Health-care shifts bring hospitals to the market

February 16, 1994

Hospitals will play a stronger role in large scanner acquisitionsin the 1990s, according to David L. Higgins, president and CEOof medical financing firm DVI. Several trends underlie the swingto hospital purchasing: the decline of referring-physician

Hospitals will play a stronger role in large scanner acquisitionsin the 1990s, according to David L. Higgins, president and CEOof medical financing firm DVI. Several trends underlie the swingto hospital purchasing: the decline of referring-physician imaging center ownership; changing shared-service economics; and evolving service patterns under a reformed U.S. health-caresystem.

"During the late 1980s, the typical answer for a mid-sizedhospital requiring (large imaging) equipment was either to usea mobile service when they didn't need it full-time or let thereferring physicians put it in," Higgins said. "Theyobtained the advantage of having equipment on-site or close toon-site without having to use their own capital."

Many hospitals have developed sufficient imaging volume tojustify the transition from a mobile service to full-time useof a scanner, he said. But because of federal and state restrictionson referring-physician ownership, these institutions are not asable to delegate equipment ownership responsibility to their doctors.This has increased demand among hospitals for financial supportof large capital equipment acquisitions.

Furthermore, as health-care reform takes shape, hospitals anticipatethat they will be asked to provide a wider range of services aspart of capitated payment programs, he said. Hospitals are positioningthemselves for this competitive health-care environment by broadeningtheir equipment portfolios.

"In order to compete, the hospital needs to be able toprovide all types of services," Higgins said. "As aresult, they are acquiring some equipment that they didn't acquirein the past."

DVI is shifting its financing focus toward the hospital marketin response to this trend. Last year, the firm moved about halfits sales force into a group exclusively focused on the hospitalmarket, he said.

The increase in DVI's hospital business is also turning thefirm's financial focus toward lower cost imaging systems, suchas nuclear medicine cameras, he said.

Because the nonhospital imaging center market was the drivingforce behind sales of large imaging systems, particularly CT andMRI, during the 1980s and early '90s, most of DVI's sales forcewas targeted away from hospitals.

The same out-of-hospital focus characterized Medical EquipmentFinancing (MEFC), a Horsham, PA, scanner leasing company run byseveral former principals of medical imaging lessor U.S. Concord,Higgins said. DVI purchased MEFC in January of 1993.

Largely because of the new personnel and contacts brought onby MEFC, DVI's financing volume has soared, he said. The firmhas a financing backlog of about $150 million, or nearly threetimes the total business DVI did in 1992.

"We picked up some excellent vendor relationships in theprocess of that (MEFC) acquisition," Higgins said. "Wenow have relationships with all the major full-line vendors inthe diagnostic imaging business other than GE and Siemens."

Both GE and Siemens operate their own captive financing companies.

Vendors without the capital resources to support their ownfinance efforts can make use of a new private-label financingservice being offered by DVI. Use of DVI financing under theirown name will allow equipment suppliers to offer more completepackages to their customers, Higgins said.

Buyers often appreciate making the purchase on a cash-flowbasis, rather than having to deal with a large outflow up front,he said. Periodic finance payments can be easily matched againstrevenue inflow to justify the purchase or lease.

With its main financing activity in high gear, DVI has decidedto exit completely from direct ownership of imaging centers. Thefirm had a position in about seven centers, including an innovativecenter partnership with a Chicago union. It is in the processof selling all these stakes, Higgins said.

DVI will continue its indirect participation in imaging servicesthrough ownership positions in Healthcare Imaging Services ofNew York, SMT Health Services of Pittsburgh, and Vascular Centersof America in Rome, GA.