Imatron hopes to stanch red ink by restructuring HeartScan stake

Reimbursement issues retard center firm's growthImatron is in a bit of a bind. The South San Francisco, CA, vendor has seen an increase in sales of its premium ultrafast CT scanners this year, particularly in overseas markets. Imatron's financial

Reimbursement issues retard center firm's growth

Imatron is in a bit of a bind. The South San Francisco, CA, vendor has seen an increase in sales of its premium ultrafast CT scanners this year, particularly in overseas markets. Imatron's financial results don't reflect this upturn clearly, however, because the company has been including losses incurred by its minority-held HeartScan Imaging subsidiary into its own reports.

Imatron formed HeartScan three years ago with the goal of creating a nationwide network of centers to offer ultrafast CT-based coronary artery screening directly to the public (SCAN 4/21/93 and 4/6/94). Since then, HeartScan has not grown as fast as anticipated: While the company projected it would have 70 centers open by 1999, it has only five running with one more expected to open this year, according to Lewis Meyer, president and CEO of Imatron.

Imatron would have had a profit in the first quarter of 1997 (end-March) of $739,000 if it had not been for the $1.6 million loss of HeartScan, he said. The equipment vendor sold five systems in the first quarter, up from two in the first quarter of 1996.

The reason Imatron must consolidate HeartScan's financials-even though it does not hold a majority position-is related to a complex put option that investors in the imaging services business were given at the time of HeartScan's private offering a year ago, Meyer said.

Imatron is talking with these investors to find a way to restructure this put option, he said. The restructuring might involve a change in Imatron's 49% position in HeartScan, although it may not necessarily turn out that way.

Imatron isn't looking to sell a portion of HeartScan in order to exit the imaging services business, Meyer told SCAN. Any diminishment of its equity stake would be a result of investor requirements in renegotiating the put option. This option allows the investors to exchange their HeartScan position for Imatron shares at a predetermined rate for another year and then at a percent of the market price of Imatron stock for two additional years.

Reimbursement woes. Part of the reason for HeartScan's slow growth is that some major private payors in the U.S., notably Blue Cross, won't pay for the ultrafast CT CAD screening exam because they consider the procedure to be investigational, Meyer said. Although Medicare and some private-payor reimbursement is available, being closed out by these large insurers has dramatically reduced the market potential of the ultrafast CT exam.

"Why isn't HeartScan developing? In a nutshell, it boils down to insurance reimbursement," Meyer said. "We frankly don't agree (that this exam is investigational), nor do the 17 chairmen of cardiology departments who have written to the Blue Cross Technology Assessment Committee saying that this is an extremely valuable piece of information. It is the only way we know how to assess in asymptomatic people whether they have significant arteriosclerosis."

Imatron has been successful selling the expensive ultrafast CT scanners in international markets, and large multi-unit scanner orders have come from Japan and Malaysia. The vendor also signed a service support agreement in April with Siemens, which sells the ultrafast CT under its Evolution XP label. This strengthened relationship should bring in more service revenue for Imatron.

In the U.S., the reimbursement issue has kept down ultrafast CT sales. Imatron has installed over half of its scanners, about 45, in sites outside the U.S. Approximately 30 systems are in this country, Meyer said.

HeartScan has been left with the option of marketing to individuals who will pay to find out their cardiac condition. This restricts HeartScan to only large metropolitan areas, where there is a sufficiently large pool of potential patients. Ultimately, Imatron believes that direct participation in coronary artery disease (CAD) risk-assessment diagnostic services will benefit the company by stimulating clinical advocacy of this cardiac CT procedure and by providing a model for other service providers to follow, which should build the business for Imatron's scanner, Meyer said.

"We absolutely plan to maintain our position in HeartScan," he said. "What the level will be, I can't tell you. But we intend to continue participating in the service side of the business. It keeps our fingers on the pulse of the market. We get to talk to opinion leaders in a more direct way."

This situation is ironic in that pressures in the U.S. to keep down healthcare costs should provide an incentive for CAD screening in order to reduce the large sums spent on cardiac treatment, he said.

"We have a view that healthcare in the U.S. is better (than overseas)," Meyer said. "But to be frank, investing in screening tests or an annual physical is a much more accepted paradigm in Asia than it is in the U.S."