Dr Suresh Kuppuswamy, Industry Principal – Healthcare at Frost & Sullivan, explores the future of medical imaging, focussing on Radiology-as-a-Service
The slow but steady adoption of value-based car (VBC) has introduced tremendous changes in care delivery. North America and Europe have been the pioneers of value-based care, strongly influenced by the spiralling costs of healthcare with no corresponding improvement in clinical outcomes. The Center for Medicaid and Medicare Services (CMS), which provides health coverage to more than 100 million people in the U.S., has adjusted payments to acute care hospitals based on the quality of care they deliver, under the Hospital Value-Based Purchasing (VBP) Program. One of the main aims of VBP is to ensure that the vendors and suppliers in the ecosystem align their offerings and pricing in line with the overarching objectives of the programme.
The $250 billion global medical imaging industry is no exception to this growing trend and is more pronounced in the U.S. and Europe geographies. In this context, the medical imaging industry is undergoing a seismic shift in all aspects, enhancing the role of radiologists in clinical decision making, optimising the workflow of the department, offering data-driven operational analysis and optimising the investments in imaging machinery and software. The medical equipment sales account for about 12% of the total global revenues ($250 billion), while staff costs, professional reading fees, software and informatics, reparative and preventive maintenance, etc., account for the remaining 88%.
Equipment selling to ‘Radiology as a Service’
Healthcare providers are increasingly viewing imaging vendors as partners in the transformation of their imaging departments to survive in the tough VBC environment. Most hospitals’ balance sheets are unable to assume any new capital investments in imaging equipment, without which attaining desired clinical outcomes becomes a challenge. Financial constraints, complicated procurement process, lack of expertise in managing the imaging technology and an ever-increasing need to focus all efforts on clinical services are forcing the administrators to consider ‘as-a-service’ models in imaging.
In the services model, care providers aren’t required to purchase imaging equipment outright. Instead, they can partner with imaging vendors, who would provide them with the necessary equipment and related services, with payments made either on a pay-per-use or a periodic basis. Under this arrangement, the upfront capital costs involved are drastically reduced, thereby easing the burden on the budgets of care providers. This is an excellent proposition for cash-strapped hospitals, whose balance sheets are already stretched thin.
In the traditional model, hospitals purchase imaging equipment utilising their capital budgets, leading to uneven expenditures over time. Maintenance of the expensive equipment is carried out in-house, or through paid maintenance service contracts with original equipment manufacturers (OEMs). Under the new services model, payments are more predictable and evenly distributed over a longer period of time, providing substantial flexibility to care providers to upgrade equipment at regular intervals and manage performance, while focusing on patient care. Similar benefits can be realised in adopting ‘Software-as-a-service’ model in imaging IT.
What’s in it for the imaging vendors
For imaging vendors, traditional product selling is no longer an avenue for long-term growth, as hospitals tighten their spending on capital intensive equipment. In response, they are increasingly signing up long-term partnerships that promise minimal to no business interruptions for the clients. Establishing long-term relationships with clients provides more opportunities for vendors to cross-sell other solutions and gain recurring revenues from them. Hospitals’ need to maximise returns creates a market potential for vendors who can leverage their technology competency to offer more value to their clients.
Strict Service Level Agreements (SLAs) detailing key performance metrics and the penalties associated can lead to higher penetration of the services business in imaging. In the Software-as-a-Service (SaaS) model, partnerships should add value in the form of healthcare domain expertise and compliance with the local laws, coupled with a willingness to enter into a Business Associate Agreement which transfers the compliance risks from the hospital to the vendor.
Imaging OEMs can also enable hospitals to explore the teleradiology-as-a-service, which promises round-the-clock access to image reading services by radiologists of various specialities and expertise. Hospitals can subscribe to teleradiology services as per their requirements, which would prove to be considerably less expensive than hiring a team of in-house radiologists serving them 24×7.
Types of partnerships between providers and vendors
Based on their requirement and budget, the two parties can enter into either a transactional contract, a performance contract, or a risk-sharing contract. Transactional contracts refer to the episodic contracts granted to service providers to perform ad-hoc tasks. In a risk-sharing contract, the vendor owns the imaging department, or at least a significant portion of it and is responsible for its maintenance. The contract rewards the vendor upon reaching pre-determined clinical and economic outcomes. This is best suited for hospitals that intend to upgrade their radiology department.
Advantages and shortcomings of ‘Radiology-as-a-Service’
The ‘as-a-Service’ model allows healthcare providers access to the latest in medical imaging technology with very little investment. This enables them to provide the best possible diagnoses for patients at significantly lower costs. Forging long-term partnerships promises business continuity for hospitals and recurring revenues for vendors.
On the contrary, equipment vendors will see net cash outflow in the near term, rather than getting paid upfront to cover equipment costs. However, the upside is that the service model guarantees them a client base and cash inflow for a set period, while giving them the ability to cross-sell other products to existing clientele, creating a win-win situation for both.
Conclusion
As the entire medical imaging industry gradually shifts towards the ‘as-a-service’ model, traditional product selling will cease to be an avenue for long-term growth for vendors. Total Cost of Ownership (TCO) and Return on Investment (ROI) will be the key factors based on which contracts are offered. The shift to service-based models in imaging will also help drive innovation in equipment parts and components, leading to lower maintenance costs and higher mean time between failures (MTBF). From a capital-intensive model, the industry will move toward a hybrid model, before finally transforming into a truly operational expense model within the next 10-12 years.
