Tapping the Rural Market: A User’s Guide
Gabe Graham, CPA
The emergence of PACS has given practices a chance to expand their business and boost revenue by tapping the rural hospital market. Before adding clients to their own networks, however, groups must pay attention to projected costs and potential profits, according to Gabe Graham, CPA, a financial consultant at Medical Management Professionals Inc (MMP), Atlanta, Georgia. Graham assisted Diagnostic Imaging Associates (DIA), Tulsa, Oklahoma, through the process of extending services to rural hospitals; along the way, he helped analyze hospital reimbursement and contracts to ensure profitability, while the group was able to leverage downtime in the workflow from its existing hospital partner. Getting Started Graham partnered with DIA in the early 2000s, when the concept of reading for rural providers was just beginning to gain traction. Historically, not many individual radiologists had been willing to move to these isolated areas, and as a result, recruitment was difficult; furthermore, the volume or amount of revenue produced by the hospital did not always justify hiring a full-time radiologist. DIA had been experiencing spurts and lulls in workflow throughout the day, and it wanted to turn that downtime into new revenue. With MMP’s guidance in analyzing profitability and the ability to handle the billing for the new sites, DIA was able to leverage an existing infrastructure created by the state government and to capture a hospital-supported grant that enabled it to venture into the rural market. “In Oklahoma, there’s a rural network that the government invested in, and we used that,” Graham recalls. “While the physicians were at work, they decided they might as well generate revenue instead of having downtime.” DIA quickly connected with four or five sites that the practice had fielded requests from in the past. “That was our differentiator,” Graham says. “We had a good reputation, and other groups were not willing to cover the rural locations. We have, historically, not contacted hospitals; instead, the hospital or physician comes to us.” Through word of mouth, Graham recalls, these hospitals had seen that DIA had the infrastructure and expertise to provide them with radiology services at a reasonable rate. Factors to Consider Although cost barriers to entry are lower than they used to be, practices should be aware that they need to have some kind of IT support, Graham notes. “We don’t want our physicians going to five different hospitals with PACS, RIS, and dictations and having to log into a separate system for each hospital,” he says. “DIA’s IT infrastructure makes it all look the same to all our radiologists. Once they are dictated by our radiologists, the studies go back to each individual system the way each hospital wants them.” DIA made an upfront commitment to develop and invest in its business model, even though it initially reduced radiologist compensation. “I’m not sure how many groups would be willing to do that, especially if you have a mix of older and younger radiologists with different philosophies,” Graham notes. “The older ones might not see the value in it, but the younger ones may say, ‘This is a great value.’ You need to determine if they are on the same page.” His advice is to price the business that a practice has added to ensure profitability; the revenues must be worth the group’s threshold for entry in order for it to absorb the costs. Practices seeking to enter the rural market need to analyze how much downtime they currently have, Graham says. If there’s ample downtime, they might be able to take on a site that generates 80 studies a day, for example; if they don’t have idle time, or the new site’s volume won’t fit into the current daily volume and workflow, a practice can take steps to resolve the problem, such as reducing vacation time, hiring new radiologists, or increasing staff hours. Before adding another site to its clientele, a practice should ask the facility what modalities it offers, Graham says. The practice should also ensure that its connection speed is sufficient. Other factors to consider are volume per modality, the number of after-hours studies, and the payor mix, which could allow a practice to superimpose its current contractual arrangements with payors onto the existing volume of a potential client. “We need to see if the numbers support themselves,” Graham says. “If they don’t, we tell the hospital, ‘Here is where your shortfall is,’ and we discuss how to remedy that. If I can get a payor mix and expected volume by modality, then I can get a pretty good estimate of what kind of revenue I can expect.” Tapping the Market Traditionally, the cost of entry was very high for practices wanting to partner with rural hospitals; the lack of technological capability in these facilities posed a problem, and the hospitals lacked the IT infrastructure or budget to mitigate the issue. “These days, there’s a new thought process,” Graham says. “Back then, health-care providers couldn’t imagine someone not being physically present at the hospital. Now, they realize that it is an option, and usually a much more affordable option.” He points out that connection technology has become cheaper; the reduced cost of the infrastructure (along with technological advances) was a key factor in bringing remote imaging services to rural hospitals. Practices wishing to find success in the rural market need to analyze the opportunities around them carefully. Graham suggests that physicians in the practice compile a list of potential rural sites and determine whether they need radiology coverage. Then, representatives from the group can set up meetings to discuss their interest in providing radiology services. Graham recommends that a radiologist and the business manager handle these calls and meetings. “A radiologist can add more substance than just the businessperson because he or she can talk to the radiologists, the technologists, and the department,” he says. Graham predicts that the process probably will not be easy. “Radiology practices without any experience in this area will have a hard time,” he says. He also notes that most rural hospitals are currently receiving radiology services in some way; even if that way is inefficient or ineffective, it might be several years before the administration wants to change or even consider change. “You have to start somewhere, though, in order to build this revenue stream,” he adds, “and the way to get a feel for whether this is right for your group is to determine whether there is an existing opportunity, analyzing the costs of implementation to see if the group is really committed to the new line of service.” Elaine Sanchez is a contributing writer for ImagingBiz.com.