Kaiser measures leap to adoption of PACS

January 27, 1993

Conventional wisdom holds that the cost of full-blown digitalmedical imaging presents an insurmountable obstacle for mid-sizedprivate and community hospitals. Think again. There may be a financiallogic to investing in total picture archiving and

Conventional wisdom holds that the cost of full-blown digitalmedical imaging presents an insurmountable obstacle for mid-sizedprivate and community hospitals. Think again. There may be a financiallogic to investing in total picture archiving and communicationssystems, particularly when hospitals are linked in a managed-careplan.

Health maintenance organization Kaiser Foundation Hospitalsis seeking greater wisdom. Kaiser is seriously examining the installationof full PAC systems in its hospitals.

If Kaiser were to make good on its PACS dreams, its facilitieswould be among the first nongovernmental or nonuniversity hospitalsin the U.S. to make the leap to full PACS.

Total PAC systems are being implemented at several U.S. Armyand Air Force hospitals as part of the military diagnostic imagingsupport (MDIS) project (SCAN 12/30/92). Prestigious academic institutions,such as the University of California at Los Angeles, have alsobuilt PACS models as part of their leading-edge medical imagingresearch.

Unlike the highly specialized MDIS project, Kaiser's PACS couldultimately serve as a model for community hospitals. Kaiser, ofOakland, CA, operates 29 hospitals throughout the country andhas annual revenues of $9.8 billion.

Kaiser has been watching the development of the PACS industryfor the past decade, according to Gailord Gordon, general managerfor biomedical engineering. The HMO was lukewarm to digital medicalimaging technologies for some time, but the industry has developedsufficiently over the past several years to make full PACS anattractive option.

To pursue PACS in more detail, Kaiser commissioned a studyof the financial and operational potential of the system. Thestudy's findings were presented to Kaiser physicians in a Decembermeeting held to discuss technological developments within theHMO.

THE NUMBERS LOOKED GOOD to Kaiser, according to Gordon.

"We believe that PACS can be a cost-effective operation,"he said. "The dollars that we project are very, very attractive."

A Kaiser PACS effort would begin by converting a beta-sitehospital to PACS, an effort expected to take about three years.Kaiser would install PACS on a modular basis, beginning with MRIand CT in the first year.

The second year would see the adaptation of nuclear medicine,ultrasound and fluoroscopy to PACS, as well as the linking ofa radiology information system into the image archiving system.Radiography would be added in the final year.

According to the study's findings, the beta site would achievea return on investment after 5.4 years.

Kaiser would then follow a two-year schedule in implementingPACS at other hospitals in the system, with a cost of about $4.5million per hospital. Those hospitals would achieve a return oninvestment after 4.7 years, Gordon said.

Kaiser based its numbers on savings in three areas that wouldsee cost reductions with PACS: labor, film and film developingsolutions.

"We manufacture a million liters of solution a year anddeliver them throughout the Kaiser system," Gordon said."There's an awful lot of money involved in that kind of thing."

The figure of $4.5 million per hospital might sound low toPACS industry observers. But the co-author of the Kaiser PACSreport, Michael Gray of Gray Consulting in Novato, CA, insiststhat what Kaiser is trying to do--build a cost-effective systemfor community hospitals--is fundamentally different from whatthe PACS industry has seen in the past.

"We wrote specifications that don't reflect any systemin existence," said Gray. "This is not a $10 millionMadigan system."

Madigan Army Medical Center in Tacoma, WA, is a showcase hospitalfor the Army's PACS effort.

Kaiser has forwarded its cost estimates to about a dozen PACSvendors to see if its numbers are realistic. If manufacturerscan meet Kaiser's specifications at the right price, Gordon wouldbegin trying to generate support within Kaiser for funding tomove the PACS project forward. If all goes well, work on Kaiser'sPACS could begin in January 1994, he said.

A Kaiser PACS would have to be compatible with the ACR-NEMAstandard for connectivity between medical imaging equipment, accordingto Gordon. Kaiser would be reluctant to work with a vendor thatwas moving away from the standard.

"(ACR-NEMA) is important for everybody," Gordon said."I'm concerned about being left stranded by smaller companieswho are moving off in a direction that may or may not be supportedby the ACR-NEMA standard."

Kaiser's concept of fully implemented PACS is a model thathas lost favor in recent years as cash-strapped hospitals balkat the large investments needed for full PACS and instead lookto teleradiology and sub-PAC systems on departmental levels. ButKaiser has the economies of scale necessary to achieve the raisond'¬etre of PACS: saving money.

"We are in a place in the market to develop what couldbecome a national model for cost-effective PACS," Gordonsaid. "If you can't contain the costs, there's no sense inthis."

Winning a Kaiser PACS contract would be a bonanza for the selectedvendor, according to Gray. But the contract would also providea much-needed shot in the arm to the industry as a whole.

"This suggests that there really is a PACS world out there,"Gray said. "There are people who really want to build thesesystems."