MRI manufacturers feel pinch of slumping sales

July 29, 1992

A downturn in new freestanding imaging center growth, coupledwith buyer anxiety in other health-care sectors, has made 1992a disappointing year for new MRI system placements in the U.S. Manufacturers will sell about 500 new systems in the U.S.

A downturn in new freestanding imaging center growth, coupledwith buyer anxiety in other health-care sectors, has made 1992a disappointing year for new MRI system placements in the U.S.

Manufacturers will sell about 500 new systems in the U.S. thisyear--a 5% decline from a year ago. Pricing pressure and a rapidshift to mid-field systems means a 10% drop in domestic salesrevenues, which will total about $715 million, compared to $795million in 1991 (see graph, next page).

From a global standpoint, the sales picture is a little brighter.Sales growth in the Pacific Rim, the Middle East and Eastern Europeis sustaining industry-wide growth, according to Magnetic ResonanceImaging: Advances in MR Technology and Clinical Practice, a studypublished by the editors of Diagnostic Imaging.

SCAN associate editor James Brice compiled this study and forecastof MRI technological and market trends. Brice was supported bythe Diagnostic Imaging staff and consulting editor Dr. HirschHandmaker, principal of Healthcare Technology Group in San Francisco.The study, available for $997, marks the beginning of a continuingseries of Diagnostic Imaging technology reports. Next in lineis an analysis of mammographic technology and markets. For purchaseinformation, contact Sally Shankland at 212/683-9294.

The MRI Technology Report estimates that about 1060 MRI systemswill be sold worldwide in 1992--an 8% increase over last year.Global dollar sales will rise about 5%, or about $71 million morethan the $1.3 billion in new systems sold in 1991.

But in the U.S., regulation and declining reimbursement havecreated a general mood of uncertainty.

"People are very careful in making purchase decisions.(They) are going through the motions, but are not finalizing deals,"said Richard Ernst, president of Hitachi Medical Systems of America.

Regulatory threats have hit the freestanding center marketparticularly hard. New center growth, which had been responsiblefor close to half of U.S. MRI sales, has been reduced to a trickle.

"We're doing a couple of new centers but nothing likewe used to. Doctors just don't have an appetite to fund new dealsright now," said Terrance Gill, president of Medical Ventures,an imaging center consulting company in Solana Beach, CA.

MRI will generate more than $4.9 billion in revenue for U.S.health-care providers this year, but reimbursement trends areeroding the average $653 fee providers are paid for the procedures.

Reimbursement rates have a direct bearing on the pricing anddesign of MRI systems, according to Dale Grant, marketing vicepresident for Otsuka Electronics in Fort Collins, CO.

"A lot of MRI marketing strategies are hitting the wallwith the way reimbursement levels are changing," Grant said.

The situation would be worse if procedural growth were notsustaining interest in new MRI systems. The number of MRI proceduresperformed in the U.S. is growing by more than one million scansper year. About 6.4 million MRI procedures were performed in theU.S. in 1991, according to Market Measures in Livingston, NJ.This represents more than an 18% jump from 1990.

MRI'S INCREASING UTILITY is one reason smaller community hospitalsare purchasing MRI units. With the decline of imaging center development,smaller hospitals of 100 to 350 beds have become the most importantsource of MRI sales. Many of these facilities are converting frommobile services to permanent-site MRI.

These potential purchasers compose the industry's most price-sensitivesegment. Their influence was apparent in the first half of 1992when the average prices for systems sold in the U.S. dropped 3%to 5%, according to Loretta Longcowske, an analyst with Dallas-basedpurchasing consultant M.D. Buyline.

The industry's growing reliance on smaller facilities has alsoproduced a shift to less expensive mid-field MRI. About 64 ofevery 100 systems sold in the U.S. in 1991 were rated at lessthan 1 tesla field strength, according to the MRI Technology Report.That contrasts with 56 of every 100 systems sold in 1990. Thereport's authors expect that 70% of all systems sold in the U.S.by 1995 will operate at mid or low field strength (see graph,page 4).

Manufacturers' fortunes ride on market share more than everas a result of the downturn in U.S. sales. Potential purchasersare seeing concessions on prices, financing and service contracting(see following story).

Bolstered by the strengths of 1-tesla systems introduced lastyear, Siemens and Picker are chipping away at GE's market lead.Toshiba and Philips have lost ground in the U.S., while Hitachi'srapid growth has at least temporarily leveled off.

The 1-tesla Impact is helping Siemens' improve its U.S. position.The German manufacturer was responsible for the sales of slightlymore than two of every 10 systems installed in the U.S. last year(see chart, below).

Picker has also made gains on the strength of its 1-tesla and1.5-tesla Vista Q offerings. The company broke the $100-million-a-yearthreshold for new MRI sales in 1991, said Surya N. Mohaptra, vicepresident of Picker's nuclear magnetic resonance division. Dollarsales increased 23% on the strength of the sale of 55 high-fieldsystems.

The company is increasingly finding itself on the customer'sshort list along with Siemens and GE for the potential sales,Mohaptra said. MRI Technology Report estimated that Picker rankedthird behind GE and Siemens with 11% of the domestic market in1991.

Although GE remains the domestic market leader, exactly wherethe American manufacturer stands relative to its competition isa source of debate. The Diagnostic Imaging study showed that GEwas responsible for 32% of U.S. sales in 1991. Its high-watermark occurred in 1989, when it controlled 45% of the market.

Both statistics underrepresented GE's actual U.S. performance,according to Jay Miller, Signa marketing manager. He declinedto say whether GE's share diminished during the period.

Hitachi Medical Systems of America captured a 9% share, selling60 systems in the U.S. last year. It has a U.S. installed baseof slightly more than 100 units. The joint venture between SummitWorld Trade of the U.S. and Hitachi of Japan did not see a downturnin shipments in the first half of 1992, Ernst said.

HMSA will find it difficult to maintain that pace, however.The downswing in imaging center activity hits Hitachi right whereit has enjoyed the greatest success in the U.S. About 70% of itsbusiness came from freestanding centers last year.

Hitachi's 0.5-tesla MRH 500 and 1.5-tesla MRH 1500 should improvethe company's hospital sales position in the U.S., but the twosuperconducting systems are still awaiting Food and Drug Administrationapproval.

Even without these products, the company appears to be improvingits customer mix. It has sold about half of its system to hospitalsthis year, Ernst said.

Toshiba's greatest challenges are posed by the age and compositionof its U.S. installed base. Out of about 150 0.35-tesla Toshiba/Diasonicsunits in the field, 80 will be at least five years old this year.The competition for this replacement market is expected to befierce. The systems represent about 20% of Toshiba's U.S. installedbase.

The company's sales momentum sagged in 1991 when its marketshare decreased by several points. It now controls about 9% ofthe U.S. market. Toshiba's performance is improving this year,however, according to MRI group manager William Carrano. The companysold seven 0.064-tesla Access systems in the first six monthsof this year and installed four of its recently introduced high-fieldMRT 150A systems. Numerous upgrades are planned for Toshiba's0.5-tesla MRT 50A system.

Engineering continues to be Philips' strength. Enhancementsto the T5 and the ACS introduced in April include the conversionto a VAX 4000, which produces a substantial increase in arrayprocessing speed. New turbo spin-echo and turbo field-echo givethe systems fast scanning capability. Maximum intensity projectionsand multiplanar reformatting, which had been the exclusive providenceof the Philips Gyroview independent workstation, can now be performedon the system's operator consoles.

Philips' vulnerability stems from its marketing.

"The major challenge we face is simply exposing ourselvesin the proper image so that we are considered more often whenbuyers make their purchasing decisions," said Hal Beck, whowas appointed Philips MRI marketing director in April. "Weare going to be more marketing-driven because that's the weakestlink in our chain."

Shimadzu delivered four SMT 100X systems in the first halfof this year and took orders for two installations to be madein the second half.

Instrumentarium installed three of its $800,000 Mega4 HT systemsbetween January and June, according to MRI director Michael Silver.He expects another six sales to close by year end.

Resonex anticipates a turnaround from unprofitable first andsecond quarters. It is shifting its sights to management servicesin orthopedic MRI centers. Resonex joined in partnership withan undisclosed Texas physician group in April to form Matrix Services,based in Atlanta. Three Matrix centers--equipped with Resonexsystems--will open this month. Three others should be in placeby January, said Gerald Knudsen, Resonex president.