|Michael J. Cannavo|
One of the biggest challenges that imaging facilities face is justification of the purchase of a picture archiving and communications system (PACS). What is often forgotten about PACS is its ability not only to save money through reductions in film use, but to generate additional revenue as well. PACS use achieves this through the process change related to the elimination of film. This is a dramatic departure from a traditional cost model, and it helps define a true business case (which will be necessary for success in obtaining PACS approval from those controlling the purse strings).
It is important to identify two critical factors in building a business case. The first is that very few of the costs saved through PACS use come from the elimination of full-time equivalents (FTEs); instead, savings come from the increased productivity of the existing FTEs. In a hospital or outpatient imaging center environment, much of the cost associated with the file room will be eliminated. Still, there are personnel and service-related costs associated with running the PACS that will largely offset these file-room savings.
The second factor that needs to be understood is that 45% to 60% of the initial cost of a PACS is offset by operating-budget reductions (film-related costs). As PACS are often sought, initially, to help facilities address increased procedural volume without increasing fixed and variable costs (staffing, equipment, and film-related costs), the actual capital costs related to the purchase price of the PACS may actually be lower than the operating expenses that these costs are offsetting, due to rising operating costs in future years. This translates to a capital expense for PACS that ranges from 30% to 40% of the quoted cost, instead of the full amount cited on the quote itself. This is critical to note.
A business case is vital to the acceptance of a proposed PACS acquisition. Unlike a cost model, which usually looks only at costs and hard benefits and develops return-on-investment (ROI) projections from them, a business case factors in soft (intangible) benefits. It also analyzes modality usage and growth (including inpatient and outpatient trends); reimbursement, along with competitive-pricing issues; and hardware and software upgrades related not only to the PACS, but to other systems with which the PACS will interface (the World Wide Web, for example). Soft benefits are also becoming more and more important in the drive to implement PACS, as the demand for both technologists and radiologists exceeds market availability.
The lack of technologists and increasing demand for additional studies have caused many sites to extend hours, with shifts of 12 to 16 hours not being uncommon. Unfortunately, the cost associated with running long or double shifts is exceptionally high, in terms of both technologist overload and related overtime pay.
In addition to a technologist shortage, there is also a radiologist shortage. The radiologist shortage has led not only to work overload, but often to significantly delayed readings, as well; these have an impact on patient care. Many radiology groups have begun to divide their reading by modality so that radiologists with an area of expertise can read those studies first, expediting throughput. PACS use addresses this requirement perfectly through customized hanging protocols that allow image types to be diverted to a specific radiologist at his or her reading console. This also has other key benefits: increasing the standard of living for radiologists and allowing them to attract new members to their groups by eliminating nonproductive (and often frustrating) travel time from the radiologist’s daily routine.
One other soft benefit that is not often addressed is the ability of PACS to deliver images to the primary care physician quickly. This can be in the form of the entire study (as often dictated by the second originals made in MRI for cardiologists, surgeons, orthopedists, internists, and others) or as a summary series that shows only the pathology found in the entire study. These images are often compressed and sent via Web server to the primary care physician. In addition, images can be sent over the hospital’s local-area network, allowing near real-time distribution of images to the institution’s patient-care floors (and even offices). The benefit of this ability in constructing the business case can be seen from the marketing standpoint. While many facilities are creating double-digit growth in the digital studies that generate the most revenue, the competition for the favor of primary care physicians who direct business to their sites is intense. The elimination of certificates of need in many states has also created a situation in which imaging centers are popping up on almost every street corner, making competition for business even more fierce. Since pricing, in any market, has logical thresholds (although some pricing has become illogical in several markets) and insurance coverage is a much larger factor than pricing, facilities need to find a way to be more competitive. PACS not only allows facilities to complete studies in a more timely fashion, but allows a facility to provide a value-added service such as image transmission to a primary care physician’s office, home, or desired alternate location.
An increase in the service base is also critical to the successful acceptance of any business case, because increased productivity without an increased service base has no value. When creating the business case, a radiology practice should factor out 10% of the projected cost savings for marketing-related costs. Even though the revenue brought in as capitated dollars or through arrangements with HMOs may be less than that achieved through conventional contracts (insurance payments, Medicare, and so forth), any revenue stream generated can be considered a bonus.
The biggest single advantage of a PACS is its ability to increase productivity without increasing costs. Productivity gains range from 15% to 30% and are directly related to the process change that takes place in the filming process, rather than to the speed of the modality. This is important to note. Even though new multihead CT scanners can perform high slice-count procedures in less than 5 minutes and digital radiography and digital mammography units can create near real-time images, there are constraints that apply to the speed with which patients can be brought into and out of rooms. This fact limits theoretical productivity increases by at least half (and, sometimes, by even more). Still, the elimination of film can have a dramatic impact on overall productivity.
In a traditional film-based environment, when a study is completed, films are processed using a laser imager (wet or dry), collated, merged with the jacket, and presented to the radiologist for interpretation. This takes anywhere from 4 to 7 minutes per study, depending on the locations of the processor and the radiologist’s reading area. By eliminating the steps associated with film processing and handling, a facility can generally recover this time and use it to generate additional studies. More studies mean more revenue. If a facility can save 5 minutes per study and it now generates 25 CT studies per day, this means that it can recover 125 minutes per day of filming-related time, gaining more than 2 hours without increasing either equipment or FTE costs.
To reflect real-world conditions, however, this potential time savings should be reduced by an average of 75% (translating only 25% of the potential time savings into revenue). Even with such a significant reduction, the facility can still generate $200,000 or more in additional revenue over the 3-year ROI period. This estimate factors in just one additional CT examination per day, multiplied by an average net collected technical fee of $250.
Increased Professional Fees
It is also critical to factor in radiologists’ professional fees if the radiologists are not contracted employees of the facility (as seen in many teaching institutions). These fees can easily add another 35% to 40% to revenue projections, helping the PACS investment show a much quicker ROI than would be seen in a model that excluded them. If the scenario is that of a group-owned imaging center, the $125 professional fee for the radiologist’s interpretation of each CT can be added to the projection, for example. This adds $100,000 to the cost model. Reimbursement will obviously vary based on the region of the United States involved and the patient mix, but these estimates should give good approximations of some of the monies that can be generated through PACS use. The practice should also keep in mind that this $300,000 ROI includes only a single modality; it can (and should) be expanded to include additional CT units, MRI, ultrasound, and even nuclear medicine. Over a 3-year period, the facility should easily be able to show an ROI of between $600,000 and $800,000, and that figure does not include tangible savings from decreased film, jacket, and related costs.
It is important to find out the average number of slices per examination and the filming format used. Many facilities have changed protocols recently, doubling (and, in some cases, even tripling) the number of slices taken per examination. This is especially critical with ultrafast CTs that easily generate 800 to 1,000 slices per study. Film costs can also be deceiving. An 800-slice CT study printed in a 20-on-1 format averages $55 to $60 per case in raw film costs alone. Even regular CT studies can generate between $15 and $25 in film costs. This assumes that standard, wet-process laser film is in use. If the facility has a dry laser processor, as many now do, it needs to make sure that it factors in at least an additional 30% to 35% in film costs, more than offsetting the standard 10% to 12% typically factored in for processor maintenance. Even a moderate-volume facility will spend between $175,000 and $225,000 per year in CT, MRI, ultrasound, and nuclear medicine filming costs, and larger facilities can easily double and triple those costs. Failing to factor in the cost difference between wet and dry film can also leave as much as $200,000 on the table over the 3-year ROI period, and that may mean the difference between selling PACS acquisition to the administration and failing to do so.
Related Cost Savings
There are other costs that also need to be factored into any business case. Folder and subfolder costs often exceed $4 per case, with anywhere from 40% to 50% of a facility’s annual volume of cases requiring new folders. This creates another huge payback opportunity for the facility. Even at a site that generates only 30,000 procedures per year, this can mean an additional $200,000 in savings over a 3-year payback period.
The elimination of repeat filming costs can also be considered as a benefit of PACS, with film costs secondary to the time (and patient inconvenience) required to repeat an examination. Again, the fact that a facility has PACS (including computed or digital radiography), allowing images of consistently high quality to be generated and viewed before a patient is released, can also be used as a marketing tool.
One of the often overlooked areas relating to PACS is billing. Radiology groups, especially hospital-based practices, frequently bill payors based on copies of the signed reports or need to wait until a billing tape can be generated. Often, reports will take anywhere from 12 to 24 hours (or longer) to be signed before they are brought to the business office to generate billings. This presents two major challenges. First, billing against completed signed reports is very labor intensive and paperwork intensive. Second, the cost of the loss of even a single radiologist’s billings for just 1 day can easily exceed $10,000. Taking that number and multiplying it by the number of group members whose billings are affected when a billing envelope is lost yields a significant sum of money to deal with, not to mention the difficulty of trying to reconstruct the entire day’s billings, (that is, if the missed billings are even caught by the group’s billing department).
?Procedural billings are another affected area. If only 1% of all procedures done in a facility are lost to billing and the hospital bills payors for $25 million per year, a full PACS can be paid for through the prevention of unbilled procedures alone. The reality of billing is that between 2% and 5% of all procedures either go unbilled or carry the wrong diagnosis code. That has a dramatic impact on the bottom line.
Benefits of Integration
A well-integrated PACS may also use electronic signature (part of the integrated radiology information system) to reduce report turnaround time significantly (to only minutes). Turnaround time can further be reduced through the integration of voice-recognition systems, although most systems still require at least two text editors if radiologists do not want to edit their own reports. Voice recognition also has a significant impact on the number of transcriptionists used by facility, reducing the number of transcription-related FTEs by 90% or more. Unfortunately, voice recognition is not considered a part of PACS directly, even though it is often used in conjunction with a PACS implementation.
One other area that needs to be addressed is the ability of PACS to match completed procedures with reports, integrating many of the technologies already mentioned. With the recent crackdowns by Medicare on report fraud and abuse, many facilities are taking extra steps to ensure that each procedure for which a payor is billed is accompanied by a signed report and, conversely, that each signed report is associated with a procedure billed to a payor, as well.
The last two areas of concern are important, yet are surprisingly difficult to quantify. Storage space is one of the prime reasons cited for PACS, but over the 3-year ROI period, PACS will have an impact on less than 30% of the overall storage space allocated for films. Because record-retention laws vary from state to state and space in a hospital is usually extremely limited, many facilities are using off-site storage (with courier services) for films that are more than 2 years old. The cost of these services would be eliminated by an on-site digital archive. Facilities that store films on site when they are between 2 and 7 years old typically store them in areas that would not be recoverable, in terms of usable space, due to their location (anywhere from the parking garage to the basement). What is recoverable is the space used in the main department for films, which typically holds from 6 months’ worth to 2 years’ worth of films. This may be 40 m2 to more than 400 m2 depending on the facility. The value placed on this space savings varies by facility and can be calculated either by using an internal annual space rate, charged back to the department, or the cost of new construction.
Medicolegal reasons for using PACS round out the major areas to consider in a business case. There can be no value attached in this area, yet if films required to back up the defense in a malpractice suit cannot be located, it can have a devastating impact on the case. It is estimated that between 4% and 10% of all films in a hospital are lost or misfiled, and up to 5% of all films can be considered permanently lost. If a film is required to back up a diagnosis and cannot be located, the legal case of the radiologists or clinicians can be severely affected.
The business case for PACS is complex, taking into account tangible and intangible benefits, competitive and reimbursement issues, and a complex host of what-if scenarios that need to be explored if PACS is to be justified and accepted (and if it is to meet the expectations for it set forth by the facility). If everything is looked at closely and examined in the right light, the case should be open and shut in favor of PACS .
Michael J. Cannavo is president, Image Management Consultants, Winter Springs, Fla, [email protected].