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For other articles and previous issues click here. October 11, 2004 Diagnosing
“Hidden” PACS Costs Film, data storage, IT infrastructure, and remote viewing capabilities for referrers often aren’t accounted for when planning PACS purchases. One of the major allures of “going PACS” is the cost savings reputedly generated. However, early adopters were dismayed when hidden costs and unanticipated expenses bit large chunks out of those savings. The actual hardware and software turned out to be the least expensive part of PACS. A poster presentation at the 2004 American Roentgen Ray Society meeting depicted the situation pretty well. Developed by Arra S. Reddy, MD, and colleagues from Beth Israel Deaconess Medical Center and Harvard Medical School in Boston, the poster examined installations from 1993 to 2003 and delineated budget-variance analyses of departmentwide implementations, revealing the additional costs that impacted savings. These additional expenses—including film services, information systems, and storage costs—combine to make the savings much less than originally projected. However, as PACS continues evolving, better awareness of those costs and careful preplanning by customers and service innovations developed by vendors have helped rein the untamed beast. In addition, as early adopters move into second- and even third-generation PACS, buyers are more experienced and savvy to the financial pitfalls. “Now that PACS has become more mainstream, you don’t hear the kinds of horror stories you once heard,” reports Peter McClennen, global general manager of imaging and information systems for GE Healthcare of Waukesha, Wisc. “The early adopters learned the hard way,” agrees Antonio Garcia, industry analyst of medical imaging for Frost & Sullivan, the global consulting organization. “They’ve learned what to expect when they’re coming up for a major PACS migration or a major installation.” But Garcia adds that some cost-associated problems still exist as the market spreads to smaller facilities. “The customers at the midsized community hospitals still may not be completely aware of what all is involved, such as infrastructure upgrades,” he says. “But I see that as the role of the vendors. They really should be telling them exactly what they need to do, whether it’s a network upgrade to their LAN [local area network] or custom integration work with their existing RIS.” McClennen says vendors increasingly shoulder that responsibility. They’re willing to do a lot more things up front because they don’t want an unsuccessful installation. “That would be a black mark on us,” he comments. At GE, for instance, company representatives stress readiness assessments. These involve, among other elements, a modality review to determine what additional costs might be incurred upgrading modalities to DICOM standards and a network assessment to estimate the complexity and cost of making your network meet PACS requirements. Assessments also involve determining a site’s readiness at a cultural level. “We do a project management review before we finalize any PACS deal,” McClennen says. “We actually step through the project so the customers realize what it entails. The project side can be the largest, most complex piece if the customer is not ready for something of this magnitude.” As part of this, GE places great emphasis on project teams. If GE finds that a customer doesn’t have a team in place, it will include project consulting as part of the service. “If the customer isn’t prepared on the project side, the return on investment [ROI] can be difficult,” says McClennen. Unrealized ROI has generated much of the customer dissatisfaction. That problem is giving way to better project preparedness and new vendor approaches. “Generally, with good management and a vendor that steps up and goes beyond what they need to do for the customer, you’re seeing more successful installations,” notes McClennen. Beyond the Department Initially, most people underestimated PACS’s impact outside of radiology, says Matt Long, vice president of marketing for Stentor, a developer of medical image and information management systems located in Brisbane, Calif. “That is probably where the burden of unanticipated costs fell,” he says. “Those who bought PACS who were only focused on radiology became very surprised when they found it had enterprise problems. It doesn’t help the institution to go filmless in radiology if they still have to print copies of the film and still have problems getting that film to [the emergency department]. The larger issue was not what they had to do inside of radiology but how take PACS outside of radiology.” Now, PACS is recognized as the enterprisewide proposition
that it is. Not only has customers’ vision been enlarged,
so has the vendors’. Many vendors tended to use a “one-size-fits-all”
approach, where all facilities could be fitted with the same solution.
Obviously, different facilities have different styles, budgets,
and cultures, and therefore have different needs. As PACS becomes
more mainstream—spreading out to the midsized institutions
and radiology centers—the more personalized approach is taking
hold. This change tends to reduce inaccurate cost estimates and
blown budgets. Planning Ahead “We include software obsolescence because PACS isn’t a piece of equipment that you can replace easily,” explains McClennen. “With a PACS agreement, you enter into a much longer-term arrangement in that all of your data and workflow is preserved. The key to that arrangement is that the customer is going to be in continuous technology evolution. With software obsolescence, they always get the new software to meet new modalities. More important than that, since PACS is such an important clinical infrastructural system, it needs to run 24/7, so you need a 24/7 support.” Problems Customers are suddenly faced with the prospect of rebuilding an entire infrastructure to support an enterprisewide system. The common response is to sacrifice, or diminish, your expectations, so to speak. “Instead of 20 workstations, you try and get away with 10,” says Long. “But when you do that, you take the equipment out of the equation.” So, what typically happens is that the hospital ends up buying the bare-bones system. Much more is needed but can’t be afforded, and the system tops out after six months. “The hospital is stuck with this large upgrade capital investment,” says Long. “The economics of the whole system, the way it is presented, really puts the vendor and customer at odds with each other. Everyone starts sacrificing. No one is happy.” As a solution to this, Stentor’s service includes placing diagnostic quality image capability on every PC without forcing an institution to revamp its infrastructure. Stentor’s solution is one example of how vendors are developing new strategies to help accommodate customers and reduce ongoing PACS costs. Another way is through developing new service delivery models, such as the fee-for-service model, which Garcia suggests is helping to bring PACS into the smaller settings, such as community hospitals and imaging centers. “Otherwise, a lot of those facilities wouldn’t have been able to afford PACS,” he says. Purchase Options Long explains the advantages of such a contract: “The fear for every customer is that once a vendor has received the check, they’re gone. They’re chasing the next deal, and you’ve lost all leverage. But with our service delivery model, customers pay us in real time—that is, as they are performing studies. If it is a five-year agreement, the only money we receive is up to the point where we are in the five-year term. If they do 10,000 studies a month, then for each month they pay us for 10,000 studies. If you pay $5 million up front for PACS, then you’re locked in. But in a real-time service delivery like ours, we are aligned with our customers. It’s peer to peer.” Terry Trierweiler, business unit executive for IBM Global Financing’s medical equipment financing arm, says the fee-for-service model adds a great deal of variability to the equation that makes it hard to forecast ultimate costs. “In some cost-per-study models, there’s a fixed portion that is agreed upon, and it is usually 70% or 80% of the anticipated costs of the products and services,” she says. “Then there’s a variable portion that allows the institution to pay on a sort of on-demand model, so they ramp up or ramp down as their business ramps up or down. So that is a variable portion of the payment.” She sees more and more customers leaning toward a leasing arrangement, for several reasons. First, some customers are getting more comfortable with the idea of not owning the equipment. They see equipment as a technological asset that needs to be replaced periodically. Also, they find the rates more attractive than tax-exempt financing or outright purchase options. “Customers recognize that equipment has technology cycles and probably won’t be pertinent for all five years of a contract. They’ll think about swapping out certain elements of the PACS solution during the typical five-year life cycle,” she says. IBM Global Financing offers both pure financing, where the customers own the equipment, as well as leasing, where IBM keeps ownership and the customer uses equipment for a period of time. GE Healthcare offers capital purchase, leasing, and fee-per-study options. Eliminating Surprises “Most of the problems you’re talking about only become a problem if they come to you as an afterthought,” says Long. “But if you incorporate it into your preplanning, they don’t become problems.” “PACS isn’t something you just dive into,” says Garcia. “It should take at least a year of committee work.” — Dan Harvey is a freelance writer based in Wilmington, Del. He is a frequent contributor to Radiology Today. |
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