Tomosynthesis: Does it create value for your imaging center?

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Tomosynthesis is a relatively new type of imaging technology that utilizes x-rays to create a 3-dimensional image of the breast and is mainly used to detect and diagnose cancers. Not yet considered the standard in clinical care, most imaging centers still employ conventional digital mammograms as their primary method of detecting breast cancer. Conventional mammograms take x-rays of the breast from different angles to create cross-sectional 2-dimensional images. Imaging centers must decide if replacing existing conventional mammography systems with tomosynthesis makes sense from a clinical and financial perspective. What are some factors that drive this decision making process? Will adding this technology to your imaging center create value for shareholders?

From a patient perspective, the clinical outcomes utilizing tomosynthesis are apparent. The National Cancer Institute (NCI) reports that approximately 20 percent of cancers are not detected during the initial conventional mammography screening. In addition, patients are often recalled to conduct spot views of overlapping tissue or lesions that were unclear in a 2-dimensional image. Many times biopsies must be performed when the spot views do not provide a definitive conclusion. Also with conventional mammography, the breast tissue must be compressed in order to minimize tissue overlap and improve visibility which many women find extremely uncomfortable. Tomosynthesis enables earlier detection of cancers that may be concealed in dense breast tissue or undetectable in overlapping tissue from conventional mammograms. This requires fewer call backs, biopsies and less patient stress. Earlier detection and diagnosis also significantly improves clinical outcomes in the treatment of the cancer itself. Finally, the patient undergoes significantly less breast compression during the tomosynthesis process, improving patient comfort.

As a result of the improved clinical experience, having tomosynthesis at your imaging center can greatly improve your competitive positioning in the market relative to your peers.  Having superior technology that results in better outcomes, less call backs, greater comfort and fewer biopsies is a significant selling point to patients and likely would drive volume relative to competitors with only conventional mammography capabilities.  In addition, physicians are more likely to refer to your institution if they believe the services offered are superior.

But does adding tomosynthesis make sense from a financial perspective? Brand new tomosynthesis units require a substantial capital outlay.  The costs of a new machine can range anywhere from $400,000 to $600,000. Some existing conventional units are capable of being upgraded with software but these upgrades can cost anywhere from $100,000 to $150,000. As a result, in order to support the projected capital outlays financially, an imaging center will have to create incremental operating margin over and above what is currently being generated by the conventional unit. The concept is illustrated below in Figure 1.

 - VMG Image 1

The scenario above depicts a center that upgrades its existing mammography unit to become compatible with tomosynthesis for $125,000. If $75,000 of incremental operating margin is created from using tomosynthesis compared to the conventional machine, assuming a 7.0 percent interest rate, approximately $120,000 in value would be created. As a result, the investment in the upgrade would be justified and beneficial for shareholders. 

What happens if the incremental margin is less than $75,000? This alternative scenario with only $10,000 in incremental operating margin is illustrated in Figure 2.

 - VMG Image 2

As you can see in the second scenario, value is destroyed from a shareholder’s perspective and the investment would not be justified financially.

In order to maximize shareholder value, prudent operators need to conduct a thorough analysis of the expected earnings from the addition of tomosynthesis. How do managers and operators quantify the incremental margin? One factor that must be considered is the incremental volume the center might receive from the competitive advantages discussed earlier. If a center’s competitors in the market already have tomosynthesis capabilities, the upgrade might be required just to maintain market share and prevent volume loss. The expenses such as supplies, staff, etc. related to this additional volume must also be estimated.

As for estimating potential revenue generated per incremental scan, the current reimbursement environment makes this quantification difficult to perform. Currently when conducting a tomosynthesis screening, the center bills the procedure under a current conventional mammography “G” CPT code in conjunction with an unlisted 76499. CMS has yet to establish separate and specific coding and therefore reimburses tomosynthesis at the conventional mammography rate. As a result, it would initially appear that additional revenue per scan would not be created from performing a tomosynthesis versus conventional screening. Some centers mitigate this by requiring patients to pay additional fees out of pocket to compensate for the added expense. Some commercial payors might pay additional reimbursement for tomosynthesis but that varies by market and by payor. Most commercial payors currently consider tomosynthesis an investigative procedure and do not pay additional reimbursement.

What about reimbursement going forward? On October 31, 2014 CMS released the review copy of the 2015 Medicare Physician Fee Schedules (PFS) final rule which is currently undergoing a 60-day commentary period. Under this PFS, the potential tomosynthesis screening CPT code would be 77063 and assigned a physician work RVU of 0.6 to account for the additional work required for tomosynthesis when compared to conventional mammography. G2079 will also be an add-on to the existing digital mammography codes. CMS is still reviewing the entire mammography code family but some clarity on the subject should be available if centers check their local PFS.  Although these amounts might potentially change, going forward imaging centers should receive some additional reimbursement for performing tomosynthesis compared to conventional mammography screenings.

Analyzing the potential changes in a centers valuation from projected capital projects is a time intensive and complex process. All the factors surrounding the capital investment need to be considered such as volume shifts, expense changes and expected coding & reimbursement issues. Otherwise the value proposition of adding a service line could vary substantially. Many times it is helpful to engage an experienced valuation consultant to assist in the process in determining how your center’s valuation is effected by potential capital investments such as the purchase of tomosynthesis technology.

William Teague, CFA, is a Manager with VMG Health, a healthcare transaction advisory, valuation and consulting firm.