CT industry prepares for 2008 rebound after last year's rout

May 1, 2008

Shrinking prices for 64-slice products offer bargains in market about to be transformed by new offers CT vendors had the worst year in recent memory in 2007, and this year was shaping up to be even worse. But that was before the Feds stepped in.

Shrinking prices for 64-slice products offer bargains in market about to be transformed by new offersCT vendors had the worst year in recent memory in 2007, and this year was shaping up to be even worse. But that was before the Feds stepped in.

Fearing recession, the Federal Reserve drastically cut short-term interest rates and increased liquidity in the financial markets, making it easier for imaging centers and hospitals to borrow money.

"More and more hospitals are financing equipment, so the better rates they can get will be a benefit to us," said Joe Cooper, senior manager for the CT business unit of Toshiba America Medical Systems, whose dynamic volume CT is scheduled to begin shipping in summer.

"There is going to be a great opportunity for new technology, such as the Aquilion One, especially for the primary stroke centers across the country," Cooper said.

Toshiba execs are not the only ones excited. Rallied by the federal actions, CT vendors now are predicting at worst a flat market compared wtih 2006--or as much as a 7% or 8% gain. These gains may be more in units sold than revenue gained, however. And that is very good news for buyers.

Last year, lack of CT demand wore down the street price of new systems. The average price paid for a scanner last year was $874,000 compared with $941,000 the year before. Street price for superpremium CT scanners, dominated by the 64-slice systems but buoyed by prices paid for Siemens dual-source systems, dropped down $50,000 from $1.17 million to $1.12 million, according to vendor estimates. But don't feel too bad for vendors.

They had been riding a wave of good fortune that carried them to nearly $1.8 billion in new unit revenues during 2006, an almost 50% jump from 2003. In 2007, CT makers took a double-digit hit, as demand for 64-slice scanners, which had accounted for much of the past three years' gain, took a nosedive to about $1.4 billion.

In mid-March the Centers for Medicare and Medicaid Services backed away from its proposal to unwind the current reimbursement approach for coronary CT angiography, allowing local coverage decisions. This removed the uncertainty that had helped crush the market for CT last year after CMS noted in summer that it was considering a change in the way coronary CTA was reimbursed.

Now that the coronary CTA scare is over and money is easier to borrow, demand for 64-slice CTs should return. Providers still have a substantial unmet need for these systems, said Gene Saragnese, vice president and general manager of global molecular imaging and CT at GE healthcare.

"Most of the academics have moved into this space, but quite a few of the general-type hospitals have not yet moved to 64," Saragnese said.

The rise in demand is not, however, expected to boost prices. The erosion in pricing for 64-slice scanners seen last year will continue this year, as a new generation of CT scanners prepares to take the field.

Along with hospitals, imaging centers are expected to snap up bargains. The Deficit Reduction Act, which wreaked havoc on imaging center budgets in 2007, should have less effect this year. Centers have now factored in these reimbursement cuts and they have moved on, said Peter Kingma, vice president of Siemens CT, who noted the chilling effect on sales was as much from fear as it was the actual cuts.

"It was the perception that the DRA was not a 'one-off' event," Kingma said.

He believes this perception took root last summer when CMS first raised the possibility of CCTA reimbursement changes.

But just as the 64-slice scanners rebound, their 16-slice brethren are likely in for a drop. These less powerful scanners enjoyed a resurgence in popularity last year in what Philips executive John Steidley called a "flight to value."

"We think some customers, although they may have one or two 64s, don't need every scanner to be a 64," said Steidley, Ph.D., Philips vice president of CT global marketing. "So there was a movement toward the 16. This flight to value was driven a little bit by the uncertainty surrounding the CMS decision."

This was apparent in the fourth quarter, when vendors pocketed some $85 million from the shipment of new 16-slice scanners compared with about $80 million in 4Q 06, according to industry estimates. And these numbers do not include the many preowned 16-slice scanners that were also purchased. But this trend may be over, according to Steidley."People are now thinking twice about investing in 16, knowing that in five years there will be a lot of 256s out there and that 16 will be at the low end of the spectrum," he said.

The coming breed of CTs, generating volumes of data drawn from 256 or more slices, will not, however, take the market by storm, as did their predecessors. The extraordinary power of these systems will be overkill for any but the most daunting clinical applications. And their $2 million-plus price tags will be too much for any but the few providers who perform them.

At the other end of the spectrum, the 16s will serve as entry-level scanners. Helping to keep them in the game will be growing demand for virtual colonoscopy, which has been gaining interest on the heels of positive clinical results.This may create a three-tiered system, with the workhorse 64s stuck in between, much like open MR was once bookended by low- and high-field scanners. Unlike MR, the CT market will be segmented by exponents of slices.

The market may stabilize, which will come as a welcome relief from the decade of lurching forward and back with the introduction of each successive generation of scanner.

-By Greg Freiherr