In the context of current applications and equipment, this article provides an overview of the evolution of positron emission tomography (PET) with timely information on supply and demand factors that affect PET.
Today and in the future, the most significant factor impacting PET supply and demand is the referring physician community’s understanding of its medical utility. The latest PET/CT equipment coupled with sustained efforts to educate the medical community have made PET a powerful diagnostic tool that is having a significant impact on the diagnosis and treatment options of many prevalent diseases affecting Americans.
Over the past 2 to 3 years, there has been a significant increase in the understanding of PET’s clinical value in the medical community and an associated increase in the demand for PET. Today, PET is established as a powerful diagnostic tool. Five years ago, however, there were many who doubted PET would advance to a mainstream diagnostic imaging modality. After years of education of the medical community, PET aims to gain more ground by providing valuable clinical information.
PET began in the 1970s as a research tool and remained so through the 1980s. In the 1990s a new detector material, lutetium oxyorthosilicate (LSO), was developed, which enabled quicker scans and facilitated the clinical expansion. In 2000, a combination PET/CT scanner went into production, providing the physician with functional and anatomic information within a single scan. The latest PET/CT equipment produces scans in 10 to 25 minutes depending on the type of equipment and costs between $1,700,000 and $1,900,000.
The current quality, availability and clinically proven diagnostic benefits provided by PET are mainly impacting three medical disciplines: cardiology, oncology, and neurology. Many in the medical community believe that PET/CT is superior to traditional nuclear cardiology in the detection and monitoring of atherosclerosis. Oncologists utilize PET for staging and restaging of many cancers.Â PET/CT is used in the evaluation of neurological disorders such as Alzheimer’s and Parkinson’s diseases. For these applications, PET provides information that was previously available.
|Figure 1. With S and S1 representing changes in PET supply, and D and D1 representing changes in PET demand, the change from U to U1 represents the increase in PET supply and demand.|
As with all free market products and services, PET is affected by supply and demand. Traditional free market supply and demand concepts are based on consumer behavior. However, with PET, as with most medical services, the ultimate consumerthe patientdoes not necessarily make the decision to buy the service alone; the referring doctor plays a major role. For this reason, the referring physician plays a vital role in PET supply and demand.
Supply is the amount of goods or services producers are willing to sell at a given price. Supply depends on price, manufacturing costs, competition, and substitutes for the product. Changes in price do not cause shifts in the supply curve; price changes will only cause movement along the current supply curve. An increase in supply, caused by a change in manufacturing costs, competition, and substitutes for the product or some other unforeseen event that affects production, will cause the supply curve for a product to shift to the right.
Demand is the amount of goods or services consumers are willing to buy at a given price. Demand depends on price, income of consumers, availability of substitutes, and consumer taste. Changes in price do not cause shifts in the demand curve; price changes will only cause movement along the current demand curve. An increase in demand, caused by a change in income of consumers, availability of substitutes, and consumer taste or some other unforeseen event, will cause the demand curve to shift to the right.
Figure 1 illustrates current PET supply and demand. The change from U to U1 represents increases in the utilization of PET. Market forces are causing the PET supply and demand curves to shift to the right. There is no dramatic movement, caused by price, up and down existing supply and demand curves. Once the supply and demand curves reach equilibrium, the shift to the right will stop, or slow dramatically, and move along the then current curve as price reacts to volume competition.
In economic terms, utility is the satisfaction or value derived from consuming or utilizing a good or service. Increased understanding of the utility of PET in the medical community is the force driving the shift of the demand curve to the right. The supply curve will shift to the right to meet demand where there is not excess demand or excess supply in the market. Education of the medical community and new clinical applications being developed for PET will fuel these shifts for some time.
In contrast, the market forces affecting the supply and demand of MRI, an established medical modality with widespread acceptance, are not causing the MRI supply and demand lines to shift dramatically to the right. This is because the relative underutilization of MRI is much smaller when compared to PET. In comparison to PET, the MRI supply and demand curve will shift to the right much more slowly. This slow movement would be caused by new applications for MRI. Instead of major shifts to the right, the market forces cause movement up and down the current MRI supply and demand curves. MRI is clearly ahead of PET in widespread understanding of its medical utility.
The Regulatory Climate
Supply and demand are free market forces, but from a practical standpoint, these factors must be viewed in light of government intervention that pervades just about every industry. Government regulation affects PET supply and demand in three main ways: certificate of need regulations (CON), Centers for Medicare and Medicaid Services (CMS) reimbursement, and Stark regulations. CON regulations are not unique to PET and are not consistently applied in states where they exist. For these reasons, an analysis of the impact of CON on PET supply and demand is beyond the scope of this article.
As one would expect, CMS reimbursement approval for many PET procedures over the last several years has had an extremely positive effect on the supply and demand of PET. In this case, reimbursement approval has enabled a major segment of the population to access PET services. Prior to reimbursement approval, many health care organizations would not have considered adding the service. Also impacting supply and demand for PET is the fact thatÂ the PET codes currently are not included in the Stark list of designated health services, the only health care services regulated under Stark. At this time, PET services are not identified by CMS as designated health services. A change to this designation is currently under consideration by the CMS.
The Purchase Decision
With the increase in demand for PET/CT, the financial decision to purchase the equipment has become one of traditional financial analysis. Table 1 (above) illustrates that the average break-even for freestanding PET is two to three scans per day. This, of course, will vary based on equipment, management expertise, and site preference. A prudent analysis as to the financial viability of PET would include analysis of financing options, working capital needs, preparation of pro forma financial statements with volume projections, and net cash flow projections. As with any project of this magnitude, the management team must consider other, nonfinancial factors that affect scanner operation.
For some time to come, the most significant factor impacting PET supply and demand will continue to be the education of the referring physician community as to the medical utility of PET. CMS reimbursement and changes in Stark legislation will also continue to play a significant role in PET.
Kirk W. Reinitz, CPA, is vice president of a radiology practice management and billing firm in Columbus, Ohio