Prospects for ASP vendors rise with growing popularity of PACS

PACS is gaining momentum, but most of the demand is coming from large institutions. Smaller facilities, pressed for budget and in-house expertise, are at risk of being left behind. One solution is the use of application service providers.

ASPs offer the ultimate in scalability, providing complete PACS services and capabilities or just a subset, such as long-term data storage or disaster recovery. These options are getting a lot of attention, according to Mark Reis, marketing manager at Stentor, a San Francisco-based medical informatics company.

"About 75% to 80% of our customers opt for the ASP delivery model," he said. "It puts the onus on us to deliver, but it gives the hospital much more flexibility."

Achieving this kind of flexibility has put a burden on ASPs to change the way they do business. They have had to tailor their offerings to meet customer needs.

"There was a time when the ASP model was based on per-procedure pricing," said Jon Lehman, president and CEO of Evolved Digital Systems, a provider of integrated image and information management headquartered in Laval, Quebec. "It involved an onsite system and was basically just creative financing."

Evolved Digital today delivers data and services over a wide area network. It manages radiology and hospital information systems and integration, image distribution, and even billing and transcription from a centralized system.

With Stentor's ASP offering, the healthcare institution owns and stores all data, but the company remotely manages and monitors those data, Reis said.

"Stentor's ASP eliminates the traditional barriers to PACS entry," he said. "With a traditional system in a capital purchase scenario, institutions are required to lock into a long-term contract, produce significant dollars up front, and maintain an unpredictable yearly maintenance and upgrade fee that can become unmanageable."

ASPs have tried to adapt, offering payment schemes more attuned to budget-challenged facilities. This may lighten the financial load, but it has also added to the complexity of the decision-making that goes into choosing an ASP. Potential customers face a bewildering array of options ranging from "pay once and access many times" to "pay a little the first time and pay more as you access the data."

Stentor offers a month-to-month payment schedule, Reis said. Upgrades and maintenance are included for the lifetime of the contract. Which plan is best depends on the institution and its special needs. Stentor and Evolved Digital Systems have been very successful in gauging those needs. Business is booming for both companies.

On May 21, Stentor announced record bookings in the first quarter of 2004 with the recruitment of 12 new customers. Since launching its iSite PACS in April 2002, the company has accumulated more than $150 million in contract signings.

Evolved Digital Systems announced May 14 a 61% jump in revenues to $4.1 million in the first quarter of 2004, ended March 31, compared with the previous year's period. Net loss declined 34% to $5.6 million. President and CEO John Southcott attributed the improving financial picture to an increased focus on the U.S. healthcare market and the development of a newly combined cardiology/radiology image management product.

Feeding this revenue stream are cash-strapped small and midsize institutions. But they are not the only ones. Multisite hospitals or groups of imaging centers may find it advantageous to centralize their PACS needs and personnel, yet many lack the cash to do so. Evolved Digital specializes in such multisite systems.

A typical configuration involves a primary hospital hub with four or five satellite feeders, Lehman said. Going with an ASP provides an affordable way to centralize services and applications with a relatively modest financial outlay. But there is such a thing as an institution too big for an ASP.

Study volume is a deciding factor. Evolved Digital typically deals with hospitals that do about 100,000 studies a year. If that number is much higher, going with an ASP may not be cost-effective.

While several companies supply all PACS services, the bread and butter for ASPs is data storage and disaster recovery. Here ASPs can thrive regardless of the institution size or structure. Whether they themselves benefit from the need for offsite storage, however, is anything but certain. ASPs may be the solution, or they may simply provide the model, as institutions implement their own offsite backups.

In the end, falling prices for storage and innovative ways to manage data may be a conceptual competitor to ASPs, whose operations over time may come to resemble those of companies that provide mobile MR, PET, and CT-providing service until the users get the money and expertise to do it themselves.