Changing Business Models

As teleradiology providers increasingly encroach on services traditionally offered by radiology practices, the industry reacts.

In the technical sense of the term, teleradiology is the ability to remotely read images. A radiologist reading images two floors down from the modalities or from a home office is practicing teleradiology. As a business strategy, however, the accepted definition is a bit narrower. Traditionally, teleradiology has referred to the services subcontracted by radiology groups to remote, third-party entities, such as NightHawk Radiology Services, headquartered in Coeur d?Alene, Idaho.

The arrangement had been mutually beneficial: radiology practices could fill gaps in their services, whether driven by time or specialty; teleradiology services could offer freer lifestyles to interested radiologists while generating revenue; and patients and physicians could have access to a broad range of radiology services at all hours in any location. The number of teleradiology firms blossomed.

Unfortunately, at the same time, the cost of health care came under close scrutiny, exasperated by a recessed economy and reform efforts. Budgets tightened, and competition increased. Improved technology, advanced bandwidth delivery, increasing subspecialization, and growing market demand (particularly in rural areas) enabled teleradiology firms to expand their services outside traditional nighthawk delivery into dayhawk and subspecialty reads.

The evolution is altering the traditional business models within radiology as a whole and stirring up controversy. Some feel ?teleradiology? companies are biting the hand that feeds them. Others argue the changes are organic and the competition drives improvement.

?It?s going to be interesting to see what happens. It?s already affecting the business models in many radiology practices. The good part of teleradiology is that it allows subspecialty coverage and helps with recruiting. The potentially not-so-good part of teleradiology is that, in some cases, teleradiology companies have the potential to displace local radiology practices because they?re able to provide subspecialized reads 24/7,? said Jonathan W. Berlin, MD, MBA, clinical associate professor of radiology at the University of Chicago Pritzker School of Medicine, Department of Diagnostic Radiology, NorthShore University HealthSystem, in Chicago/Evanston, Ill.

The Upside

The ability to provide subspecialty reads 24/7 through teleradiology has been both a boon and a burden for radiology practice models. On the positive side, using a teleradiology firm to fill in a practice?s gaps in hourly coverage and/or subspecialty expertise can improve the service and value delivered to a radiology practice?s clients while permitting radiologists regular work hours.

Teleradiology can also fill in geographical gaps in radiology services, such as those seen in rural communities. ?We?re reacting to a market demand that has become more acute. A national provider with true national scale has the capability to present a much wider and greater depth of service to the community hospitals that are demanding it,? said Scott Seidelmann, CEO of the Radisphere National Radiology Group (formerly Franklin & Seidelmann), headquartered in Beachwood, Ohio.

When used as support for in-hospital radiologists, teleradiology has the capability to streamline workflows, create efficiencies, and reduce costs. ?By going into these community hospitals, utilizing one or two general radiologists on-site, and supporting them with a network of specialists, the ability to do final reads at night, and transparent quality assurance, you can deliver guaranteed services, commit to quality assurance levels, and provide better access to subspecialty services,? Seidelmann said.

A small group of radiologists are not likely to have the same breadth of resources on their own. ?It?s an unbelievable demand placed on five or three radiologists who are just trying to keep up with the volume,? Seidelmann said, let alone additional demands to deliver 24/7 reads, grow volume, and provide expertise in areas as diverse as musculoskeletal imaging, cardiac CTA, and breast MR.

If the hospital employs the radiologists and/or teleradiology group directly, it typically has greater influence over the type of service provided and, therefore, the demands it can make. ?If they want to increase their mammography or certain clinical services, [with ownership] they are able to have more control over which services the radiology department provides and where the radiology department provides them,? Berlin said.

Before the advent of remote technologies, radiology practices held a ?geographic monopoly,? according to Seidelmann. Teleradiology has opened up competition, which supporters suggest inspires innovation and increases the value delivered to customers who, in these cases, may include medical staff and hospital administrations. ?The result of this competition will be improved quality, more subspecialization, guaranteed service levels, and/or reduced cost?the things that truly matter to customers, which happens in every other market,? said Seidelmann.

The Downside

At the same time, some consider it bad business to compete with clients. ?I don?t think it ever makes sense for any company or organization to figure out a way to be competitive with their customers. There may be a short-term advantage to it, but it?s a long-term mistake,? said David Engert, president and chief executive officer of NightHawk. The pioneering teleradiology company recently announced its organizational ?rules of engagement,? emphasizing the company?s support for the radiology community.

?We and others in the teleradiology field have really been focused traditionally on providing services in the areas radiology groups needed help in. But recently, some teleradiology groups have become quite competitive and are beginning to compete with radiology groups overtly. We thought it was time to make a clear statement to the marketplace that we have no intention of veering from our original mission?to provide high-quality care for patients and to support the lives of radiologists,? Engert said.

NightHawk?s ?Commitment to the Radiology Community? identifies in which situations the company will contract directly with hospitals or indirectly through non-radiologist-owned entities, such as practice management organizations. The rules generally limit NightHawk?s direct competition with radiology practices, particularly its customers, and support the existing model of radiology service delivery. ?Our service is never designed to be a replacement to a group. It?s always delivered to augment a group and provide the services they choose to have us do,? Engert said.

While some see the competition introduced by aggressive teleradiology companies as beneficial to the market, others see the move as predatory and detrimental?particularly those directly impacted. ?It basically, as the saying goes, took the bread out of the mouths of my radiologists,? said Fred Gaschen, executive vice president of Radiological Associates of Sacramento Medical Group Inc (RAS), located in Sacramento, Calif.

RAS was displaced from its service with five Sutter Health regional hospitals partly by Radisphere, a teleradiology provider that emerged earlier this year as a direct competitor to radiology groups. The reason cited, according to Gaschen, did not include quality but focused solely on business. ?We did not have complaints from our referring physicians. We did not have complaints from our patients. Quality indicators were all up. The hospital made its decision for monetary reasons,? Gaschen said.

The impact not only negatively impacted RAS? practice but also could eventually drive the cost of health care up rather than down, suggests Gaschen. Hospital ownership of physicians gives the hospital organization greater leverage during negotiations with insurance companies. ?By putting more power in fewer hands, you won?t reduce the cost as expected but will instead increase the cost. This isn?t just a theory: the cost of health care has gone up 20% in California [for private payors] because they?ve allowed hospitals to own physicians?through medical foundations?and negotiate all together at the bargaining table,? Gaschen noted, citing a Health Affairs article published earlier this year.¹

The Reality

Whether considered positive or predatory, however, the reality is that some teleradiology companies are now competing directly with radiology groups to deliver comprehensive radiology services. Whether the ultimate impact will be positive or negative, the evolution is under way. Engert believes those who have chosen this path are unlikely to reverse their efforts. Radiologists will have to adjust.

At RAS, in response to the loss of the Sutter hospitals, the radiologists evaluated their skills, services, and health care trends and decided to narrow the practice?s focus to oncology while extending its services outside of radiology. ?We looked at what we do best, and we are cancer care diagnosers and providers,? Gaschen said.

RAS had already offered cancer diagnoses and radiation oncology. To meet the objectives of their new business model, they launched departments and hired staff in areas such as medical oncology, oncological surgery, thoracic lung cancer, gynecological oncology, etc. ?So, we?re becoming more of a cancer diagnosis and care organization than just a radiology organization,? Gaschen said.

He acknowledges the solution may not work for everybody, but they are not the only ones taking this approach. ?There?s another group in Santa Rosa, Calif, that has diagnostic imaging, radiation oncology, medical oncology, breast surgeons, and other surgical staff,? Gaschen said.

For those without a specific subspecialty, a focus on greater efficiency has helped to maintain profits. One of the things local groups are doing to maximize efficiency is to make all examinations accessible throughout the enterprise. ?So that if one person is caught up at one hospital, and [the radiology group] services a number of hospitals, the radiologist who is caught up can pull films from a hospital where somebody is not caught up. That increases efficiency and could allow a practice to potentially defer a hire,? Berlin said.

Greater efficiency in scheduling is another area of focus, particularly on high fixed cost assets. ?More efficient scheduling of the high-cost CT and MRI machines can increase patient throughput,? said Berlin.

Increased volumes will help to offset declining reimbursements while supporting the growing demand for imaging services. The aging population is expected to utilize more medical resources, in general, but particularly imaging. In addition, continued pressure to provide defensive medicine (against potential lawsuits) also requires imaging services. ?I see continued use of imaging. So the volume won?t decline, but we?re going to get paid less per unit of service,? Gaschen said.

Radiologists need to emphasize their geographic edge to remain competitive. Physical proximity facilitates relationship building and enables the radiologists to more easily fulfill all of the obligations of their job. ?A teleradiology service provides the read, and that?s very important, obviously, but there are also other aspects to what the radiologist does,? Berlin said, citing selection of the appropriate exam, monitoring of exam protocols, development of physician rapport, and patient interaction.

These services are difficult for an off-site teleradiology provider to offer. ?So I think teleradiology can have a synergistic effect with local radiology practices, but I don?t really think that it can necessarily replace the entire breadth of services that local radiology practices provide,? said Berlin.

The Future

However, some in the industry do foresee a future where national affiliations become more common, if not predominant. ?I think the industry is going to continue to consolidate organically, because you need a massive amount of scale to deliver the type of quality and consistency that the market demands,? Seidelmann said.

Technology will continue to advance, reimbursement is likely to continue to decline, and utilization is expected to increase, so some changes in radiology business models can be expected. Whether that evolution will positively or negatively impact radiology practices remains to be seen. It?s probable that radiology practices that remain flexible and adapt accordingly will succeed in the new environment, while those who fall behind are likely to fail.

?I think there are a lot of things going on in health care that will change the playing field for all of us. I don?t know who the winners and who the losers are going to be, but I?ll stick by the premise of take care of your customers and they?ll take care of you,? Engert said.

Teleradiology can help radiologists take care of their customers but does present some risk in terms of competition. ?You stand the risk that the teleradiology provider could potentially attempt to displace your group, but that shouldn?t happen if you?re providing good service and you?re there most of the time,? Berlin said.

Of course, what shouldn?t happen, sometimes does, just ask RAS?s Gaschen. But with flexibility and adaptability, radiologists can use the evolutionary opportunity to develop a practice that meets their personal preferences and use teleradiology, in its technical sense, to support their business model.

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Renee Diiulio is a contributing writer for Axis Imaging News.

Reference

1. Berenson RA, Ginsburg PB, Kemper N. Unchecked provider clout in California foreshadows challenges in health reform. Health Affairs. 2010;29(4).