Right image, right time: predictive modeling makes radiology management more lean and effective

Health Management Technology, April, 2007 by Gregg Allen

Predictive Modeling (PM) has been a boon for healthcare payers in a number of areas while holding great promise in others. When it comes to high-tech imaging, PM's proven power should be seen in light of the business imperative of cutting costs, as well as a practical reality: Each year more than $16 billion is spent on unnecessary high-tech imaging tests. Payers who do not take steps to eliminate and defuse precursors to problems or problematic events can expect 16 percent annual compounded growth in total radiology costs. As a solution to this challenge, PM has helped payers profile, predict and modify member health, resource allocation and financial risk.

In a recent study, major healthcare payer organizations identified key business objectives for the next few years as reduction of overall costs, increasing profits, identifying high-risk members and development of quality disease management programs. When asked to identify the most important issues confronting their employer groups, providers and members, 90 percent of respondents identified high costs as the number one issue, with quality concerns coming in a close second at 84 percent.

With profitability and quality at the top of all stakeholders' lists, healthcare is looking for ways to manage and improve both. PM, which essentially uses the past to manage the present and predict the future, is proving to be one possible solution. Healthcare payers have recently begun using PM to calculate insurance premiums, predict future group/individual medical expenses and set provider reimbursements, as well as identify members with potentially significant future medical expenses. The use of PM to manage healthcare spending is growing as spending accelerates. As a significant portion of accelerated healthcare spending, high-tech imaging also has begun to look to PM.

The High Cost of Imaging

Today, the U.S. conducts about 80 million advanced diagnostic radiology exams each year for an increase of $30 billion in cost over 2000. In 2006, radiology costs were expected to reach $120 billion nationally, while high-tech utilization continues to increase 15 to 20 percent annually. Payers that do not take steps to address rising costs can expect a 16 percent compounded annual growth rate in radiology costs--one of the most significant increases in any healthcare cost. In fact, imaging costs are growing at twice the rate of the cost of prescription drugs and faster than overall healthcare spending, which is rising only 10 percent each year. That is according to the Centers for Medicaid and Medicare Services Office of the Actuary National Health Statistics Group.

In real numbers, that means a health plan with $12 per member per month (PMPM) cost in 2006 can expect $22 PMPM in 2010 for high-tech imaging procedures. For a plan with 500,000 members, this could mean a total cost increase of $58 million, which begs the question of why this is happening. There are five primary drivers of diagnostic imaging costs:

1. Increased utilization. High-tech imaging is no longer science fiction--it's science fact. As such, today's tech-savvy physicians use it in medical school and come to rely on it to make--rather than confirm--diagnoses. In this increasingly litigious society, high-tech imaging studies help ensure no diagnostic stone goes unturned. Yet, the more physicians use this high-tech, high-cost equipment, the greater the incidence of redundant studies and false positives that lead to more tests. Moreover, the relative affordability, availability and income potential of imaging equipment has led many physicians to install it in their offices, leading to even more utilization from self-referral.

2. Advances in technology. New technologies and new uses of existing technologies will continue to accelerate the pace of innovation in high-tech imaging.

3. Increased unit costs.

4. Expanded capacity. Equipment availability coupled with a volume-based financial incentive has led to more machines doing more studies.

5. Expanded consumer/patient demand. Direct advertising to a technologically aware consumer population has created a demand for and expectation of access to high-tech imaging.

Together, these drivers have created a more than $100 billion industry projected to grow as high as $161 billion by 2008. And, while these high-tech tests account for only 25 percent of all imaging procedures, they are responsible for 75 percent of the inflationary trend. Yet, the real problem is that at least one-third of advanced imaging testing is inappropriate, with more than $16 billion spent on unnecessary radiology tests.

Clearly physicians' orders drive utilization of high-tech imaging. However, contrary to long-standing industry belief, overutilization of high-tech imaging is not the fault of a few doctors ordering inappropriately all the time. In reality, most physicians order inappropriately some of the time. Therefore, the $16 billion question is when and why does a particular doctor order appropriately or inappropriately? Finding the answer and managing the behavior can mean huge savings.