Shifts in the medical imaging landscape have presented new investment opportunities for hospitals looking to increase their market share.
The past several years have seen considerable volatility in the medical imaging industry. Nevertheless, demand for services continues to grow—and now may be a better time than ever for hospitals to expand their imaging service lines.
It wasn't that long ago that hospitals were losing market share left and right to physician-owned imaging and independent diagnostic testing centers that were capitalizing on high-growth advanced imaging procedures, including MRIs, CT scans, and nuclear medicine. Between 2000 and 2006, Medicare Part B expenditures alone doubled to $14 billion, and hospitals' share of that revenue declined from 35% to just 25%. But the skyrocketing costs and potential for self-referral drew congressional scrutiny, and the passage of the 2005 Deficit Reduction Act essentially spun the market 180 degrees. Effective January 2007, the DRA slashed outpatient payments by an estimated $2.6 billion over five years, and some predict the actual savings will be between $6 billion and $13 billion.
The industry is still under intense scrutiny on other fronts. Private insurers claim $30 billion is wasted on unnecessary medical scans annually and are increasingly rejecting procedures. MedPAC has floated the idea of implementing prior authorization requirements for imaging services.
But so far, hospitals have fared much better than physicians and freestanding centers—and there are plenty of investment opportunities for savvy hospitals that view imaging as a revenue generator rather than an ancillary service or cost center, says James H. Thrall, MD, chief radiologist at Massachusetts General Hospital, a 906-bed teaching hospital in Boston.
"If a hospital doesn't invest and promote imaging, then most assuredly it is likely to not be an economic engine for the institution," says Thrall, who is also chair of the American College of Radiology's Board of Chancellors. "On the other hand, if a hospital is willing to invest and give radiology management the attention it gives to the operating room or emergency room or other inpatient activities, then radiology can flourish."
The answer isn't to pour money into technology upgrades and look for a quick return on investment—that's how a lot of facilities have gotten burned. The right investments require strategic planning and close alignment with physicians.
Service Line Success Key No. 1: Expand outpatient imaging
Although reimbursement cuts to technical components of imaging services have affected hospital revenue, the Deficit Reduction Act has presented a unique opportunity for hospitals to recapture lost market share.
Freestanding centers have become less lucrative for physicians, and many are either closing up shop or looking for closer integration with hospitals. Return on investment projections for equipment suddenly don't look as good, and technology upgrades aren't feasible for many existing centers. The DRA is essentially squeezing out some of the competition and allowing hospitals to continue expansion in the outpatient market.
When Thrall started at Massachusetts General in 1998, 70% of imaging procedures were inpatient and 30% were outpatient. That has essentially flipped: Today 76% are outpatient and only 24% inpatient, he says. Beyond the main campus location, MGH has six imaging locations and is preparing to open a seventh next spring.
"The biggest mistake that some hospitals have made is underestimating the need for outpatient imaging," Thrall says. "The second mistake is to think that outpatient care means building a building right next to the hospital rather than strategically locating satellite imaging facilities."
Ideally, hospitals should segregate inpatient and outpatient imaging services as much as possible, he explains. That's not easy to do, especially for smaller hospitals that only have the market and capital for one piece of certain technologies. Many hospitals only have one positron emission tomography scanner, for instance, and in other situations, even if there are multiple scanners, some inpatient and outpatient services may have to be jointly provided on the same campus.
But inpatient and outpatient imaging require different management approaches.
"For inpatients, the most important parameter from the hospital standpoint is turnaround time from when a procedure is requested to the time it is performed," Thrall explains. "Turnaround time directly affects length of stay, so to optimize length of stay, a hospital should have some "excess capacity" to field requests for inpatient imaging, and some slack needs to be built into the schedule."
Demand is more predictable for outpatient imaging and excess capacity isn't as important, so success hinges on maximizing physician productivity.