| |||||||||||||||
|
Home
|
For other articles and previous issues click here. October 25, 2004 Adding
Service PET is finding its way into communities of all sizes and locations, but its expansion from large academic centers didn’t occur without a hitch. Some early adopters leapt before they looked and paid a hefty price in equipment and associated costs before they found patient bases that would provide a return on investment. Many who rushed into PET services overestimated initial procedure volumes and underestimated the need to educate their referring bases, explains Randy W. Skiles, CEO of Shared PET Imaging, LLC. These early PET users, he adds, had felt the modality’s growing pains. Some lost millions. The industry’s vendors and isotope providers have since banded together to get the word out about what PET can do for patients and the facilities that offer it to their patients. Thanks to the lessons learned from early adopters and to a range of financial models available for implementing this costly technology, more hospitals, imaging centers, and provider groups than ever before can offer PET imaging services at different points on a continuum of risk and reward. Also, the recent rise of PET/CT affects this risk/reward calculation. Purchasing a PET scanner can set an organization back from $1.5 to $2.5 million in capital costs alone. Added to that high-ticket price are staff and operational costs that can run as high as $1 million annually. Risk and Reward According to Skiles, reports suggest that few facilities have the volume of PET procedures necessary to break even if they purchase and operate the equipment themselves. But that needn’t stop facilities from offering their patients PET services. Contracting with mobile PET providers, explains James Rawson, MD, chief of radiology service at the Medical College of Georgia, allows a very low-cost entry into the field along with a very limited risk. Some mobile providers may offer daily or monthly rates, while others contract on a per-scan basis. According to John McAuley, North American director of nuclear medicine sales for Philips Medical Systems, a day rate may be approximately $5,000, and a per-procedure rate might cost in the neighborhood of $1,000. The mobile providers’ fees usually cover the cost for the equipment, technologist, isotope, film, and other supplies. “You would [typically] buy a day’s worth of mobile services or you pay a flat fee per patient,” Rawson says, “and then you would make your money on volume, billing the insurance company and getting whatever margin there is between the mobile company’s flat fee or daily rate and the insurance company’s [facility] reimbursement, plus the professional fee.” At a minimum, experts insist, the hospital or center receiving the PET services would want the reading fees, and so typically the on-site radiologists would read their own patients’ images. The disadvantage, Rawson notes, is that you have very limited revenues because the majority of the reimbursement is actually on the facility fee, not the professional fee. However, says Darrow, “it generally goes a little deeper because if the hospital was receiving only the professional component—the radiologists’ charges—it wouldn’t make a lot of sense financially for them to enter into that relationship.” In this competitive market, he says, anyone who wants to offer PET services will typically call from three to five potential PET mobile vendors and negotiate. “At the end of the day, whoever provides the best package as well as the services at the level that the hospital expects will typically win the deal,” Darrow says. Negotiating Fees Mobile providers would prefer that you contract for a longer period of time, but negotiation is possible, agrees Rawson. “If you own a mobile PET scanner and you have four days a week covered and a fifth day unfilled, if you could fill that fifth day with an existing driver and get revenue for those additional days, you’ll take the days. If, on the other hand, you’d have to hire a new driver and a new technician and have to guarantee them income for a while, you make not want to take that risk for a hospital or facility that is only contracting with you for six months.” Starting Point Unless the mobile provider insists on a guaranteed minimum number of procedures using the fee-per-scan arrangement, the hospital management needn’t worry that they’ll have to pay for something they’re not using, explains Skiles. “Because of the low capital outlay and limited risk, it’s relatively easy then to enter the PET field,” says Rawson, adding that the potential financial rewards, of course, are more modest than those that come with ownership. Still, says Skiles, “for a hospital with 400 or fewer beds, it makes good sense for them to use a mobile provider until they can educate their physicians, the patient base in and around their market, and assess the value that PET brings to their facility.” Until they’re at the point at which their procedure volume can cover the cost of ownership, the mobile option allows facilities to provide service and prevents patients from going elsewhere with little financial risk to the facility. Joint Venture Joint ventures can take a number of different forms. The variation, says Darrow, is in the proportion of investment dollars and support each party contributes. Often, says Rawson, venture capital companies and other finance companies will buy the machine, take the responsibility for construction and equipment costs, as well as maintenance and operation, and take the majority of the profit. Explains Darrow, “If a hospital wants to joint venture, for example, with a mobile provider, the latter may bring in cash to assist in the purchase, technologists to assist with the actual running of it, and provide the billing and coding, and other aspects in order to successfully capture the revenue for that business.” Says McAuley, “You may not have full ownership in it, but for every procedure that’s being done, you’re keeping more of the money than you would by contracting with a mobile provider. You’re not completely eliminating your risk, but you’re minimizing it, and you’re sharing more of the upside.” Both parties, says Skiles, have to be comfortable that the volumes are going to be sufficient to pay for the equipment and its operating expenses. This is especially true, says McAuley, because if you enter into a joint venture, “you’re in it for the duration. You don’t have full ownership, but you have ownership. You can’t just walk away if it isn’t working.” When joining forces with another entity to provide PET or PET/CT services, look for more than deep pockets, advises Darrow. It’s crucial, he says, to go into a joint venture with partners who have a proven track record of being able to provide these services successfully. “There are a number of organizations across the country that may have as many as 10 imaging centers under their belts. They overview the management; understand the marketing principles behind making a PET center successful; and all the minutia of billing, coding, and regulatory issues. They know how to make a good, profitable PET center,” he says. This expertise is especially critical when it comes to marketing. “Everyone makes good PET/CT equipment,” concedes Darrow, “but there are some centers that are doing in excess of 25 PET studies a day, and others that are doing three a day. The difference between two and 25 is really successful marketing and working with the local community, so you really need to understand what the joint venture relationship will bring in the way of successful marketing and understanding the PET/CT environment.” Control Issues Leasing and Purchasing A more common practice is leasing—another “hybrid” approach that allows you the option to buy the equipment after the term of the lease or to upgrade to newer equipment. Through leasing, says Rawson, a facility or center can “finance PET in the same way one would mortgage a house—you have the house but the bank really owns it, and that allows you to spread your capital investment over several years.” At Siemens, says Darrow, approximately 70% of the company’s equipment is leased to make it more financially feasible for those who wish to provide PET services and somewhat lessen the risk. Lease contracts typically run five years but are customized to the individual requirements of the customer, he says. The benefits of leasing, however, tend to come down to tax issues. The tax consequences of amortizing that equipment over seven years doesn’t always make sense. Furthermore, “as manufacturers, we try every year to come out with something newer, bigger, and better, so ownership doesn’t always make the most sense. At the end of a lease period, you can roll over to what equipment is current at the end of the lease and always stay current with technology,” he says. As another potential benefit of leasing, Darrow points to the rapid evolution of PET/CT equipment and suggests that facilities that purchase equipment might find themselves seven years down the road with a “piece of hardware that’s essentially not competitive in the clinical marketplace any longer.” Many financing experts agree that not getting stuck with obsolete equipment is a sound argument for leasing. As with any lease, look carefully at the terms, which sometimes conceal interest rates that are often well above market rate. But like anything else, these rates may be negotiable. The most potentially profitable way to offer PET services is to purchase and operate your own equipment and reap the entire profit. But you also bear all the cost and risk. Using a mobile provider or entering into a joint venture allows facilities a safety net. The advantages of purchasing the PET scanner, says Rawson, is that you keep the technology fee and professional fee because you own the equipment outright. The potential disadvantage, of course, is that it requires a several-million-dollar investment, including renovation, construction, and installation; supplies; staff; training; and maintenance and operating costs. If you don’t generate enough procedures to cover those costs, the losses are yours alone. And purchasing the equipment is just the beginning, insists Skiles. Once someone purchases the technology, he says, “they have to access the best technologists and constantly keep them trained and improving their skills, and they have to continually educate the radiologists and help them in turn educating their referring bases.” Do Your Homework Explains Darrow, “When we help people determine financial models and explore the feasibility of purchasing a system, we look at somewhere near five procedures a day as a reasonable break-even point.” That number, he says, can be even lower if you’re using PET/CT and will utilize the equipment for dedicated CT work as well. “If my facility were doing five or six procedures a day,” says McAuley, “I wouldn’t hesitate to buy a PET/CT unit. You’d be doing very well if you’re doing 30 procedures a week. You’re going to be very happy to have a PET/CT.” Clearly, the first step for hospitals or centers considering offering PET services is to do a great deal of homework, take numerous site visits, and explore the operations from each angle. As with any other business decision, says Darrow, you have to determine the demand for local service based on populations and competitive pressures. Run financial projections based on volumes greater and less than what you project; look at the financial impact of providing fewer exams—by both a little and a lot—than you budget. The option you choose, says Rawson, really has to do with your comfort level and ability to accept financial risk and anticipated procedure volume. If your research projects that the initial patient will be small and won’t pay for the service, then it probably makes sense to pursue the mobile option at first. When your volume builds, reevaluate joint ventures, buying or leasing equipment. — Kate Jackson is a staff writer for Radiology Today.
Few hospitals in the United States are busy with PET now, McAuley says, so they could do their PET/CTs in the morning and then use that multislice CT scanner for the rest of the day. Offering PET/CT increases your purchase price, agrees James Rawson, MD, chief of radiology service at the Medical College of Georgia, but it thus also adds some additional revenue from diagnostic CT. Facilities, he says, can upgrade their existing CT scanner to a PET scanner. “It’s an expensive upgrade, but even if they have a low-volume PET operation, they’ll still have a piece of equipment that generates revenue with the other tests that it does.” One downside, he explains, is that at this point, there’s no additional reimbursement for PET/CT over PET alone. — KJ |
 |
|
3801 Schuylkill Rd • Spring City, PA 19475 Publishers of Radiology Today All rights reserved. |