PACS costs versus savings analysis draws gloomy conclusions

May 9, 2007

Despite its well-documented clinical advantages, PACS is associated with disadvantages that include significant capital expenditures. In at least one setting documented in a recent paper, the full amount of anticipated savings failed to materialize.

Despite its well-documented clinical advantages, PACS is associated with disadvantages that include significant capital expenditures. In at least one setting documented in a recent paper, the full amount of anticipated savings failed to materialize.

"Theoretically, PACS should provide cost savings for large subspecialized departments, although it is possible that proposed savings may not be achieved," said Dr. Arra Suresh Reddy, a radiologist at Beth Israel Deaconess Medical Center and Harvard Medical School.

Reddy's paper (J Digit Imaging 2006;19 Suppl 1:66-71) analyzes the budget variance of Beth Israel's PACS implementation. He evaluated PACS costs and savings compared with the projected budget at the time of inception.

The facility achieved $214,460 in annual cost savings, mainly through supplies and salaries. Over five years, savings totaled $1,072,300.

"This was significantly less than the $2,943,750 projected savings expected," Reddy said.

This discrepancy is attributed to several factors, including unanticipated costs. Beth Israel experienced $162,685 in annual unanticipated costs, representing roughly 19% of the $852,660 in annual savings accrued through supply and salary savings. Ancillary or hidden costs can be quite large and can potentially offset proposed savings, Reddy said.

"To have this large amount of unanticipated costs means both the initial estimates by vendors and our own forecasting model were extremely flawed," he said.

These unanticipated costs were for temporary workers ($40,684), information systems support ($44,310), and "other" ($77,691).

One suggestion from Reddy to limit the effect of variable costs is to compare spending versus budget on a regular basis. This would permit administrators to identify potential issues relatively early so timely corrective action can be taken.

"Also, we should have held vendors more accountable," he said.

Reddy said the radiology department chair and business manager both worked closely with the vendor to create the project budget.

"We believe it is just as important for vendors to be accurate with their estimates as it is for them to provide quality service," he said.

Although Beth Israel did have a signed contract holding vendor delivery costs to a specified amount, upgrades exceeded anticipated costs.

"Penalizing vendors financially for underestimating true costs could help institutions receive more accurate quotes," Reddy said.