Fee-for-scan converts mobile to fixed MRI

May 6, 1992

Fee-per-scan payment plans are gaining popularity among institutionsconsidering fixed-site MRI. Greater difficulty for providers inqualifying for low-cost equipment financing has helped spur demandfor fee-per-scan financing. In a fee-per-scan plan,

Fee-per-scan payment plans are gaining popularity among institutionsconsidering fixed-site MRI. Greater difficulty for providers inqualifying for low-cost equipment financing has helped spur demandfor fee-per-scan financing.

In a fee-per-scan plan, users compensate equipment owners witha fixed fee for each completed procedure. Per-scan fees typicallyrange between $250 and $650, depending on equipment costs andcontract terms.

Users reduce the risk of losses by hiring fee-per-scan MRIservices when they are starting out and are uncertain of procedurevolume. Potential rewards for success are also lower than withconventional financing, however, because more income is sharedwith an equipment owner as procedural volumes rise.

With the richest institutions and most fertile markets servedto a point approaching saturation, MRI's newest customers aremainly smaller hospitals based in less desirable locations. Theseinstitutions are converting to fixed-site installations aftergaining experience with mobile MR.

In most cases, the imaging ambitions of these smaller facilitiesoutstrip their cash reserves. Fee-per-scan can make fixed-siteMRI a viable proposition for this group. Providers who can passthe test of due diligence can get an MRI unit installed in a modularbuilding at their hospital site for no money down. As a bonus,they frequently receive staffing and marketing support to helpthe business grow.

But it is not only smaller institutions that are in the marketfor fee-per-scan in these days of increasing reimbursement pressure.SunHealth, a hospital chain based in Charlotte, NC, anticipatesmajor growth for the fee-per-scan approach, according to DaleOvercash, program director of the company's capital equipmentdivision.

"Hospitals have to replace their equipment, and it's entirelypossible that the dollars needed to buy that equipment are notgoing to exist. They will have to come up with alternative meansto acquire the state of the art," he said.

BETWEEN 400 AND 500 U.S. HOSPITALS may be in this category ofinstitutions that might consider fixed-site, fee-per-scan MRI,according to Barry E. O'Brien, president of Signal Medical Servicesin Farmington, CT. The estimate includes roughly one-third ofall facilities now using mobile MR. O'Brien anticipates that mostof this group will consider acquiring a fixed-site MR system before1996.

Fixed-site, fee-per-scan is an increasingly important segmentof mobile-MRI provider Alliance Imaging's customer mix. Aboutone-third of Alliance's 55-unit fleet serves a single hospitalcustomer, said Richard Zehner, president of the La Palma, CA,company. He predicts that another 30% of his business will convertto fixed-site units in the next two years.

Smaller hospitals that have part-time mobile MRI want the benefitsthat larger facilities enjoy through permanent MRI services. Thereis still local prestige gained and money to be made from thiscutting-edge technology, according to Albert Van Kirk, presidentof King's Medical Company in Hudson, OH.

"Competition and economics are driving the 150- to 250-bedhospitals to acquire MRI," Van Kirk said. "There arenegative economics in the fear that they will lose their referringphysicians if they don't provide it. There are positive economicsby doing a good job with MRI, so it becomes a profit center forthe facility."

Fee-per-scan is also finding a niche among the nation's largesthospital-management companies. The financing mechanism meets adifferent set of priorities for executives, such as Dr. F. DavidRollo, senior vice president at Humana. He is using fee-per-scanto strike strategic alliances between the for-profit hospitalcompany and the manufacturers.

The reasoning here is that the manufacturers will accelerateimprovements in scanner speed and clinical utility because theyshare in the financial risk of providing the service. Humana pioneeredthe concept, but Hospital Corporation of America, HealthTrustand SunHealth are writing their own variations of the same theme.

"We are looking toward a true partnership with the manufacturers,"Rollo said.

THIS PHILOSOPHY ENCOURAGED GE to begin contracting fee-per-scanservices in addition to direct financing, rentals and leases throughits financial services group. Hitachi has a program, and Siemenshas a plan on the drawing board, according to Joe Ahladis, technicalmanager of MR for Siemens. Philips customers considering the approachare referred to King's Medical, a firm with 10 years' experiencein fee-per-scan diagnostic imaging.

Although leasing firms, such as Comdisco, are introducing theirown programs, imaging management companies still underwrite thebulk of fee-per-scan work. Nearly all mobile imaging is structuredaround fee-per-scan, so contracting for fixed-site MRI is a naturalextension of the services offered by MTI, Alliance Imaging, MaxumHealth, American Shared Hospital Services and other mobile imagingchains. Management companies, such as Medical Imaging Centersof America in San Diego, the Linc Group in Chicago and DVI Financialin Irvine, CA, are also players in this field.

Fee-per-scan has endemic problems as well as obvious advantages,according to Lawrence Atkins, president of American Health Servicesin Newport Beach, CA. The foremost problem from Atkins' perspectiveis the way facilities are charged for fee-per-scan. While thehospital does most of the work building the service, the equipmentprovider benefits more than the user as the business grows.

"There is a natural tension set up between the two partiesbecause fee-per-scan is a classic zero-sum game. Every dollarthe vendor earns is a dollar less for the hospital," Atkinssaid.

Wynn Blieberg, Philips' director of financial services, cansee why tensions rise as the hospital makes larger and largerpayments in tribute to the service's success. "It's humannature to forget who financed the system up front when you'repaying the piper three years down the line," he said.

Fee-per-scan can also raise barriers to contracting for managedcare. Unlike conventional financing, the facilities' administratorscannot be as creative with pricing because unit costs are fixed.

AHS, a pioneer in fixed-site fee-per-scan, shifted away fromthe approach because of these problems, Atkins said. Its new dealsrevolve around cooperative ventures. They are basically limitedpartnerships between AHS and hospitals. The two parties work togetherto develop the imaging business. Profits are distributed to thefacilities and to AHS at year's end.

Other vendors use sliding-fee scales to the same effect. Ina typical situation, the facility pays $450 per scan for the first50 scans performed in a month. The price drops to $325 per scanfor the next 25 patients and to $275 per scan after the monthlyvolume exceeds 75 procedures.

In this way, the facility enjoys a larger share of its ownsuccess. It also makes sense to contract for managed care becauseprice discounts provided in exchange for the HMO's business areoffset by reductions in the cost per scan.