GE case aids R Squared's MR entree

October 21, 1992

Independent service organization R Squared Scan Systems capitalizedon the settlement of litigation with GE last year to enter thenewest frontier of third-party maintenance: MRI service. The Corona, CA-based company spent two years and $2.5

Independent service organization R Squared Scan Systems capitalizedon the settlement of litigation with GE last year to enter thenewest frontier of third-party maintenance: MRI service.

The Corona, CA-based company spent two years and $2.5 milliondeveloping its nationwide service program for GE's Signa Advantage1.5-tesla scanner. R Squared began marketing the service in August,according to Paul Thomas, executive vice president of operations.

"It's the next logical step in the evolution of service,"Thomas said.

The large investment was necessary because of the complex natureof MRI equipment, as well as the ISO's decision to keep pace withthe modality's rapid evolution.

"For the newest technology, like the Advantage, you haveto be able to make substantial financial and human resource investmentsso you can stay current as the equipment goes through the upgradesthe manufacturers put them through," Thomas said.

For R Squared's MRI program, this included siting an Advantagescanner at the company's headquarters, as well as developing proprietarydiagnostic software for scanners in the field.

R Squared chose to focus its service program on the Signa Advantagebecause of the scanner's large installed base. Ending its legaldispute with GE last year over copyright claims on service softwareenabled the ISO's MRI effort to move forward.

GE had charged R Squared with infringing on copyrights forCT scanner diagnostic software, while R Squared countered by accusingthe vendor of antitrust violations. The out-of-court settlementof the case gave R Squared access to basic scanner operating softwarefor both CT and MRI. R Squared was then able to develop its ownadvanced diagnostic programs from GE's operating software (SCAN3/13/91 and 3/27/91).

"When we began our settlement discussions, all (GE) wantedto do was focus on CT," Thomas said. "We were able tobroaden those discussions. We saw the future growing in CT, butreally expanding into MR."

R Squared unveiled its MRI program this August at the AmericanHealthcare Radiology Administrators meeting in San Francisco,and since then the program has been running ahead of schedule,according to Thomas.

The market for third-party service of MRI scanners shares manysimilarities with the CT market in the early 1980s, he said. Vendorshave a lock on MRI service contracts, and as a result, costs arehigh relative to the services being provided. Given the anemicmarket for sales of new systems, many vendors have come to viewtheir service departments as major profit centers.

In the CT market, the entry of ISOs created a competitive environmentthat helped reduce service costs in the modality. This will likelyhappen in MRI as well, but with a few twists.

Only the larger ISOs will be able to afford the capital investmentsin advanced diagnostic software, available spare parts and engineeringpersonnel necessary to effectively provide MRI service. And thoseinvestments must be made before a single scanner is serviced,according to Thomas.

"A lot of the service companies got into CT on a shoestring,"Thomas said. "You can't do that in MRI and be successful.You must be capitalized well enough to be able to make the financialinvestments in the development of a good program."