Technology Acquisition: Implementing the New Normal

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Reimbursement cuts, market consolidation, and health-care reform have sparked significant changes in the imaging-technology strategies being implemented across the radiology landscape. Practices, imaging centers, and hospital radiology departments alike not only are altering the manner in which they formulate decisions on imaging-equipment acquisition, but also are adopting different approaches to demonstrating the need for new technology, to acquiring capital for equipment purchases, and to maintaining the assets that they already have. Rick Long is COO of Center for Diagnostic Imaging (CDI), Minneapolis, Minnesota, which currently owns, manages, and operates more than 110 imaging centers throughout the United States. CDI’s network includes a mobile-imaging division, Insight Imaging (Lake Forest, California), and a collection of partnerships with radiologists, hospitals, and health systems. He says, “In many ways, it’s a very different ball game now than it was before these trends started taking hold. It’s definitely not all bad—and there are a lot of positives—but it is different.” The average age of CDI’s equipment has increased, Long notes, but not significantly—in part, because a slowdown in research, development, and innovation by manufacturers has made the prospect of upgrading technology a less compelling one for the imaging-center chain. Deciding whether or not to upgrade or replace imaging equipment has indeed become more difficult, however, with self-referral and the reimbursement cuts of the past eight years being the primary catalysts. “Overall,” Long explains, “we use greater discretion in our decision making, asking ourselves many questions before moving ahead with any initiative.” Such questions include how the technology being evaluated will improve patient care and whether it will deliver enhanced diagnostic capabilities to radiologists, along with better patient outcomes. Also addressed is the issue of whether the technology will meet the growing diagnostic requirements of referring clinicians. Similar criteria are applied to determining when (or whether) additional modalities should be introduced—or upgrades should be executed—at a particular imaging center or in a specific market. For example, a 64-slice CT system was recently installed at one imaging center to accommodate its high and increasing vascular-imaging volume, but another center will continue to use a 16-slice CT system because the nature of its imaging business does not warrant an upgrade. “We might have upgraded our scanners, 10 or 12 years ago, more consistently in step with clinical advances released by equipment manufacturers,” Long states. “Outside forces, however, have made it very important for us to look at whether there is a demand for a particular modality at every one of our facilities or if it is appropriate only for one (or a few) centers. We are very focused on the clinical need for technology and whether it will improve outcomes for our patients, but with research/development being slowed by equipment manufacturers, health-care reform, cuts to reimbursements, and the like, we are forced to make more discriminating choices.” In truth, Long says, high-quality diagnostic exams can be achieved as long as imaging-modality protocols have been optimized and staff members have been trained to tailor studies to the unique needs of the referring clinician and the patient. He adds, “Wholesale, systemwide upgrades are not a good use of capital, in today’s environment.” The Hospital Perspective An academic center has needs that are quite different from those of an imaging-center chain. When it comes to technology deployment, though, their needs are surprisingly similar, according to Geoffrey D. Rubin, MD, FACR, George B. Geller distinguished professor of cardiovascular research and professor of radiology and bioengineering at Duke Clinical Research Institute (and former chair of the department of radiology at Duke University School of Medicine). Duke Radiology (Durham, North Carolina), with which Rubin is affiliated, provides imaging services to Duke University Medical Center. In recent years, Rubin says, the hospital has seen a heightened emphasis on aggregating the value of imaging-equipment purchases across departments and lines of service. This helps facilities do more with less while maintaining high-caliber patient care; economies of scale are sought, wherever feasible. Richard J. Helsper, MBA, FACHE, is COO of Genesis HealthCare System (Zanesville, Ohio). Genesis operates nonprofit hospitals—Genesis-Bethesda Hospital and Genesis-Good Samaritan Hospital— at two Zanesville sites, as well as multiple outpatient-care centers throughout the region. It is currently building an addition to Genesis-Bethesda Hospital; Genesis-Good Samaritan Hospital will close once the new facility, which is being constructed at a cost of approximately $160 million, opens (in 2015). Funding for the project was obtained through a combination of bonds and a $15 million capital campaign; it includes $40 million earmarked for new equipment and furnishings. While Genesis expects to make significant investments in imaging technology for the new facility, declining volumes—and the resulting reduction in access to capital—have limited, and will continue to limit, equipment replacement, in many cases. Instead of adhering to set replacement schedules, Genesis investigates, wherever possible, the viability of performing upgrades to extend the equipment’s life cycle. Recently, a C-arm that had been slated for replacement (at a cost of approximately $200,000) underwent an upgrade instead; this rendered it DICOM compatible at a cost of $10,000. Helsper says, “What we have done here has bought us an extra two years of equipment life. A replacement might have lasted 15 years, but it might also have had a life of just five years.” Taking a long, hard look at whether conditions truly warrant purchasing more of the same imaging equipment (or whether initiating another type of change might eliminate such a need) constitutes another effective strategy for Genesis. For example, when considering the acquisition of a new CT system, based on perceived need, management conducted a review of emergency-department traffic patterns. The review revealed that, given patient volume, the department was overstaffed from 7 am to 4 pm and understaffed from 7 to 11 pm. Helsper notes, “We saw that we didn’t need new equipment—just an adjustment in staffing patterns to distribute resources more effectively.” Current best practices implemented by Genesis also dictate shopping for technology not necessarily because radiologists want it, but according to the degree to which it will help other service lines attain their objectives. “No one is saying, for example, that we need a faster CT scanner because it’s cool,” Helsper states. Instead, a better CT system might be needed because it will allow a particular service line to do specific things. Genesis also reviews input from its clinical-engineering department prior to finalizing any decision pertaining to a proposed equipment upgrade or replacement. Such feedback was not solicited before health-care reform and other factors affected the technology-procurement strategy at Genesis; instead, department members learned of acquisitions only after purchases had been made. More Considerations The new normal for imaging-equipment acquisition also has given rise to a different approach to demonstrating the need for new technology, as well as to procuring capital to fund technology investments. According to Long, CDI maintains a healthy balance sheet that has enabled it to earmark funds for technology, when acquiring that technology has been deemed a strategic choice. On the purchase-justification side, however, changes have been significant. A wider swath of constituents and considerations comes into play, with radiologists, clinical-operations leaders, and sales/marketing personnel all brought to the decision-making and negotiation table. Referring clinicians also are asked to weigh in, given that they are the first point of contact along the patient-care continuum. “Once we establish that there is a need for certain technology in a market,” Long says, “we perform a full analysis to ensure a complete understanding of what it will deliver—or what the impact of the decision will be on our business. It’s a critical step.” At Genesis, attempts to justify equipment acquisition have become—and will remain—closely tied to whether the technology is proven, has a strong potential return on investment, and (most important) can yield new benefits, particularly in support of the growth of high-priority programs. Helsper notes, “Finding a champion and freeing up capital are easier when these elements are in place. Our priority, right now, is justifying the purchase of equipment that will support neurology, pediatrics, cardiology, and orthopedics. These are the programs we need to grow, at the moment.” At Duke Radiology, University School of Medicine, purchasing decisions are based upon business plans for the equipment, with an eye toward supporting top-notch patient care and profitability. Capital-purchase decisions originate in radiology and are then approved and negotiated through central purchasing, which reports to the CEO. Rubin says, “The department of radiology maintains a strong role in selecting the equipment.” Perhaps it’s not surprising that proving the need (and finding capital) for some modalities can be a simpler process than winning the case for others. Sheila M. Sferrella, MAS, RT(R), CRA, FAHRA, is a partner in Collaborative Consulting Solutions LLC, a health-care consultancy, and was formerly vice president of ambulatory services for Saint Thomas Health (Nashville, Tennessee). She notes, “The modality that I see many managers able to justify is MRI, because the reimbursement still covers costs, if you manage your expenditures well—that is, know your cost per unit of service and per study, and balance that against staffing. I have, however, looked at venture-capital funding and joint ventures, which for hospitals, get the capital off the books.” Sferrella also suggests that eschewing new equipment in favor of used equipment constitutes a viable alternative strategy for handling equipment acquisition, especially in situations where justifying the need for technology proves difficult. She says that few outpatient imaging centers, especially facilities that are joint ventures with radiologist partners, currently pursue the new-technology route. “Since the new reimbursement model raises volume to even greater importance, the breakeven point is shorter for used (versus new) equipment,” she explains. The Importance of Maintenance Given market trends and the subsequent push to maximize the value of imaging equipment, repair and maintenance have become an increased area of focus for practices, imaging centers, and hospital radiology departments. On the repairs front, Sferrella observes, some players are now considering options from which they might have shied away, in the past. Those with aging equipment, for example, are purchasing insurance policies that put a cap on repair expenditures. In many cases, entities that outsource repairs to third-party companies are able to obtain such coverage without changing outside service providers. Those that use one of a carrier’s in-network service providers, however, gain additional savings over the cost of obtaining repair assistance from a vendor. Sferrella says that some of her clients and other industry constituents have paid 25% to 35% less for repairs by engaging a service provider to which they were referred by their insurance carrier. Not long ago, one of her company’s clients sought price quotes for the repair of two CT systems. The vendor reported that the repairs would cost $60,000, but a third-party service provider allied with the organization’s insurance company agreed to do the work for $20,000. At Duke Radiology, University Medical Center, every attempt is made to handle equipment service in-house, at least as a first line of defense, Rubin reports. Calls to manufacturers are reserved for more serious problems, and preventive maintenance occurs on a regular schedule. Uptime is monitored very closely, with significant attention paid to improving internal processes (for instance, balancing patient loads on identical machines) as a means of further reducing downtime and placing less strain on equipment. CDI now employs field-service engineers in larger markets. A combination of preventive maintenance and the ability to address equipment problems immediately (instead of waiting for assistance from outside the organization) keeps a lid on downtime, Long observes. As positive and effective as these tactics and practices might be, however, practices, imaging centers, and hospital radiology departments are bound to make additional changes to their approaches as conditions dictate. For the radiology segment, procurement always will be a moving target. Julie Ritzer Ross is a contributing writer for Radiology Business Journal.