Payers prefer less-costly settings, creating a potentially lucrative but risky opportunity for private practices. Careful analysis of cost-and-revenue data is the key to success.
Abstract
Health plans understand that it is more cost-effective to administer infused therapies in an ambulatory setting than in a hospital. Some physician groups might view in-house infusion centers as a financial opportunity, but should carefully weigh the steep risks involved before jumping in.
Bryan Soronson, senior administrator for neurology at the University of Maryland School of Medicine in Baltimore, has a mantra for his department’s faculty practice infusion center: “Manage the margin.”
Soronson spends a lot of time doing just that, analyzing cost-and-revenue data from the 35 to 55 infusions the center provides in a typical month. “I needed to look at the pulse rate monthly to see if we were making money,” Soronson says.
This is because the practice infusion center deals with a small number of expensive drugs and purchases its infusion medications from a third party that mixes them and ships them prepackaged. A single unreimbursed case could mean the loss of thousands of dollars in revenue.
The practice infusion center owned by the University of Maryland at Baltimore’s neurology department originated when the hospital infusion center was overbooked, says Bryan Soronson, UMAB’s senior administrator for neurology. Overhead is minimal because the center is part of an academic institution; neurologists are already on the payroll and no extra rent is required.
PHOTOGRAPH BY ROB CRANDALL
“We all know that if we had our normal denial rate of 10 percent, we would be down the tubes pretty fast,” according to Soronson. “This is not like getting denied for a level 3 follow-up office visit. If you have one denial, we’re talking about losing $3,000 to $4,000.”
During its first year of operation, which began in October 2003 after nine months of planning, the center had zero denials. To achieve this, the center had to have “significant infrastructure” to handle authorizations. “We’ve been very aggressive with getting insurance verification and authorization,” he says.
The clinic got some help from University Physicians, the faculty practice umbrella organization of the University of Maryland School of Medicine, in setting up authorization mechanisms. “The teamwork and administrative cooperation need to be there,” Soronson says.
Neurology & Headache Treatment Center, a three-physician practice in Alexandria, Va., that offers neuroscience infusion services, also applies extra vigilance to its relations with health plans.
“Preauthorization is a must,” insists Executive Director Patricia Mullins. “Even with preauthorization, I see a 50 percent denial rate the first time I see a patient,” Mullins says. However, nearly all denied claims have been paid upon appeal.
“You don’t want to start an infusion program if you may not get paid,” advises Lucien Roberts III, administrator of Neurological Associates Inc., in Richmond, Va. That 14-physician, two-nurse practice performs about 80 infusions per month at a specialized center it opened off the campus of Bon Secours St. Mary’s Hospital, where the practice is based.
Roberts, Mullins, and Soronson were part of a panel examining the feasibility and profitability of neuroscience product lines at last fall’s Medical Group Management Association annual conference. They agreed that infusion centers specifically designed to treat neurological and neuromuscular disorders can be tremendous revenue generators for medical practices, but not without considerable financial risks.
OPERATIONAL CONSIDERATIONS
Neuroscience centers, indeed, can be profitable if planned and managed properly — and creatively.
Mullins persuaded the Alexandria physicians to pay the staff by the procedure rather than by the hour, to encourage volume without compromising quality.
The practice infusion center at the University of Maryland has lower overhead, in part because it follows the per-diem nursing model — hiring nurses from various hospitals to work extra hours when they are available. “We’re paying the nurses only as we need them,” Soronson says.
Because the Maryland center is part of an academic institution, the neurologists are already on the payroll. Medicare rules require at least one physician to be on site at all times that infusion is taking place, and the center is able to have neurologists present at no additional cost for their time. Because it was established in an existing area, no additional rent was required. Capital expenses also were minimal — chairs, a VCR/TV, and a boombox.
The practice infusion center came about because the University of Maryland Medical Center’s neurology ambulatory hospital infusion center was overbooked. “This was set up for patient care,” Soronson says. “The main driver was not financial,” though financial considerations made a difference.
University affiliates normally have to pay a “dean’s tax” and other academic assessments related to clinician-administered drugs. Soronson requested that the center pay the tax only on the spread between cost and reimbursement, not on the cost of acquiring the drug.
By pulling infusion services into its own space, the neurology department can offer the intravenous immunoglobulin (IVIG) subproducts that physicians believe are best for patients. The hospital’s infusion clinic offers only a few subproducts.
BOTTOM-LINE BLUES
Some 150 miles down I-95 from Baltimore, Neurological Associates had mostly monetary reasons for opening its infusion clinic.
In recent years, third-party payments have been mostly stagnant while expenses soared. Malpractice insurance premiums for the Richmond physicians group have risen more than 600 percent since 1998.
The two hospital systems with which the physicians are affiliated — HCA-owned CJW Medical Center, and Bon Secours St. Mary’s — cut reading fees for neurologists “drastically,” Roberts says.
Physicians could not realistically work longer hours to make up the difference because they already were putting in substantial hospital time. “We had to look for ancillary services of revenue,” Roberts insists.
The infusion center works with only four drugs (IVIG, IV solumedrol, infliximab [Remicade], and natalizumab (Tysabri), which Roberts says offers the practice a competitive advantage because it can specialize in those treatments. In fact, the practice markets its niche to other physician groups. This arrangement helps Neurological Associates to justify many of its fixed costs, including rent and the salary of a full-time nurse at the infusion center.
The facility is patient-friendly, in part because it can get patients in and out in half the time the hospital can. Infusion drugs are ready when the patient arrives and the physicians are on site. “If you have a problem, our doctor is there right away,” Roberts explains. The ancillary center also offers more daily comforts for patients, including lunch service.
Design considerations such as these should not be taken lightly. “Arrangement of the room wastes more time in our practice than anything else,” says Mullins.
CASH FLOW CONCERNS
Financial and logistical benefits aside, stand-alone neurological infusion facilities are not for everyone. Roberts says his physicians will earn about 12 to 15 percent of their 2004 income from the infusion center — a nice bonus, but not enough to make a living solely from drug-administration services.
The return on investment often is fast, but not immediate, and many cash-strapped practices cannot afford to take even a short-term hit. “If you are looking at infusion, be prepared to be in the red for several months before you get into the black,” Roberts cautions. Setting up an infusion center requires significant up-front outlays for medical equipment, pharmaceuticals and general operating expenses, while it may take time for managed care reimbursements to start coming in, especially if this is a whole new line of services for the practice.
Sample effect of transition: here now, gone tomorrow
The payment resulted in a windfall in 2004 but will be phased out by 2006
MEDICARE RATE, PER OFFICE VISIT, CPT CODE 90780 (IV INFUSION THERAPY)
SOURCE: CENTERS FOR MEDICARE AND MEDICAID SERVICES 2004
And then there is the potential minefield looming this year: a sweeping change in the way the Centers for Medicare and Medicaid Services calculates Medicare payment for physician-administered drugs.
Partly in response to several high-profile cases involving manipulation of prices by physicians in collusion with pharmaceutical companies, CMS changed its reimbursement formula for infused and injected drugs from 95 percent of average wholesale price (AWP) to 106 percent of average sale price (ASP).1 Blood products are exempt from the conversion.
If you’re a practice manager who counts on infusion services as a revenue generator, then the numbers from CMS may be discouraging.
Medicare cut in reimbursements this year for infliximab, a popular infusion drug for treatment of rheumatoid arthritis and Crohn’s disease. CMS’s new Medicare Part B IVIG rate of $56.72 per gram is down from $66 at the end of 2004 and $77 in 2003. “That’s below our cost,” Soronson says.
Different subproducts associated with this drug have different prices. Most insurers reimburse a uniform amount for any of the subproducts regardless of their cost. The average sales prices also fluctuate.
“That can make a huge problem if you’re trying to manage the margin,” Soronson says.
To make matters worse, some insurers have followed CMS’s lead. Soronson notes that CareFirst Blue-Cross BlueShield, the largest private insurer in Maryland, reduced IVIG reimbursements by 20 percent.
That’s just for the drug. In the Medicare Modernization Act, Congress approved a 32 percent spike in Part B payments for administration of infusion therapies in 2004 — the so-called transition payment given to physicians to soften the blow from changing over from the AWP-based formula to one based on ASP. This year, however, that legislation set fees at just 3 percent above the 2003 baseline (see chart on previous page). No further increases are scheduled, though Medicare could increase rates in the future.2
Medicare aside, a new biotech therapy may radically alter the dynamics of neurological infusion services in the new year and may be a persuasive factor in any deliberations about the feasibility of establishing an in-house infusion clinic.
The Food and Drug Administration, in November, approved the use of natalizumab, marketed by Biogen Idec and Elan Pharmaceuticals, for treatment of relapsing forms of multiple sclerosis. Formerly known as Antegren, natalizumab is a recombinant humanized monoclonal antibody that is produced in murine myeloma cells.
Natalizumab, which may cost twice as much as other MS therapies, will require hour-long infusions once a month. Most previous MS drugs were injected, so the availability of natalizumab creates a new opportunity for infusion centers — if they can afford to offer it.
MS patients tend to be younger than 65 and not classified as disabled, so they are ineligible for Medicare. To Soronson, that’s important because Medicare beneficiaries currently make up more than 60 percent of the University of Maryland neurology practice infusion center’s patient population.
“We’ve got to figure out a way to do it, because the drug is very good for patients in certain stages of MS,” Soronson says.
It helps that CMS authorized a G-code for natalizumab that is significantly higher than that for IVIG. From an internal perspective, the neurology department is looking to expand, either on the hospital side or the practice side, because neurologists could be inundated with patients seeking the new therapy. “That could more than make up for the loss of IVIG,” Soronson speculates.
Because CMS has gone through with the proposed deep IVIG cuts, Soronson says the university may be forced to discontinue its IVIG infusion program, downsize it, shift Medicare patients to the hospital, or limit services to low-cost drugs. If more Medicare patients are infused in the ambulatory infusion center, the IVIG reimbursement could go as high as $80 per gram. This cost would even be higher if the patient is admitted into the hospital, which would drive up costs for the entire healthcare system.
Soronson acknowledges that there is a lot of risk involved with specializing in one type of infusion, especially given the switch in the Medicare infusion reimbursement formula. “If you’re going to look at it, you might want to look outside of neurology,” he says.
SHOWING PAYERS VALUE
Private-sector managed care insurers, which usually base their fee schedules on Medicare rates, are going to balk at paying for more expensive inpatient treatment when ambulatory infusion therapy is just as effective.
Robert Dash, North American reimbursement manager for ZLB Behring, a King of Prussia, Pa.-based manufacturer and distributor of plasma products, says health plans know it is more cost-effective to administer treatments in physician offices than in hospitals, so some payers may deny hospital admission in favor of an infusion clinic.
Yet, clearly, in the wake of the IVIG cuts and the approval of natalizumab, payer fights loom.
Providers who have already established clinics “really have to demonstrate the economic advantages associated with providing IVIG infusions to Medicare beneficiaries” to show CMS that their professional services add value to the administration process, Dash says. Provider groups, he suggests, may want to get together to lobby CMS for fee adjustments later this year.
Dash recommends that physician groups first work to secure their third-party managed care contracts as a way of demonstrating to CMS the value that outpatient clinics offer. “CMS will be surveying providers to see how the change affects their practice,” Dash says.
He also says practices should work with local Medicare carriers to demonstrate value, because the Medicare Payment Advisory Commission (MedPAC) collects data from these intermediaries to help set new fee schedules.
Existing contracts with private payers that are based on the old AWP formula “may help stabilize” finances for some providers, Dash says, depending on the share of practice revenue they generate.
“You really want to think about your patient mix,” Roberts says. “With a lot of insurers, you may need to walk away from a contract.”
Footnotes
CMS sets the ASP rate for eligible Part B drugs based on manufacturer information about volume-weighted average sales across hospitals, clinics, and retail channels.
As of this writing, in early January, there appears to be a good deal of uncertainty among practice managers about the net effect of the newly released CMS drug reimbursement and administrative rates.