Sensible Solutions for Refurbished Radiology

Yes. times are tough. Reimbursement is down and radiology equipment is expensive. There’s no time like the present to begin strategic planning to deal with this new reality.

 The fact is, all is not doom and gloom. Those of us at Atlantis Worldwide are positive about the future of the business of diagnostic imaging, even in light of declining revenues, economic employment (covered insurance) forecasts and the onset of the Affordable Care Act (ACA). It is also true that as more hospitals are searching for growth strategies within an ACO model (Accountable Care Organizations), the availability of cash to contribute to both required radiology equipment replacement and facility service enhancement will come under continued scrutiny. That’s why it has been interesting to track Alliance Healthcare (AIQ), formerly Alliance Imaging. They appear to understand the model for growth from the hospital perspective. 

Alliance first provided mobile MRI service in the early Eighties, and then moved to do Joint Ventures with hospitals. Since March 2013, its stock price has tripled.  This is due in part to intelligent business strategies, and its focus on hospital joint ventures. As a public company, its earnings call is public information. Looking at the Q1 2013 earnings call in May, Chairman of Alliance Healthcare Larry Buckelew noted positive financial moves for the company, but also stated “ If you look at the five outpatient service lines and the contribution profit that most hospitals have, there's nothing that comes close to the radiology area. On average, we've got hospitals across the country, if you add it up, it's over $24 billion in contribution profit that hospitals generate from the radiology area. (There is) a lot of talk about cardiology, primary care, and orthopedics. They're a fraction of the radiology area. The next one to radiology (which is nearly 40% of the total) is cardiology at 12%; primary care at 11%; orthopedics at 5%”.

The fact that radiology’s contribution to profits is so high is critically important. However, as available cash in hospitals continues to shrink, every service line is looking for their share of a smaller pie. Faced with large potential capital expenses for the hospital, potential expansion programs and increasing operating costs, the wait-and-see strategy of many senior executives has delayed equipment purchases for radiology. Without the broad geographic insight offered by Alliance Imaging, the only benchmark a hospital might have is what they have seen in their own market—which could be shortsighted.

When it comes to diagnostic imaging equipment, the radiology department has a very large appetite, when compared to other departments. If we look at Mr. Buckelew’s quote, the impact radiology has on the hospital is significant. Radiology generates cash and profits.  The challenge for the CEO comes down to “”what do you want vs. what can do the job.”

As a piece of equipment gets older, there are two factors to consider:  reliability and the needs of the market and of referring doctors.  In a competitive market, if you aren’t offering reliable and competitive capabilities, you may lose referrals.
 
Yes, a business plan for the piece of equipment desired is important.  But, equipment acquisitions also require these considerations:  
•    Does aging equipment need to be replaced due to downtime, regulatory or safety issues?
•    Is the service being expanded into an additional department, like CT in the ER
•    Has another area hospital acquired a freestanding diagnostic imaging, physician practice or urgi-center?
•    Is new equipment required for a new service line strategic initiative or specialty?
•    Does equipment performance need to be updated, but updates aren’t available on the existing system?
•    Can your existing equipment serve your increased patient volume?

An adequate equipment service program should be able to assist in some of the uptime or upgrade challenges, but that cost should not be prohibitively expensive.  In addition, third party service options—like those offered by Atlantis Worldwide— can save tens of thousands of dollars per year.

Likewise, when exploring the addition of new, expensive technology for your hospital or practice, don’t limit yourself to the latest and most expensive equipment on the OEM market.  Atlantis Worldwide may have the technology you need at a much lower rate of investment—and will probably provide you with a more lucrative trade in price for your existing equipment.

Remember, the challenges facing the radiology marketplace require new strategies and better plans—before any investment is made. A little bit of research can save you a lot of money and headaches, and help you position yourself for success.  Whether you need a refurbished MRI, CT, C-Arms, Cath Labs, PETCT, Digital Radiology or Mammography Atlantis Worldwide can help you grow your radiology profits.

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