is not at all the case. These services cost much more at hospitals. And it will definitely make it harder for Medicare patients to get high quality care.

Please help spread the word about this important topic. This is a rare issue in American government where politics don’t matter. Each side of this debate is trying to do the right thing. The problem is bad information. By spreading correct information to as many people as possible, you can help policymakers do the right thing.

Why patients should be concerned about a bureaucratic policy change

The threatened end to the in-office exception (IOASE) harms Medicare patients themselves in three distinct and very personal ways.

1. Lower quality care due to less coordination between their doctors and other services
2. Higher out-of-pocket costs
3. Patient Inconvenience

The cost question is the reason the President’s budget proposes eliminating the in-office exception. The problem is, his proposal is based on a single, flawed analysis that the in-office exception makes costs higher for patients and Medicare. As we’ll show, and as almost every group involved in health care cost policy agrees, cost concerns dictate keeping the in-office exception.

What is the in-office exception (IOASE)?

As the delivery of medicine has evolved, many physician groups have incorporated medical imaging and other ancillary services (including radiation oncology and pathology) into their practices. The IOASE to the physician self-referral law allows patients to be treated in an integrated setting, which improves access to care, enhances convenience for patients, streamlines communications between providers and allows the development of disease-specific expertise.

In the simplest terms, the IOASE has for many years allowed doctors to operate their own “ancillary services.” The use of these services is already tightly policed and regulated, most notably by the Stark law. These services, which help doctors take care of their patients in an effective and cost-efficient manner, include advanced imaging like MRI and CT, radiation therapy, and physical therapy.

Undisputed: The in-office exception (IOASE) benefits patients

The matter of convenience (3) speaks for itself. At the very least, patients who use their doctor’s “ancillary services” have a more streamlined experience. Often the service is performed in the same building, and there is little if any additional paperwork required. Also, things happen faster and more smoothly for the patient. There is no confused communication between doctor and physical therapist, for example, and the doctor can easily monitor the patient’s progress and make adjustments. Test results are quicker and more accurate, making repeated tests far less likely.

As for cost (2), the prices of outpatient services at independent doctors’ offices, such as those regulated by the IOASE, are much lower than what hospital-owned clinics charge, and as a patient you have almost certainly saved money thanks to the IOASE. For instance, the cost of an outpatient MRI in a doctor’s office (regulated by the IOASE) is roughly one half of the cost of an MRI in the hospital outpatient department. This decreased cost is true for virtually every one of the services covered by the IOASE. It’s easy to see why the IOASE saves so much money for the healthcare system. Furthermore, for any analysis to conclude that these half-priced services could cost Medicare more money would have to show a very large, and counterintuitive, effect to offset these savings. (See the section below about the G.A.O. report to see if it successfully makes such a case.)

The positive impact of the IOASE in the quality of care (1) can be easily seen by a real-world example. For instance, magnetic resonance imaging (MRI) is one of the most useful tools a neurologist can use in the diagnosis and treatment of patient problems. Do you have MS? A stroke? A tumor? A pinched nerve? All these questions can be answered by a carefully crafted MRI. How the tests are performed, and how they are interpreted, are critical.

The best scenario is when the doctor taking care of a patient understands how the MRI must be carried out for a particular disease, and which questions the test can and cannot answer. An MRI isn’t just a “push-button-get-answer” device. So some neurologists, as well as orthopedic surgeons, cardiologists, and other specialties, obtain specialized qualification and training in each system of the body being examined by MRI. To them, the MRI test is not just a set of pictures. They understand the abnormal anatomy behind the images, so they can best use the MRI to diagnose and treat patients with disease in their specialty.

Furthermore, seamless communication between the ordering physician, technician running the test, interpretation, and implementation of test results are inherently much more effective than what takes place in the cumbersome, expensive, hospital-based system. Money for Big Medicine can be the only reason for repeal of the IOASE, since improved patient care cannot be the reason.

In the case of physical therapy, patients also see a great benefit from specialization. Physical therapists must become highly specialized in the areas of expertise of a practice. Such a specialized physical therapist becomes a crucial member of the team supporting a patient’s recovery. Without close communication between therapist and doctor, there is no “team.”

The benefits of the IOASE to patients are enough to justify its continuation, even if services cost a little more. (They don’t.) If you’re ready, go ahead:

Otherwise, let’s get into the economics.

What about the cost of the in-office exception?

In this facet of the policy discussion too there is near-universal agreement that the IOASE saves money. The most important opinion guiding budget decisions might be that of the branch that runs Medicare, the Center for Medicaid and Medicare Services (CMS). But CMS has not agreed that elimination of IOASE would result in cost savings. Another key policy adviser in this arena is MedPAC, Congress’s main advisory commission for Medicare issues. MedPAC has begun to realize that the cost of patient evaluations by physicians forced into hospital employment has suddenly has skyrocketed. (Presentation by MedPAC, March 2013.)

If the White House’s budget proposal goes against these important advisers, who are they listening to?

The President’s assault on IOASE began with a single, flawed report by the G.A.O.

President Obama’s draft budget for next year suggests eliminating the IOASE would save $1.8 billion over 10 years. This projection is based on a single, highly flawed study of the use of advanced imaging (MRI and CT) under the in-office exception. Unfortunately, this lone study was authored by a very influential body, the General Accounting Office, or GAO. At the request of several Senators and Representatives, the GAO did an analysis of imaging costs under the IOASE. Their analysis found that physicians tend to order more advanced imaging tests after obtaining their own imaging device (MRI or CT), than they did before. That is, the number of imaging tests went up by some fraction, which varied by specialty. This is where they stopped. They went ahead and assumed that these additional tests were inappropriate, would not have been done if the physicians did not own their own equipment, and would have saved money if physicians could not own their own equipment. All of these assumptions were just that, and they are wrong.

But the really crucial problem, and critical error, of the report is that it only covered outpatient imaging; hospitals were excluded from the GAO’s analysis even though they already do 77% of imaging. If, based on these small alleged overuses of imaging, you require doctors to send 100% of imaging studies somewhere else, where will they go and what will they cost? The answer, overwhelmingly, is they will go to hospital-owned imaging facilities, where advanced imaging machines like MRI and CT are concentrated, and where every study costs twice as much, or more.

Most important to our discussion, the GAO report did NOT recommend elimination of the IOASE – problematic as it is, the report only made recommendations for more monitoring of it, and lowering payments for self-referred studies. So how was that report turned into a proposal to actually eliminate the IOASE and disrupt the healthcare of millions of Medicare patients, interfere with thousands of physicians’ practices, and raise the cost of healthcare for Medicare and for patients?

The dark side of health care policy decisions

The budget proposal to discontinue the IOASE is therefore unsupported by any governmental policy group. And yet, somewhere in the mysterious depths of budgeting, the results of this report were used to justify a proposal to actually eliminate the IOASE. As with any law, many hands touch the text yet leave no fingerprints. The changers are unaccountable.

At the beginning of this discussion we said that both sides are trying to do the right thing. That is probably, mostly true. We also said that “politics don’t matter” in this debate. However, money does matter. Some observers fear that this item was wormed into the budget proposal by lobbyists on behalf of hospital chains, who would obviously benefit greatly from the elimination of competition from independent, doctor-owned services. Regardless of how one feels about the Affordable Care Act in general, even its most ardent proponents were dismayed at the favors that the richest and most powerful business interests managed to bury in its thousands of pages. Something similar could be happening here.

This budget proposal to end the IOASE could be seen as a behind-the-scenes move by those same business interests, to profit from rule changes they don’t think anyone will notice or be able to fight. We hope that they underestimated well-meaning doctors, patients, and politicians. Make your voice heard. Make sure Medicare patients continue to have access to the best, most affordable, and most convenient outpatient services.

Don’t just sound your own voice. Spread the word:

(The American Society of Neuroimaging (ASN), of which Drs. Vernon Rowe and George Moreng are both members, has been working on this issue for over a year and has generated a detailed analysis of the true economic impact of the in-office exception. The compelling findings are outlined in this paper about the problems with the GAO analysis of IOASE, which was published in the Journal of Neuroimaging and co-authored by a member of the RNI family, Elizabeth Rowe, Ph.D.)