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Amid growing pricing pressure on medical imaging in the US, Intermountain Healthcare recently announced it is launching an outpatient imaging subsidiary under the Tellica Imaging brand name. The first three locations of the new chain of standalone outpatient imaging centres are set to open in late 2021, with five more set to follow in 2022.
As well as operating under a new brand name, the outpatient imaging centres will also offer MRI and CT scans at flat-rate prices which are lower than the same imaging exams in a hospital-based setting.
The Signify View
Some types of imaging examinations will always need to be performed in hospitals. The nature of emergency or interventional imaging, for example, negates the possibility of it being performed elsewhere. For many non-emergency diagnostic imaging exams, however, there is a growing trend for some exams which would typically have been performed in a hospital, to increasingly be taken on by outpatient imaging centres.
The Covid 19 pandemic has been one factor in this shift, with providers trying to keep patients out of hospitals wherever possible in order to minimise their potential exposure to the coronavirus. However, in a bid to rein in healthcare spending in the US, payors have also been increasingly pushing their customers towards outpatient imaging centres, where the cost of imaging exams can be significantly less than in a hospital setting.
More broadly, changes to reimbursement brought about in the latest fee schedule from the Centers for Medicare and Medicaid Services (CMS) is also set to alter the complexion of the medical imaging market. There is a growing body of evidence that suggests the changes brought about in the fee schedule are going to affect single site imaging centres most severely. These smaller independents will therefore find it increasingly difficult to compete with the larger outpatient imaging networks, which can leverage the economies of scale to be more aggressive on pricing. This is one of the factors driving consolidation in the outpatient medical imaging market, which, to an ever-greater degree, is being dominated by large outpatient networks.
An Equal Fight
Hospital groups will be loath to lose business to these imaging groups, and so, in Intermountain’s case, establishing an outpatient network of its own makes a lot of sense. The newly formed Tellica will be able to compete for outpatient imaging business on an equal footing with the other outpatient networks. It will, like its competitors, be able to offer lower cost imaging than in Intermountain’s hospitals.
Payers in the broader market have also played a substantial shift towards outpatient imaging focus, with a number, such as Anthem and UnitedHealthcare, now refusing coverage for non-emergency hospital-based imaging, such is the current discrepancy in price between in-hospital and outpatient-based imaging.
There are many reasons for the discrepancy. Outpatient groups can focus solely on imaging, so are able to tailor their services to efficiently addressing less complex, higher volume imaging exams. In contrast, hospitals must maintain the ability to conduct a broader array of exams and more advanced scans, even if it means purchasing more expensive equipment that is infrequently used and facing the additional staffing costs that comes with more specialised doctors.
Tellica’s spending can also be more focused. The provider will not, in most cases, have to stretch to purchasing the most premium specialised imaging equipment, and instead invest in imaging solutions that can expedite its workflow and enable it to attend to patients more efficiently. Increasing volume and capacity of imaging can also offset the lower reimbursement rate per scan, while also creating opportunity for the health system to bring in new patients. The deployment of AI tools in the outpatient setting may also have a material impact in terms of efficiency and care quality for the provider given its much more myopic focus, with the outpatient setting expected to experience faster adoption of AI versus the hospital setting.
More, and More Affordable
The effects of this shift to outpatient imaging will ripple out across the medical imaging sector. Modality vendors are likely to see an overall increase in the volume of medical imaging equipment being sold. However, this will be balanced by a fall in the premium models as hospitals, which typically purchase the more advanced products, will require fewer systems. Conversely, there is set to be an increase in mid-range ‘workhorse’ models, which will, in most cases, be an outpatient centre’s preference. As such, the market average selling price of systems will fall. This change in the complexion of the market could also see sales leak from premium international vendors, to other cost-competitive vendors, such as United Imaging, which may not be able to compete in the upper echelons of the imaging market but are competitive in the mid-range and keen on pricing. This will move the focus away from top end features, forcing vendors to highlight the fundamental value and efficiency of their systems more clearly.
These changes are also set to have an impact in the imaging IT market. Providers such as Tellica, which grew out of a hospital network, will likely become license extensions opportunities of the original hospital network’s imaging IT system, utilising the same vendors and the same solutions. This may give the likes of Tellica an advantage from a deal size perspective, enabling them to take advantage of their larger buying power.
There are still some benefits unique to specialist outpatient imaging networks. The opportunity for imaging IT amongst these newly formed networks, is from their nimble structure, allowing them to be reactive to shifts in the market quicker than larger hospitals. In a similar vein these providers are also typically more innovative in adopting new technology, due to the drive for efficiency to remain competitive and profitable. These growing outpatient imaging networks are therefore likely to be among the first providers to take advantage of informatics vendor’s efficiency-focused products. This could be particularly true as products are increasingly tailored to address the needs of outpatient imaging providers, such as GE’s recently released TruePACS system, for example.
Scale and Efficiency
Intermountain’s launching of Tellica fundamentally represents a hospital network responding to the changing tides in the medical imaging market, and effectively cutting its pricing in the outpatient space to maintain competitiveness. Intermountain is not the first to make such a move but it does highlight the increasing interest in the space. As this interest in outpatient imaging centres grows and more providers look to compete in the space, prices will continue to fall, and margins will tighten. This will ensure consolidation continues, with it becoming increasingly unfeasible for small independent imaging centres to thrive given they will be unable to capitalise on economies of scale or take advantage of larger, network-wide plays to adopt tools to drive efficiency forwards.
Resultantly, smaller imaging IT vendors will also find it more difficult to compete. Many of their customers are the smaller, independent outpatient imaging providers; as these are replaced by larger outpatient networks with much larger and complex network-wide deals, some of these smaller imaging IT vendors could falter.
Intermountain’s creation of Tellica shows it is willing to adapt to a changing market. It has entered an increasingly competitive and rapidly consolidating space and is hoping to go toe-to-toe with some of fastest growing providers in medical imaging. It can utilise its broader buying power, and the nimbleness that a new brand affords, but key to this success will also be its ability to scale rapidly. The outpatient imaging market is one where scale and efficiency bring success. If Intermountain’s Tellica can achieve both, then it has a strong future ahead.
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