Going completely digital is a given for larger hospitals and academic institutions. But smaller and midsized facilities that are just beginning to consider the move to soft copy may find the purchase of a PACS daunting, if not impossible. The application
Going completely digital is a given for larger hospitals and academic institutions. But smaller and midsized facilities that are just beginning to consider the move to soft copy may find the purchase of a PACS daunting, if not impossible. The application service provider (ASP) can offer a solution for these institutions.
At a forecasted compound annual growth rate of 11.1%, spending on PACS technology is expected to exceed information technology spending by healthcare providers over the next five years, according to a report from IDC, a Framingham, MA, company that provides market intelligence for the telecommunications and IT industries.
The report attributes the current 3.4%-a-year growth in IT spending not only to large institutions and early adopters but to midtier organizations, which are now in a ramp-up stage. Many of these smaller fish in the radiology pond may not have the capital or the IT expertise to purchase a PACS and run it on their own. The ASP model offers them a noncapital way to acquire the technology and to pay for it as an operational expense.
Using an ASP for PACS implementation can involve turning over all PACS services and capabilities to offsite management, or it may simply entail contracting for image archiving, long-term data storage, or disaster recovery capability. But whatever level of service they prefer, many institutions are showing increasing interest in ASPs.
"About 75% to 80% of our customers opt for the ASP delivery model," said Mark Reis, marketing manager at Stentor. "It puts the onus on us to deliver, and it gives the hospital much more flexibility."
Stentor and other PACS vendors are finding it necessary to adapt to customers' changing needs.
"There was period of time when the ASP model was based on per-procedure pricing. It involved an onsite system and was basically just creative financing," said Jon Lehman, president and CEO of Evolved Digital Systems.
His company is now involved in delivering data and services over a wide-area network, Lehman said. It manages radiology and hospital informations systems and integration, image distribution, and even billing and transcription from a centralized system.
"You have to be clear on whether you're talking about a complete delivery solution or just per-procedure charging for traditional PACS," he said.
With Stentor's ASP model, the healthcare institution owns and stores all data, but the company remotely manages and monitors those data, Reis said.
"Stentor's ASP eliminates the traditional barriers to entry for PACS. With a traditional system in a capital purchase scenario, institutions are required to lock into a long-term contract, produce significant dollars up front, and maintain an unpredictable yearly maintenance and upgrade fee that can become unmanageable," he said.
GAUGING THE TRUE COSTS
There are as many different payment options as there are ASP vendors, according to Dr. Osman Ratib, vice chair of information systems at the University of California, Los Angeles. Potential customers face a bewildering array of options ranging from "pay once and access many times" to "pay a little the first time and pay more as you access the data."
Stentor's plan offers institutions the flexibility of a month-to-month arrangement, Reis said. Upgrades and maintenance are included for the lifetime of the contract.
The bottom line for many institutions actually is the bottom line. They may turn to an ASP if they don't have the capital budget to purchase a PACS outright and want to include it as an operating cost, said Edward M. Smith, Sc.D., a professor of radiology at the University of Rochester, NY. But the cost of this option is higher than for outright purchase of the system.
"Another reason is that they may not have enough money to fully implement PACS throughout the enterprise and can only do it piecemeal," Smith said. "Piecemeal implementation without getting enough of the system into the enterprise is not an effective way to roll out PACS. With an ASP model, these institutions don't have to have the cash upfront for one large implementation."
The total cost of ownership over a five-year period for a purchased PACS is high because it includes maintenance costs, hardware accommodation, additional storage capacity, and tapes that departments must purchase themselves, he said.
Alternatively, multisite hospitals or imaging centers may choose to centralize all their PACS needs and personnel. A typical scenario for Evolved Digital systems involves a primary hospital hub with four or five satellite feeders, Lehman said. An ASP affords a viable way for such a customer to centralize services and applications.
Study volume is another factor to consider in making the ASP decision. Evolved Digital typically deals with hospitals that do about 100,000 studies a year. For some larger institutions, the ASP route may not be cost-effective at all.
"This model is too expensive for large data quantities. We do over 300,000 exams a year. We have a small amount of mammography on film; everything else is digital. Our data quantities are so high that the cost per year for ASP storage would ramp up very quickly," said Dr. Gary Wendt, vice chair of informatics at the University of Wisconsin.
But an ASP could be an attractive alternative for smaller institutions, he said, especially as they struggle to comply with disaster recovery requirements mandated by the Health Insurance Portability and Accountability Act. These institutions might also turn to an ASP for offsite data storage.
For the University of Wisconsin, however, which has several sites throughout the city of Madison, backup and archiving are minor concerns. The need to purge data from the archive onto backup tapes for storage was a strike against ASPs, Wendt said.
"Purging data would be so complex as to be not worth the cost. It's a very manual process and defeats the purpose of outsourcing the data storage. You would have a continually expanding cost," he said.
Instead of choosing an ASP's data archive that could essentially grow forever, Wendt's department purchased a 3-terabyte tape archive. When they fill two of the three TBs, they spew out the tapes and place them on a shelf to meet legal obligations. The size of the tapes is trivial, Wendt said.
An additional concern for many facilities is the stability of the market. When ASP companies were living large during the late 1990s, some of them promised to provide just about anything to anyone. But when the dot-com bubble burst, many companies were left wondering how they would migrate data from the now-defunct companies. A retooling of business models, however, is slowly alleviating jitters about ASP companies' stability.
"There has been a consolidation of companies recently, so the market is now stable enough for those that are ready to jump in," Ratib said.
Knowing that a company provides data storage for other industries, such as movies and other media, offers some assurance about its stability, he said.
While several companies supply services for the entire PACS array, the main business for ASPs is data storage, and to a lesser extent disaster recovery and preparation. Children's Hospital Los Angeles/University of Southern California, for example, installed a fault-tolerant backup PACS archive in case of disaster at its primary site, St. John's Health Center. The archive is built around an ASP model, and images and patient information are sent daily to the backup archive over a T1 line. The secondary site in the setup is the USC Health Sciences Campus, where patients from St. John's would be sent should disaster strike.
"The research lab at Children's Hospital Los Angeles/USC set up an offsite backup archive utilizing the ASP model. The ASP is used as a disaster recovery solution for a hospital in Santa Monica to store as a backup to its clinical archive onsite. The research lab is providing the ASP backup storage service, not a vendor," said Dr. Brent Liu, an assistant professor of research of radiology and biomedical engineering at the Keck School of Medicine at USC.
The radiology department at UCLA considered an ASP for two reasons, Ratib said. The first was that data migration represents an additional cost that is hard to predict in projections. The department had gone through the data migration process three times and found it extremely costly in both resources and time. The fact that an ASP would provide the resources to deal with changes in storage technology was a major factor in UCLA's decision.
"We'd been there and done that, regarding data migration, and we wanted to avoid that extra bump down the road," Ratib said.
The second reason was that the costs of maintaining a data center include staff and resources for 24/7 maintenance and support. The ASP can handle that maintenance more cost-effectively.
Some UCLA radiologists maintained that the cost of using an ASP is never-ending, and they disputed that such a business model would be cost-effective. But Ratib negotiated a pricing structure based on the decreasing costs in storage media over time. He presented his nonlinear pricing structure for an ASP at the 2003 RSNA meeting.
"Figuring out how to structure prices in light of declining storage costs was our big battle. We had to invent new ways of approaching pricing in our contract," Ratib said.
If the volume increases, the price per study decreases. And given that storage technology costs will decrease over time, the vendor agreed to decrease the price per study. To compensate for this price decrease, the vendor specified a minimum increase in volume.
"We now pay less per study as time goes on, but we also increase the number of studies we store. This was OK for us, since we planned on having an increase in images anyway, with normal growth and technology advances," Ratib said. "This setup gives us a discount per study, and it gives the vendor the needed amount of cash flow. The model suits both sides."
REQUIREMENTS FOR VENDORS
The move to an ASP has been a learning experience for UCLA. Noting that companies may take on too much business in order to guarantee cash flow, Ratib included performance benchmarks for acceptable image and data turnaround time in the original contract with the ASP.
"This is a very important point. If you don't put anything in writing guaranteeing a certain level of performance, the vendors can tell you anything they want about why they couldn't get images to you in a reasonable time," he said.
The vendor had to change its entire hardware setup to meet the performance requirements stipulated in the contract. Ratib's department runs the benchmarks on a regular basis; if the performance is too slow, the vendor increases the capacity of its storage disks.
Writing the contract is the most critical part of the ASP negotiations, according to Smith. The contract must fully protect the hospital, and the hospital should pay for nothing but professional costs until the system is operational.
"You need to make sure that the way you've developed the contract is definitely off-balance-sheet financing, or it won't qualify for operational expenses. You should speak to a consultant or someone who's gone through the process. Novices definitely should not be doing this themselves," Smith said.
Specifying who owns the data is another key contractual element. UCLA owns its data absolutely, and the ASP vendor must return those data if the facility requests it. Furthermore, the vendor can do nothing with the data, including moving them, without the hospital's permission.
"They aren't allowed to do any statistical analysis or measurement of the data and publish it without our permission. We are bound by HIPAA regulations as well, so our contract is very restrictive regarding the data," Ratib said.
The ASP model may evolve in the future to meet institutions' changing needs. Hospitals may someday cooperate with vendors to provide high-end applications such as 3D imaging processing, which requires expensive hardware and software. Smaller institutions that don't do much of this type of processing may not be able to justify the high costs of the necessary equipment.
"Larger institutions with high volumes are already doing these applications themselves. In fact, we were thinking we could provide this service to smaller institutions in an ASP role," Ratib said. "We thought, why not partner with a vendor so we could provide this service? We are still debating whether we can do this using our own workstations."
Ask questions before you engage an ASP
- Who will own the data?
- Is our infrastructure ready for image distribution?
- Can the ASP vendor provide true enterprise distribution at diagnostic quality without waiting for images?
- Are images compressed or subquality?
- Are upgrades and maintenance included in the ASP charges?
- Is the hardware provided by the ASP?
- What implementation support services are included?
- What performance guarantees are included in service level agreement?
- What infrastructure (LAN-WAN) costs are required?
- What are the end-of-term options?
- How will the ASP support HIPAA and security?
- What is the ASP company's track record?
- What is the range of solutions provided?
- Will the ASP give us 99+% uptime?