The $250 billion global medical imaging industry is undergoing seismic changes, transitioning from its traditional product-selling focus to providing solutions and services. This significant development is a direct result of the immense pressure on the healthcare sector, where investments are slowing down, patients are demanding better medical care, and governments are pushing for a reduction in overall healthcare costs.
The need to provide advanced diagnostics at an affordable cost, without any adverse effect on their sustainability, is driving healthcare providers towards adopting service models in medical imaging. With the as-a-service model in place, care providers aren’t required to purchase imaging equipment outright. Instead, they can partner with vendors who provide the necessary equipment and related services, with payments made on a pay-per-use or periodic basis. Under this arrangement, the upfront capital costs involved are drastically reduced, thereby easing the burden on the capital budgets of care providers. This is an excellent proposition for cash-strapped hospitals, whose balance sheets are already stretched thin.
Traditional Model vs. as-a-Service Model
As long as their clinical requirements are met, ownership of the equipment is of no value for care providers. With hospitals focussing on improving clinical standards and overall revenues, business models offering the product/solution as-a-service with guaranteed performance will gain traction, while traditional models focussing on selling products based on specification superiority or product USP are expected to slow down.
In the traditional model, hospitals purchase imaging equipment utilising their capital budgets, leading to uneven, lumpy expenditures over time. Maintenance of the expensive equipment is carried out in-house by their biomedical staff or through paid maintenance service contracts with OEMs. Under the new services model, payments are more predictable and evenly distributed over a longer period of time, providing substantial flexibility to care providers to upgrade equipment at regular intervals and manage performance while focusing on patient care. Also, equipment handling and maintenance is taken care of by the vendor and any downtime suffered would be their responsibility.
Apart from equipment vendors, teleradiology and imaging information technology providers have also adopted the services model. Having in-house radiologists for image reading and consultation may be convenient, but it has many limitations, such as availability during emergencies, at nights, and during weekends. Teleradiology promises round-the-clock access to image reading services by radiologists of various specialties and expertise. Hospitals can subscribe to teleradiology services as per their requirements, which would prove to be considerably less expensive than hiring a team of in-house radiologists serving them 24×7.
With the advent of cloud-based imaging IT services, hospitals need not invest in developing and maintaining image distribution and archival systems on-site. Instead, they can employ cloud-based systems and pay for these services as they are consumed. These systems can be upgraded seamlessly, whenever required, which is otherwise an expensive and time-consuming proposition with on-site systems.
Types of Partnerships between Providers and Vendors
In the medical imaging space, there are a variety of as-a-service contracts that care providers and vendors enter into. Based on their requirement and budget, the two parties can enter into a transactional contract, performance contract, or risk-sharing contract.
Transactional contracts refer to the episodic contracts granted to service providers to perform ad-hoc tasks. The contractors execute the tasks as per the standards and framework prescribed by the hospital. With performance contracts, hospitals engage service providers with defined output and performance metrics. The vendor is financially incentivised to strictly adhere to the performance and output metrics.
In a risk-sharing contract, the vendor owns the imaging department, or at least a significant portion of it, and is responsible for its maintenance. The contract rewards the vendor upon reaching pre-determined clinical and economic outcomes. This is best suited for hospitals that intend to upgrade their radiology department.
Advantages and Shortcomings
The as-a-service model allows healthcare providers access to the latest in medical imaging technology with little investment. This enables them to provide the best possible diagnoses for patients at significantly lowered costs. Forging long-term partnerships promises business continuity for hospitals and recurring stable revenues for vendors.
Equipment vendors will see net cash outflow in the near term, and rather than getting paid up front, it’ll take them years to recover equipment costs. However, the upside is that the service model guarantees them a client base and cash inflow for a set period while giving them the ability to cross-sell other products to existing clientele, creating a win-win situation for both hospitals and imaging vendors.
Future Outlook
As the entire medical imaging industry gradually shifts towards the as-a-service model, traditional product selling will cease to be an avenue for long-term growth for vendors. Total cost of ownership (TCO) and return on investment (ROI) will be the key factors based on which contracts are offered. The shift to service-based models in imaging will also help drive innovation in equipment parts and components, leading to lower maintenance costs and higher mean time between failures (MTBF). From a capital-intensive model, the industry will move towards a hybrid model before finally transforming into a truly operational expense model within the next 10 years.
