The demand is there, but so are the hurdles. Smart strategies to maximize MR in diverse markets.

In the past, outpatient imaging operators could base business plans on MR services alone. But since the Deficit Reduction Act (DRA), both MRI and multimodality facilities must now find strategies to make the most out of the modality—while still serving their patients and making a profit.

It is not as if the demand for MR is dwindling. On the contrary, with an aging Baby Boomer population and the myriad possible MR studies available to physicians for orthopedics, neurology, cardiology, and oncology, MRI services are likely to be in high demand for the foreseeable future. And yet, a 1.5 Tesla machine—the gold standard for most facilities these days—is still an expensive piece of equipment, especially in the age of the DRA, HMOs, and overall reduced insurance reimbursements. Facing these reimbursement trends, imaging facilities are beginning to strategize about how to maximize their MR for their markets.

Paul Mezacapa, COO and founder of Desert Medical Imaging (DMI) based in Indian Wells, Calif, operates four facilities in the Palm Springs area, an extremely competitive market with around 30 centers that serve only 363,000 year-round residents. As a result of the DRA, he said that his revenues were down about 17% overall, but not just due to the DRA. He said, “The problem is that you have the Blue Crosses, the Aetnas, and the United Health Cares of the world that jumped on the bandwagon and automatically gave us a 25% to 40% decrease.”

“Insurance reimbursements have never really gone up,” said John Hipple, product manager for MR at Toshiba America Medical Systems Inc, Tustin, Calif. “They continue to go down, and DRA makes that accelerate even faster.”

Thus, with revenue down from both CMS and most payors, imaging centers are working longer hours and trying to increase volume to compensate for earning perhaps half as much as they used to make for the same CPT code. In addition, managers are taking a long look at their balance sheets and business plans, trying to cut costs, but that can go only so far.

“If you go to an MR imaging center and things are pretty Spartan in the waiting room, and there are no magazines or coffee or water, you’re going to question, ‘Who’s reading this? Are they paid well? Are they happy? Who’s doing the exam? What kind of equipment do they have?’ So most imaging centers, especially the stand-alone, will be very nice inside, because they want it to be a very pleasant experience for the patient,” said Hipple.

Perhaps one of the most attractive targets for cost cutting is the very tool that brings in revenue: the MRI machine. Hipple said that Toshiba has seen a decrease in sales of MR equipment since the DRA. “People are delaying decisions on new equipment or opting for used equipment at a much lower cost than brand new,” he said.

Despite all the bad reimbursement news, outpatient MRI imaging services will certainly continue. The question is how.

The Buy-New-Now Strategy

While there are some outpatient imaging operators who will look at budgets and decide to hold off on any new equipment purchases or buying refurbished 1.5Ts, some are taking a more aggressive approach, believing in the old adage that “you have to spend money to make money.”

Mezacapa is a big advocate of this approach. Like many imaging centers, DMI had taken advantage of pre-DRA reimbursements levels and paid off their MRIs. They had also prepared themselves to be 25% more efficient. Yet, despite the potential savings that would have resulted from staying with his paid-off machines, Mezacapa instead chose to replace them with new ones.

His main reasoning: capturing more market share.

“We were turning away 20 to 30 patients a week with our prior open [MRI]. But we said, ‘You know what? Even though it’s paid for, we’ve got to advance.’ Now, we’re not turning those patients away,” said Mezacapa.

Consequently, DMI recently acquired an open 1T product from Philips Medical Systems, North America, Bothell, Wash, for one of his locations and a Philips 1.5T system that can later be upgraded to 3T if and when Mezacapa feels the need.

Mezacapa believes that buying new MRIs is smarter than staying with the old or buying refurbished pieces because it dramatically sets one’s imaging center apart from competitors—thus growing referrals, increasing volume, and offsetting DRA cuts.

He said, “We’re not going to be just an ordinary imaging company that says, ‘We’ve got a refurbed great product that may be used by another vendor.’ That may still be a good product, but it’s the same as the next person down the street with a 1.5T.”

The results have paid off. Mezacapa credits the aggressive promotion of his new MRI purchases for dramatically in-creasing his market share in the Palm Springs area, one of the most competitive outpatient imaging markets in the country.

Operators utilizing this buy-new-now strategy also may find further benefits when negotiating with vendors that are eager to make sales in a slow market.

In addition, a buyer’s market combined with multiple equipment purchases for several centers may garner even more significant savings than buying during more robust selling periods.

Even for single unit sales, many manufacturers are offering not only discounts, but also favorable leasing terms, 0% financing, and deferred payments. (Read more about financing options in the age of rapid obsolescence in our March 2007 issue.)

Offering More MRI Services

If spending capital dollars on a brand-new 1.5T is out of the question, another less-expensive option could be a smaller upgrade, say, for a new coil or two.

If You Can’t Beat ‘Em…

If buying a new 1.5T is too costly or expanding services to include other modalities is fiscally challenging, then another strategy may be joint venturing with a competitor.

Whether MRI centered only or multimodality, there is power in numbers, from negotiating better service plans and better equipment leases, to simply having more radiologists covering each other and handling increased volume. Redundancies, staff, and operating expenses can all be optimized.

Even Mezacapa, who considers DMI a market leader and already in a strong position, is now considering joining forces with competing imaging centers.

“We need to have geographic coverage, to have radiologists that aren’t capped that we need, and to have power in numbers to fight bigger hospitals,” he said.

Being bigger—and further increasing market share—would also help DMI negotiate its MRI fees with payors of the area. Rather than submit to further cuts, Mezacapa said that having the right joint venture partner might allow him to drop an HMO or other insurer threatening to cut reimbursements further. Of course, he would prefer to serve as many patients and payors as possible. At the very least, growing into a bigger player might make future cuts less than they would be if he were to go it alone.

Asked whether it would be a good idea to partner with a local hospital, Mezacapa is more cautious.

“I think that the first smart step would be with outpatient imaging centers,” he said. “Because that does three things: It eliminates competition, it brings radiologists on board, and it gives you the power of numbers to fight against the local hospitals, which have their own radiology groups that are going to start thinking about their own outpatient imaging centers on campus. And once that happens, it’s a captive audience. So, we need to prep ourselves for that.”

(For more strategies on how outpatient imaging centers can survive DRA, see our April 2007 issue.)

For example, breast MR was just about the only CMS CPT code that was not affected by the DRA. Consequently there is still good reimbursement for it. Moreover, breast MR has recently received more attention since the American Cancer Society (ACS) recommended it for screenings with high-risk patients. With this endorsement, it is likely that breast MR procedure volume will significantly rise over the coming years, and properly equipped imaging centers will benefit from the increased demand.

Having a high-field MRI with a breast coil, DMI is already doing increased business with breast MRIs, though Mezacapa cautioned that the increase does not come from patients.

“We do not believe in circumnavigating the referring physician,” said Mezacapa. “This is a big deal, because a lot of my competitors were so nervous about things that they started going to cash pricing and menu pricing. I think down the road that may be a good idea, but for now, I say don’t solicit to the patients.” Mezacapa’s concern is that doing so may upset his steady clientele of referring internal medicine and primary care physicians who would normally prescribe such procedures. (Read more about adding breast MRI to your practice in our September 2006 issue.)

Vendors are also responding to the needs of outpatient centers to be more productive by designing their MRIs to be more versatile while cutting down on exam time. For example, Toshiba’s new Vantage Atlas product is a 1.5T system with an integrated coil solution that lets technicians do multiple exams without having to reposition the patient.

“It makes the technologist much more efficient, makes multiple exams a lot easier on the patient and the technologist, and allows you to do virtually every exam within a half-hour time slot. So, you can really be very productive,” said Hipple.

From MRI-Only to Multimodality

As a modality, MRI is not going away, but that may not be the case for MRI-only imaging centers. Such business models are most often competing with one-stop-shop imaging centers that offer everything from digital x-rays to 64-slice CTs, PET, as well as 1.5T services.

“Multimodality is easier to market because it becomes one referral pad for virtually every exam for the person in the front who’s [doing the] scheduling,” Hipple said.

Of course, physicians are not going to be referring their patients to a multimodality center over an MRI-only center purely out of convenience rather than quality. However, given equal quality, service, and patient feedback—and given a choice—it is not unreasonable to believe that physicians will eventually choose the multimodality referral pad over keeping track of patients at two or three different centers.

Naturally, a business plan for transforming from an MRI-only center to a multimodality center would have to consider local demographics, competition, referral base, not to mention available physical space and technician staffing.

However, with MRI reimbursement on a down trend and service to one’s clientele being more important than ever, there appear to be few advantages to focusing only on MRI in the wake of the DRA.

Hipple said, “You’ve got to provide something [unique]. Meaning very, very fast customer service, fast turnaround time for the diagnosis, reports, and whatever [film, CD, etc] that you provide for the physician. And you’ve got to have something different, whether it’s a different type of system or scanner, so you can advertise that you’ve got a shorter, much more patient-friendly, quieter MR than the person down the street does. That’s a challenge.”

If an MRI center subscribes to the buy-new-now philosophy, one could see gaining market share from having the first 3T system in the neighborhood. However, 3Ts are currently almost twice as expensive as a new 1.5T. In addition, for most patients, a 1.5T will still give radiologists and referring physicians excellent image quality. Consequently, one has to wonder whether the extra money invested in a 3T would not be better spent expanding services to a 64-slice CT, digital x-ray package, or mammography system.

Tor Valenza is a staff writer for Axis Imaging News. For more information, contact .