Imaging executives give new technology credit for equipment market’s comeback

Vendors predict smooth sailing through 1998

Call it the triumph of the technological imperative. After years of slumping sales, the U.S. medical imaging market bounced back with a vengeance in 1997. In a series of interviews at last December's Radiological Society of North America meeting, executives with six of the industry's biggest multimodality vendors credited the rebound to pent-up demand for new technology.

All of the executives interviewed by SCAN were prepared to call an end to the medical imaging market's most recent slump, which began in late 1992 due to fears of managed care and federal healthcare reform. Years of postponed purchasing decisions resulted in an aging installed base, while medical imaging vendors continued to produce innovative technologies and clinical applications. Hospitals are now more familiar with managed care, and most are ready to spend money, according to Jack Price, president of Philips Medical Systems North America in Shelton, CT.

"The market is up because hospitals have gone through some cost constraints and cost reductions, and they have become more stable," Price said. "They now have the opportunity to make some investments that were questionable in the past."

Critics lambasted advanced technology such as MRI during imaging's four-year recession for allegedly contributing to rising healthcare costs. With the market returning to normal, however, hospitals are using new technology as a marketing wedge, according to Jeffrey Immelt, president and CEO of GE Medical Systems in Milwaukee.

"Imaging equipment remains one of the areas where hospitals can differentiate themselves in their market, and therefore it becomes a source of investment," Immelt said.

John Zimmer, vice president of marketing at Toshiba America Medical Systems in Tustin, CA, believes that available technologies enable users to substantially change the way they operate. In many cases, advanced applications once available only on high-end systems have been migrated down to mid-range and even low-end systems, making imaging equipment even more functional.

"The capability you have with the dollar that you spend today really allows customers to position themselves to compete cost-effectively in a managed-care environment," Zimmer said.

Key trends in the U.S. The open MRI segment has been an obvious winner in the U.S., helping spur the overall MRI market to double its revenues in 1997 compared with 1996, according to Cary Nolan, president and CEO of Picker International of Cleveland. In fact, the modality's rapid expansion has sparked questions over whether it can maintain its torrid growth in 1998, Toshiba's Zimmer said.

Executives differed on the type of product mix that has found favor in the U.S. market. Toshiba sees strong growth in the upper mid-range segment, where products have many of the capabilities of premium systems at a lower cost. For example, Toshiba's Aspire CI CT fluoroscopy mode, once available only on the company's premium scanner, has been migrated to lower price points. Interventional CT is an example of a new technology whose value was once questioned, but is now recognized as valuable due to its ability to help users get more performance from their equipment, Zimmer said.

Jonathan Adereth, president and CEO of Elscint of Haifa, Israel, reported that his company was particularly successful in 1997 with high-end products in CT and nuclear medicine. In general, the market seemed to polarize last year, with users drawn to either premium or low-end systems, he said.

Meanwhile, Erich Reinhardt, chairman of Siemens Medical Engineering Group of Erlangen, Germany, believes that productivity and efficiency are the market's new mantras, regardless of the product's price segment.

"It's not high or low end, it's a question of price performance," Reinhardt said. "You must not only have the top image quality, you also have to demonstrate efficiency, what can you achieve under managed-care conditions."

Doing deals. Although purchasing returned to healthy levels in the U.S. last year, the medical imaging market is a fundamentally different place than it was in 1992. Managed care still casts a long shadow over capital equipment acquisition. The rise of group purchasing organizations, hospital consolidation, and sole-source deals puts additional pressure on companies to maintain broad product portfolios. But vendors can no longer afford to spend the R&D money required to give them the best products in every modality. What's the solution? Vendor partnering and other creative alternatives in order to develop new products at an acceptable cost.

"As we move towards department-wide or enterprise-wide solutions, customers are looking more towards a single-source point for those solutions," Zimmer said. "I don't believe that any single company has the capability to provide world-class solutions all across the board, all the time-it is not economically feasible to do that. Therefore, in order to provide those solutions, one must partner in some form."

Last year saw the establishment of several high-level partnerships between vendors. In nuclear medicine, Toshiba teamed up with Siemens and GE partnered with Elscint. Meanwhile, Siemens, Philips, and Thomson Tubes Electroniques joined forces in the Trixell digital detector joint venture.

Philips' Price used the example of Trixell to illustrate how partnering can help companies bring products to market more quickly. Another benefit of partnerships is the fact that they often result in products that have broad, standards-based industry support, which benefits both vendors and end users, Price said.

The benefits of partnering were echoed by Elscint's Adereth.

"Sharing the work with another company means that in most cases you can bring to market products at a much quicker pace," he said. "Our projections now with our time to market (in the ELGEMS joint venture with GE) will be substantially shorter than before."

The imaging industry seems to have resorted to collaborations in lieu of consolidation, Picker's Nolan said. While many smaller vendors have been snapped up by larger firms, the major players in medical imaging today have substantially the same corporate structures they had five years ago. This contrasts with more turbulent markets such as the defense or pharmaceutical industries.

"Our industry hasn't seen a lot of consolidation. When you talk about the defense industry, that is a lot of consolidation. In semiconductors, that is a lot of consolidation," Nolan said. "What you have seen is deal-doing. Rather than consolidation, what you have are some of the larger players doing deals with one another, trying to find formulas and equations that will increase their productivity."

The Asian crisis. When examined on a global basis, the U.S. market clearly outshone other countries in 1997, according to executives. Business was particularly tough in Western Europe last year, especially in Germany, with the market either flat or declining about 5%, according to GE's Immelt. European governments preparing for monetary union in 1999 have cut healthcare spending in order to get their debt levels in line with European Union requirements, and this has taken its toll on capital equipment spending.

Economic problems in Southeast Asia have grabbed headlines this year and last, but nearly all executives questioned believed that the crisis will have little impact on their operations. The percentage of revenues that Thailand, Indonesia, Malaysia, and other Asian Tiger countries contribute to each company's annual sales can be measured in the single digits, and the biggest Asian markets, China and Japan, remain relatively stable.

Israeli medical imaging vendor Elscint has been insulated somewhat from the turmoil because its focus in the Far East is on China, Korea, Thailand, and Taiwan, and to a lesser extent the Philippines, according to Adereth. The vendor is not active in either Indonesia or Malaysia, both Islamic nations, due to political issues.

Despite the Asian market's short-term woes, the region will continue to attract the interest of imaging vendors due to its long-term potential, according to Siemens' Reinhardt.

"What is most important to understand is that in these markets still there is unsaturated demand," Reinhardt said. "Therefore it is only a question of time as to when they will come back. Asia continues to be an interesting market because we think we will see growth in the future."

Imaging's future. How long will the current growth trend last? According to most executives, the U.S. market has at least another 12 to 18 months of healthy purchasing activity left as hospitals upgrade their aging installed base. Another crucial indicator, procedure volume, is also positive, showing growth in nearly all modalities, according to GE's Immelt. MRI and ultrasound are showing procedure growth at a 15% annual clip, he said, while interventional x-ray procedures such as cardiac catheterization are growing in the 10% to 15% range. CT procedure volume is growing between 5% and 10%, while in traditional x-ray and nuclear medicine procedure volume is either flat or growing at about 3%.

New technologies on the cusp of commercialization-such as digital x-ray detectors-will give hospitals even more reason to buy. Every executive surveyed was excited about the potential of digital detectors to spark new purchasing in x-ray, while many compared the technology with advancements that revolutionized other modalities, such as spiral CT or gamma camera SPECT.

Another technology with massive growth potential is PACS. Although the market may be taking longer to develop than first expected, all agreed that digital image management will be a necessary part of healthcare in the 21st century. Vendors selling PACS to hospitals, however, must make sure the technology will have an economic payoff for customers. Otherwise, hospitals may be reluctant to buy, according to Immelt.

"In the case of both PACS and digital x-ray, they either have to improve outcomes or fundamentally change the way people work," he said. "In the case of PACS, if you are not in it to improve work flow, if you are not in it to improve basic radiology productivity, you won't make the investment."

The development of new technologies such as PACS and digital x-ray, and advances in more traditional modalities such as MRI, ultrasound, and CT, will ensure that equipment purchasing will remain healthy through 1998, according to Picker's Nolan.

"There is an enormous latent opportunity in this marketplace, and this robust market climate will continue for the next several years," he said. "We've had our recession, and now we're coming out of it. We are really bullish on what the market's going to look like."