From the August 2018 issue of HealthCare Business News magazine
By Mike Cannavo
The PACS marketplace has gone through a number of transitions in the 30-plus years or so since its inception. Vendors, dealers, distributors and resellers have tried to keep up with the changes but it hasn’t been easy.
The lack of available capital, combined with extended life cycles systems, present the two biggest challenges that service providers have to deal with in making a go at it in the PACS marketplace. For a very long time the purchase of service agreements (SA) was a primary catalyst for installing a PACS. The margins generated by an SA beat out implementation and training for generating the most revenue.
PACS software, on the other hand, generated very little net margins. Most resellers were lucky to eke out a five or 10 point margin on provided hardware. Service was always the big winner, mainly because the service costs were usually based on a percentage of the system or software list price, not net cost. With service averaging 15% of list price (at least that offered by the major vendors) this translated to a gross revenue of nearly 50% of the system cost in the form of annual service revenue. Costs to support the system were nowhere close to what the gross revenue was, so it provided solid net margins to the provider.
For the most part, supporting a PACS involved providing software updates and limited hardware and/or software support as/when needed. It was an easy and dependable revenue that lasted pretty much as long as the client stayed on the platform they were sold. Because systems were being kept longer before hardware refreshes were required this often translated to a seven- to eight-year period. Software updates, which were billable beyond the typical SA cost, were typically released at the rate of one or so per year, and also provided additional income.
Interestingly, fewer than one in four facilities typically took advantage of updates when they were available, instead choosing to wait until two to three updates had passed to implement the most recent release. The reasons for this are many, but often had to do with both having available funds and receiving any tangible benefit from the upgrade. More often than not, when an upgrade was installed the site also realized that a feature/function it had previously enjoyed was deleted. This negating some of the value of the upgrade itself.
PACS sales have changed, whereby many vendors and OEM providers are now offering software-only sales, where a copy of the software is provided to the end user. In this situation the end user typically provides their own hardware and may or may not rely on the software provider to assist them with the implementation.
