No single factor will have exerted greater pressure on medical imaging in 2020 than the novel coronavirus (COVID-19) pandemic. From March to June, health care facilities across the United States were shuttered to all non-essential procedures by state order, as the country worked, with mixed results, to respond to the rapidly spreading virus.
Losing a quarter’s worth of business left a lasting negative impact on the entirety of the imaging space, but the effects of the pandemic were felt differently by practitioners of different sizes and compositions. The divides among them are likely to grow even more pronounced: smaller entities lacking the resources that allow their larger competitors to weather the disruption may be ripe for acquisition.
Murat Gungor, the senior vice president of diagnostic imaging at Siemens Healthineers North America, said market constraints are likely to bring practices on the brink to some difficult choices.
The $20-billion diagnostic imaging center market only grows at 1 to 1.5 percent annually, “and COVID probably slowed down that,” Gungor said.
“It’s hard to see any additive growth,” he said. “Any entrance to the market has to have the intention of stealing business from someone else.”
Under such conditions, “the whole activity in this space has been very much centered on consolidation,” Gungor said.
The U.S. diagnostic imaging market comprises some 12,000 total imaging centers, split nearly 50-50 between hospital and non-hospital settings, Gungor said. However, those 6,000 freestanding imaging centers constitute a very fragmented market, with the top five players accounting for just 10 percent of the entire sector, or some 600 locations.
Another 3,000 are single-facility entities, “which means they have a name, and one location with maybe a couple of imaging systems, and that’s it,” Gungor said.
“The big fish in this bucket are somewhat going after the smaller fish,” he said. “Smaller entities with one or two locations are in a tougher position because they lack the necessary economies of scale.”
In the final months of 2020 and beyond, Gungor believes that competitive imbalance could lead to more single-entity practices fighting for their survival, as private-equity investors smell opportunities to grow their market share. As bigger entities that take this tack, the consolidation trend could intensify throughout the end of the year, he said.
“We see this reaction from the top freestanding customers that we deal with,” he said. “They’re more than ever focusing on mergers and acquisitions, and I think that’s going to continue, which will make them even stronger in terms of size and patients.”
“If you have the ability to do it, why wait?” Gungor said. “Most of the smaller settings are under economic pressure, and we think that might continue.”
Facilities affiliated with hospital systems will probably have a stronger hand to play, Gungor said; it’s not easy for freestanding centers to scale up to the acquisition of more sophisticated imaging devices. Getting to break-even on a multi-million-dollar equipment investment requires strong study volumes and patient throughput, a difficult task made harder under pandemic conditions.
“If you’re more localized, it’s hard,” he said, “especially in a smaller setting. In a very hospital-dominant market, it’s not easy to show presence.”
Multistate imaging businesses that were strong going into the pandemic should be able to operate at the scale to be able to manage its impact, as the current environment offers an opportunity to broaden their geographical coverage.
“The ones that are more successful are more spread out,” Gungor said. “You might be a 50-location freestanding entity, but if you are geographically diverse, that gives you a good presence in the market space that a hospital-based setting won’t have: your patient mix is different, your industrial relations might be different.”
Despite their size advantages, hospital-based imaging centers don’t necessarily have it easy. Varying reimbursement rates and the pressures of price transparency around site-neutral payments have sharpened competition for patient populations. With insurers driving down their costs by encouraging patients to negotiate rates and shop around, “pressure is high on those entities,” Gungor said. As patients are motivated toward lower-cost options, freestanding imaging centers may hold an advantage over their more well-heeled competitors.
Patients tend to prefer hospital-based imaging centers for high-end procedures, giving freestanding centers a “more bread-and-butter” clinical caseload, Gungor said. Freestanding imaging centers “are trying their best to change that” perception, but only the largest competitors in the space may be capitalized well enough to acquire new technologies after the impact of the pandemic.
“They know this is the way to compete against hospital systems and attract more sophisticated referrals to stay alive,” Gungor said. “They tend to buy used X-rays or C-arms, which can still be competitive; hospital systems definitely go to the newest-innovation devices.”
Once the economic conditions perpetuated by the pandemic are resolved, he believes those facilities that endure will very quickly revert to an “aggressive asset management model,” replacing those systems that deliver modalities for which there’s pent-up demand. The secondary objective is managing those patients within a COVID-compliant cohorting system.
Every facility must adhere to social distancing protocols, pre-screen for symptomatic patients, ramp up sanitization measures and take other appropriate precautions to keep staff and patients healthy. Those patients who’ve deferred or delayed needed imaging studies will show up, Gungor said, but it’s up to imaging centers to boost their confidence in the safety and quality of the experience they receive – if their customers have money to spend on imaging studies.
For its part, Gungor said Siemens Healthineers is doing what it can to support the survival of facilities throughout the industry of all shapes and sizes.
“We are more diversified than any individual account or customer, and we are able to work with all of them, and we have the portfolio to support that,” he said. “Our job is to make sure that they go through this successfully. We’re truly in this together, and we need to make sure that they come out of it healthy.”
Bob Still, executive director of the Radiology Business Management Association (RBMA) of Fairfax, Virginia, believes that throughout America, there’s still a generational demand for medical imaging studies. Although study volumes are still rebounding from a valley dug during the peak of the pandemic, “if you look at the really big picture, there’s a whole bunch of us baby boomers who are going to need imaging over the next 20 years,” Still said.
“COVID really took a hit on everybody,” he said; “revenues are going to drop close to 20 percent this year just because of it.
“But if you’re an outpatient imaging business, and you lost money this year on COVID, you’ve got a train coming at you on further reductions that are unavoidable unless Congress raises budget neutrality to pay for them,” Still said.
With the Centers for Medicare and Medicaid Services (CMS) set to implement proposed changes to the coding structure for office and outpatient evaluation and management (E/M) codes, imaging providers may see an 8-percent decrease in radiology revenues “as a result of the necessary budget neutrality adjustment,” the American College of Radiology (ACR) noted in November 2019. ACR, however, estimates the impact to be slightly higher, at 9 percent, equaling about $452 million annually, or $5.6 billion industry-wide over the next decade.
“[CMS] indicated that they understand these concerns,” ACR said, but at the time the rules were developed, the agency said “it was premature to finalize a strategy for mitigating the impacts in this final rule.” That’s setting up the industry for a protracted lobbying stretch to stave off the potential deficit.
“Health care professionals who provide patient services that do not fit in the evaluation of management classification will take a hit to allow their colleagues to see their rates increase,” Still said. “Under the Medicare requirement of ‘budget neutrality’ if one group is a ‘winner,’ another group providing patient services is a loser.”
“In the outpatient imaging business, I think the equipment managers and others are concerned about this,” he said. “If the pie is smaller, can we wait a year or two years to buy that MRI?”
RBMA is in the process of surveying its membership to determine possible negative effects in practices caused by these changes. Still said most of the people affected by it have recognized that it’s a concern, but no solutions have yet presented themselves.
Like Gungor, Still believes “all of the patterns we’ve seen in recent years will continue,” i.e., mergers and acquisitions that drive industry consolidation, with private-equity capital greasing the wheels for it, and hospital-based radiologists joining freestanding imaging centers, potentially growing business at both ends. If COVID-19 impacts have prevented facilities from acquiring new technology, “the good news is you can borrow money cheap,” Still said. “That’s a nice way to fund equipment.”
He does, however, believe the clinical impact of the pandemic will manifest itself in reduced patient volumes and an uptick in self-payers. People who’ve lost work or income due to illness, caregiving or industry shutdowns may have also lost their health insurance, and could decide to put off diagnostic studies, even over a matter of a few hundred dollars. For its part, RBMA has helped its membership navigate state, federal, and local relief opportunities, all of which Still believes has had an impact.
Kit Crancer, vice president of public policy and executive director for CDI Quality Institute in Minneapolis, Minnesota, said that at some of its sites across the country, imaging volumes fell by as much as 70 percent during elective procedure bans enacted during the pandemic.
“Routine mammography dropped almost entirely,” Crancer said. “Women could not go and get their annual screenings in a number of states, elective procedure prohibitions resulted in the furloughing of staff, and then you see the instability of reopening.”
“That, in a nutshell, is what we were dealing with previous to looking at that Medicare fee schedule,” he said.
Since the virus has retreated from its peaks in parts of the country hit hardest and earliest by it, CDI has been able to reopen the majority of its freestanding imaging centers and bring back the majority of staff. However, Crancer said, “there’s still that looming fear that there could be another shutdown.”
“We’re working through, as best we can, a backlog in patients, and trying to get back to patients who would skip that mammography, or low-dose lung scan, or follow-up cancer treatment,” he said. “And then, having weathered the impacts of this global pandemic, providers who are at the tip of the spear, trying to diagnose these life-threatening procedures, now face a reduction in reimbursement rates.”
The cuts “will certainly result” in Medicare patients suffering a lack of access to imaging services, Crancer said. He fears that already-struggling facilities may close, cutting off access to populations that may not have local options for an affordable imaging study performed.
“Critical access facilities and providers in rural America are going to face significantly more challenges for this,” Crancer said. “The timing is absolutely wrong to add to the instability of these institutions, and that’s exactly what’s going to happen if Congress doesn’t act. Our hope is that they will waive the budget-neutrality strictures.”
If there’s a bright spot on the horizon, Crancer sees it as the reformation of prior authorization statutes, an advocacy issue across the medical imaging industry. Care delayed or deferred by the pandemic could have a catalytic effect on resolving some of those regulations that create barriers to getting studies performed.
“I think policymakers realize that the status quo as it relates to insurance companies to take weeks to get turned around on prior authorization is unacceptable in the face of a growing number of patients who’ve had to delay their care,” he said.
“If you’re already anxious, we don’t want you feeling more anxious.”