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This report originally appeared in the April 2009 issue of DOTmed Business News

January 1, 2007 was an infamous day for the CT industry and in many ways the beginning of a new era.

That date initiated cuts in Medicare reimbursement for imaging studies at free-standing radiology centers as a result of the Deficit Reduction Act (DRA). Also at that time, the reimbursement rate for cardiac computed tomography angiography (CTA) was slashed in half or more, depending on the rate and region. As a result U.S. sales of CT, which had risen dramatically, came down from a spike of about $1.8 billion in 2006 to just over one billion in 2008.

"That's a fairly significant drop but the market was very highly accelerated before that. The stable range is probably $1.2 or $1.3 billion per year," said Doug Ryan, Senior Director, CT, Toshiba America Medical Systems. "You need to constantly be flexible and change your business. In the U.S. there has not been one year that is the same as another," he observed.

This unpredictable climate is worsened by the economic storm, uncertain federal regulatory shifts, concerns about the overuse of medical imaging, clinical issues of radiation dose exposure, and the potential reform of the U.S. health care system.

These factors leave hospitals and imaging centers more focused on the bottom line than ever. Some practice models just won't make it. Others are postponing equipment investments.

"The way the economy is going right now, we're seeing a trend of more small imaging centers shutting down. Small centers don't fall under the same Medicare reimbursement arrangements that large hospitals do," said Larry Knight, Chief Operating Officer, Sunrise Medical Technology, Inc., Waxahachie, TX. Reimbursements that had been over $1,000 per study a few years ago have been trimmed to about the $300 range. "So their entire business model was based on higher numbers. CT in many cases is a loss leader, a device put in the center not as a primary source of revenue, but as a device that must be there to maintain their status overall."




Prices on new CT scanners have come down and manufacturers have come up with smaller systems that are more affordable, as well as with scalable solutions. These don't require as great an up-front investment but can be upgraded over time. An example is the Philips Brilliance iCT flagship and its offspring, the Brilliance iCT SP, priced about 20% lower. "The major difference is a smaller detector size compared to iCT," said Peter Reimer, Vice President of Global Marketing, Philips Healthcare. "The detector is an exchangeable unit that could grow with future needs. iCT SP meets a lower price point and meets the need for a secure investment into the future so the product is not outdated in two, three or four years."

The bottom line for CT is not just its reimbursement rate but the growth in procedures that now top 70 million per year. While the rate of growth has slowed to about 7% from double digits three years ago, that's still not too shabby. The OEMs told DOTmed Business News that they anticipate the markets should unfreeze in the second half of this year.

Regarding access to capital, which is a challenge of our current economic crisis, it bears noting that Philips Healthcare provides financing through Philips Medical Capital, a joint venture with AAA-rated Dutch bank De Lage Landen.

As for long-term trends, watch for forthcoming clinical studies on the effectiveness of CT in applications such as CT colonography, which suffered a setback in February when Medicare said it doesn't want it covered. (Note that the final rule was not out as of this writing.) CT as a modality is in need of a "killer app" like virtual colonoscopy that is routinely used for widespread screening in the healthy population. Another example might be screening symptom free smokers to spot early lung cancer. Meanwhile, cardiac and ER remain important applications for CT and evidence of effectiveness is mounting.




Mixed Signals on Third Party Impact
Fewer new scanners are being sold, and those that are sold may suffer from a reversal of recent slice wars. "People are being very cautious, measured and calculating," said Greg Kramer, President, C&G Technologies, Inc., Jeffersonville, IN speaking of CT comparison shoppers. "People are asking - do I really need a 64-slice CT? They may say a 16-slice is just fine." Providers may not be able to do a cardiac exam on a 16-slice machine, but for common applications like chest or spine it does the job. "There are also hospitals that never considered buying refurbished equipment before and are now doing it," Kramer said.

"People were waiting till after the election and to see what happens with the economy," said Robert Serros Jr., President and CEO, Amber Diagnostics, Orlando, FL. "All industries took their foot off the accelerator. Now people are revisiting their capital expenses and looking at refurbished equipment without a doubt because they have to." Conservatively, purchasers can save 30% and often much more, by opting for used equipment. As an example, one independent company reported that a new 16-slice CT that goes for $500,000 can sell for $175,000 used on the open market. "Reimbursements always play a large role in driving the market, but the recent economic downturn has only served to make our business model more attractive," said Greg Mullen.




Tips for Hospitals from Third Party CT Service Providers DOTmed Business News regularly polls independent service organizations (ISOs) about medical technology trends. Here is some advice from third-party companies about CT purchase and service decisions.

Pre-owned equipment is always going to provide a cost savings, and leasing versus buying offers the flexibility of upgrading your equipment sooner rather than later. This allows a facility to provide current technology without significant capital expenditures. -Greg Mullen, Vice President, ADM, Elmhurst, IL

Do not sign multi-year service contracts you can't get out of. Look for third-party service. Keep your equipment another year. Don't let doctors make decisions about spending your money just because they want a new scanner. Make them justify the purchase by ROI and patient care improvement.
-Bill Blackford, Vice President, CTronics, Stockton, CA

Hospitals and imaging centers should call their local colleagues before doing business with any company. Before buying any equipment check to find out if what you are buying has a proprietary X-ray tube or requires proprietary software for servicing.
-Frank Pontillo, Imaging Director, Engineering & Network Systems, Inc., Pembroke Pines, FL

Ask how long a third party has been in business and get referrals. Anybody can sell a piece of equipment. If you give someone a warranty and in the last week of that warranty a major part goes out, are they going to be there? Do a background check.
-Robert Serros Jr., President and CEO, Amber Diagnostics, Orlando, FL

Make certain that the company you are contracting to deinstall has experience not only in the deinstallation and rigging of CT but in the specific OEM type. For instance, you may have a company with experience in Philips CTs but if you have a Siemens that needs to be deinstalled, there are specific differences and requirements. Due diligence is the rule of thumb. Identify a good dealer that has a longstanding reputation of representing what they sell. DOTmed can be a valuable resource here.
-Larry Knight, Chief Operating Officer, Sunrise Medical Technology, Inc., Waxahachie, TX

Listen to more than talk. You are investing in something you will have for a number of years and is a critical component. Visit the service provider's facility. It might take a day out of your schedule but it is a day well spent. Can they do emergency repairs? Do they stock parts? What about tracking and record keeping? Evaluate the support network. If you have a major disaster with your machine and whole gantry needs to be replaced, can they take care of it? Your reputation is riding on your CT.
- Greg Kramer, President, C&G Technologies, Inc., Jeffersonville, IN
Vice President, ADM, Elmhurst, IL.

"Our primary market originally was more rural areas or clinic settings but we are starting to receive more attention from larger hospitals in urban locations." Nevertheless, the economy hurts everyone and most third party companies report steady or somewhat slowing sales. "The OEMs need to maintain a competitive advantage in the marketplace and are dropping prices on those brand new CTs installed with a warranty, driving prices on used equipment down even lower," Knight said. "To be competitive, a used piece of equipment must be significantly lower in cost than what that OEM can offer in new equipment. So the OEMs are really bringing a competitive edge into the marketplace making it tighter for third party market groups."

Another challenge for independent is that, with fewer units sold, fewer pre-owned scanners are coming on the market, reducing inventory for re-sellers. "There is a tougher time sourcing. But some of the slack is taken up by people going out of business," explained David Denholtz, CEO, Integrity Medical Systems, Inc., Fort Myers, FL. It seems that imaging center closings are a trend that off-sets the demand for sales. "Centers are consolidating or not replacing equipment. Some customers with three or four centers are going down to two or three centers. When nobody is buying new, there are not as many used scanners, but then again fewer people are buying used scanners, so it evens out." "The market has slowed down somewhat. Many hospitals have frozen their capital budgets for this year and maybe longer depending on what legislation is forthcoming. Access to pre-owned scanners is becoming more of a challenge," noted Bill Adkins, President, National X-Ray Corporation, Palmetto, FL.

Service Dominates as a Priority for OEMs, ISOs
In times when sales are suppressed, service becomes more important as providers keep the installed equipment operational. And service of this sophisticated technology doesn't come cheap. "The lifecycle costs over a piece of equipment like a CT scanner is almost half the price of a scanner.

You are typically selling the [new CT] in the million dollar-plus range and the service contracts can be $130,000 to $200,000 per year," said Ted Nemetz, Vice President of Service, Toshiba America Medical Systems. "Operating costs may not meet that so we have to be more creative and flexible on the service side to wrap the deal together for the customer." Toshiba, with nearly a 90% capture rate for service contracts on its equipment, enjoys an impeccable reputation in the marketplace with top rankings for service from major research firms. Its line of Aquilion CT scanners has not been in the market long so that few third parties are servicing them and few are available for re-sale. "We don't have that many out there," Nemetz said. "It's like a Toyota Corolla thatkeeps running."

While Toshiba would not tell us how many service engineers it employs, it was clear that the quantity and coverage they hold, as well as its quality are big reasons for the high service ratings. But hospitals are cutting corners here, too. "Many clients are choosing to modify or reduce their service contract coverage on CT to a bare minimum and put greater focus on the [other] modalities that generate the revenue," Knight said.

OEMs and service companies offer a range of contracts from full parts and
service including the pricey X-ray tube, to a partnership deal where the hospital biomedical staff assumes some risk, down to a time and materials bare bones contract.

Preventive maintenance is critical and must not be skipped. ISOs suggest that the OEM general requirement for quarterly PM is a minimum standard. "You MUST keep a good eye on the rotate brushes and rings. X-ray tube dielectric oil must be checked; oil fans and filters cleaned. If a PM is done only four times a year as many OEMs recommend the mechanical systems must be inspected," urged Sal Aidone, Vice President, Deccaid Services, Inc., Deer Park, N.Y.

CT: A "Green" Machine?
You may not think of a CT scanner as part of the solution to the world's environmental challenges but the industry is doing its part. Both ISOs and OEMs have programs in place. For example, ISOs pride themselves on recycling equipment back into the marketplace, an inherently conservative business. "Any reprocessing has a benefit," said Serros. "We also chop up machines for parts and scrap metal. A recycler separates the metals by type after we take out the major components." But the best way to save the planet is by design, which the OEMs are pursuing in their equipment.

"A lot of our heritage comes from Western Europe, which tends to be more progressive in terms of sustainability and 'green' initiatives. That has an impact in our product roadmap today," said Jason Plante, Director of CT Product Marketing for Philips Healthcare. He explained that lead is a common metal used in imaging equipment to block radiation, but the X-ray tube in the Brilliance iCT is the industry's first "green" glassware since it contains no lead.

"We had a breakthrough in using more environmentally friendly material to safeguard the radiation inside the X-ray tube. That is an area of focus and concern," Plante said. Outside the U.S., Philips must comply with stiff global environmental standards to reduce hazardous substances. "The same products will be offered in the U.S. so the U.S. will benefit from European trend-setting in environmental policy."

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DOTmed Registered CT Equipment Sales & Service Companies
Names in boldface are Premium Listings.

Domestic
Carl Frank, DBRS Medical Systems, Inc., CA
Dotmed Certified
Rick Stockton, Atlas Medical Technologies, CA
Dotmed Certified
Steve Foos, IMAG, Inc., CA
Mike Guthleben, Radiology Oncology Systems, FL
DOTmed 100
Bill Blackford, CTronics, CA
DOTmed 100
Steve Gregson, Sage Point Transport, LLC, CA
Chris Ash, Scanworks, CO
Scott Carson, Med1Online, CO
David Denholtz, Integrity Medical Systems, Inc., FL
DOTmed Certified/100
John Pereira, United Medical Technologies Corp., FL
DOTmed Certified/100
Alex Clavijo, Diagnostic Medical Equipment Solutions, FL
Robert Serros, Jr., Amber Diagnostics, FL
Bill Adkins, National X-Ray Corporation, FL
DOTmed Certified
Frank Pontillo, Engineering & Network Systems, Inc., FL
Len Spooner, MagnaServ, Inc., FL
Heather Funk, Dunlee, Inc., IL
James Gallagher, LG Medical Technologies, Inc., IL
Greg Mullen, ADM, IL
George Webb, Mobile Scan Imaging, IL
Mike Ghazal, Zetta Medical Technologies, LLC, IL
Charles Gauthier, Imaging Services, IL
Ronald Moore, R & D Imaging, Inc., IN
Greg Kramer, C&G Technologies, Inc., IN
DOTmed Certified/100
Davyn McGuire, Med Exchange International, Inc., MA
DOTmed Certified/100
Wayne Horsman, Columbia Imaging, Inc., MD
Jeff Rogers, Medical Imaging Resources, Inc., MI
DOTmed 100
Susie Vestevich, Xoran Technologies, Inc., MI
Jason Crawford, Block Imaging International, Inc., MI
Jim O'Rourke, L.J. Technologies, NJ
Robert Manetta, Nationwide Imaging Services, Inc., NJ
DOTmed Certified/100
Joseph Jenkins, International Imaging Ltd., NV
Sal Aidone, Deccaid Services, Inc., NY
DOTmed Certified
John Kollegger, Bay Shore Medical, LLC, NY
Peter Reimer, Philips Healthcare, OH
Gilberto Mangual, ImageTek, PR
Trey McIntyre, International Medical Equipment and Service, Inc., SC
DOTmed Certified/100
Marshall Shannon, Image Technology Consulting, TX
DOTmed Certified/100
Michael Webster, Legacy Medical Imaging, TX
Courtney Lane, Innovative X-Ray Services, LLC, TX
Larry Knight, Sunrise Medical Technology, Inc., TX
DOTmed Certified
Cliff Hess, Texas Medical Mobile Services, TX
Jon DeRoost, Beacon International, WA

International
Horacio Jose Gomez, VCG Imagen SRL, Argentina
DOTmed Certified
David Lapenat, ANDA Medical, Inc., Canada
DOTmed Certified/100
Abdelrahim Khalil, Besisc, Egypt
Paulos Hailu, Diverse Electromedical, Ethiopia
Florian Dickopp, Medicopex GmbH, Germany
DOTmed Certified
Bippon Gupta, Masters Medical Equipment Pvt, Ltd., India
Abdul Radjak, PT Alkeslab Primatama, Indonesia
Rami Marom, Elsmed Ltd. & Relaxation, Inc., Israel
DOTmed Certified/100
Fusako Hashimoto, Fair Medical, Japan
Borham Kalash, Memco, Syria
Imad Muati, IMC, Syria
Ahmet Guner, Ekolab Lab ve Bilgi SisTic Ltd., Turkey
Ralph Childs, G-Tech Medical Services, United Arab Emirates
DOTmed Certified/100
Jose Morillo, J. Morillo Sistemas Biomedicos, Venezuela

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