The Future of Hospital-based Outpatient Imaging
Is outpatient imaging on the hospital campus still strategically relevant for hospitals and health systems? If so, what will it take to capture this volume in an increasingly competitive market? These are the two primary questions facing hospitals and health systems as they contemplate their campus-based outpatient imaging strategies.
In order to answer those questions, it is necessary to examine the market dynamics at play in the outpatient setting and their impact on campus-based imaging. These driving forces are historical growth in the supply of freestanding imaging, continued increasing demand for outpatient imaging, patient and referring-physician preferences for the site of service, payors’ responses to the continued growth in outpatient imaging, and traditional and new-entrant competition.
Historical Growth
It has been widely reported that the period 1997 to 2008 was characterized by rapid growth in freestanding imaging. The number of freestanding imaging centers across the United States grew from 2,661 to 6,455 (Figure 1). This rapid growth in supply took place in response to equally rapid growth in the demand for outpatient imaging. The historical increase in demand for outpatient imaging was driven by a number of factors, including new technology and the expansion of available applications, the aging of the population, increased consumerism, the practice of defensive medicine by physicians, and reimbursement expansion (particularly for PET).
The proliferation of freestanding imaging centers in most markets has captured the competitive attention of hospitals and health systems nationwide, prompting many hospitals, defensively, to launch their own competing freestanding facilities. Increasingly, hospitals are butting up against each other in their quest for outpatient imaging business, raising the following question: How does a hospital know whether it is capturing its fair share of campus-based outpatient imaging? 
Figure 1. Growth in the number of freestanding imaging centers between 1990 and 2008. Increasing Demand From 2000 through 2006, overall physician-billed Medicare services grew 8% annually, while Medicare spending on freestanding imaging services increased at an annual rate of approximately 13% during the same time. This equates with an increase in spending from $6.7 billion to $13.8 billion for freestanding imaging services. Moreover, expenditures per Medicare beneficiary for advanced imaging (CT, MRI, and nuclear medicine) grew at twice the rate of expenditures for other imaging services (15.4% versus 7.7%). Similarly, private health plans’ costs have increased an average of 18% to 20% for outpatient imaging. For 2007 to 2012 (Figure 2), the impact of these drivers of demand is largely expected to continue. If history is any guide, imaging-technology companies will continue to drive innovation in equipment and the associated applications. Patients aged 65 years and older will continue to use imaging twice as much as patients who are 45 to 64 years old, and three times as much as those 20 to 44 years old. Consumers will continue to ask for particular tests and technology. The key question becomes this: To what degree will this demand for services (and the resulting volume) be met at campus-based outpatient imaging facilities versus freestanding facilities?
Figure 2. Projected growth in individual modalities from 2007 through 2012. Site Preferences There is considerable anecdotal information suggesting that both patients and referring physicians enjoy the freestanding imaging experience more than the traditional hospital experience. That said, it is useful to examine where patients sought outpatient imaging in 2007 (see table). Almost 67% of the outpatient CT scans completed in the United States were performed in a hospital outpatient department (defined as including freestanding centers that bill through the hospital’s outpatient department). Freestanding imaging centers are at a disadvantage in offering CT in two ways. First, outpatient CT relies and depends on the emergency department in a way that makes the two very difficult to separate. Second, the anticipated spike in demand for cardiac-related CT in the freestanding setting has yet to be realized in most markets. In the same year, slightly more than 42% of patients who underwent outpatient MRI were treated in a hospital outpatient department. This equates with approximately 9.2 million scans. Hospitals have found it more difficult to compete for outpatient MRI cases. Campus-based MRI is often still commingled with inpatient imaging, and the equipment, many times, is buried in the basement of the hospital. More important, most hospitals have been unsuccessful at creating a campus-based offering that patients and referring physicians find attractive. The other two modalities for which hospitals largely have managed to maintain volume are mammography and noncardiac nuclear medicine. Almost 58% of mammography and 70% of noncardiac nuclear medicine are completed in a hospital outpatient department. Hospitals’ success within these two modalities is somewhat suspect, however, and is driven by the fact that their freestanding competitors have historically been uninterested in these modalities. Mammography has obvious reimbursement limitations, and many radiologists do not like to read mammograms. Noncardiac nuclear medicine realistically equates with what is left over after PET volume has largely gone to the freestanding setting, and cardiologists have captured the lion’s share of nuclear cardiology. In total, almost 151 million outpatient imaging scans were completed in hospital outpatient departments in 2007. Payor Responses In 2005, Congress moved to slow the growth in costs associated with freestanding imaging services by enacting the DRA, which reduced the reimbursement that physicians and freestanding providers receive for performing imaging tests to the lower of the Medicare Physician Fee Schedule or the Hospital Outpatient Prospective Payment System. At the same time, private payors have focused more on network management. In January 2007, insurance giant UnitedHealth Group of Minneapolis announced that freestanding imaging facilities and physician offices performing certain imaging procedures would need to complete and submit an application and be accredited by the ACR or by the Intersocietal Accreditation Commission to receive payment for services. UnitedHealth's original deadline for accreditation was March 1, 2007, but it has repeatedly extended its deadline, which is now set for the fourth quarter of 2009. CMS appears to be following in the footsteps of UnitedHealth under the accreditation provisions of the Medicare Improvements for Patients and Providers Act of 2008, initially implementing a two-year pilot program and eventually making accreditation provisions applicable to all by 2012. These recent moves by CMS and private payors have clearly benefited hospitals and health systems. Hospitals were largely left undisturbed by the DRA and continue to have a significant reimbursement advantage in many markets, particularly through their commercial contracts. This reimbursement differential is one of the key drivers of hospitals and health systems that are examining their campus-based outpatient imaging strategies. Historically, hospitals and health systems have been able to make the case that they should receive advantageous reimbursement because they take all comers (regardless of ability to pay) and because they have a tremendous investment in their on-campus facilities. With increasing demand for outpatient imaging, however, cost pressure on payors will force them to revisit payment mechanisms for outpatient imaging continually. It will also force them to make decisions on whether freestanding or hospital centers will be affected more by changes to these payment mechanisms. It is difficult to argue that this particular disparity makes sense; therefore, it may be subject to change in the near future. As hospitals and health systems own and operate more and more provider-based freestanding centers, the reimbursement landscape could begin to change. Ultimately, CMS and private payors probably will not continue to pay a premium for provider-based imaging services that have a cost structure identical to that seen for freestanding centers. Competition As reimbursement tightens in the freestanding setting, competition for imaging volume is becoming intense. As businesses with largely fixed costs, freestanding imaging centers are no longer able to profit by filling 40% or 50% of their equipment capacities. Many markets for freestanding imaging are already saturated, and hospitals and health systems are aggressively adding their own freestanding centers. While much of the future competition will come from traditional providers—hospitals, health systems, radiology groups, multispecialty group practices, and entrepreneurs—disruptive innovations and business models will challenge providers as well. Four questions to consider are
Figure 1. Growth in the number of freestanding imaging centers between 1990 and 2008. Increasing Demand From 2000 through 2006, overall physician-billed Medicare services grew 8% annually, while Medicare spending on freestanding imaging services increased at an annual rate of approximately 13% during the same time. This equates with an increase in spending from $6.7 billion to $13.8 billion for freestanding imaging services. Moreover, expenditures per Medicare beneficiary for advanced imaging (CT, MRI, and nuclear medicine) grew at twice the rate of expenditures for other imaging services (15.4% versus 7.7%). Similarly, private health plans’ costs have increased an average of 18% to 20% for outpatient imaging. For 2007 to 2012 (Figure 2), the impact of these drivers of demand is largely expected to continue. If history is any guide, imaging-technology companies will continue to drive innovation in equipment and the associated applications. Patients aged 65 years and older will continue to use imaging twice as much as patients who are 45 to 64 years old, and three times as much as those 20 to 44 years old. Consumers will continue to ask for particular tests and technology. The key question becomes this: To what degree will this demand for services (and the resulting volume) be met at campus-based outpatient imaging facilities versus freestanding facilities?
Figure 2. Projected growth in individual modalities from 2007 through 2012. Site Preferences There is considerable anecdotal information suggesting that both patients and referring physicians enjoy the freestanding imaging experience more than the traditional hospital experience. That said, it is useful to examine where patients sought outpatient imaging in 2007 (see table). Almost 67% of the outpatient CT scans completed in the United States were performed in a hospital outpatient department (defined as including freestanding centers that bill through the hospital’s outpatient department). Freestanding imaging centers are at a disadvantage in offering CT in two ways. First, outpatient CT relies and depends on the emergency department in a way that makes the two very difficult to separate. Second, the anticipated spike in demand for cardiac-related CT in the freestanding setting has yet to be realized in most markets. In the same year, slightly more than 42% of patients who underwent outpatient MRI were treated in a hospital outpatient department. This equates with approximately 9.2 million scans. Hospitals have found it more difficult to compete for outpatient MRI cases. Campus-based MRI is often still commingled with inpatient imaging, and the equipment, many times, is buried in the basement of the hospital. More important, most hospitals have been unsuccessful at creating a campus-based offering that patients and referring physicians find attractive. The other two modalities for which hospitals largely have managed to maintain volume are mammography and noncardiac nuclear medicine. Almost 58% of mammography and 70% of noncardiac nuclear medicine are completed in a hospital outpatient department. Hospitals’ success within these two modalities is somewhat suspect, however, and is driven by the fact that their freestanding competitors have historically been uninterested in these modalities. Mammography has obvious reimbursement limitations, and many radiologists do not like to read mammograms. Noncardiac nuclear medicine realistically equates with what is left over after PET volume has largely gone to the freestanding setting, and cardiologists have captured the lion’s share of nuclear cardiology. In total, almost 151 million outpatient imaging scans were completed in hospital outpatient departments in 2007. Payor Responses In 2005, Congress moved to slow the growth in costs associated with freestanding imaging services by enacting the DRA, which reduced the reimbursement that physicians and freestanding providers receive for performing imaging tests to the lower of the Medicare Physician Fee Schedule or the Hospital Outpatient Prospective Payment System. At the same time, private payors have focused more on network management. In January 2007, insurance giant UnitedHealth Group of Minneapolis announced that freestanding imaging facilities and physician offices performing certain imaging procedures would need to complete and submit an application and be accredited by the ACR or by the Intersocietal Accreditation Commission to receive payment for services. UnitedHealth's original deadline for accreditation was March 1, 2007, but it has repeatedly extended its deadline, which is now set for the fourth quarter of 2009. CMS appears to be following in the footsteps of UnitedHealth under the accreditation provisions of the Medicare Improvements for Patients and Providers Act of 2008, initially implementing a two-year pilot program and eventually making accreditation provisions applicable to all by 2012. These recent moves by CMS and private payors have clearly benefited hospitals and health systems. Hospitals were largely left undisturbed by the DRA and continue to have a significant reimbursement advantage in many markets, particularly through their commercial contracts. This reimbursement differential is one of the key drivers of hospitals and health systems that are examining their campus-based outpatient imaging strategies. Historically, hospitals and health systems have been able to make the case that they should receive advantageous reimbursement because they take all comers (regardless of ability to pay) and because they have a tremendous investment in their on-campus facilities. With increasing demand for outpatient imaging, however, cost pressure on payors will force them to revisit payment mechanisms for outpatient imaging continually. It will also force them to make decisions on whether freestanding or hospital centers will be affected more by changes to these payment mechanisms. It is difficult to argue that this particular disparity makes sense; therefore, it may be subject to change in the near future. As hospitals and health systems own and operate more and more provider-based freestanding centers, the reimbursement landscape could begin to change. Ultimately, CMS and private payors probably will not continue to pay a premium for provider-based imaging services that have a cost structure identical to that seen for freestanding centers. Competition As reimbursement tightens in the freestanding setting, competition for imaging volume is becoming intense. As businesses with largely fixed costs, freestanding imaging centers are no longer able to profit by filling 40% or 50% of their equipment capacities. Many markets for freestanding imaging are already saturated, and hospitals and health systems are aggressively adding their own freestanding centers. While much of the future competition will come from traditional providers—hospitals, health systems, radiology groups, multispecialty group practices, and entrepreneurs—disruptive innovations and business models will challenge providers as well. Four questions to consider are
- whether teleradiology will remove many of the barriers to entry for new market entrants,
- whether payors will offer outpatient imaging in order to stem costs,
- whether the local drugstore or Wal-Mart will add radiology to its stores, and
- whether outpatient imaging is becoming more of a commodity. The best buffer against competition is undoubtedly an imaging facility that truly differentiates itself in the market and drives value to its customers. Ultimately, these types of facilities will prevail against any kind of competition, whether they are freestanding or hospital based. Differentiation In the end, campus-based outpatient imaging not only is relevant, but is strategically critical for most hospitals. First, a reasonable level of campus-based volume will exist in the market for the foreseeable future, and maybe forever. Second, provider-based imaging facilities almost always have a reimbursement advantage, and that advantage can be quite large (for the short to middle term). Third, patients, referring physicians, and the broader community expect the hospital campus to be the technology hub for outpatient imaging. Hospitals cannot afford to allow their freestanding and physician-office competitors to offer the marketplace superior technology. A natural byproduct of increased competition in the marketplace is an increased level of patient and referring-physician expectations. What used to be nice to have, in an imaging facility, has become the cost of doing business. Hospitals and health systems will need to leapfrog their current service offering and offer a best-in-class outpatient imaging experience in order to remain competitive. In evaluating whether a campus-based imaging facility is best in class, 3d Health considers 37 different criteria, grouped into nine categories; a sampling drawn from these criteria follows. The separation of inpatient and outpatient services is critically important for hospitals. Dedicated inpatient and emergency-department imaging technology should be completely removed from the outpatient service offering. A complete women’s imaging program is also a distinction of best-in-class services. Bone-density testing, mammography, and ultrasound should be performed within a space adjacent to the outpatient imaging space (with a separate entrance) dedicated to women’s services. Mammography should be digital, and there should be a programmatic tie to a sophisticated breast center. Ease of patient access is another hallmark, and a frequent point of differentiation between freestanding and hospital-based outpatient imaging. Patients and referring physicians should be able to schedule appointments in real time, either through a scheduling hotline or online, with same-day/next-day appointment availability. Hours of operation should exceed 80 per week and include time on both weekend days. Scheduling staff should be able to provide service-price details and work directly with patients on preauthorizations. To provide complete access, a hospital must be a participating provider for all of the major payors. Facilities and technology are also a key to marketplace excellence. Is the facility located either in a separate building on the hospital campus or within a medical office building? The look and feel of the facility must be modern and spa-like, and equipment must be state of the art (with current software). Referring physicians need to get patient images through a variety of avenues, including online access and secure email. Facilities must be designed for the safety and comfort of the patient. All imaging modalities must be available during operating hours, and the hospital should have taken great care in choosing the right employees. The facility must have been validated by the ACR, with accreditation in all modalities offered. A strong relationship with the radiology group is important, with strategic and economic interests aligned. The radiologists should be of high quality and should have subspecialty training. Turnaround times should be within a one- to two-hour period, and there should be a radiologist on-site during operating hours. Radiologists also need to be engaged in actively cultivating relationships with referring physicians. A best-in-class imaging center puts patient comfort first by employing a staff that is friendly and approachable. High-end amenities (including Internet access, telephones, work areas, flat-screen televisions, coffee, water, magazines, and so forth) should be available within the facility. Waiting time should be less than 10 minutes. It should be possible to complete the check-in process online prior to the appointment, on a computer within the facility, or with an associate. The patient should be well educated about the particular scan, should have the option of listening to music during the scan, and should be clearly informed about when results can be expected by the doctor and patient. The entire experience should last less than an hour, for most procedures. Marketing matters, and materials must be of high quality and must be readily available throughout the waiting area. The imaging facility needs to have a dedicated Web site with a wide array of educational links and materials, in addition to patient forms that can be downloaded to be filled out in advance or online. The marketing message should be equally focused on the patient and the referring physician. Ultimately, patients and referring physicians will assess performance based on both hard and soft evidence. Patients and referring physicians will evaluate the soft evidence across criteria such as those listed. Campus-based imaging providers will also need to demonstrate high quality and superior outcomes (hard evidence) in a meaningful way. Is campus-based outpatient imaging still strategically relevant for hospitals and health systems? The short answer is—absolutely—yes. What will it take to capture this volume in an increasingly competitive market? This is a tougher question. Hospitals and health systems will need to offer a truly different product to the market in order to win.