This article is from in the April 2008 issue of DOTmed Business News. A list of registered users that provide sales & service can be found at the end.

Computed tomography (CT) is a multi-billion dollar worldwide market, with more than 60 million CT procedures performed each year in North America. "This year," predicts Kerry Tucker, Vice President of Supply Chain Services for group purchasing giant Broadlane, "roughly 41 percent of hospitals will be purchasing a new CT."

But it's a different story for the free-standing imaging centers. DRA reimbursement cuts by Medicare for imaging procedures done outside of hospitals are taking their toll.

Some centers are consolidating, with others in bankruptcy or closing, industry experts have told DOTmed Business News. Fortunately a proposal to cut Medicare reimbursements for most CT angiography (CTA) has just been rejected by the Centers for Medicare and Medicaid Services after an outcry from physician groups.

The CT procedure growth rate is down in recent years. "With the impact of DRA reimbursements and radiology benefits management [which determines payment from insurers], the procedure growth rate will taper off to 7% [yearly] as opposed to the 10 to 12% rate we had seen in the past," said John Steidley, Vice President of Marketing for CT, Philips Healthcare, Cleveland, OH. "Over the past year and a half we have seen the market come down significantly in North America. We still see the market growing globally but in North America there's been a significant market correction."




Some recent good news for CT is that the American Cancer Society, American College of Radiology and other medical groups have endorsed CT colonography or so-called "virtual colonoscopy" as a front-line screening for detecting colon cancer, the third most common cancer and second leading cause of cancer deaths in the U.S.

"Multi-Slice Envy" a Common Feeling

Over the last decade the race to acquire ever-higher-slice CT scanners has escalated from 4, 8, 16, 32, 64, up to 256. In the face of ever-changing technology, it appears that healthcare providers are beginning to settle into the level of technology that works for them - that is to say, if you're not doing angio CT, do you really need a 64-slice - or higher -machine?

"In CT and almost every other modality, [OEMs] have saturated the imaging field with new machines with varied capabilities over the past five to eight years. Now that the economy is really slowing down, hospital managers and finance people are putting a crimp on spending," said Leon Gugel, President, Metropolis International, Long Island City, NY. The company buys and sells used CT scanners. "Because of this saturation there is no real value in upgrading if their CTs are doing what they were meant to do."

Philips reports a convergence in the market. "What we do see is a 'flight to value' with customers thinking about whether they need a 64-slice scanner in every CT location.... "We see the market converging on 16-slice as a value segment, 64 as a mid-tier...and the 256 or Brilliance iCT as the new premium segment," Steidley said of the company's brand.

Lower-slice scanners still do yeoman's service in many applications, however, some radiology benefits managers, who call the shots on whether insurers will pay, are requiring newer, multi-slice technology.

"We are noticing that the 16-slice today is becoming like the 4-slice in the past," said Joseph Cooper, Senior Manager of the CT business unit, Toshiba America Medical Systems, Tustin, CA. "We are also noticing many healthcare facilities purchasing 32-slice scanners."




The other big headline in CT lately is a growing concern over radiation exposure for patients. Several OEMs are leading the way to address this issue. For example, Toshiba is maximizing image quality while lowering exposure with its ground-breaking Aquilion ONE, a scanner that uses dynamic volume axial technology, rather than the helical design used in most multi-slice scanners. The speed of the Aquilion ONE and other features effectively lower radiation dose. The system can scan an organ in one rotation using 320 ultra high resolution detector elements. The company also makes a full line of multi-slice scanners from 4- to 64-slices ranging from about $500,000 up to $1.3 million, with the Aquilion ONE priced around $2.25 million.

Smaller OEMs are also carving niches. For instance, Xoran Technologies, Inc., Ann Arbor, MI makes compact, extremely low-radiation CT scanners. Used for scanning the head, they are portable for a doctor's office, bedside, OR or ICU. "The most significant benefit for a hospital is the ability to free up expensive, full-body CT scanners," said Susie Vestevich, Corporate Communications Specialist.

The Market May Be in a "Pause Mode"

Overall, the market for new equipment may be at somewhat of a standstill, several experts reported.

"The U.S. [market is] in a pause mode right now. It is trying to digest three distinct forces -- the DRA, political transition, and changing technology. Once those free up, the market in the U.S. will replicate [the growth] we see globally," said Dominick Smith, General Manager of Marketing and Advanced Applications for CT Global Business, GE Healthcare, Waukesha, WI. "The fundamental demand in terms of patients needing procedures is there. People are not getting younger and there are a lot of fundamental demographics which are favorable to healthcare," he said of America's aging population.

The OEMs did not deny that prices are down for new CT scanners. "There is a natural price reduction that happens over time and we have seen a slight reduction of the existing multi-slice platform," Cooper said. "There has been a big decline in the market in the free-standing imaging center space. However, there are increased opportunities in the hospital space. There is consolidation in imaging centers. A lot of hospitals are trying to partner with the imaging centers .... There is definitely going to be an increase in the opportunities to provide imaging services or equipment to these providers."

Some industry insiders predict a greater demand for the more expensive, higher-slice and faster scanners.

"There is a fair amount of consolidation going on among imaging centers. Where there is consolidation, there is a movement toward larger scanners, which do more volume," said Martin E. Zimmerman, President and CEO, LFC Capital, Chicago, IL, specialists in equipment financing. "The cost cutting is driving providers to examine all possibilities to generate greater efficiency. And that means merging or consolidating, reducing overhead, and providing better service to attract patients. Having the latest equipment does count for something when it comes to referrals, more than that is the ability to handle high volumes and variable volumes."

"The only ones that will be left are big centers that can afford to buy new OEM equipment," predicted Sal Aidone, Vice President, Deccaid Services Inc., Deer Park, NY. "But that is not a way to reduce healthcare costs. And it will put the small imaging center out of business [as well as] brokers that sell older equipment. It hurts everybody in the industry."

"I have noticed a lot of free-standing centers in the Southeast closing due to not being able to afford an 8-slice or higher scanner. The larger, health system-owned centers can afford 16-, 32-, or 64-slice systems. They get a better deal [when buying CT technology] because of the higher volumes of [multi-modality systems they purchase from manufacturers]," said Billy Paniaha, Right Coast Medical Imaging, Huntersville, NC.

It's generally a buyer's market for CT with plenty of inventory available.

"There is stuff to buy. There is no shortage," said David Denholtz, CEO Integrity Medical Systems, Inc., Fort Myers, FL. "If somebody wants a multi-slice scanner there are plenty of 4, 8, 16 on up. And there will be more inventory because places are going out of business."

Independent Service Organizations Holding Steady

While 2007 was a challenging year for the OEMs, most Independent Service Organizations (ISOs) are expecting steady sales in 2008 for pre-owned equipment. They also expect new service opportunities for equipment coming off of OEM service contracts or warranty.

"The current market conditions have been extremely beneficial to third party providers," said Tim Austin, President, Austin's X-Ray Service, Swanton, OH. "Any time the market is tight, facilities pay more attention to how they are spending money. During these times they tend to look to third party providers because they can usually offer lower prices."

In speaking with independent service organizations, DOTmed estimates that hospitals can save 15-40 % on CT service by using an ISO instead of the manufacturer. (Note: It is important to do your homework when choosing an ISO. Make sure that they stock CT parts and have trained service engineers available regularly. Many health care providers go to DOTmed.com to see online ratings for ISOs provided by their customers. See the list at the end of this story: DM 100 companies are the highest ranked, while DOTmed Certified indicates a favorable evaluation by a different assessment process.)

"I think the market conditions are good for third party providers," said Lynn Williams, President, Advanced Imaging Management, The Woodlands, TX. "It feels much like the mid to late 1990s again in that the user is really doing their homework and looking for a cost-cutting edge, and the third parties have really raised the standard for equipment and service."

Not all ISOs share in market optimism, however. It appears that supply and demand may both be down.

"Outpatient imaging centers are not buying new equipment; they are either holding their breath or going out of business," said Tommy Geske, CEO, Sunrise Medical Technology, Inc., Waxahachie, TX. He noted that you would expect the used medical equipment market to be flooded with inventory right now, but the protracted bankruptcy process that some clinics face is holding the assets hostage. "This tells me that a year from now there will be a huge glut [of equipment] on the market, but right now things are tied up."

"The repercussions of the DRA are now being felt. There is less demand for used systems and I thought there would be more demand because of the cuts. I thought it would be better for [ISOs] because there is less money to buy new capital equipment, but that is not the case," said John Pereira, CEO, United Medical Technologies, Inc., Fort Myers, FL. He has a client with a dozen multi-site, multi-modality imaging centers that typically upgrade each year, but not in 2008. "They are starting to feel the pain. We see people being frugal because they don't have the money to upgrade their systems. So there is a shortage of buyers and not many trade-ins coming out." He noted that although hospitals are not directly affected by DRA cuts, they are holding off purchases of used equipment, perhaps because of lower prices on new equipment. (Also, many hospitals have imaging centers within their operations and the DRA affects their bottom line.)

So, have current market conditions been beneficial to third party providers? "Yes and No!" Billy Paniaha emphasized. "'Yes' on the service contract side because of the high costs that these smaller hospitals are required to pay from the OEM. So hospitals are looking to third party [service providers]. 'No' on the upgrade side for the multi-slice CTs because of the smaller reimbursements [making] it hard to cover operating costs."

International markets for CT equipment remain strong - in part because of the weak dollar - and many ISOs, like OEMs, are positioned to take advantage of it. One example is ElsMed Ltd., Holon, Israel, with U.S. offices in Tampa, FL doing business as Relaxation. Inc. (named for a non-claustrophobic MR design).

"We have a lot of demand for fully refurbished CT scanners worldwide and are active mostly in Eastern Europe and Africa," reported Vice President Rami Marom. The company, which specializes in Philips, purchases used CT equipment in the U.S. then refurbishes the systems at its technical center in Israel for installation worldwide. They also provide parts and service. "Medical centers that cannot afford new equipment can have the same performance in used, like-new equipment and get return on investment in one year, which is excellent," Marom said. He has noticed more systems becoming available in the U.S. in the past year.

Service Comes in Many Flavors and Prices

Inside a CT scanner are carbon brushes that are worn down by spinning gantries. The machines need regular cleaning of carbon dust and maintenance to prevent damage from electrical arcs. The dust can also clog the cooling system and bearings. Preventive maintenance or PMs, which include cleaning and lubrication, are a minimal service need.

As with sales of used equipment, ISOs can save providers money on servicing CT equipment. The level and duration of service contracts vary widely as do the terms. Longer-term deals, up to seven years, are more popular lately, as is leasing equipment. Also to save money, some providers are getting insurance instead of service contracts, or getting time and materials contracts instead of paying a monthly fee. Hospitals are also negotiating national contracts through group purchasing organizations to increase their bargaining power.

The OEMs provide a schedule for PMs which any reputable ISO company can provide. Some plans allow the servicer to monitor and intervene for service or repair. Others put the onus on the owner to make the call for service. Yet another negotiable factor is the availability of the service company.

"Our base program includes extended hours. Monday through Friday, 8 a.m. to 8 p.m. is our minimum, and we will certainly go beyond that," said Charles "Chuck" Gauthier, General Manager, Imaging Services, Streamwood, IL, a subsidiary of Shared Imaging. "Our radiology imaging customers are in the same business we are in: they provide a service. They service their physicians in the community. In order for us to enable them to be successful, we have to be focused on their business and do what it takes to keep them up and running."

This is a refrain from many ISOs, who pride themselves on their availability and responsiveness. Most are OEM-trained and have multiple parts sources; many have the ability to test parts on operational systems.

"A smaller company will have flexibility to adjust to any kind of changes that the customer might need, whereas OEMs are rigid and have policies and procedures to follow," said Greg Kramer, President, C&G Technologies, Inc., Jeffersonville, IN. The company has developed advanced quality control procedures including bench testing, system testing, staging bays, and system tests of parts. "A small company usually has more of a personalized relationship and is more eager to jump through hoops to meet special needs of the customer."

Dealing With The Big-Ticket Price of The X-ray Tube

Regardless of service, the most import item to consider in a maintenance plan is the X-ray tube. An estimated 30 to 50% of the cost of a CT and its maintenance is solely earmarked for the X-ray tube, a $100,000 to $200,000 part (and sometimes more) inside the scanner. The degree to which the healthcare provider assumes liability for the tube will determine the cost of the maintenance plan.

"We tell people to buy a full service contract and buy tubes only when you need them," Kramer advised. "We try not to raise the cost of the contract to cover the cost of X-ray tubes."

Another approach is to share the liability for the tube with the service company. It will likely be cost-prohibitive for the healthcare provider to assume all risk, although it may work for equipment you plan to replace when the X-ray tube expires. Many providers enter into a shared risk arrangement with an ISO. This is far less costly per month than assuming all risk and it means that you'll pick up the agreed risk percentage for the replacement cost of the tube when needed.

"In all candor, the market right now will not support full service contracts with glassware [X-ray tube coverage], so enter into an agreement with an inducement for the servicer to respond quickly," suggested Geske, referring to negotiable guaranteed response times for service.

When the time comes to replace the tube, you'll need to choose new or used. For instance, C&G Technologies, Inc. completely refurbishes tubes using a specialized process that they say extends the life of the part. "That takes a major cost item and gives the customer a level of comfort. It takes one of the dice rolls out of the equation," Kramer said.

Understandably, the tube-makers recommend new glass, which comes with a warranty. "The value proposition that Dunlee brings is we are an OEM, so we can deliver OEM quality but not at the OEM prices," said Thomas T. Spees, Director of U.S. Sales for Dunlee, a division of Philips Healthcare. Their low prices allow ISOs to sell tubes for about 20% less than the OEM.

Another leading tube-maker is Varian Interay, Charleston, SC. "In many cases and many models of CT scanner, we have actually extended the life of the CT scanners for our customers by offering value-priced CT tubes," said David Hurlock, International Marketing Manager.

Many service arrangements are available to meet the bottom line of hospitals and imaging centers as the CT market adjusts to challenging forces. Ultimately, despite reimbursement cuts, the innovation and capability of computed tomography--plus the killer app of colonography--may overcome all economic obstacles so that CT continues to lead medical imaging into the future.

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

Domestic
John Stringer, Best Medical International, AL
William Dixon, Performance X-Ray, AL
Bill Stephens, DBRS Medical System, CA
Rick Stockton, Atlas Medical Technologies, CA
DOTmed Certified
Greg Bare, Radiation Oncology Systems, CA
Kurt Bringolf, Eclipse Medical Imaging, CA
DOTmed Certified
Chris Ash, Scanworks, CO
David Denholtz, Integrity Medical Systems, Inc., FL
DOTmed Certified/100
Dennis Giuzio, Mobile Radiology, Inc., FL
Paul Aagaard, 5 Star Imaging, Inc., FL
Robert Serros, Amber Diagnostics, FL
Ed Ruth, Managed Medical Imaging, FL
Bernie Bartoszek, MagnaServ, Inc., FL
John Pereira, United Medical Technologies, Inc., FL
David Tortorich, International Radiographic, GA
Rex Fortenberryd, R & F Imaging Systems, Inc., GA
Robin West, Premier Imaging/Medical Systems, GA
Mike Mercer, Barrington Medical Imaging, IL
John Pemberton, Barrington Medical Imaging, LLC, IL
Martin Zimmerman, LFC Capital, IL
Ron Ragan, Genesis Medical Imaging, IL
DOTmed 100
Mike Ghazal, Zetta Medical Technologies, LLC, IL
Charles Gauthier, Imaging Services, IL
William King, Performance X-Ray, AL
Ronald Moore, R & D Imaging, Inc., IN
Greg Kramer, C&G Technologies, Inc., IN
DOTmed Certified/100
Kevin Fix, Ultimate Medical Services, Inc., LA
Davyn McGuire, Med Exchange International, Inc., MA
DOTmed Certified
Jeff Rogers, Medical Imaging Resources, Inc., MI
DOTmed 100
Bruce Hull, Network Imaging Systems, NC
DOTmed Certified
Billy Paniaha, Right Coast Medical Imaging, NC
Christi Kukes, DMS Health Group, ND
Robert Manetta, Nationwide Imaging Services, Inc., NJ
DOTmed Certified/100
Gary Provenzano, Proton Services, Inc., NJ
DOTmed Certified
Joseph Jenkins, International Imaging Ltd., NV
Sal Aidone, Deccaid Services, Inc., NY
DOTmed Certified
Leon Gugel, Metropolis International, NY
DOTmed Certified/100
John Kollegger, Bay Shore Medical, LLC, NY
DOTmed 100
Tim Wright, Virtual Medical Sales, Inc., NY
Tim Austin, Austin's X-Ray Service, OH
Trey McIntyre, International Medical Equipment and Service, Inc., SC
DOTmed Certified
David Hurlock, Varian Medical Systems, Inc. - Interay, SC
Ward Huddleston, Med Image Systems, Inc., TN
Ronald O'Leary, Medical Digital Imaging of Texas, TX
Michael Webster, Legacy Medical Imaging, TX
DOTmed 100
Lynn Williams, Advanced Imaging Management, TX
Tommy Geske, Sunrise Medical Technology, Inc., TX
DOTmed Certified/100
Carl Hoffman, Blue Ridge Medical Imaging, VA

International
Himanshu Gupta, EverX Pty Ltd, Australia
DOTmed Certified/100
Artemio Santacruz, Ara Electric SRL, Central
Marcelo Dominguez, Sistemas Medicos, Chaco
Carlos Duran, Ingenieria Clinica, Columbia
Abdelrahim Khalil, Besisc, Egypt
Aydogan Polat, MEDSER Medical Services, Germany
DOTmed 100
Florian Dickopp, Medicopex GmbH, Germany
DOTmed Certified/100
Vinod Dua, C-Max Healthcare, Haryana
Rami Marom, ElsMed Ltd & Relaxation, Inc., Israel
DOTmed Certified/100
Joseph Dar, Z.L.Printek, Israel
SewaSingh Dhimaan, Dynamic Bio - Medical systems, New Delhi

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