Should you add an MRI?

Outpatient Surgery Magazine

Planning for the sixth magnetic resonance imaging scanner at Willis-Knighton Health System in Shreveport , La. , was simple.

It was, in effect: If you build it they will come.

Joyce Hooper , radiology administrator for the four-hospital system, did not have to worry about demand for the $1.5 million machine, which will open this summer in a shopping center.

Even though Willis-Knighton's five existing MRIs are churning out patients 12 hours a day, seven days a week, “We are still booked out for a week to two weeks,” Hooper says.

In a booming market for MRIs, this extremely pricey machinery can be a money-making opportunity for ASCs or hospitals. What they have to do is plunk down a minimum of $800,000 to buy a scanner and build space for it, then make sure enough patients come.

In a growth market, that seems very do-able. The Tiber Group, a Chicago-based health care consulting firm, reports that the number of MRI scans in the United States doubled from 1997 to 2001 to 18 million and will double again by 2005.

Bob Vogt , CEO of Frontier Imaging, a Nashville, Tenn.-based company that owns and manages imaging services, says he is seriously considering working with ASCs on MRIs.

“A lot of ASCs are looking to diversify their revenues,” Vogt says.

In a 2004 report on the field, Tiber says inpatient hospitals settings have lost their undisputed dominance. The report says hospital-based MRIs have the same scheduling jams – due in part to ER cases bumping elective patients -- that prompted surgeries to shift from hospitals to ASCs and outpatient facilities.

Structuring ownership

But unlike hospital outpatient settings, ASCs face particular problems with MRI ownership that will require creating a separate company, Vogt says.

Under federal law, “there is a fundamental difference between an ASC and an imaging center,” Vogt says. “As an ASC, you can have 10 different specialists from 10 different groups buy in. That scenario wouldn't work for an MRI center.”

Unlike ASCs, MRIs do not have an exemption under the federal self-referral law known as Stark II. As a “designated health service,” Vogt says an MRI can only be owned by a hospital, non-physicians, or even non-referring radiologists. But an MRI cannot be owned by physicians from different groups.

To deal with Stark II, Vogt says an ASC with several physicians as joint owners must set up a separate MRI company completely owned by a non-physician entity, such as the managing company that owns a share in the ASC. Or it could be owned by an outside imaging company, contracted with the ASC, which is how Vogt might get involved.

Robert Maier , president and CEO of Regents Health Resources, a Brentwood , Tenn.-based firm that develops imaging centers, agreed with Vogt's assessment of the Stark law and said Vogt's solution of a separate company would meet the legal challenge. He advises consulting an attorney to build the relationship and meet state laws.

Deciding if an MRI is for you

But despite concerns with Stark II, Maier and others say an MRI can be a distinct asset for an ASC, as long as you plan properly and make sure your physicians use it.

With purchase and installation costs for a typical machine as high as $2 million, an MRI is probably the single biggest single purchase that an ASC will ever make. Even after purchase, yearly expenses run in the hundreds of thousands of dollars. Consultants say you can qualify for financing and meet your budget as long as you can determine beyond a doubt that it will be used.

Maier says seeing if you can afford an MRI is a complex process. For starters, you need to have better a reason than simply making money.

Convenience, he says, does not play a role. Since patients are sent for an MRI well in advance of surgery, there is no need to have an MRI next door to the OR. On the other hand, scheduling difficulties at existing MRIs is a very strong reason.

Maier says physicians frustrated with scheduling could become a strong referral base. But since your physicians will not be investing in the project, he says you have to make double-sure that they will send enough referrals. Even if they complain loudly about slowdowns at the hospital MRI, they may not refer to you.

Vogt adds that even investing physicians routinely overestimate their referral volume. “I discount what a doctor tells me by 50%,” he says.

If you cannot pin down a solid referral base, Vogt and others say you need to conduct detailed demographic studies of local demand, keeping a close watch of competitors .

Then you need to estimate your reimbursement. Imaging experts say it can range from $1,250 per scan to as little as $525, which is at or below the Medicare and not enough to break even.

You also need to determine whether you'll be paid at all. Insurers are trying to put a lid on imaging costs. Last year, Pittsburgh-based Highmark BlueCross BlueShield announced it will not cover imaging centers with fewer than five modalities. An MRI-only facility wouldn't make the cut.

Purchasing options

Once you decide you can afford an MRI, you can go shopping for one.

Machines range from 3.0-Tesla behemoths, with a $3 million price tag, which can deliver extremely clear, three-dimensional images, to 0 .2-Tesla “ extremity” MRIs that can only scan arms and legs, for a price as low as $500,000.

“You don't need the most expensive MRI,” counsels Lars Andersson at Advanced MRI Consulting in Evergreen Park , Ill. “Look closely at your needs, then decide if you will be playing a fiddle or a Stradivarius.”

Maier says a 0 .7- to 1.5-Tesla open MRI, costing $800,000 to $1 million, “ does a pretty good job for 80% to 90% or your patients,” and the rest can be scheduled elsewhere. The open MRI accommodates obese and claustrophobic patients.

MRI manufacturers routinely arrange financing but demand significant documentation. Bill Brombeck , vice president of marketing and business development at Siemens Financial Services Group in Malvern , Penn. , says he has a long list of requirements to finance a Siemens MRI. It includes a reference from a bank or other lender, audited financials going back two to three years, a detailed business strategy, and information on demand and payer mix.

You can also lease an MRI, according to Marty Zimmerman, chairman and CEO of LFC Capital, a Chicago-based company that helps finance MRI purchases. He says this shaves as much as 15% off the price and takes MRI costs off your balance sheet.

Typically, leasing stretches out payments over 60 months, meaning that even a few months in, “you can make money on every single month,” he says.

He says you can choose between a standard operating lease and a somewhat more expensive capital lease, which provides an option to buy at expiration.

Zimmerman also deals in refurbished MRIs, which you can buy at 25% to 60% less than the price of a new MRI. But critics note that older MRIs lag behind the MRI's fast pace of technological change and may require more maintenance.

Planning for an MRI

Planning an MRI center takes one to two years, according to an industry rule of thumb.

In a guide on buying and assembling imaging equipment, JDI Solutions, a consultant in Brevard , N.C. , stresses that you need to choose an experienced architect and contractor. The calibrated high-power magnet requires specially constructed space, a great deal of care in transportation, robust air conditioning and clean air circulation.

“High-end imaging equipment, especially MRI, is very sensitive to poor planning,” the guide says. “In one case where we were hired to do the installation of a system, planning and construction mistakes resulted in almost one year of delay.”

You will also need to contract with a radiologist to read the scans and hire a licensed and trained imaging tech to carry out the procedure, according to Doug Smith , managing partner of the Barrington Lakes Group Inc., a radiology consulting and management firm in Barrington Lakes , Ill.

Smith says Imaging techs are paid $65,000 to $85,000 a year and are extremely rare, unless you can arrange training yourself.

He says the hours you need to be open will decide how many imaging techs you need. Since each MRI scan typically takes 40 minutes, you may need to be open for more than one shift to make a return on your investment, Smith and others say.

Expenses don't stop there. Smith says MRI maintenance costs $100,000 to $150,000 a year, which includes maintenance contracted with the manufacturer, software upgrades and replacement of tubes and the detectors.

Smith says the financial hurdles for planning an MRI should discourage a lot of would-be investors, but he spends a great deal of time convincing clients that they should not buy an MRI. He says he sometimes has to “fire” those who don't agree.

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