Strategic Planning for Imaging Centers: Act with Plan in Hand

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Imaging center success hinges on many factors, but without the volume to sustain the operation and power it toward profitability, failure is a given. Breakeven is the bare minimum any business operation must achieve to keep the doors open, yet some radiology groups and entrepreneurs in the imaging center business blow blithely past that and other basic business calculations in their race to open the doors.

This approach is no longer sustainable. The Deficit Reduction Act (DRA) slashed MR net revenue by about 35% and CT earnings by approximately 25% in the outpatient setting. Radiologists also took an approximate 8% hit in professional income with the 2007 Medicare Physician Fee Schedule, due to a downward adjustment in the relative value unit (RVU) method of calculating payment.

Despite these cuts, new players continue to enter outpatient imaging, two from the world of mass merchandising: Wal-Mart and Walgreen’s. Both retail powerhouses, employing legions of MBAs, intend to establish health centers inside several hundred of their stores, and onsite diagnostic imaging is believed to be an element of that. Payors also are now in the imaging space: with UnitedHealthcare’s purchase of PacifiCare, they are operating centers in Nevada. CIGNA Health Plans is operating primary care outlets in Arizona that include imaging centers.

Assess Internal Forces
Now, more than ever, imaging center operators must raise their business acumen and assess the internal and external factors at play in their enterprise, beginning by grappling with those internal forces over which center management has the greatest control:

Profitability and breakeven

Capital expenditures and service contracts

Operations and growth

Distinction and marketing

If properly understood, internal forces that otherwise would chip away at your imaging center success can be transformed into opportunities for growth and success.

Profitability and Breakeven
The most foundational internal force is that of profits. What remain of revenues after all the bills are paid? A great start at answering this question involves applying simple but fundamental cost accounting measures. This can help you understand what volumes are required to breakeven and what level of profit and or subsidy would be required based on fluctuations in volume.

Capital Expenditures and Service Contracts
Because so much of imaging center income is manacled to a prospective payment system, one cannot broadly increase fees to generate more income relative to expenses. Therefore, the only way to improve profits is by lowering costs. Two costs you might be able to pare are capital expenditures and service contracts.

Most imaging centers lease capital equipment. Often, the contract will include a dollar-buyout feature. If breakeven appears slim, one option would be to reorganize some or all of your capital structure by developing fair-market leases, which will create a margin for a center to work its way through the plight of the moment.

Meanwhile, review your service contracts. Many centers maintain more coverage than they may require. Understanding your vendor’s service contract options and the associated prices is a great start. For example, many vendors will tier a CT service contract based on scan seconds. Why pay for 400,000 scan seconds if you are only using 200,000?

Operations and Growth
To achieve optimum operational efficiency, all of a center’s operational functions must be surveyed, including everything beginning with the call to schedule a study and ending at the point when payment for services rendered is received. Characterize those operations along the lines of things that work, things that don’t and things that fall between those two extremes. Then evaluate the operations in each of those three classes to see which ones can be improved, assigning the most emphasis and urgency to the ones that work spottily or not at all (if your center is typical, the operations giving you the most problems are more than likely related to product delivery and billing).

Distinction and Marketing
Marketing is another internal force over which the operator has control. The first question an imaging center operator must ask is: “What am I offering the referring physicians in this community that is not also being offered by Imaging Center A, B or C?”

Perhaps the answer is service excellence. That is a legitimate attribute on which an imaging center can differentiate itself from the competition. Because