PACS market records solid gains but Y2K may hamper growth rateVendors target integration, work-flow improvmentsBy most accounts, the PACS market is maturing. The benefits of the technology are well known, and medium and large healthcare
Vendors target integration, work-flow improvments
By most accounts, the PACS market is maturing. The benefits of the technology are well known, and medium and large healthcare institutions are increasingly aware of the efficiency and productivity gains possible with PACS, all the more necessary in the era of integrated delivery networks and hospital consolidation.
Sources contacted by PACS & Networking News for this annual market update and future outlook report believe the rapidly growing large-scale PACS sector may best illustrate the evolution of the market. Numerous multimillion-dollar contracts have been signed in the last year, most of which are phasing in PACS as they convert to an all-digital environment over the next few years.
Another key development is the progress in integrating PACS with other information systems, particularly RIS networks. Prodded by customer demand, this capability is helping to drive the market, and many vendors are reporting dramatic increases in requests for proposals for enterprise-wide PACS installations. Great strides are also being made in conformance to DICOM, although there are still gaps in compliance among vendors.
Despite the progress in the PACS market, the year 2000 (Y2K) problem appears certain to introduce a jarring note. Nearly every source contacted by PNN expressed concern that a drastic slowdown in PACS purchasing could occur in the second half of this year, and potentially continue into the first half of 2000.
"There's an extraordinarily high level of interest and planning for PACS," said Michael Cannavo, president of Winter Springs, FL-based Image Management Consultants. "But many hospitals are deferring purchases and installations until the beginning of the year, due to Y2K concerns."
Although several HIS companies have already reported purchasing deferrals because of Y2K issues, most PACS vendors have not yet felt the impact of Y2K, perhaps as a result of the long purchasing cycle for PACS. Most PACS firms contacted by PNN reported first quarters that met or exceeded forecasts.
Trying to ascertain PACS market figures remains challenging. Estimates among the various organizations tracking this sector vary widely, based in part on the inclusion or exclusion of computed radiography systems and laser imagers. In the U.S., 1998 PACS revenue estimates range from $200 million to $600 million, with a median of about $400 million. Expected 1999 growth rates also range widely, from a low of 10% to a high of 30%, although most observers believe growth will fall in the 15% to 20% range. The European market is estimated by some watchers to be in the $200 million range, with growth rates similar to the U.S. sector as market dynamics become more favorable for PACS implementation.
Despite the divergent statistics, interest in PACS is undoubtedly high. The growth of managed care and the resulting pressures on radiology reimbursement for imaging exams continue to boost the attractiveness of efficiency gains from PACS, said Philip Drew, president of Concord Consulting Group in Concord, MA.
Implementation of PACS has also broadened into the medium-size hospital sector, a key development in the market's evolution. Hospitals with fewer than 250 beds, however, have been slow to adopt PACS because of the uncertain cost/benefit ratio of digital image management at this level.
In Europe, the quest for efficiency is also expected to lead to increased utilization of digital image management. Rapidly growing markets include Scandinavia, Germany, and the U.K. Some industry analysts believe the European market could grow as quickly as the North American sector in a few years.
Sweden, in particular, has adopted large-scale PACS at a rapid rate, said Dr. Torbjo^urn Kronander, managing director of Linkoping, Sweden-based Sectra-Imtec.
"Of the 95 hospitals in Sweden, 20 are film-free or are in the implementation phase to become so, and at least 20 more will become film-free in the next few years," he said. "We see the end of film in Sweden within the foreseeable future."
With the exception of Scandinavia, however, most European hospitals are implementing smaller-scale PACS networks, said Ruud Kroon, CEO of Dutch PACS firm Applicare. This trend appears especially evident in southern Europe.
Other regions, such as Australia, South America, and Africa, seem to be largely teleradiology-only markets at this point. Large-scale PACS purchases in Asia are still limited, due perhaps to lingering effects of the region's recent financial crisis.
Consolidation and integration
Consolidation and partnerships continue to be a prevalent theme for vendors participating in PACS. Kodak's purchase of Imation's medical imaging business and Agfa'a impending purchase of Sterling Diagnostic Imaging have reshaped both the film and PACS industries, and most analysts believe more acquisitions and mergers will soon follow.
But acquisitions aren't the only way in which vendors can improve their product lines and market position. Several co-marketing and strategic alliances have been inked in the last year, particularly between PACS and HIS/RIS vendors, as firms look to deliver on the promise of integrated systems. GE's relationship with and equity investment in Cerner, (PNN 12/98) and the Siemens/ IDX Systems alliance (PNN 4/99) are examples of this trend, which is expected to continue.
As consolidation and alliances among vendors progress, technology advances are helping to increase the number of success stories for digital image management. One driving factor is the increased scalability of PACS networks, advanced by the proliferation of client/server-based offerings among vendors. Customers now appear confident they can imple- ment miniPACS networks with the capability of growing to a full-scale PACS environment.
The Windows NT juggernaut appears unstoppable in the PACS sector. The Microsoft operating system has become an industry standard for client software, and some vendors have begun migrating their servers to NT as well.
The use of the Web for distribution of images and reports appears to be a widely accepted concept, but is not yet fully in practice. Security, cost, and bandwidth concerns have limited widespread implementations. Many vendors have bolstered their offerings, however, through improved security, viewing, and work-flow features. Deployment of virtual private networks may also help, and use is expected to rise in the near future.
Image compression remains a controversial topic, with reports of use differing widely. Some firms report that lossy wavelet compression is readily accepted among users, while others depict most customers as either reluctant to employ lossy methods, or awaiting the inclusion of JPEG 2000 schemes in the DICOM standard (PNN 10/97). One application employing wavelet schemes that shows a great deal of promise is dynamic transfer syntax (DTS), a low-cost method for enterprise-wide image distribution developed at the University of Pittsburgh (PNN 1/99). Touted as a means to reduce the need for high-end workstations and network bandwidth, DTS is being commercialized by San Francisco-based start-up Stentor.
Speech recognition capabilities have improved, but most sources told PNN that the majority of end users believe the technology is not ready for routine clinical use. Still, speech recognition and digital dictation are regarded as promising technologies for PACS users.
Despite the growth in the upper end of the market, cost-justification remains a crucial issue. PACS is still an expensive technology and is difficult to justify solely on the basis of hard dollar savings from replacement of film and consumables. Productivity gains are now viewed as a key issue in the justification process.
Easier cost justification for diagnostic teleradiology and modular PACS networks may help avoid any Y2K budget freezes, said Scott Sheldon, president of Lexington, MA-based Access Radiology.
"These purchases are typically priced at less than $1 million and are rooted in cost-justification rather than other, less tangible benefits," Sheldon said.
With the large capital outlay required for PACS, creative financing techniques such as risk-sharing and "per-click" payment methods would seem to be popular, but implementation of these approaches has been minimal. PACS leasing has also been touted as a good way for hospitals to protect against technology obsolescence, but this purchasing approach has seen limited use as well.
A major obstacle to further growth in the sector is the interoperability of PACS networks with other healthcare information systems, said John Strauss, director of marketing for Fuji's imaging and information networks division in Stamford, CT.
"The big challenge now is to improve interoperability, getting valuable information out of HIS/RIS networks, and using that information to improve diagnostic accuracy," Strauss said.
Several market watchers believe this problem may be solved by the Integrating the Healthcare Enterprise (IHE) project, a joint initiative between the RSNA and the Healthcare Information and Management Systems Society. The IHE project is moving forward, with demonstrations planned for this year's RSNA meeting and next year's HIMSS show (PNN 4/99). An IHE workshop for interested vendors will be held May 3-4 at RSNA headquarters in Chicago. It will be some time, however, before these integration abilities are commercialized.
And there's the matter of hospital IS managers, many of whom are uninformed about PACS or too busy to take on this kind of project. It's important that vendors educate these potential customers about PACS and the benefits and capabilities of distributing the images around the enterprise, said Gary Larson, president and CEO of Kodak's Cemax-Icon subsidiary in Fremont, CA.
For their part, radiologists appear to be more aware of PACS issues, but a learning gap still exists in many cases, according to many vendors. As radiology departments play vital roles in championing PACS within their institutions, the education level must increase if PACS purchasing is to experience significant growth.
New clinical advancements in imaging modality equipment may spur adoption of PACS technology. For example, new multislice CT studies generate large amounts of image data, driving the need for PACS. Workstation technologies will need to be improved, however, to handle the volumetric viewing requirements of these images, said Vishal Wanchoo, general manager of GE's Mt. Prospect, IL-based Integrated Imaging Solutions division.
Some analysts viewed the availability of flat-panel and CCD-based digital radiography systems as a spark that would ignite large-scale PACS purchasing. But this sector has been slow to develop and has been characterized by pricing concerns and difficulties with some of the firms involved with the technology. Supplier Optical Imaging Systems, which had been providing TFT arrays to Sterling, closed its doors late last year, and Xerox is planning a divestiture of active matrix liquid display and digital radiography developer dpiX (see story, page 1).
While flat-panel digital radiography technology is undoubtedly in the early stages of commercialization, the pricing of these systems is considerably higher than customers are used to paying for digital x-ray equipment. This issue must be addressed before these systems will experience their predicted market penetration.
Recent introduction of low-cost CR systems such as the ACR-2000 from Lumisys and ADC Solo from Agfa will also impact the digital radiography sector.
Other future trends to watch include the integration of e-mail capability into PACS, which will take over some types of teleradiology applications, according to Rik Primo, director of IS and PACS for Siemens Medical Systems of Iselin, NJ.
"Instead of asking for teleradiology, many radiologists are asking for PACS with e-mail capability," he said. "Now when an exam is performed in the ER or ICU, radiologists can receive it over their LAN, make a first impression, and e-mail it back with voice tagging, a text message, or highlighting."
The Web is commonly viewed as an effective tool for distributing images and reports to referring physicians. But the impact of the Web and tools like Java will soon be felt in the radiology department as well, said Bob Cooke, head of Agfa Medical's Impax Solutions division for the NAFTA region.
"Thin-client technology will start to emerge as a diagnostic tool," he said.
As PACS becomes more prevalent, hospitals will likely begin applying digital image management technology to other image-intensive areas of the hospital. Cardiology is expected to be the next big growth area for PACS, said Hemant Goel, senior vice president for strategic growth and planning at Jacksonville, FL-based StorComm.
Flat-panel displays also show potential in the PACS sector, particularly in the mid-range 1600 x 1200 versions. With potentially lower life cycle costs and higher luminance than CRTs, flat-panel displays could find more use in diagnostic environments, said Dr. Steven Horii, associate director of medical informatics at the University of Pennsylvania in Philadelphia.
As PACS components such as workstation software mature, they could ultimately become commodities, said Herman Oosterwijk, president of OTech Consultants of Plano, TX. Companies would then emphasize their systems integration and service capabilities to differentiate themselves in the marketplace, he said.
In storage developments, Rogan Medical Systems president Mark Schwartz envisions the creation of regional archives, where multiple institutions could share a regional data center for their long-term storage needs. Costs would be spread among the institutions, resulting in less expensive long-term archiving, he said.
A development that also bears watching is taking place in the networking sector, where firms such as 3Com and Nortel are working to integrate images, voice, video, and data onto one network. This could help drive the integration of PACS with other healthcare information systems as part of an electronic patient record.
More coverage of the PACS market, including vendor profiles and an overview of technology trends, will be available in an upcoming PACS report being prepared by the publishers of PACS & Networking News and Diagnostic Imaging SCAN. Publication is expected in June. For more information about the report, please send an e-mail to firstname.lastname@example.org