Attractive opportunities remain in outpatient imaging, but they are highly market specific
In the post-Deficit Reduction Act (DRA) era, many current and would-be imaging providers are left with the same fundamental and related questions: Do market opportunities remain in outpatient imaging? If so, how do we assess and capture these opportunities? The answers to these questions tend to be market specific and require an in-depth understanding of your local market’s dynamics.
In recent years, imaging utilization has increased dramatically, driven by new technology, new applications of existing technology, demographic shifts (such as the graying of the baby-boom generation), and new market entrants seeking a historically strong return on investment for imaging services.
To meet this demand and capitalize on perceived opportunities, market participants have responded in a number of ways, from the advent of entrepreneur-owned, single-modality, freestanding imaging centers to the introduction of physician-practice–based advanced imaging services to the creation of hospital-owned and/or specialist-owned multimodality imaging centers. Payor responses to this increasing demand and the associated escalating costs are also contributing to volatility in this market space.
At 10% of the total health care dollar, imaging costs have officially captured the attention of both governmental and commercial payors. The DRA eliminated the long-standing favorable Medicare reimbursement for freestanding imaging centers (versus provider-based centers), especially for MRI services.
Commercial payors have responded to rising imaging costs through increased use of radiology benefit management companies and a stronger focus on network management. Moreover, the DRA has had a negative downstream impact on commercial contracts that were reimbursed at a percentage of Medicare rates.
The collision of ever-increasing demand for imaging (and its concomitant costs) with payor actions to stem this tide has caused chaos in most local markets. The degree to which payor reactions have affected providers varies by type of facility. The DRA and recent commercial payors’ actions primarily have been directed against IDTFs.
Many historically strong freestanding imaging providers have found themselves in real economic distress as a result. In contrast, provider-based (hospital-owned) facilities were left virtually unscathed by the DRA. Further, many hospitals have the market clout to extend their hospital-based reimbursement rates to their off-campus imaging facilities.
Against this backdrop, you may be wondering what, if any, imaging opportunities exist in your local market and what strategies you should pursue as you attempt to capture them. To help you sort through the relevant issues, identifying the kind of market in which you live and operate is a useful first step. For the purposes of this discussion, a football analogy is useful.
The current outpatient imaging center environment can be divided into four categories based on environmental favorability and the degree and sophistication of the competition (see figure, page 40).
Two critical dimensions to consider when identifying your market type are the favorability of the local environment and the degree and sophistication of the competition in the market. The figure identifies four market types: punt, huddle, hurry, and run.
The punt market type in the lower left quadrant is characterized by low overall population growth and demand for imaging, a high degree and sophistication of hospital and freestanding competition, and a tight reimbursement environment. Physicians within this market type typically are well organized and are working in groups of sufficient size to enable them to offer high-end imaging services (MRI, CT, and PET/CT) within their practices.
A typical punt market contains multiple hospitals and freestanding centers. Hospitals own and operate freestanding centers; elective outpatient volume is not generally mingled with inpatient and emergency patient volume. The number of imaging centers per 100,000 of population is above 1.7 (the national median). Existing providers within the market have proven operational models, and annual population growth is below 1% per