Reimbursement cuts strike MR and CT scanner vendors

August 1, 2007

Vendors of CT and MR equipment are taking it on the chin. A sales slump in the U.S., which began in the second half of 2006, has continued through the first half of 2007 on the heels of diminishing demand from imaging centers. The problem stems from reimbursement cuts brought about by the enactment this year of the federal government's Deficit Reduction Act and the chilling effect these cuts have had on purchases by outpatient facilities.

Vendors of CT and MR equipment are taking it on the chin. A sales slump in the U.S., which began in the second half of 2006, has continued through the first half of 2007 on the heels of diminishing demand from imaging centers. The problem stems from reimbursement cuts brought about by the enactment this year of the federal government's Deficit Reduction Act and the chilling effect these cuts have had on purchases by outpatient facilities.

"In the third and fourth quarters of last year, we saw the severe impact of the looming DRA," said Jacques Coumans, vice president of marketing for MR at Philips Medical Systems. "Clearly, in this year, there have been some lingering effects."

The DRA has had a profound impact on the marketplace, said Gene Saragnese, vice president and general manager of CT and molecular imaging at GE Healthcare.

"Industry must do a better job of representing the value diagnostic imaging brings, such as showing how coronary CTA will reduce the number of diagnostic cardiac caths," he said.

In the meantime, buyers could find a silver lining, as softening demand gives them leverage in negotiations. Selling prices for scanners had been going up before the DRA cuts kicked in, but declined precipitously last year. A similar pattern occurred in MR, as the average price rose in 2005, then settled back to 2004's figure.

The introduction of higher end products dulls the shine of those eclipsed. The availability of 3T scanners precipitated much of the price slide for 1.5T systems, which account for most MR sales. Similarly, time has undercut the price for 64-slice CT systems.

These factors account for only some of the decline, however, particularly in MR, which has shown a steady decline in the number of units sold. Consolidated industry estimates indicate that about 1150 MR units were shipped to U.S. customers in 2004, about 950 in 2005, and only about 900 last year. MR vendors expect little relief in the near term from this downward spiral in either revenues or unit sales.

"We do not expect real growth in the North American market in 2007," Coumans said. "People are postponing decisions or sticking with current platforms."

The CT market is a slightly different story, but it has a similar ending. The sale of 64-slice scanners rekindled demand, as units shipped to U.S. customers rose from about 1650 three years ago to 1750 in 2005 and 1850 last year. Preliminary analyses of this year's sales, however, indicate that this annual growth trend will not continue.

The approaching presidential elections are bringing concern over what may happen in 2008 and beyond for both MR and CT, particularly when considering the Democratic front runner. Industry executives remember with trepidation when sales of big ticket scanners plummeted 14 years ago in a crash precipitated by the Clinton administration's proposal of sweeping healthcare changes.

The MR industry was especially hard hit. Shipments of new MR scanners to U.S. customers fell from $812 million in 1992 to less than $500 million the next year. Sales continued to slide in 1994 and did not break out of their slump until 1998, when a surge in midfield systems put the industry back on top with about $960 million in new equipment revenues. Since then, sales have remained comfortably above the $1 billion mark.

Saragnese finds reason for optimism in the performance of the markets for MR and CT scanners over the last 10 years. Pullbacks such as were seen in the mid-90s create demand that eventually must be filled.

"The growth after those years was much greater than prior to them," he said.

For long-time veterans of the medical imaging industry, however, the mid-90s are still a painful memory that nobody wants to relive.