In a report prepared by the Healthcare Financial Management
Association in partnership with GE Healthcare Financial Services and
PricewaterhouseCoopers released last year, 72 percent of hospital CFOs
anticipated increases in capital expenditures over the next five years,
with not-for-profit hospitals more likely to increase their capital
budgets than their for-profit counterparts. At the same time, 61
percent of the CFOs in the sample revealed they were planning to
purchase major IT systems over that same time span.
Picture archiving and communications systems are no longer considered
superfluous - nor just the need of large, academic facilities or
mega-large imaging centers - as their capabilities have increased to
place them in a key role to high-quality patient care for nearly any
size facility and an enterprise essential. Several driving forces have
contributed to this paradigm shift, including the need for increased
efficiency for the ever-dwindling number of radiologists, HIPAA
regulations that require long-term archiving and disaster recovery
plans, the distances between institutions within a healthcare system
and the want for more interactive, faster conferencing with specialists
that necessitate the sharing of digital images. So then the question
remains - how to finance these essential components to the entire
healthcare enterprise.
Traditional models of funding capital expenditures through fundraising,
borrowing the money or issuing tax-exempt bonds have now been joined by
new approaches that have been designed to reduce the financial burden
of implementing PACS when institutions lack up-front resources.
Philips Medical Systems, for example, has adopted a menu-like approach
to these issues tailored to the hospital's ability to pay, intended to
facilitate long-term relationships including financing through their
capital leasing programs, or traditional purchase configurations.
Their latest offering includes an ASP (application service provider)
model where they charge a specific price per imaging study, based on a
five-year contract. Christopher Click, Philips' director of radiology
IT, explains that in this model, they calculate the value of the
offering solution, divide it by the number of months in the contract
time and then scale the payment based on the customer's means. This
approach supports either a "back-end" load so that the payments are
smaller as the contract begins, and then grow as the contract matures,
or conversely, a "front-end" load if the hospital has capital
available, with gradual reduction in payments as the contract matures.
GE Commercial Finance Healthcare Financial Services (Chicago) has
developed an innovative product for the 75 to 80 percent of healthcare
facilities that qualify as 501(c)(3) not-for-profit institutions.
Besides providing traditional loans in the purchase of equipment and
systems, Deborah McLennan, market development manager in this division
of GE, describes TECn which stands for Tax-Exempt Capital to the nth
Power as an alternative to hospitals that usually would issue
tax-exempt bonds for their capital expenditures. This program provides
the same benefits in terms of interest rates and length of financing
term, but is less expensive and less time-consuming than the
traditional methods required in the issuing of tax-exempt bonds because
GE provides in-house underwriting and the hospital is not required to
pay numerous fees typical from a third-party bond underwriter.
In their traditional lease financing model, GE suggests that hospitals
are generally better served by eventually owning their IT system,
because removing these types of infrastructure components can prove
burdensome.
Siemens Medical Solutions provides a number of financing options for
PACS as well. Working from an assumed cost of $10 to $15 per sheet of
film, Henri "Rik" Primo, director of marketing and strategic
relationships, explains that an operational lease that is based on that
same expense per study, will eventually return the investment.
For example, with an operational lease based on 100,000 procedures and
one film per study, it would cost $1.5 million in film costs. Applying
those expenses to a PACS purchase or lease would provide a fairly
robust system, and a PACS costing $3 million would be very large. One
caveat to this approach is that institutions should include the cost
for upgrading hardware and software to maintain a system that is
current. Generally, if an institution sets aside an extra 15 to 20
percent of costs towards upgrades and expansion, Primo believes that
will adequately cover those expenses.
PACS for rural communities BRIT Systems has provided PACS to
institutions on a price-per-study basis, which may cost more in the
long run, but avoids up-front capital expenditure and produces
corollary benefits to the healthcare system, such as automatic
technology refreshes. Michelle Fisher, president, explains that when
the vendor is in charge of the system, they must utilize the latest
technologic advances to maintain their competitiveness and reduce their
overhead. For example, when they stored images over the past several
years, they used optical platters. But now, with spinning disk
technology, they can store more compactly and provide faster access to
the images. Since that media is less expensive, they will automatically
upgrade and provide improvement to their service.
One further issue to consider when providing cost-justification for
PACS installations is to consider which expenses are attached to the
PACS itself, and which expenses are associated with infrastructure. If
a hospital needs to update their network to run a PACS, is that an
infrastructure cost or a PACS cost?
Edward L. Brown, MD, and his business partner Craig T. Folse, MD,
formed the Brown-Folse Radiology Group in Rayville, La., to provide
PACS capabilities from BRIT Systems to 12 rural hospitals in their
state to replace their usual method of operating as "circuit riders" to
all of the institutions to read studies every 24 hours. Their model
requires that each individual hospital own a stand-alone server with
archives for seven years of storage space and an updated system that
can connect to the primary network.
The individual hospitals auto-route their images to the central server
which is located in New Orleans, Brown explains. "That server's
function is to serve as a repository for the second copy of the exam,
and then we tape backup our central server so that we have three
copies, one at the hospital, one on our server in the RAID active
format, and then a tape backup that is stored offsite."
Because they realized that the hospitals would not have the resources
to purchase their own infrastructure items plus cover the $400,000 to
$500,000 required for the central server, Brown and his partner
financed that equipment themselves as their contribution to the network.
Now that it has "gone live," the hospitals pay a small amount per study
to cover ongoing expenses of running the system, Brown explains.
They will be upgrading to T1 lines, with anticipated costs of $50,000
per year, the storage space with associated costs of $35,000 per year,
and maintenance of the system that is projected to run $50,000 to
$60,000 per year and they purchased a voice recognition system as well.
The radiologist reading fees are a separate expense, and the fee per
study is minimal to cover operational expenses, not capital
expenditures for the central server.
In a similar model, Total Radiology Solutions (TRS) of West Monroe,
La., was formed by a group of nine radiologists and a business manager,
using BRIT Systems to provide PACS for several hospitals in their area.
Bob Mirabito, president and CEO and managing partner of this
enterprise, explains that their business model, which the 10 of them
funded through applications to banks, cover capital expenditures that
provide the backbone and storage components to the network plus working
capital.
"We package everything as a bundle. With a fee per study, they have a
platform to read and dictate the studies, images that are stored for
five years to which they have unlimited access, and we administer the
IDs and passwords," says Mirabito. The final component they provide is
a physician trainer to educate the referring physician community about
the network functionality.
Conclusion Given the fact that most hospitals no longer
view PACS as a want, but a need, CFOs must seek the most advantageous
financing approach to their particular circumstances. The vendors stand
poised to provide a number of funding alternatives to meet their
customers' requirements.
In a report prepared by the Healthcare Financial Management
Association in partnership with GE Healthcare Financial Services and
PricewaterhouseCoopers released last year, 72 percent of hospital CFOs
anticipated increases in capital expenditures over the next five years,
with not-for-profit hospitals more likely to increase their capital
budgets than their for-profit counterparts. At the same time, 61
percent of the CFOs in the sample revealed they were planning to
purchase major IT systems over that same time span.