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 service excellence has many aspects, it is important to determine which types of service the center will provide. For example, service excellence can be little more than a promise of easier travel access and less trouble finding a place to park the car. Or, it can be something much harder to pull off, such as a pledge to provide the market’s speediest patient throughput. An early imaging center project of ours achieved differentiation by making it policy to deliver a report of findings to the referring physician within two hours of test completion and to send patients back to the referring physicians with a copy of the study on a CD or some other medium. Another useful technique for differentiating an imaging center involves raising your visibility. It is an immutable law of business that referrals are difficult to attract when no one knows you exist. For that reason, we always advise our clients to reach out to the referring physician community, best accomplished by going in person to their offices. Our first imaging center client resisted adopted this strategy. Initially, the radiologists were reluctant to visit referring physician offices. They were accustomed to and at ease with spending their time entirely in the reading room. But their resistance vanished after we made it plain that their livelihoods now depended on them hitting the pavement, knocking on doors, and shaking some hands. Not incidentally, the visits were hugely successful. The radiologists introduced themselves to the referring physicians and shared and discussed a selection of interesting images they carried with them. In the course of those conversations, our radiologists were able to demonstrate their technologic prowess, scientific expertise, diagnostic know-how, and interpersonal communication skills. In other words, they gave the referring physicians reasons why patients needed to be sent to this particular radiology group’s imaging center and no other. For their part, the referring physicians were very receptive and thoroughly impressed. In fact, they confessed to being stunned to see our radiologists, as for many, it was the first time a radiologist had visited. The bump in business resulting from these visits was dramatic and was felt immediately. At the end of the day, what you have to do is demonstrate that you are offering real value back to your customers and patients. Every customer’s definition of value may be somewhat different. The key is to understand what value propositions drive your individual customers and consistently exceed their expectations. Getting a Handle on External Forces Revenue cuts and burgeoning competition are but two examples of the external forces that can adversely impact the performance of an imaging center. External forces are those over which you have little or no power to do anything about because they exist beyond your sphere of control Nonetheless, the following forces must be recognized and closely monitored, so that their impact can be managed: Cost of Technology and Service. This challenge involves striking a balance between meeting the needs of the medical community, product differentiation, and cost. For example, 3 Tesla MRI may provide significant increased volume through differentiation, but a refurbished 16 slice CT—not a 64-slice CT— may be all that is required to satisfy the medical community. Self-Referral. This is a complex issue. Some practices choose to earn the professional income by reading for self-referring physicians, and others attempt to outgun the competition with higher technology. This is a strategic choice for a radiology practice and the group should decide the approach. Medical Management. Payors have attempted to rein in runaway radiology utilization by requiring pre-authorization/pre-certification for studies. From the vantage point of the imaging center, medical management can be a problem because it imposes costs in the form of time, labor, and materials associated with obtaining advance payor approval. Collaborative. There are opportunities to collaborate with competitors and as counter-intuitive as this may seem, it is important to explore these opportunities before shutting the door. Taking a look at your billing and courier costs may be a first start. . The Takeaway: 3 Critical Actions Now that we have reviewed the internal forces over which you have control and the external forces over which you have limited or no control, it is time to translate the exercise into four critical actions that every imaging center must perform in this post-DRA, highly imaging competitive environment. Obtain a clear understanding of the outpatient imaging volume potential within your specifically defined service area and your market share based on this volume potential Possess an overview of the competitive environment for outpatient imaging services within your service area and the market share held by competing entities Identify those salient characteristics that will directly and indirectly influence your ability compete for additional market share. Where is That Business Plan? If you were wise, your imaging center began life as a business plan. Yet a surprising number of imaging-center founders forego such a formality, assuming growth, profits, and sustainability automatically flow from the mere act of opening the doors and turning on the lights. A well-formulated, up-to-date business plan is of paramount importance to an imaging center because that document is the blueprint for building a viable enterprise. Specifically, it is a logical framework for the development and pursuit of growth strategies, but also it is a benchmark for the measurement of the actual performance of your imaging center. So if you do not have one, make one. And if you do, review it to be sure it is current. A good business plan is one that undergoes freshening from time to time so that it remains relevant. What often happens is an organization imperceptibly evolves in response to changing demographics and shifts in customer expectations or demands. In so doing, the enterprise slowly drifts away from the original business plan. Eventually, that places the organization in the risky position of being without strategic underpinning. The solution is to develop a new business plan, one that properly reflects the new focus and scope of the enterprise. You might not recognize it as such, but your business plan is an invaluable communication tool. One of its functions in that role is to convey to key members of the organization the defined purpose and mission of the enterprise. A business plan does not necessarily need to be shared with rank-and-file staff at the operational level, but certainly it does at the physician-ownership level. Thus educated, the team is more apt to work in a unified manner that aids rather than impedes progress toward fulfilling the organization’s purpose and mission. The business plan is a document that ought to be kept on the corner of your desktop. It should never be filed away someplace where it is easily ignored, forgotten, or overlooked, but right out in the open where you will see it and, ideally, refer to it frequently. Parting Thoughts Gaining a proper understanding of where your imaging center fits into the marketplace is crucially important. But the position you occupy is not entirely within your power to change. It is to some extent determined by how saturated the market is with competitors, what those competitors offer, and how well they deliver the goods. Radiologists now more than ever must develop a mind for business on a par with their clinical expertise. While failure to do so may not find them on a street corner holding a sign indicating willingness to work for food, their inability to acquire commerce savvy almost surely will result in some very unpleasant financial pain. The marketplace mayhem will not vanish any time soon. Now is an ideal juncture for radiologists to take the steps that will lead to them regaining control of their