OPINION Capitation of Radiology Practice in a Managed Care Environment in the USA and South Africa: Johannesburg seminar 2-3 March 1996 I n the managed care environment en- trenched or emerging, respectively, in the United States and South Africa, the use of capitation payments to larger networks of radiology practices seems likely to acceler- ate with increases in teleradiology,horizon- tal and vertical integration of health serv- ices, and the demand for utilisation manage- ment and outcomes measurement. The common views of leaders in radi- ology in two nations as diverse as the United States and South Africa are instructive. Both can see that the major payers (the large HMO in the United States and either the new National Government or the large medical schemes organisations now offer- ing indemnity insurance in South Africa) have a common problem: the total costs of radiology services are rising far faster than the payer's ability to meet these costs. It was noted in the January 1996 issue of the Radiological Society of South Afri- ca's new publication, Update, that some US radiological groups have seen their in- comes drop 50% in recent years, due to an estimated 28% oversupply of board-certi- fied radiologists, and also to the creation of large networks or radiology practices. Paul F Gross Director Hea/th Group Strategies Ply Ltd (Australia) 32 SA JOURNAL OF RADIOLOGY. May 1996 The net result is the consolidation of radiology practices to reduce costs, achieve economies of scale" and retain income for radiologists. If a radiology practice loses a contract because it bid too high a capitation rate to payers in a large geographical area or population, that practice could go under. One US radiology practice was ap- proached by a large (over 70 000 members) managed care organisation (MCO) to capitate diagnostic radiology and magnetic resonance imaging (MRI). It got proactive, collected data on the use rates of radiology services, designed its own utilisation man- agement software based on Windows 3.1 (now used in over 40 US radiology prac- tices) and negotiated five contracts in its region of California. It also subcontracted with another radiology practice, offering a discounted fee for service so it could cover a wider geographical area than was possible from its practice. In South Africa and the United States, developments in teleradiology could accel- erate the use of capita ted contracts between payers and larger radiology practice net- works. Faced with annual increases of over 20% in radiology costs, US employers such as the 23 000 employee Harris Corpora- tion in Florida contracted with one of the new US radiology entrepreneurs (Medical Technology Transfer Corp - MIT) which has linked to the University of California Los Angeles Medical Center. Harris has a 7-year contract with MTT based on a flat capitation fee related to 1993 prices, ef- fectively holding Harris' radiology costs constant until 2002, saving Harris about US$10 million over 7 years. Four facets of this contract may be rel- evant to radiologists outside the USA. First, radiology costs become more predictable for the payer. Second, UCLA provides its ex- pertise in remote areas in CT, MRI, ultra- sound or X-ray via electronic links, provid- ing an opinion immediately for critical to page 33 Radiology practice in a managed care environment cases or by express mail for less critical cases. Third, while such telemedicine is ex- perimental in many nations, the radiologist's opinion is attracting a teleradiology reim- bursement. Aetna and MetLife, two large commercial insurance companies, are also customers ofMTT - and they reimburse for such a service. So does the US Medicare system, which has a 3-year project under way in four US states. Fourth, teleradiology may enable radiologists to reduce the costs of any unnecessary surgery and inappropri- ate hospital admissions, particularly in re- mote areas which may lack specialist ex- pertise in diagnostic imaging. One region of Kaiser Permanente now sends digital CT and MRI images to the homes of the radi- ologists so they don't need to come to the hospital to given an expert opinion. An- other large HMO in New Mexico allows primary care practitioners to send electro- cardiograms and X-rays to specialists and then use video-confereneing for further con- sultations. In nations with large, inhabited rural areas lacking health facilities (such as the United States and South Africa), develop- ments in teleradiology will encourage the larger urban hospitals to employ fewer inhouse radiologists because a wide range of radiology sub-specialists will now be available on-line. Professional fees will de- cline in hospitals and the quality of and ac- cess to radiological services will increase in previously deprived areas. Hospital radiol- ogy services may again become revenue centres rather than high cost centres. In this environment, government and large payers are likely to push for capita ted contracts for radiology - and also for pathol- ogy, cardiology and other procedural specialties. In such an environment, solo practitioners will be at a signifkant disad- vantage if they have only one or two diag- nostic imaging modalities, or their equip- ment is outdated, or they lack access to subspecialist radiologist expertise such as neuroradiology. At a 2-day training program on capita- tion contracting that our company imple- mented for 120 radiologistsin Johannesburg from 2-3 March 1996, the message from the Radiological Society was clear: ration- alise on a regional basis as managed care emerges in South Africa, as funders intro- duce managed fee-for-service or capitation methods of payment. Teleradiology system supports extensive multi-tasking T ecmed Imaging (Pty) Limited re- cently launched their Teleradiology Sys- tem incorporating TeleMA)(l'M software from Cemax-Icon. The Cemax-Icon™ product has been chosen by over 5000 us- ers worldwide, as well as supporting over 1500 network users due to its superb im- age acquisition, transfer, display and im- age quality. This FDA approved and DICOM 3 Compatible TeleRadiology System supports extensive multi-tasking by allowing acquisition and display; simul- taneous with image transfer between two stations. Performance is further enhanced by using state of the art Macintosh Power PC Systems, supporting hi-resolution 1200 x 1600 portrait or 1600 x 1200 landscape displays in a single or dual monitor con- figuration. Higher resolutions display sys- tems are also available. The acquisition software supports film digitization via a high resolution 2000 x 2500 x 12 bit laser scanner, for all film sizes up to 14 x 17 inch (35 x 43cm). The laser film digitizer may be complemented by an interface supporting up to four video modalities like CT, MRI, ultrasound, nu- clear medicine as well as DSA units. Im- age transmission via local or wide area net- works is available. Display software functionality includes optimising brightness and contrast settings, magnifying glass, roam, paging, multi- frame display, video invert, reporting and many more, giving the radiologist exten- sive functionality to aid the diagnosis. 33 SA JOURNAL OF RADIOLOGY. May 1996 The fail-safe telecommunications soft- ware package provides automatic re-dial, if line is lost, user selectable compression ratios for either Lossless or Lossy image compression, as well as a telecommunica- tions log file used as a permanent record of all transmission activities. Send, receive and retrieve communications are available for receiving or retrieving images from other display stations. Support for stand- ard telephone lines, ISDN or Diginet con- nections, allows customised Medical Net- work Solutions for all sites. The system also forms the basis for an extensive departmental network, allowing connection into Computer Radiography (CR) Systems, as well as allowing upgrades for a complete PACS system. Installed base equipment can be connected to a DICOM 3 Network via customised DICOM 3 Gateways. For further details, please contact Teaned (Pty)Ltdon(Oll)3154874.