The number of freestanding diagnostic imaging centers opening in the United States has slowed considerably as markets have become increasingly saturated and reimbursement has declined. That’s why, more than ever, it is important to consider carefully the feasibility of opening a new center. One way to weigh the potential risks and benefits—and to plan your center’s technology investments to maximize its potential—is to use a professionally prepared feasibility study.
"The relative importance of doing your homework has increased substantially. Before you embark upon a project, you really have to understand whether you have a shot at making it work."
— Tim Stampp, MBA, Medical Imaging Specialists LLC, Metairie, La
Elsa Ozuna-Richards, MSA, CMPE, founder and president of REA Healthcare Strategies, Reno, Nev, agrees. “Based on my experience, when those practices that are opening a new imaging facility explore a market and define the needs of that market, they’re much more prepared to make capital acquisition decisions and plan service delivery,” she says. “A feasibility study identifies those factors for you.”
Studies generally take three to six weeks to complete, and they leverage data on everything from competitors’ market shares to referring physicians’ needs and opinions in order to paint a clear picture of the marketplace’s level of demand for services and technology. Stampp says that of the clients for whom he’s performed feasibility studies in the past, more than 50% have chosen not to open a new center based on the results of their assessments. Ozuna-Richards reports similar results from her clients.
“We have customers who just opened up an imaging center, and they’re unable to get all the referrals that they had anticipated,” she says. “Had they done a feasibility study prior to entering that market, they would have understood the market much better.”
The Capital Issue
A crucial component of the problem is the high level of capital outlay necessary for investing in advanced imaging technology. “Based on what the data you’ve assembled tell you, you’ll begin to understand what kind of service you need to offer from both a technology and a service-delivery standpoint,” Stampp says. “If there are already two 3T MRIs in town, and 3T has become the expectation in the market, do you think you’ll be able to compete with a 1.5T system? Your cost of entry is going to go up significantly, and your capture-rate requirement for market share is going to go up significantly.”
Both Stampp and Ozuna-Richards use a referring-physician survey tool to pinpoint the needs of the market’s referral sources accurately. “I identify all the referral sources within a three- to five-mile radius, for example,” Ozuna-Richards says. “We can also do a comparison of different markets, and the client can choose a market based on that.” She adds that because clients must invest so much in equipment, doing more to evaluate the market can be thought of as insurance.
Stampp also advises an approach to market-volume assessment based on hard, quantifiable data. To determine demand by modality, multiply current modality utilization rates by your market area’s population. What you’re hoping to see, according to Stampp, is a little room for improvement. “You need to understand what the service levels are in the marketplace,” he says. “Does it take two weeks to get the next available mammography appointment, or five days for the next available MRI?”
Ozuna-Richards emphasizes the importance of a clear understanding of brand health—both yours and that of your competitors. “Right now, there’s so much competition in the playing field that if clients see a decline in referrals, they’re immediately calling us to see why,” she says. “That’s why brand health is an important consideration. What does the current market see the other brands as lacking or supplying?” Stampp concurs, “You need to know the referring physicians’ perception of the competition.”
Intangible factors must also be taken into account when assessing the potential profitability of a new business. In a referrals-based market, these issues can make or break a new freestanding imaging center. “The toughest part is understanding the relationships between referring physicians and existing providers,” Stampp says. “You’ve really got to spend time on understanding that.”
Existing relationships can be complicated by the presence of PHOs and independent practice associations.