MRI and CT services are two types of medical imaging that aid in the diagnosis and treatment of myriad diseases and disorders. Medicare reimburses providers for performing the services and, subsequently, interpreting the results. Payment for the performance of the service can be made through different payment systems, depending on where the service is performed. In 2010, 6.8 million MRI and CT services were performed in a physician office or IDTF, representing about 23 percent of all MRI and CT services received by Medicare FFS beneficiaries. CMS has implemented several policies to limit self-referral, and MedPAC and other researchers have proposed further reforms. Medical imaging is a noninvasive process used to obtain pictures of the internal anatomy or function of the anatomy using one of many different types of imaging equipment and media for creating the image. MRI and CT services are two of the six medical imaging modalities. MRI services use magnets, radio waves, and computers to create images of internal body tissues. CT services use ionizing radiation and computers to produce cross-sectional images of internal organs and body structures. For certain advanced imaging services, contrast agents, such as barium or iodine solutions, are administered to patients orally or intravenously. By using contrast, sometimes referred to as “dye,” as part of the imaging examination, providers can view soft tissue and organ function more clearly. MRI and CT services help diagnose and treat many diseases and disorders such as different types of cancer, cardiovascular diseases, and musculoskeletal disorders. They can also reduce the need for more- invasive medical procedures and improve patient outcomes. Medicare payments for advanced imaging services are separated into two components—the technical component (TC) and the professional component (PC). The TC is intended to cover the cost of performing a test, including the costs for equipment, supplies, and nonphysician staff. The PC is intended to cover the provider’s time in interpreting the image and writing a report on the findings. The PC and TC can be billed together, on what is called a global claim. The components can also be billed separately. For instance, a global claim could be billed if the same provider performs and interprets the examination, whereas the TC and PC could be billed separately if the performing and interpreting providers are different. Typically, the Medicare payment for the TC is substantially higher than the payment for the PC. For instance, for a CT of the pelvis with dye billed under the 2010 Medicare physician fee schedule, the TC accounted for 79 percent of the total payment, and the PC accounted for 21 percent. Medicare reimburses providers through different payment systems depending on where the advanced imaging service is performed. When an advanced imaging service is performed in a provider’s office or an IDTF, both the PC and TC are reimbursed under the Medicare physician fee schedule. Alternatively, when the service is performed in an institutional setting, such as a hospital outpatient or inpatient department, the provider is reimbursed under the Medicare physician fee schedule for the PC, while the TC is reimbursed under a different Medicare payment system, according to the setting in which the service was provided. For instance, the TC of an advanced imaging service performed in a hospital outpatient department is reimbursed under the Medicare hospital outpatient payment system, while a service performed in a hospital inpatient setting is reimbursed through a facility payment paid under Medicare Part A. In 2010, Medicare FFS beneficiaries received 30.0 million advanced imaging services, approximately 6.8 million (23 percent) of which were performed in an IDTF or physician’s office. Of the 6.8 million advanced imaging services performed in an IDTF or physician’s office, 2.9 million were MRI services and 3.9 million were CT services. The remaining 23.2 million advanced imaging services were performed in other settings, such as hospital inpatient or outpatient departments, and their associated TCs were billed through different payment systems (see fig. 1). The total expenditures for all advanced imaging services billed under the Medicare physician fee schedule, including TCs and PCs, reached $4.2 billion in 2010. Numerous policies have been implemented or proposed by CMS, MedPAC, or other researchers that are designed to limit self-referral or reduce inappropriate utilization of advanced imaging services. These policies can affect self-referral or advanced imaging utilization through various means such as prohibiting different types of physician self- referral, informing beneficiaries of physician self-referral, mandating accreditation of staff performing MRI and CT services, improving payment accuracy, reducing payments for self-referred services, and ensuring services are clinically appropriate. One type of physician self-referral arrangement that CMS has prohibited is “per-click” self-referral arrangements where, for instance, a physician leases an imaging machine to a hospital, refers patients for imaging services, and then is paid on a per-service basis by the hospital. CMS has also solicited comments on prohibiting self-referral of diagnostic tests provided as an ancillary service in a physician’s office that are not usually provided during an office visit, because a key rationale for permitting self-referral of such services is that receiving a diagnostic service during the same office visit when a physician orders a test is convenient for beneficiaries. MedPAC, in its June 2010 report to Congress, noted that MRI and CT services were performed on the same day as an office visit less than a quarter of the time, with only 8.4 percent of MRI services of the brain being performed on the same day as an office visit. Appendix II lists a select number of such policies in addition to these two policies that have been implemented or put forth by CMS, MedPAC, and other researchers. From 2004 through 2010, the number of self-referred MRI and CT services performed in a provider’s office and non-self-referred MRI and CT services performed in a provider’s office or IDTF increased, with the larger increase for self-referred services. Similarly, expenditures for self- referred advanced imaging services also increased over this period, and this increase was larger than the changes in expenditures for advanced imaging services that were not self-referred. Over the period we reviewed, the share of advanced imaging services that were self-referred also increased overall and across all provider specialties we examined. While the number of self-referred MRI services performed in a provider’s office and non-self-referred MRI services performed in a provider’s office or IDTF both increased from 2004 through 2010, a significantly larger Specifically, the increase occurred among the self-referred services.number of self-referred MRI services increased from about 380,000 services in 2004 to about 700,000 services in 2010—an increase of more than 80 percent (see fig 2). In contrast, the number of non-self-referred MRI services grew about 12 percent over the same time period, from about 1.97 million services in 2004 to about 2.21 million services in 2010. Despite an overall increase during this time, both self-referred and non- self-referred services declined at some point during the years of our study. However, the number of self-referred services grew faster in the earlier years and declined less in the later years than the number of non- self-referred services. Similar to MRI services, the number of self-referred and non-self-referred CT services both increased from 2004 through 2010, with a considerably larger increase occurring in self-referred services. Specifically, the number of self-referred CT services more than doubled from 2004 through 2010, growing from about 700,000 services to about 1.45 million services (see fig. 3). In contrast, the number of non-self-referred CT services increased about 30 percent during these years, from about 1.90 million services to about 2.48 million services. Although the number of both self-referred and non-self-referred CT services increased over the period of our study, the number of non-self-referred CT services decreased from 2009 through 2010. The number of self-referred advanced imaging services increased from 2004 through 2010, even after accounting for change in the number of Medicare FFS beneficiaries. Specifically, the number of self-referred MRI services per 1,000 Medicare FFS beneficiaries grew from 10.8 in 2004 to 20.0 in 2010—an increase of about 85 percent. Similarly, the number of self-referred CT services per 1,000 Medicare FFS beneficiaries more than doubled, growing from about 19.6 in 2004 to 41.2 in 2010. Expenditures for self-referred MRI services grew overall from 2004 through 2010, while expenditures for non-self-referred MRI services declined. Specifically, self-referred MRI expenditures grew about 55 percent during the time of our review, from approximately $239 million in 2004 to about $370 million in 2010 (see fig. 4). In contrast, expenditures for non-self-referred MRI services decreased about 8.5 percent during the same period. Expenditures for both self-referred and non-self-referred MRI services increased rapidly from 2004 through 2006, then decreased sharply in 2007. These declines in 2007 corresponded with the first year of implementation of a DRA provision that reduced fees for certain advanced imaging services. Since the declines in 2007, expenditures for non-self-referred MRI services have declined further while self-referred expenditures have increased. Relative to 2004, expenditures for both self-referred and non-self-referred CT services have grown through 2010, but the increase was larger for self-referred CT services (see fig. 5). Specifically, expenditures for self- referred CT services increased from $204 million in 2004 to about $340 million in 2010, an increase of about 67 percent. In contrast, expenditures for non-self-referred CT services increased from about $609 million in 2004 to about $642 million in 2010, an increase of about 5 percent. Because the self-referred advanced imaging services grew at a greater rate than non-self-referred services from 2004 through 2010, the proportion of MRI and CT services that were self-referred increased during that time period. Specifically, the proportion of MRI services that were self-referred increased from 16.3 percent in 2004 to 24.2 percent in 2010. Similarly, the proportion of CT services that were self-referred grew from 26.8 percent in 2004 to 37.0 percent in 2010. Consistent with the overall trend, the proportion of MRI and CT services that were self- referred increased from 2004 through 2010 for all provider specialties that we studied.specialties, see appendix III. We found that, in 2010, providers that self-referred beneficiaries for MRI and CT services referred substantially more of those services than did providers who did not self-refer these services, even after we accounted for differences in practice size, specialty, geography, and patient characteristics. We also found that the year after providers purchased MRI or CT equipment, leased MRI or CT equipment, or joined a group practice that self-referred, they increased the number of services they referred when compared with providers that did not begin to self-refer advanced imaging services. In 2010, self-referring providers referred substantially more advanced imaging services than providers who did not self-refer such services that year.an MRI service in 2010 averaged 36.4 MRI referrals, compared with an average of 14.4 MRI referrals for non-self-referrers. Similarly, providers that self-referred at least one beneficiary for a CT service in 2010 averaged 73.2 CT referrals, or 2.3 times as many as the 32.3 CT referrals averaged by non-self-referring providers. About 10 percent of all MRI and CT services referred by self-referring providers in 2010 were ordered, performed, and interpreted by the same provider. Certain efficiencies may be gained when the same provider orders, performs, and interprets an advanced imaging service, such as reviewing a patient’s clinical history only once. CMS has taken steps to ensure that fees for services paid under the physician fee schedule take into account efficiencies that Specifically, providers that self-referred at least one beneficiary for resulted from how the services are provided, and we recently recommended that CMS expand these efforts. Differences in advanced imaging referrals between self-referring and non- self-referring providers persisted after accounting for differences in practice size, specialty, geography, or patient characteristics. Self-referring providers referred more MRI and CT services than did non- self-referring providers, regardless of differences in practice size. In general, self-referring providers tend to work in practices with a larger number of Medicare beneficiaries. However, in 2010, self-referring providers referred more MRI and CT services than non-self-referring providers regardless of practice size, and the difference in number of services referred generally increased as provider size increased (see table 1). For example, self-referring providers that had 50 or fewer patients referred 1.8 times as many MRI services as did non-self-referring providers. In comparison, self-referring providers with 500 or more patients referred 2.4 times as many MRI services as non-self-referring providers did. Self-referring providers generally referred more MRI and CT services than did non-self-referring providers, regardless of differences in specialties. Self-referring providers were more likely than non-self-referring providers to belong to specialties that had a greater-than-average number of referrals per physician for advanced imaging services in 2010. However, for the 7 specialties that had at least 1,000 providers that self-referred beneficiaries for MRI services, self-referring providers generally averaged more referrals for MRI services than did non-self-referring providers, regardless of practice size. Similarly, self-referring providers in 9 of the 13 specialties that had at least 1,000 self-referring CT providers generally referred more beneficiaries for CT services than non-self-referring providers, regardless of practice size. Self-referring providers referred more MRI and CT services than non-self- referring providers, regardless of differences in geography. Providers that self-referred MRI services averaged 36.3 MRI referrals and 37.3 MRI referrals in urban and rural locations, respectively. In comparison, non- self-referring providers averaged 14.3 MRI referrals in urban locations and 15.2 MRI referrals in rural locations. Providers that self-referred beneficiaries for CT services averaged 72.7 referrals in urban locations and 77.2 referrals in rural locations, while non-self-referring providers averaged 31.1 CT referrals in urban locations and 40.7 referrals in rural locations. We found that differences in the number of MRI and CT referrals made by self-referring and non-self-referring providers persisted when accounting for provider size along with geography (see table 2). Self-referring providers referred more MRI and CT services than non-self- referring providers, in spite of similarities in patient characteristics. Specifically, the patient populations of self-referring and non-self-referring MRI and CT providers were similar in terms of most patient characteristics, with self-referring providers having slightly healthier patients than non-self-referring providers, as indicated by their lower average risk score (see table 3). If self-referring providers had patients that were older or sicker, it could have explained why self-referring providers referred their patients for more services than non-self-referring providers. Our analysis indicated that providers’ referrals for MRI and CT services substantially increased the year after they began to self-refer. In our analysis, we compared the number of MRI and CT referrals for switchers—those providers that did not self-refer in 2007 or 2008 but did self-refer in 2009 and 2010—to providers that did not change their self- referral status during the same time period. Providers could self-refer by purchasing imaging equipment, leasing equipment, or joining a group practice that already self-referred. Overall, the switcher group of providers who began self-referring in 2009 increased the average number of MRI and CT referrals they made by about 67 percent in 2010 compared to the average in 2008. In the case of MRIs, the average number of referrals switchers made for MRI services increased from 25.1 in 2008 to 42.0 in 2010. In contrast, the average number of MRI and CT referrals declined for providers that did not self-refer and providers who self-referred from 2008 through 2010. This comparison suggests that the increase in the average number of referrals for switchers from 2008 to 2010 was not due to a general increase in the use of imaging services among all providers. (See table 4.) The increase in MRI and CT referrals for providers that began self- referring in 2009 cannot be explained exclusively by factors such as providers joining practices with higher patient volumes, different patient populations, or different practice cultures. Specifically, providers that remained in the same practice from 2007 through 2010, but began self- referring in 2009, also had a bigger increase in the number of MRI and CT referrals than did providers that did not change their self-referral Providers that remained in the same practice from 2008 through status.2010, but began self-referring in 2009 had a 21.0 percent increase in MRI referrals and a 14.4 percent increase in CT referrals. On the basis of our estimates, Medicare spent about $109 million more in 2010 than the program would have if self-referring providers referred advanced imaging services at the same rate as non-self-referring providers of the same specialty and provider size (see fig. 6). This additional spending can be attributed to the fact that self-referring providers referred over 400,000 more MRI and CT services in 2010 than if they had referred at the same rate as non-self-referring providers of the same size and specialty. Specifically, we estimate there were 143,303 additional referrals for MRI services and 283,725 additional referrals for CT services. The additional Medicare imaging expenditures attributed to self-referring providers is likely higher than $109 million in 2010.significant portion of self-referring providers are not included in this estimate. Specifically, we limited our analysis to those specialties that had at least 1,000 self-referring providers. Approximately 34 percent of the This is because a providers who self-referred beneficiaries for MRI services and 19 percent of the providers who self-referred beneficiaries for CT services belonged to a specialty other than those that met the 1,000 self-referring providers criteria. Advanced imaging services can help in the early detection and aid in the treatment of certain diseases, resulting in less-invasive treatments and improved patient outcomes. The ability of providers to self-refer beneficiaries for these services can, for example, improve coordination of care and help ensure convenient access to these services among beneficiaries. However, our review indicates that some factor or factors other than the health status of patients, provider practice size or specialty, or geographic location (i.e., rural or urban) helped drive the higher advanced imaging referral rates among self-referring providers compared to non-self-referring providers. We found that providers who began to self-refer advanced imaging services—after purchasing or leasing imaging equipment or joining practices that self-referred—substantially increased their referrals for MRI and CT services relative to other providers. This suggests that financial incentives for self-referring providers may be a major factor driving the increase in referrals. These financial incentives likely help explain why, in 2010, providers who self- referred made 400,000 more referrals for advanced imaging services than they would have if they were not self-referring. These additional referrals cost CMS more than $100 million in 2010 alone. To the extent that these additional referrals are unnecessary, they pose an unacceptable risk for beneficiaries, particularly in the case of CT services, which involve the use of ionizing radiation. Given the challenges to the long-range fiscal sustainability of Medicare, it is imperative that CMS develop policies to address the effect of self- referral on the utilization of and expenditures for advanced imaging services. CMS first needs to improve its ability to identify services that are self-referred. Claims do not include an indicator or “flag” that identifies whether services are self-referred or non-self-referred, and CMS does not currently have a method for easily identifying such services. A systematic method for identifying self-referred advanced imaging services would give CMS the ongoing ability to determine the extent to which these services are self-referred and help the agency identify those services that may be inappropriate, unnecessary, or potentially harmful to beneficiaries. Including a self-referral flag on Medicare Part B claims submitted by providers who bill for advanced imaging services is likely the easiest and most cost-effective approach. Second, we found that about 10 percent of advanced imaging services referred by self-referring physicians in 2010 were also performed and interpreted by the same physician. Certain efficiencies may be gained when the same provider orders, performs, and interprets an advanced imaging service, such as reviewing a patient’s clinical history only once. MedPAC recommended in 2011 that CMS should reduce its payments for advanced imaging services in which the same provider refers and performs the service, to account for efficiencies that are realized in these circumstances. This is consistent with previous efforts by CMS to reduce fees for services paid under the physician fee schedule when efficiencies are realized and with our previous recommendation that CMS expand these efforts. Third, if CMS were able to easily identify self-referred services, the agency may be better positioned to implement an approach that ensures the appropriateness of advanced imaging services that Medicare beneficiaries receive—beyond examining the feasibility of such methods, as we recommended in our 2008 report. Approaches for managing advanced imaging utilization could be “front-end” or used before CMS issues payment, such as prior authorization. CMS could also explore back-end approaches used after CMS issues payment, such as targeted audits of self-referring providers that refer a high volume of services. In order to improve CMS’s ability to identify self-referred advanced imaging services and help CMS address the increases in these services, we recommend that the Administrator of CMS take the following three actions: 1. Insert a self-referral flag on its Medicare Part B claims form and require providers to indicate whether the advanced imaging services for which a provider bills Medicare are self-referred or not. 2. Determine and implement a payment reduction for self-referred advanced imaging services to recognize efficiencies when the same provider refers and performs a service. 3. Determine and implement an approach to ensure the appropriateness of advanced imaging services referred by self-referring providers. HHS reviewed a draft of this report and provided written comments, which are reprinted in appendix IV. In its comments, HHS stated that it would consider one of our recommendations but did not concur with our other two recommendations. HHS did not comment on our findings that self- referring providers referred substantially more advanced imaging services than non-self-referring providers or our conclusion that financial incentives for self-referring providers may be a major factor driving the increase in referrals for advanced imaging services. HHS noted that it would consider our recommendation that CMS determine and implement an approach to ensure the appropriateness of advanced imaging services referred by self-referring providers. According to HHS, CMS would consider this recommendation when refining its medical review strategy for advanced imaging services. HHS also indicated that CMS does not have statutory authority to implement some of the approaches discussed in the report. We are pleased that CMS plans to consider this recommendation and note that we did not identify a specific approach, having identified several examples in our report of both front-end and back-end approaches to managing utilization of advanced imaging services. As we reported, CMS could explore back-end approaches used after CMS issues payment, such as targeted audits of self-referring providers. CMS could also explore other approaches the agency determines are within its statutory authority. Further, if deemed necessary, CMS could seek legislative authority to implement promising approaches to managing advanced imaging utilization. HHS did not concur with our recommendation that CMS insert a self- referral flag on its Medicare Part B claims and require providers to indicate whether the advanced imaging services for which a provider bills Medicare are self-referred or not. According to HHS, CMS believes that a new checkbox on the claim form identifying self-referral would be complex to administer and providers may not characterize referrals accurately. CMS believes that other payment reforms, such as paying networks of providers, hospitals, or other entities that share responsibility for providing care to patients, would better address overutilization. We continue to believe that including an indicator or flag on the claims would likely be the easiest and most cost-effective approach to improve CMS’s ability to identify self-referred advanced imaging services. We do not suggest, nor did we intend, that CMS use the self-referral flag or indicator we recommended to determine compliance with the physician self-referral law. Without a self-referral flag or indicator, CMS will not be able to monitor trends in utilization and expenditures associated with physician self-referral without considerable time and effort. Further, a self-referral flag does not have to be a “checkbox” on the claim and could be a modifier, similar to other modifiers that CMS uses to characterize claims. In addition, HHS did not provide reasons to support CMS’s contention that such a flag would be complex to administer. HHS also did not concur with our recommendation that CMS determine and implement a payment reduction for self-referred advanced imaging services to recognize efficiencies when the same provider refers and performs a service. According to HHS, CMS’s multiple procedure payment reduction already captures efficiencies inherent in providing multiple advanced imaging services by the same physician or group practice during the same session. CMS also noted that a further payment reduction may reduce, but not eliminate, the underlying financial incentive to self-refer advanced imaging services and may cause providers to refer more services, in an effort to maintain their income. CMS also noted that providers in a group practice could easily avoid this reduction by having one physician order the service while another furnishes the service. According to HHS, CMS also questions its statutory authority to impose the payment reduction for the subset of physicians who self-refer, citing a prohibition on paying a differential by physician specialty for the same service. Our report shows that self-referring providers generally referred more MRI and CT services, regardless of differences in specialties, and CMS did not indicate how this recommendation would implicate the prohibition on paying a differential by specialty. Additionally, while HHS cites the multiple procedure payment reduction as a means to address certain efficiencies in the delivery of advanced imaging services, these are not the efficiencies targeted by our recommendation. Instead, as noted in our report, our recommended payment reduction would capture those efficiencies gained when the same provider orders and performs an advanced imaging service. Such efficiencies could be captured in a single—rather than multiple—advanced imaging service. This recommendation is also consistent with a 2011 MedPAC recommendation. As noted in our report, this payment reduction would affect about 10 percent of advanced imaging services referred by self- referring providers. As for CMS’s concern about overutilization of advanced imaging services resulting from a payment reduction, CMS could help address this issue by implementing our recommendation to use a flag indicating self-referral to monitor utilization of these services. On the basis of HHS’s written response to our report, we are concerned that neither HHS nor CMS appears to recognize the need to monitor the self-referral of advanced imaging services on an ongoing basis and determine those services that may be inappropriate, unnecessary, or potentially harmful to beneficiaries. HHS did not comment on our key finding that self-referring physicians referred about two times as many advanced imaging services, on average, as providers who did not self refer. Nor did HHS comment on our estimate that these additional referrals for advanced imaging services cost CMS more than $100 million in 2010 alone. Given these findings, we continue to believe that CMS should take steps to monitor the utilization of advanced imaging services and ensure that the services for which Medicare pays are appropriate. HHS also provided technical comments that we incorporated as appropriate. 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This section describes the scope and methodology used to analyze our three objectives: (1) trends in the number of and expenditures for self- referred and non-self-referred advanced imaging services from 2004 through 2010, (2) the extent to which the provision of advanced imaging services differs for providers who self-refer when compared with other providers, and (3) the implications of self-referral for Medicare spending on advanced imaging services. For all three objectives, we used the Medicare Part B Carrier File, which contains final action Medicare Part B claims for noninstitutional providers, such as physicians. Claims can be for one or more services or for individual service components. Each service or service component is identified on a claim by its Healthcare Common Procedure Coding System (HCPCS) code, which the Centers for Medicare & Medicaid Services (CMS) assigns to products, supplies, and services for billing purposes. HCPCS codes are also categorized by CMS using the Berenson-Eggers Type of Service (BETOS) categorization system, which assigns HCPCS to broad service categories. We limited our universe of services and service components for our study to those for magnetic resonance imaging (MRI) and computed tomography (CT) services. We classified MRI and CT services and service components as those with HCPCS codes included in a BETOS category where the first two digits were equal to “I2”, defined as advanced imaging services. We further limited our universe to only those MRI and CT services that were considered designated health services—services for which, in the absence of an exception, a physician may not make a referral to furnish to an entity with which he has a financial relationship without implicating the Stark law.designated health services as part of the physician fee schedule. We also restricted our universe to those HCPCS codes that involved the performance of an advanced imaging service, which can be billed with or separately from the interpretation of a MRI or CT imaging service. We identified 125 HCPCS codes that met these criteria. Annually, CMS publishes a list of Because there is no indicator or “flag” on the claim that identifies whether services were self-referred or non-self-referred, we developed a claims- based methodology for identifying self-referred services. Specifically, we classified services as self-referred if the provider that referred the beneficiary for a MRI or CT service and the provider that performed the MRI or CT service was identical or had a financial relationship with the same entity. We used taxpayer identification number (TIN), an identification number used by the Internal Revenue Service, to determine providers’ financial relationships. The TIN could be that of the provider, the provider’s employer, or another entity to which the provider reassigns payment. performing providers, we created a crosswalk of the performing provider’s unique physician identification number or national provider identifier (NPI) Some providers may be associated with TINs with which they do not have a direct or indirect financial relationship and thus would not have the same incentives as other self- referring providers. We anticipate that relatively few providers in our self-referring group meet this description but to the extent that they do, it may have limited the differences we found in utilization and expenditure rates between self-referring and non-self-referring providers. to the TIN that appeared on the claim and used that to assign TINs to the referring and performing providers. We considered global services and separately-billed TCs to be self- referred if one or more of the TINs of the referring and performing provider matched. However, we did not consider separately-billed PCs to be self-referred, even if they met the same criterion. Compared to the payment for the TC of an advanced imaging service, the payment for the PC is relatively small, and thus there is little incentive for providers to only self-refer the PC of a service. As part of developing this claims-based methodology to identify self-referred services, we interviewed officials from CMS, provider groups, and other researchers. To describe the trends in the number of and expenditures for self-referred and non-self-referred advanced imaging services from 2004 through 2010, we used the Medicare Part B Carrier File to calculate utilization and expenditures for self-referred and non-self-referred MRI and CT services, both in aggregate and per beneficiary. We limited this portion of our analysis to global claims or claims for a separately-billed TC, which indicates that the performance of the imaging service was billed under the physician fee schedule. As a result, the universe for this portion of our analysis are those advanced imaging services performed in a provider’s office or in an independent diagnostic testing facility (IDTF), which both bill for the performance of an advanced imaging service under the physician fee schedule. We focused on these settings because our previous work showed rapid growth among such services and because the financial incentive for providers to self-refer is most direct when the service is performed in a physician office. Approximately one-fifth of all advanced imaging services provided to Medicare FFS beneficiaries were performed in a physician office or IDTF. To calculate the number of Medicare beneficiaries from 2004 through 2010 needed for per beneficiary calculations, we used the Denominator File, a database that contains enrollment information for all Medicare beneficiaries enrolled in a given year. Because radiologists and IDTFs are limited in their ability to generate referrals for advanced imaging services, we removed services referred by an IDTF or radiologist. To determine the extent to which the provision of advanced imaging services differs for providers who self-refer when compared with other providers, we first classified providers on the basis of the type of referrals they made. Specifically, we classified providers as self-referring if they self-referred at least one beneficiary for an advanced imaging service. We classified providers as non-self-referring if they referred a beneficiary for an advanced imaging service, but did not self-refer any of the services. Because radiologists and providers in IDTFs predominantly perform advanced imaging services and have limited ability to refer beneficiaries for advanced imaging services, we removed those providers from our analysis. Additionally, because emergency medicine providers generally did not practice in provider offices, they were removed from our analysis. We assigned to each provider the MRI and CT service and service-components that he or she referred, including those for the performance of an imaging service and those for the interpretation of the imaging service result. If the TC and PC were billed separately for the same beneficiary, we counted these two components as one referred service. As a result, we counted all services that a provider referred, regardless of whether it was performed in a provider office, IDTF, or other setting. We then performed two separate analyses. First, we compared the provision—that is, the number of referrals made— of MRI and CT services by self-referring providers and non-self-referring providers in 2010, after accounting for factors such as practice size (i.e., the number of Medicare beneficiaries), provider specialty, geography (i.e., urban or rural), and patient characteristics. We used the number of unique Medicare fee-for-service (FFS) beneficiaries for which providers provided services in 2010 as a proxy for practice size, which we identified using 100 percent of providers’ claims from the Medicare Part B Carrier File. We defined urban settings as metropolitan statistical areas, a geographic entity defined by the Office of Management and Budget as a core urban area of 50,000 or more population. We used rural-urban commuting area codes—a Census tract-based classification scheme that utilizes the standard Bureau of Census Urbanized Area and Urban Cluster definitions in combination with work-commuting information to characterize all of the nation’s Census tracts regarding their rural and urban status—to identify providers as practicing in metropolitan statistical areas. We considered all other settings to be rural. We identified providers’ specialties on the basis of the specialties listed on the claims. These specialty codes include physician specialties, such as cardiology and hematology/oncology, and nonphysician provider types, such as nurse practitioners and physician assistants. We also examined the extent to which the characteristics of the patient populations served by self-referring and non-self-referring providers differed. We used CMS’s risk score file to identify average risk score, which serves as a proxy for beneficiary health status. Information on additional patient characteristics, such as age and sex, came from the Medicare Part B Carrier File claims. To calculate the percentage of advanced imaging services referred by self-referring providers that were referred, performed, and interpreted by the same provider, we summed global advanced imaging claims where the referring and performing provider were the same and claims where the TC and PC were referred and performed separately for the same beneficiary by the same provider. We then divided the total by the number MRI and CT services referred by self-referring providers. We used 4 years of experience (2007 through 2010) to categorize providers even though we compared referrals in 2008 to 2010 because we wanted to ensure that providers that began self-referring in 2009 did not self-refer for at least the 2 prior years. year before the switchers began self-referring) to 2010 (i.e., the year after they began self-referring). We compared the change in the number of referrals made by these providers to the change in the number of referrals made over the same time period by providers who did not change whether or not they self-referred advanced imaging services. Specifically, we compared the change in the number of referrals made by switchers to those made by (1) self-referring providers—providers that self-referred in years 2007 through 2010, and (2) non-self-referring providers—providers that did not self-refer in years 2007 through 2010. For each provider, we also identified the most common TIN to which they referred MRI or CT services. If the TIN was the same for all 4 years, we assumed that they remained part of the same practice for all 4 years. We calculated the number of referrals in 2008 and 2010 separately for providers that met this criterion. To determine the implications of self-referral for Medicare spending on advanced imaging services, we summed the number of and expenditures for all MRI and CT services performed in 2010 by providers of those specialties with at least 1,000 self-referring providers. We then created an alternative scenario in which self-referring providers referred the same number of services as non-self-referring providers of the same provider size and specialty and calculated how this affected expenditures. To do this, we calculated the number of advanced imaging services non-self- referring providers referred per unique Medicare FFS beneficiary for each specialty and practice size. We then multiplied the referral rate times the number of patients seen by self-referring providers of the same practice size and specialty, representing the number of services self-referring providers would have referred if they referred at the non-self-referring rate. To calculate the cost of additional services to Medicare, we multiplied the difference between the self-referred services and the number of services they would have referred if they referred at the same rate as non-self-referring providers by the average expenditures for a MRI or CT service. We took several steps to ensure that the data used to produce this report were sufficiently reliable. Specifically, we assessed the reliability of the CMS data we used by interviewing officials responsible for overseeing these data sources, reviewing relevant documentation, and examining the data for obvious errors. We determined that the data were sufficiently reliable for the purposes of our study. We conducted this performance audit from May 2010 through September 2012 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Appendix II: Select Implemented or Proposed Policies Designed to Address Self-Referral or the Utilization of Advanced Imaging Services Description and examples of policies Effective January 1, 2011, the Patient Protection and Affordable Care Act of 2010 (PPACA) requires physicians who self-refer MRI, CT, or positron emission tomography services under certain circumstances to inform their patients that they may obtain these services from another provider and provide their patients with a list of alternative providers in their area. The effect of this requirement on physician self-referral is unclear. The American College of Radiology reports that multiple states had similar requirements in place before the implementation of PPACA. However, the Medicare Improvements for Patients and Providers Act of 2008 requires physicians and other providers to be accredited by a CMS-approved national accreditation organization by January 1, 2012, in order to continue to furnish the technical component of services such as MRI and CT services. While the intent of this requirement was to improve quality of care, this policy could reduce the number of providers who self-refer if they fail to gain accreditation. However, this policy’s actual effect on self-referral is unclear. The Medicare Payment Advisory Commission (MedPAC) has noted that improving the payment accuracy of services could reduce the incentive to self-refer those services by making them less financially beneficial. Consistent with our previous recommendations, payment rates for MRI and CT services have been reduced several times over the last few years to reflect efficiencies that occur when the same provider performs multiple services on the same patient on the same day. In its June 2010 report, MedPAC noted that reducing payments for physician self-referred services could limit Medicare expenditures when self-referral occurs and reduce the incentive to self-refer by making it less financially beneficial. One option put forth in the report is reducing payments for certain self-referred services by an amount equal to the percent expenditures increase due to self-referral. Another option discussed is reducing the payment for self-referred services when they include activities already performed by self-referring physicians, such as reviewing the medical history of a beneficiary. In addition to a similar recommendation from MedPAC, we have recommended CMS consider expanding its front-end management capabilities, such as prior authorization— an approach whereby providers must seek some sort of approval before ordering an advanced imaging service. Such policies could limit the increased utilization associated with self-referral by ensuring that self-referred services are clinically appropriate. One researcher suggested expanding postpayment reviews by making imaging a subject for medical review by recovery audit contractors. Description and examples of policies CMS has prohibited different types of physician self-referral that the agency deemed particularly susceptible to abuse. Effective October 1, 2009, CMS prohibits “per-click” self-referral arrangements where, for instance, a physician leases an imaging machine to a hospital, refers patients to that hospital in order to receive imaging services, and then is paid on a per service basis by the hospital. In 2008, CMS considered but did not prohibit “block time” self-referral arrangements where, for instance, a physician leases a block of time on a facility’s MRI or CT machine, refers his or her patients to receive services on the facility’s machine, and then bills for the services. CMS has also solicited comments on a prohibition against physician self-referral for diagnostic tests provided in physician offices when those tests are not needed at the time of a patient’s office visit in order to assist the physician in determining an appropriate diagnosis or plan of treatment. MedPAC has found that MRI and CT services are performed on the same day as an office visit less than a quarter of the time, with only 8.4 percent of MRIs of the brain being performed on the same day as an office visit. Another policy, discussed in MedPAC’s June 2010 report, that would limit physician self- referral is restricting certain types of self-referral to only those practices that are clinically integrated. Maryland prohibits providers from making self-referrals for certain MRI and CT services. American College of Radiology, State-by-State Comparison of Physician Self-Referral Laws, accessed July 26, 2010. The proportion of MRI services and CT services that were self-referred increased from 2004 through 2010 for all provider specialties we examined for our study. We examined all provider specialties that performed a minimum proportion of either self-referred MRI or CT services in 2004 and 2010. While this increase across provider specialties is consistent with the overall trend of increased self-referral, the increases varied among provider specialties. For MRI services, increases in the self-referral rate for provider specialties ranged from about 4 percentage points (Internal Medicine) to about 19 percentage points for Hematology/Oncology. Similarly, for CT services, increases in the self-referral rates for provider specialties ranged from about 2 percentage points (Internal Medicine) to over 38 percentage points (Radiation Oncology). (see table 5). In addition to the contact named above, Jessica Farb, Assistant Director; Thomas Walke, Assistant Director; Manuel Buentello; Krister Friday; Gregory Giusto; Brian O’Donnell; and Daniel Ries made key contributions to this report.

Summary: Medicare Part B expenditures--which include payment for advanced imaging services--are expected to continue growing at an unsustainable rate. Questions have been raised about self-referral's role in this growth. Self-referral occurs when a provider refers patients to entities in which the provider or the provider's family members have a financial interest. GAO was asked to examine the prevalence of advanced imaging self-referral and its effect on Medicare spending. This report examines (1) trends in the number of and expenditures for self-referred and non-self-referred advanced imaging services, (2) how provision of these services differs among providers on the basis of whether they self-refer, and (3) implications of self-referral for Medicare spending. GAO analyzed Medicare Part B claims data from 2004 through 2010 and interviewed officials from the Centers for Medicare & Medicaid Services (CMS) and other stakeholders. Because Medicare claims lack an indicator identifying self-referred services, GAO developed a claims-based methodology to identify self-referred services and expenditures and to characterize providers as self-referring or not. From 2004 through 2010, the number of self-referred and non-self-referred advanced imaging services--magnetic resonance imaging (MRI) and computed tomography (CT) services--both increased, with the larger increase among self-referred services. For example, the number of self-referred MRI services increased over this period by more than 80 percent, compared with an increase of 12 percent for non-self-referred MRI services. Likewise, the growth rate of expenditures for self-referred MRI and CT services was also higher than for non-self-referred MRI and CT services. GAO's analysis showed that providers' referrals of MRI and CT services substantially increased the year after they began to self-refer--that is, they purchased or leased imaging equipment, or joined a group practice that already self-referred. Providers that began self-referring in 2009--referred to as switchers--increased MRI and CT referrals on average by about 67 percent in 2010 compared to 2008. In the case of MRIs, the average number of referrals switchers made increased from 25.1 in 2008 to 42.0 in 2010. In contrast, the average number of referrals made by providers who remained self-referrers or non-self-referrers declined during this period. This comparison suggests that the increase in the average number of referrals for switchers was not due to a general increase in the use of imaging services among all providers. GAO's examination of all providers that referred an MRI or CT service in 2010 showed that self-referring providers referred about two times as many of these services as providers who did not self-refer. Differences persisted after accounting for practice size, specialty, geography, or patient characteristics. These two analyses suggest that financial incentives for self-referring providers were likely a major factor driving the increase in referrals. GAO estimates that in 2010, providers who self-referred likely made 400,000 more referrals for advanced imaging services than they would have if they were not self-referring. These additional referrals cost Medicare about $109 million. To the extent that these additional referrals were unnecessary, they pose unacceptable risks for beneficiaries, particularly in the case of CT services, which involve the use of ionizing radiation that has been linked to an increased risk of developing cancer. GAO recommends that CMS improve its ability to identify self-referral of advanced imaging services and address increases in these services. The Department of Health and Human Services, which oversees CMS, stated it would consider one recommendation, but did not concur with the others. GAO maintains CMS should monitor these self-referred services and ensure they are appropriate.