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Should You Add an MRI?
Here's what you need to consider if you're thinking of adding imaging to your facility.
Leigh Page
Publish Date: October 10, 2007   |  Tags:   Surgical Video and Imaging

Housing imaging and surgical services under one roof would appear to be a good match. While industry observers note that imaging is a growth field rivaling surgery, they caution that an MRI system is a major investment - scanners begin at $800,000 and you'll need to schedule enough patients to earn back the costs - and you'll have to tiptoe around thorny government regulations. Whether you're considering adding an MRI now or might do so down the road, here's a look at what you need to consider.

Taking the plunge
The annual number of MRI scans conducted in the United States doubled between 1997 and 2001, from 11 million to 22 million, according to the Tiber Group, a Chicago healthcare consulting firm. "It will continue to grow at a rapid rate," says Neal Peyser, the firm's vice president.

In its 2004 report on the imaging field, Tiber Group consultants argued that hospital-based MRIs have become mired in the same scheduling jams - caused, among other factors, by ER cases bumping elective patients - that have led to more and more surgeries taking place in freestanding facilities.

"A lot of ASCs are looking to diversify their revenues," says Bob Vogt, the chief executive officer of Frontier Imaging in Nashville, Tenn., which owns and manages imaging services.

The reasoning behind Willis-Knighton Health System's installation of a sixth MRI scanner was simple: If you build it, they will come.

According to Joyce Hooper, the radiology administrator for the Shreveport, La., four-hospital system, company officials were sure that the $1.5 million machine - scheduled to open this summer - would get plenty of use.

Willis-Knighton's five existing scanners are in use 12 hours a day, seven days a week. Still, says Ms. Hooper, "we're booked out for a week to two weeks."

At the Neurologic and Orthopedic Institute of Chicago, the field of practice drove the decision. An MRI system was included in the surgical hospital when it was built in 2003, and currently scans about 2,500 patients a year, some of whom lack the mobility to travel elsewhere for examination before treatment.

"For the types of specialties that we do here, the option to have or not have an MRI was not discussed," says Rich Priore, vice president of diagnostic imaging and support services. "It's a necessity."

Countering Stark
Unlike hospital outpatient settings, ASCs face legal restrictions on MRI ownership. MRIs don't have the same exemption under Stark II, the federal self-referral law, that ASCs do. As a "designated health service," an MRI can be owned by a hospital, by non-physicians or even by non-referring radiologists. It cannot, however, be owned by physicians from different groups.

To circumvent Stark II, an ASC whose physicians are joint owners would have to establish a separate MRI company, one owned by a non-physician entity such as a managing company that owns a share in the ASC. Alternatively, an outside imaging company contracted by the ASC might own the MRI facility.

As with most everything Stark-related, adding imaging to an ASC to make a profit is a no-go - unless you can fit it into one of the many Stark exceptions, says Michael Blau, Esq., the co-partner-in-charge of the health department at McDermott, Will & Emery in Boston. Mr. Blau suggests four ways an ASC can add imaging - and comply with the Stark Law.

  • Single medical group/ central building diagnostic center. In this model, a single integrated medical group (and no one else) owns the ASC. If the medical group wants to put in an MRI, it must lease the space that it will use for the diagnostic area from its own ASC, even though the MRI is run as part of the medical group's services. The medical group bills globally for the MRI and pays the ASC for the leased space. This fits two safe harbors of the Anti-kickback Statute: investments in group practices and space rental.
  • Multiple medical groups/ shared building diagnostic center. This model is a bit trickier: Each of the participating medical groups must have an office in the ASC that actually sees patients for services outside the ASC (such as physicals and exams) and is open at least eight hours a week (with at least one physician from each group on site at least six hours per week). These are the bare minimum criteria, but if they are met, an MRI can be put in the ASC. In this case, each medical group bills separately for and has to supervise its own MRI services. If you have separate MRI staff, the service must be leased to the medical groups in blocked time.
  • Intermediary independent diagnostic testing facility. In this scenario, an independent imaging company (the IDTF) provides the MRI service. The IDTF will place its equipment in the surgical center and pay the physician-owners a lease fee. The IDTF itself will bill and be paid for the MRI services.
  • Intermediary-friendly PC arrangement. This is set up similar to an IDTF, except that it involves referrals between the participating physicians and the friendly independent radiology group leasing the space for the MRI, so the financial arrangements should be safe-harbored.

Of course, there's nothing preventing you from having an MRI on site if you have no financial interest in the MRI services or someone who has no financial interest in your center owns the MRI, says Mr. Blau. "You won't reap the financial benefits, but you'll be able to provide the service to patients," he says.

Is an MRI for you?
Legal considerations aside, an MRI can be an asset for an outpatient facility, as long as administrators plan ahead - and the machine is used.

Since purchase and installation costs for a typical machine run as high as $2 million, and additional expenses add hundreds of thousands of dollars a year, an MRI is likely the single biggest capital investment that an ASC will ever make. Consultants say that facilities can qualify for financing and meet their budgets as long as they can determine without a doubt that the machinery will be used.

Deciding whether to obtain an MRI can be a complex process, says Robert Maier, the president and CEO of Regents Health Resources, a Brentwood, Tenn., imaging center developer. In his opinion, a facility needs a better reason than simply to make money. Convenience might not play a role either, he says. Since patients are sent for an MRI scan well in advance of surgery, there isn't always a need to have the machine next door to the operating room.

Scheduling difficulties at existing MRIs may be a more compelling reason. Local physicians frustrated with scheduling could become a strong referral base, says Mr. Maier. If the physicians won't be investing in the project, however, administrators must be assured that they will receive enough referrals. Even if physicians complain of slowdowns at a hospital's MRI, they might not refer patients to a particular facility. Physicians investing in an MRI project routinely overestimate their referral volume, says Mr. Vogt. "I discount what a doctor tells me by 50 percent," he says.

If you can't ascertain a solid referral base, conduct detailed demographic studies of local demand and watch competitors closely. The Bone and Joint Clinic in Franklin, Tenn., installed a $1 million open MRI six years ago, but only after careful study. "We had some examples of proven track records before we pursued this heavily," says CEO Duane Murray. For the clinic itself, the installation "was an opportunity based on the fact that we had a large volume of patients we sent to other facilities for MRIs."

Reimbursement for MRI services should also be a concern. Imaging experts say rates range from as much as $1,250 per scan to as little as $525 - which is at or below the Medicare rate and not enough to break even - if there is any reimbursement at all. Alarmed by what they see as an overuse of MRIs, many insurers have begun limiting their reimbursement for imaging costs. Last year, Pittsburgh's Highmark BlueCross BlueShield announced that it won't cover imaging centers with fewer than five imaging modalities. To be covered by Highmark, an MRI operator must also have at least four other imaging modalities (for a total of five) taken from Highmark's list of nine or 10 qualifying modalities, including bone densitometry, mammography, echocardiograms, CT, X-ray and positron emission tomography (PET).

Once you've decided your facility can afford an MRI system, it's time to go shopping.

Machines range from $3 million (for 3.0-tesla behemoths, which can deliver extremely clear, three-dimensional images) to $500,000 (for 0.2-tesla "extremity" MRIs that scan just an arm or a leg). "You don't need the most expensive MRI," says Lars Andersson at Advanced MRI Consulting in Evergreen Park, Ill. "Look at your needs, then decide if you will be playing a fiddle or a Stradivarius."

A 0.7-tesla to 1.5-tesla open MRI that costs $800,000 to $1 million "does a pretty good job for 80 percent to 90 percent of your patients," says Mr. Maier, and the remainder 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, Pa., 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 years to three years, a detailed business strategy, information on demand and payer mix.

You can also lease an MRI, says Marty Zimmerman, chairman and CEO of LFC Capital, a Chicago-based company that helps finance MRI purchases. This shaves as much as 15 percent off the price and, in some cases, takes the leased MRI's continuing costs off your balance sheet. Typically, leasing stretches out payments over 60 months, meaning that even a few months in, "you can make money every single month," says Mr. Zimmerman.

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

Mr. Zimmerman also owns a company that deals in refurbished MRIs. The refurbished option can offer savings of 25 percent to 60 percent off the price of a new MRI. But critics note that older MRIs lag in technology, given the imaging field's rapid rate of change, and may require more maintenance.

Planning for an MRI
Building an MRI center can take at least a year and perhaps two, according to industry observers.

JDI Solutions, a Brevard, N.C., consulting firm, stresses the importance of choosing an experienced architect and contractor. The machine's calibrated high-power magnet requires, among other things, a 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 firm's consultants write in a guide on buying and assembling imaging equipment. "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."

Since MRI machines don't operate themselves, facilities will also need to hire a licensed, trained imaging technician to carry out the procedure and contract with a radiologist to read the scans.

Doug Smith, managing partner of the Barrington Lakes Group, a radiology consulting and management firm in Barrington Lakes, Ill., says imaging technicians earn $65,000 to $85,000 a year and are extremely rare, unless a facility can train its own.

An MRI facility's hours of operation will determine how many imaging technicians are needed, says Mr. Smith. Since each scan typically takes 40 minutes, it may need to be open for more than one shift to make a return on its investment. The expenses don't stop there. Mr. Smith totals an MRI's continuing costs at $100,000 to $150,000, which includes maintenance contracted with the manufacturer, software upgrades, and replacement of tubes and detectors.