While PACS are more technically feasible than ever, they are still relatively new technology and must therefore be planned, selected, and cost-justified with care. A useful tool in the planning and implementation of PACS is the financial model. Several of these models are available from PACS vendors, but healthcare organizations must be sure that the one they choose is conservative, comprehensive, and has strong supporting information.

To lay the groundwork for cost-justification, a planning initiative must clearly and definitively spell out the value of PACS. It must identify patient care, operational, and business benefits.

A PACS that provides organization-wide clinical image management, archiving, and on-demand retrieval reduces the inefficiencies inherent to film-based systems. It also provides opportunities to improve patient care by providing physicians with immediate access to current and prior films, reducing operating costs, facilitating research, and enabling patient education.

Traditionally, hospitals viewed PACS as a radiology project. However, business managers realize that positioning PACS as an enterprise system that benefits departments beyond radiology significantly improves chances of acceptance. When planned with the overall organization in mind, PACS offers major advantages.

Case Study

The analysis projected that Mercy General would spend a total of $8 million on its PACS project (later cut to $6 million, due to falling hardware and software prices) with a 10% internal rate of return, resulting in a five-year payback. The plan assumes use of commercial vendors—yet to be chosen—and would start with already-digital modalities like CT and MR and then migrate to computed radiography, a technology whose cost continues to drop.

The savings from PACS comes in the archiving function, Story said. By moving images over a wire instead of by courier or mail, the provider can easily retrieve them without risk of loss. He estimates that creating a film packet costs $1 for a patient’s first visit and 30¢ to 50¢ for each subsequent visit. PACS savings come from eliminating costs for film purchase, file envelopes for storage, and long-term storage.

A key issue is that physicians who order films generally like to keep them, which involves annual courier and postage costs of $20,000 to $30,000. Postage averages $2.50 for each film packet. Story estimates the PACS will cut by half the staff formerly used to track down films.

Beyond Finances

A positive trend is the continually declining costs of PACS. The price drop is related to Microsoft Windows NT/Intel-based review stations, a growing PACS market that stimulates vendor competition, and the advent of inexpensive Web-browser-based clinical review software.

When building a business case for PACS, it is important to go beyond purely financial considerations. Some of the larger, more experienced PACS sites report less of a focus on measuring savings, because radiologists and other physicians perceive PACS as valuable. The University of California, San Francisco is a case in point. Dr. David Avrin, co-director of clinical PACS at UCSF’s radiology department, has made the following points:

• UCSF didn’t focus solely on how to cost-justify the PACS; rather, it was more of a philosophical issue. When considering a PACS deployment, the financial implications are important, but the emphasis should be on understanding how an organization wants to practice medicine five years in the future. For every year an organization postpones PACS, it commits to another seven years of manual film management and film loss.
• PACS allows organizations to seamlessly integrate radiological images across the continuum of care, which delivers benefits to multiple departments and improves overall quality of patient care.

Developing a detailed baseline financial model for PACS early in the process will make planning smoother and help communicate needs and expectations. A model should include the following components:

• Capital costs.
  • Network equipment. This is the cost of building a resilient, high-capacity, network infrastructure.
  • PACS. Use an average of list pricing from the two leading PACS vendors.
  • Cost of upgrading modalities for DICOM 3.0 services.
  • CR systems. CR costs are dropping but recommended modeling costs are $300,000 for high volume, $150,000 for low volume, and $80,000 for stand-alone. Each price is per system, including plates and I.D. and Q.A. stations.
  • Facilities upgrades. Reading areas may need to be modified to protect against glare, and special workstations, tables, or a built-out reading room may be necessary.
  • Equipment upgrade and replacement. If the project model exceeds three years, it is likely there will be a need to upgrade or add PACS equipment. After year three, budget 15% of accrued capital cost. This is also a good place to plan x-ray modality upgrades or replacements for direct digital radiography.

• Incremental revenue.
  • Missed billings. The organization may be able to bill for studies that are currently going unread.
  • Increased utilization. Revenues may accrue as a result of increased capacity and throughput. This may be difficult to attribute directly to PACS, however.

• Operating expense reduction.
  • Reduction in clerical personnel. Estimates should be phased in as the need for film is reduced. Workflow diagrams should be utilized to support these reductions. Savings may not be dramatic and are quickly offset by PACS implementation, administration, and support costs.
  • Reduction in technologist time. Estimates for the staff to manage the acquisition process need to be phased in with PACS, CR, and DR. CR still requires technologist time although throughput may be optimized and retakes (due to quality) may be minimized. Workflow diagrams should be utilized to support these reductions.
  • Technologist/clerical benefits.
  • Film library space savings. These can include any avoidance costs if the build-out of additional film room space is planned. Unless the space can be used for revenue-generating activities, most CFOs don’t recognize this as a valid savings.
  • Warehouse costs. Reduction of on- or off-campus archive of physical film. Note that pediatric and mammography cases will need to be managed over the long term.
  • Cost of film, chemicals, and related supplies. Savings won’t be realized until broad distribution of soft-copy images is achieved. Cost avoidance due to maintenance and upgrade of film processors won’t be fully realized until investments are made in CR.
  • Digital modality storage media costs. These savings won’t occur until a PACS archive is fully operational.
  • Equipment cost avoidance. Supplemental, replacement, or upgrades of fileroom management systems, light boxes, and film alternators.
  • Sale of capital equipment, and recovery costs for processors, alternators, etc.

• Incremental operating expenses.
  • Pre-implementation planning and project management services. For implementation planning, PACS vendor management, and overall project management, budget 8% to 10% of PACS cost.
  • Network assessment and design services.
  • Implementation services, including overall project management.
  • Maintenance and support of additional capital equipment.
  • Clinical systems integration.
  • Reengineering services. Cost of workflow analysis, documentation, benchmarking, and reengineering project management.
  • Training of technologists (CR) and physicians.
  • PACS administration and system management. PACS administration will require a minimum of one to two FTEs. Duties will include image workflow management, workstation and account administration, and system management. The PACS administrator is the liaison with the RIS administrator, interface programmer, network engineers, and PACS project management.
  • PACS help desk. Additional support for PACS users may require 24-hour coverage. An escalation procedure must be in place for after-hours PACS troubleshooting. Organizations should have a service management contract between radiology, the CR vendor, the PACS vendor and information systems.
  • Equipment maintenance. Cost of hardware and software maintenance is typically between 12% and 15%.
  • Interest. Cost of capital to fund PACS project—borrowing costs or the revenue the funds could generate if not invested in PACS.

When competing for dollars against other major capital expenditures, it is common to have to “back into” some of the outcome numbers by phasing PACS in to realize the maximum financial return.

Many vendors propose an operating lease option to minimize the up-front capital burden of a PACS purchase. If your monthly direct cost savings are greater than or equal to the monthly lease payment, this option could be attractive.

Cautions On Economics

Many organizations are frustrated by the lack of available outcome studies when they try to justify the cost of PACS. Many PACS consultants recommend that a financial analysis should not just be left on the shelf, but should become a living document that is updated as situations change and new costs develop. It should be used as a tool for ongoing budgeting, benchmarking, and tracking of results.

Though radiology departments claim they will be held accountable for the cost savings outlined in their financial analysis, they often do not design a mechanism for tracking the cost savings once the project is approved. Soft-dollar savings can be overestimated. Some vendors’ cost-justification models tout film management and technologist FTE reductions without the appropriate supporting data. Studies presented at radiology and PACS-related conferences reported about half the FTE reductions of some PACS vendors’ consultant studies. The message: Beware of those who offer to help you cost-justify PACS without spending time following the trail of film around your institution. Some vendors make broad claims about reduced length of stay and increased revenue due to physician productivity. But ask yourself, do they really understand your business?

Direct cost savings such as reduced film costs are easy to quantify. However, actually eliminating film costs is challenging, Avrin said. An organization cannot stop printing film until clinicians have satisfactory access to images, and this means workstations, training, and support. This factor is often underestimated.

Some PACS vendor models describe as little as a two-year breakeven point. Organizations should closely examine the vendor’s installed base. Has this vendor demonstrated that the system can be scaled to meet the needs and volume of your organization? What are the vendor’s experiences at sites that have similar image volume and functional needs?

While many models captured PACS maintenance (software, hardware) at 10% to 15% annually, few looked at the balanced investment in implementation and operations, which would be required to achieve their cost savings.

Many models do not factor in required investments in CR (required for digitizing x-rays) and DICOM modality upgrades and interfacing systems. Because some organizations view these as evolutionary investments, they budget for them outside PACS projects.

Ensuring The ROI

The greatest return often comes from eliminating the steps in processing x-ray and other film. For example, a typical ultrasound, CT, or MRI scan requires four to five minutes of running films, walking to the laser printer, and assembling the film. Most radiology departments convert digital modalities such as ultrasound, CT, and MRI to analog film for reading by radiologists and other physicians.

Since PACS frees digital modalities from additional processing duties, there is more time available to service an incremental load of patients at an increased rate. Depending on the available patient load and number of procedures, it may translate into a substantial amount of additional technical and professional imaging revenue.

Mr. Dimond is a vice president and Mr. Wasilewski is a manager, both in the Digital Imaging and TeleHealth division of First Consulting Group in Long Beach, CA.