Ruth Tesar, executive director, Northern California PET, sacramento.

In 1993, as Ruth Tesar prepared to take charge of a struggling positron emission tomography (PET) center in Sacramento, Calif, the market for PET imaging was then so chilly that one of the members of her board of directors dejectedly postulated that scans probably could not even be given away for free. Some months later, Tesar enthusiastically reported back to the board that it was indeed possible to give them away.

While some might have mistaken Tesar’s remark as an attempt to leaven bad news with levity, she actually was detailing the early results of what was fast shaping up to be a winning strategy for building PET imaging demand, and, eventually, causing Northern California PET Imaging Center to turn the financial corner. “We had begun approaching the referring physicians, every tumor board, physician groups, and payors, meeting with surgeons, pulmonologists, radiation oncologists, and medical oncologists, and telling them we’d like to provide PET scans for certain of their patients for free,” says Tesar, who is the executive director of the center. “It was a way to thoroughly introduce them to PET and show what it could do for them and their patients. We hoped this would inspire them to begin ordering PET. A lot.”

And it did. But not immediately. Northern California PET found it necessary to continue offering free scans for approximately one full year before that effort started to bear fruit. A year is, of course, a very long time for a new venture to make do without meaningful income. The reason the center could endure it was that giving away the studies did not drive Northern California PET deeper into the red. “We already had in place a staff that we were paying for; we already had the cyclotron ready to do as many as 10 scans a day,” Tesar explains. “So there wasn’t any greater cost involved in giving away the studies, except for the minor cost of the radiopharmaceuticals.”

It might have been less of a burden if Northern California PET had been able at the time to bill Medicare. “From the day Northern California PET opened until about 6 years later, there was no Medicare reimbursement for PET,” Tesar notes. “And, for about 2 years from launch, there was very little private payor reimbursement, either.”

Tesar and the center’s medical director, Peter E. Valk, MD, were gradually able to persuade a majority of Sacramento-area payors to reimburse for most clinical indications for PET. Thus, beginning in 1994, Northern California PET was giving away fewer and fewer scans and bringing in more and more revenueto the point that in 1996 (a full 2 years before Medicare approved PET) the center was breaking even on cash flow.


The advent of Medicare reimbursement for PET caused Northern California PET’s paid study volume to jump from 770 scans the previous year to 1,005, and then to 1,398 the year after that. However, once Medicare approved PET, in poured the competition. “All of a sudden, everyone wanted to get into PET,” says Tesar.

For a time, the competition consisted merely of several mobile PET ventures. None attempted to develop market share in Sacramento proper, where Northern California PET was firmly entrenched. Instead, they nibbled away at Northern California PET from the edgesmainly the rural and semiurban spaces north to the Oregon border and south to the outskirts of Los Angeles.

“That’s how far our referral catchment area extended,” says Tesar. “But it was tailor-made for mobile thanks to the 8 years of ground-laying we did. All a mobile operation had to do was go into a community in our catchment area, offer the service, and start making money.”

The resultant loss of business was not substantial enough to worry Northern California PET. Rather, what set off the alarms was a fixed-base PET center that opened in 2002 in a fast-growing suburb about 25 miles to the north of Sacramento (the rival center soon thereafter added a mobile unit to make regular incursions into the heart of Sacramento).

“This competitor facility is owned and operated by a very good radiology group that has much broader marketing abilities than we do,” says Tesar. “They can contract for every diagnostic imaging procedure and offer PET as part of that package, which we cannot because we are PET and only PET. So, to stay ahead of this competitor, we’ve had to sharpen everythingour strategies, our relationships, our capabilities.”


Northern California PET is located in a freestanding dedicated center in the middle of Sacramento’s medical district. With a staff of two physicians, two technologists, two billing specialists, and two medical office assistants, in 2002 it was able to complete about 2,050 PET studies (this year, volume projections put that figure at somewhere between 2,400 and 2,600, according to Tesar).

The center was formed in 1992 by two rival institutionsSutter Hospital and Mercy Hospitalafter deciding they could fare better in the increasingly adverse health care climate by finding ways to cooperate. Starting a joint-venture PET center represented a sound avenue for achieving just that, or at least it did on paper.

Still, it was a bold move, but one that soon seemed doomed to financial failure. First, it cost $7 million to build out, equip, and staff Northern California PET. Then, the center lost money because its business plan was based on, as Tesar puts it, “the wrong indications for PET.” Understandable, though, since it was not clear back then what PET could really do.

“When Northern California PET started, it was expected the center would grow to about seven scans per day by focusing on cardiology,” Tesar says. “Oncology indications weren’t even contemplated. The center ended up serving few customers because there were only a couple of indications for cardiologic PET, mainly for heart transplant cases and cardiac bypass surgeries on patients with major risk factors or a suspected lack of viable heart tissue.”

Cost of PET scanning was another impediment. And PET debuted at a time when, especially in California, managed care was forcing physicians to be at risk for their procedures. “In our community, among the very first groups to become at risk for their care were cardiologists and cardiac surgeons,” says Tesar. “So, even if they wanted to do PET, it was going to be too expensive a proposition for them.” NCPIC performed primarily brain scans in its first year.

Another problem was that Northern California PET did not have a full-time, on-site administrator. That is where Tesar entered the picture.

Tesar was chief administrator in diagnostic imaging, nuclear medicine, vascular, and ultrasound at Sutter when Northern California PET went live. Her 15 years of experience in that capacity, coupled with her skill at helping the hospital conduct cost-effectiveness studies, made her an ideal choice for executive director of the center. “Things were going so badly for Northern California PET that the board felt I’d probably have to dismantle the business,” Tesar recalls.

This proved unnecessary. Tesar, however, admits she was unprepared for the lengths she would have to go to in order to rescue the floundering enterprise. “In the hospital, I was primarily looking at expenses, and not doing a lot of top-line growth and revenue, marketing, and legal,” she explains. “But those were the very things I had to look at closely and be intimately involved with from the moment I started at Northern California PET.”


Northern California PET now runs quite smoothly. It is those competitors that are today the center’s biggest problem, says Valk. Fortunately, Northern California PET has several advantages in its favor.

One advantage is Northern California PET’s geographic coverage. In addition to its Sacramento base, it owns a satellite facility in a suburb to the east and has a sharing agreement with another scanner at the Veterans Administration Hospital in the San Francisco Bay Area city of Palo Alto. It also runs a mobile unit that makes frequent forays into the same north-of-Sacramento town where the direct competitor has its fixed site.

“Both payors and physicians appreciate that we are available in such a large area,” says Valk. Referrers include physicians from Sutter and Mercy, UC Davis, Travis Air Force Base, and Sierra Nevada Hospital. The center also handles overflow for Kaiser Northern California. Surgeons, medical oncologists, radiation oncologists, pulmonologists, OB/GYN, and neurologists are the primary referring specialties.

Another advantagefor marketing purposesis Northern California PET’s status as a nonprofit organization, chartered from the outset as a 501(c)(3) organization. As Tesar affirms, print and broadcast news outlets tend to be much more willing to cover stories about nonprofits than about commercial ventures. Editors and others in the newsroom typically see it as a duty to feature prominently the good deeds performed on behalf of the community by entities lacking a profit motive. They also are inclined to imbue nonprofits with greater credibility when it comes to announcing or interpreting innovationsand where PET is concerned, innovations arise with remarkable frequency.

“In the last year alone, we’ve been interviewed for six different TV news reports explaining what PET is and the newest capability we’re offering,” says Tesar, a past-president of the Academy of Molecular Imaging (formerly the Institute for Clinical PET), another credibility enhancement for the center.

Northern California PET’s community status does not escape the notice of vendors who would like to have their newest equipment innovations showcased there the next time a camera crew or print photographer visits the center.

“We have new equipment coming in all the time from vendors who really like our site,” says Tesar. “That state-of-the-art equipment gives us a competitive edge.”

Not just because the equipment is among the finest available. It is also because the equipment is the fastest in the market. A PET scan at Northern California PET is completed in about 25 minutes, whereas the same procedure at the rival center takes nearly twice as long, says Valk.

But when all is said and done, Northern California PET’s biggest advantage is its knowledge base. “We have the experience; we’ve done it all in PET, more than anyone else in this market,” says Tesar. “We’re positioned as the go-to’ people for PET.”

Much of that PET knowledge has been committed to paper in the form of published research studies (see box, page 30), thanks to Northern California PET’s efforts to validate the modality in the eyes of referring physicians and payors.

“The first published study looked at the accuracy of PET in lung cancer and it involved more than 100 patients,” says Tesar. “Then we did colorectal, followed by head-and-neck cancer, and it continued on from there. We started collecting data for these and other studies when we were doing the giveaway scans, which further helped us justify that promotional strategy.”

A while later, Northern California PET began producing studies to demonstrate how PET affected the management of patients. “This was of interest to physicians and payors because they needed to be convinced that PET, while very accurate, reduced or eliminated the need for further testing,” says Tesar. “Translation: would PET save money, and how? We knew that PET really did change patient management. So I went out and surveyed physicians, while a PET fellow on our staff went out and chased down results, CT reports, and biopsy reports, with Dr Valk overseeing and ensuring the clinical integrity of this endeavor.

“From this, we produced one of the first papers on changes in patient management for PET and oncology. We were able to show that PET changed management in multiple cases, sometimes by 30% to 40%, because it could suggest when surgery and major biopsies were not merited. For example, say you’re looking at solitary pulmonary nodules. These are sometimes benign, and so you don’t want to go in and do surgery on benign nodules. Since PET is able to differentiate the benign nodules from the malignant ones, unnecessary surgery is avoided.”

As part of the investigation into the ability of PET to save money, Tesar used actual hospital numbers to determine what those unnecessary surgeries would have cost had they been carried outnot just the price charged, but the indirect cost to the medical system. “If, for example, a thoracotomy cost the system $12,000, then we could demonstrate that PET eliminated the need for those procedures. Our very first cost study with a multispecialty group revealed that in 28 oatients, the group saved the system $149,000 in cost of avoided procedures,” she says.

Tesar reveals that these kinds of findings convinced the Kaiser-Permanente health care systemCalifornia’s premier HMOto award a contract to Northern California PET in 1996, something she had been eagerly seeking. Contracts with other HMOs followed in rapid succession.

“Colleagues elsewhere in the country thought back then that it was unwise to pursue contracts from HMOs,” says Tesar. “In retrospect, I can tell you that it was absolutely the best way to achieve success, rather than first trying to win over the large indemnity plans. In fact, we deliberately targeted HMOs because we knew theylike physician groups at risk for their costsreally look closely at how they practice. Kaiser, for example, wanted to find ways to do the best nuclear medicine and make it effective for the system. That was even more the case with closed HMOs and smaller groups. And for all of them, PET was a very attractive solution.”


Northern California PET’s knowledge base, like any asset, must be continually maintained and built upon in order for it to retain or even increase its value, Valk mentions. Ways by which that will be accomplished, adds Tesar, include participation in research projects sponsored by prestigious entities, such as the National Institutes of Health. (In addition to playing a role in several investigations of aging/dementia, Northern California PET will participate in a NIH-funded study of carotid occlusion using oxygen 15 water and oxygen 15 gas.)

Meanwhile, Northern California PET hopes to develop strategic partnerships that will lead the center into wider markets and permit the offering of broader service lines. “My view is that we haven’t done all that can be done with PET,” she says. “Even right here in our home market, there is room for growth because no one in Sacramento has been totally effective in getting physicians to really order more PET scans per physician. For instance, we have data suggesting that most physicians order between 10 and 40 PET scans in the course of a year. But the typical medical oncologist sees about 300 to 320 new cancer patients during that same period, or almost one per day. So, that physician ordering no more than 40 PET scans a year implies an extremely low basic utilization of PET.

“With that in mind, my biggest thrust is to provide the physicians with the data and work with them to try to increase the utilization of PET where it is appropriate. That’s why, for example, in every report we write, we take pains to ensure that we provide to physicians useful information that demonstrates the clinical value of PET.’

Valk thinks the bid for greater PET utilization will be helped by aggressive promotion of PET/CT, a hybrid modality that promises a shorter scan time, about 15 minutes total. “The biggest weakness of PET is the lack of normal anatomic information,” he says. “So, not uncommonly, you wind up with an abnormality and you can’t be precisely sure where it is. With PET CT, you get anatomic information. You can see exactly where the abnormality is. My sense is that physicians will be very receptive to this because they are already so familiar with CT. For that reason, they’ll be less hesitant to order PET/CT.”

Then, finally, Northern California PET plans to become deeply involved in the development of additional indications for PET and of more types of radiopharmaceuticals. “For example, we’re expecting within the next 3 to 5 years approval for PET as a diagnostic tool in identifying Alzheimer’s and prostate cancer cases,” says Tesar. “Those will lift our boat, as well as help everyone else who happens to be in PET at that time.”

Published Studies

The following literature was generated from studies conducted at Northern California PET.

  • Valk PE, Abella-Columna E, Haseman MK, et al. Whole-body PET imaging with F-18-fluorodeoxyglucose in management of recurrent colorectal cancer. Arch Surg. 1999;134:503-511.
  • Valk PE, Pounds TR, Tesar RD, Hopkins DM, Haseman MK. Cost-effectiveness of PET in clinical oncology. Nucl Med Biol. 1996;23:737-743.
  • Valk PE, Pounds TR, Hopkins DM, et al. Staging non-small-cell lung cancer by whole-body PET imaging. Ann Thor Surg. 1995;60:1573-1582.
  • Tesar RD, Papatheofanis FJ, Valk PE. Reimbursement and technology assessment for positron imaging. Clin Positron Imag. 1998;1:51-58.

501(c)(3) Nonprofit Corporation

The first task in establishing a nonprofit corporation is to identify the purpose, mission and goals of the corporation. No profit may be used to the benefit of a nonprofit corporation’s members, though profitability should be a goal of a nonprofit organization.

Benefits of a nonprofit corporation include the following:

  • Ability to apply for and receive exemption from federal income tax
  • Eligible for reduced postal rates
  • Securities issued by a nonprofit are exempt from federal regulation

Drawbacks include the following:

  • Cannot distribute profits to members
  • Most nonprofits are not qualified to receive equity or debt financing

For more information on 501(c)(3) status, go to: , The Nonprofit Resource Center

Rich Smith is a contributing writer for Decisions in Axis Imaging News.