ACR's Proposal on AI Radiology Reimbursement Strategies for Medicare's IPPS 2025

The Centers for Medicare and Medicaid Services (CMS) have long used the Inpatient Prospective Payment System (IPPS) to reimburse acute care hospitals for inpatient stays. Under IPPS, CMS sets base payment rates based on factors such as patient diagnosis, provided services, and illness severity, adjusting payments through Medicare Severity Diagnosis-Related Groups (MS-DRGs). Similarly, Long-Term Care Hospitals (LTCHs) are reimbursed under the LTCH Prospective Payment System (LTCH PPS), using Medicare Severity Long-Term Care Diagnosis-Related Groups (MS-LTC-DRGs). Each year, CMS updates these rates to reflect changes in the costs of goods and services used by hospitals, employing a "market basket" index specific to IPPS hospitals and LTCHs.

Recently, the American College of Radiology (ACR) submitted comments on the fiscal year 2025 IPPS proposed rule, focusing on the need for a new reimbursement pathway for artificial intelligence (AI) radiology products. CMS had sought stakeholder feedback on criteria for determining the "newness" of AI technologies eligible for New Technology Add-on Payments (NTAP).

The ACR advocates for a distinct, high-value AI-specific NTAP pathway. This pathway would assess the uniqueness of AI technologies based on their ability to perform clinically valuable tasks that were previously unachievable. Unlike the U.S. Food and Drug Administration's Breakthrough Device designation, which does not account for a product’s value to the Medicare population, the ACR emphasizes that value should be a guiding factor in these evaluations. Furthermore, the ACR insists that ongoing assessments should be informed by physician experts and specialty communities to ensure that the technologies continue to meet the needs of Medicare beneficiaries.

Beyond the Inpatient Prospective Payment System (IPPS) and Long-Term Care Hospital Prospective Payment System (LTCH PPS), two other critical reimbursement systems exist in healthcare: the Outpatient Prospective Payment System (OPPS) and the Medicare Physician Fee Schedule (MFS). OPPS reimburses hospitals and facilities for outpatient services through Ambulatory Payment Classifications (APCs), grouping procedures with similar clinical characteristics and resource use. This streamlines billing for outpatient procedures, diagnostic tests, and clinic visits.

The Medicare Physician Fee Schedule (MFS) reimburses physicians and other healthcare providers for Part B services, including outpatient care, preventive services, and certain medications. Payment rates are determined by Relative Value Units (RVUs), which account for the work involved, practice expenses, and malpractice costs..

As AI radiology services receive a more formal reimbursement pathway, the stakeholders driving AI radiology will have more insight on cost-benefit analysis and allow for a more informed decision-making process. Moreover, OPPS and MFS may start following suit.