Is outpatient imaging on the hospital campus still strategically relevant for hospitals and health systems? If so, what will it take to capture this volume in an increasingly competitive market? These are the two primary questions facing hospitals and health systems as they contemplate their campus-based outpatient imaging strategies.
In order to answer those questions, it is necessary to examine the market dynamics at play in the outpatient setting and their impact on campus-based imaging. These driving forces are historical growth in the supply of freestanding imaging, continued increasing demand for outpatient imaging, patient and referring-physician preferences for the site of service, payors’ responses to the continued growth in outpatient imaging, and traditional and new-entrant competition.
It has been widely reported that the period 1997 to 2008 was characterized by rapid growth in freestanding imaging. The number of freestanding imaging centers across the United States grew from 2,661 to 6,455 (Figure 1). This rapid growth in supply took place in response to equally rapid growth in the demand for outpatient imaging. The historical increase in demand for outpatient imaging was driven by a number of factors, including new technology and the expansion of available applications, the aging of the population, increased consumerism, the practice of defensive medicine by physicians, and reimbursement expansion (particularly for PET).
The proliferation of freestanding imaging centers in most markets has captured the competitive attention of hospitals and health systems nationwide, prompting many hospitals, defensively, to launch their own competing freestanding facilities. Increasingly, hospitals are butting up against each other in their quest for outpatient imaging business, raising the following question: How does a hospital know whether it is capturing its fair share of campus-based outpatient imaging?
Figure 1. Growth in the number of freestanding imaging centers between 1990 and 2008.
From 2000 through 2006, overall physician-billed Medicare services grew 8% annually, while Medicare spending on freestanding imaging services increased at an annual rate of approximately 13% during the same time. This equates with an increase in spending from $6.7 billion to $13.8 billion for freestanding imaging services. Moreover, expenditures per Medicare beneficiary for advanced imaging (CT, MRI, and nuclear medicine) grew at twice the rate of expenditures for other imaging services (15.4% versus 7.7%). Similarly, private health plans’ costs have increased an average of 18% to 20% for outpatient imaging.
For 2007 to 2012 (Figure 2), the impact of these drivers of demand is largely expected to continue. If history is any guide, imaging-technology companies will continue to drive innovation in equipment and the associated applications. Patients aged 65 years and older will continue to use imaging twice as much as patients who are 45 to 64 years old, and three times as much as those 20 to 44 years old. Consumers will continue to ask for particular tests and technology. The key question becomes this: To what degree will this demand for services (and the resulting volume) be met at campus-based outpatient imaging facilities versus freestanding facilities?
Figure 2. Projected growth in individual modalities from 2007 through 2012.
There is considerable anecdotal information suggesting that both patients and referring physicians enjoy the freestanding imaging experience more than the traditional hospital experience. That said, it is useful to examine where patients sought outpatient imaging in 2007 (see table). Almost 67% of the outpatient CT scans completed in the United States were performed in a hospital outpatient department (defined as including freestanding centers that bill through the hospital’s outpatient department). Freestanding imaging centers are at a disadvantage in offering CT in two ways. First, outpatient CT relies and depends on the emergency department in a way that makes the two very difficult to separate. Second, the anticipated spike in demand for cardiac-related CT in the freestanding setting has yet to be realized in most markets.
In the same year, slightly more than 42% of patients who underwent outpatient MRI were treated in a hospital outpatient department. This equates with approximately 9.2 million scans. Hospitals have found it