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 		   Declining Medicare reimbursement for magnetic resonance imagingscans combined with bargain-shopping by managed-health-care groupsspells trouble for high-field MRI centers, said Leonard F. Vernon,president and CEO of Imaging Management Associates. Centers thatcan ride the low-cost MRI wave, however, stand to profit substantiallyfrom the trend, he added.

   IMA of Jersey City, NJ, began as a single limited-partnership-ownedMRI center in 1987. The firm went public last June following thecombination of several partnerships into one operating company.It gained a listing on the NASDAQ market late last year. IMA nowoperates eight MRI centers and plans to expand further with theacquisition of independent physician-owned centers, Vernon said.

   Virtually all of IMA's MRI scanners are low-field Toshiba Accesssystems. The firm markets low-cost, non-claustrophobic imagingto referring doctors and HMOs and PPOs, he said.

   While many radiologists still like the pretty pictures thathigh-field MRI scanners produce, they accept low-field imagesonce they gain experience and realize the images are of diagnosticquality, Vernon said.

   Low-field MRI systems break even at a much lower throughputlevel than high-field units, so a center can sell low-field MRIservices to managed-care groups for substantially less per scan.IMA's fee for an MRI examination is $600 or less, while some high-fieldcenters charge over $1000, he said.

   "People with high field have to pump 10 to 15 (patientsthrough the center) a day to break even. My break-even (point)is below four (patients)," Vernon said.

   About 30% of IMA's gross revenue comes from contracts withseven HMOs and PPOs. The company earned $4 million in direct equity-proportionedrevenue from its centers in 1990 and expects to earn $8 millionto $10 million in revenue this year, he said.

   Vernon likes the open design of the Access system, which isa marketing plus for claustrophobic patients, he said. The Toshibaname, low examination price and low siting costs are other marketingadvantages of the system, he said.

   "If you are going to have a low field unit, you have tohave something to market with it," Vernon said.

   IMA is not wedded to Toshiba, however. The company is consideringthe Hitachi low-field MRI system and purchased an Instrumentariummobile MRI this month. It plans to upgrade the Instrumentariumunit to that vendor's new 0.1-tesla Mega-4 system (SCAN 10/24/90),he said.

   "We were going to buy an Access (MRI), but Hitachi iscoming in with nice deals and we are thinking about that. Hitachiis Toshiba's biggest competition for the Access," he said.

   The center firm also carries its low-cost, compact-system philosophyto computed tomography imaging. IMA runs three GE CT Max systemsand has a fourth on order, Vernon said.

Articles

Declining Medicare reimbursement for magnetic resonance imagingscans combined with bargain-shopping by managed-health-care groupsspells trouble for high-field MRI centers, said Leonard F. Vernon,president and CEO of Imaging Management Associates. Centers

Center firm sells MRI to managed-care groups

Morgan W. Nields, chairman and CEO of Fischer Imaging, has investedconsiderable time and resources in developing business connectionsin the Soviet Union. He has traveled to that country a half-dozentimes since joining Comed, a U.S./USSR joint venture, two yearsago (see previous story).

The Soviet economy offers "significant downstream opportunities"as it restructures to a market-based system over the next 10 years,Nields told SCAN. His Soviet connections have also opened up businessopportunities for Fischer in the rest of Eastern Europe.

Medical imaging markets in Eastern Europe are changing rapidlyand much of the business is up for grabs, which is enticing toa vendor less established in Europe, Nields said.

"We could bang our heads trying to sell our equipmentin France and Germany and make very little headway against Siemens,Philips and GE," Nields said. "The risks are higherin Eastern Europe, but things are moving fast there, and a smallcompany can find opportunities in those fast-moving markets."

Soviet executives introduced Nields to the general directorof a large computer manufacturer during a trip to Bulgaria inDecember. Fischer is exploring possible cooperation with thatcompany in assembling x-ray equipment in Bulgaria, which wouldthen be shipped to the Soviet Union. German and Japanese medicalimaging competitors are also interested in the business, he said.

As the Soviet Union and the countries of Eastern Europe implementhard-currency-based trading this year, the Eastern Europeans mustmake products their larger neighbor wants to exchange for oil,gas and other goods that have international commercial value.Such products would likely include state-of-the-art medical imagingequipment, Nields said.

Morgan W. Nields, chairman and CEO of Fischer Imaging, has investedconsiderable time and resources in developing business connectionsin the Soviet Union. He has traveled to that country a half-dozentimes since joining Comed, a U.S./USSR joint venture,

Soviet ties lead Fischer east

 		   Tight reimbursement and improvements in low-field technology havecombined to force down the prices of magnetic resonance imagingsystems sold in Japan and Europe. Japanese MRI prices have beendeclining for at least two years, and this trend has spread toEurope and other international markets as well.

   "Japan has the most competitive prices," said RalphAndreas, vice president of international for Toshiba America MRIin South San Francisco. But MRI prices in general can't go muchlower, he said.

   The price of a popular 0.5-tesla superconductive system inJapan plummeted from 200 million yen ($1.5 million) to 100 millionyen ($735,000) between 1988 and 1989. The price continued to fallin 1990 to about 70 million yen ($514,000)--about half the U.S.price, according to the Japanese newspaper Nippon Kogyo Shimbun.

   MRI prices in Europe were considerably higher than in the U.S.,but have dropped significantly. Prices in Japan, however, aremuch lower than those found in both the U.S. and Europe.

   Tightly controlled reimbursement rates are forcing a majorreduction in prices outside the U.S., according to ChristopherJ. Peabody, senior vice president of international operationsat Picker. Customers in international markets are seeking magnetvalues at 0.5 tesla and below.

   "A lot of shopping is done on the basis of lowest installedprice," Peabody said.

   Prices in Europe have fallen about half as far as those inJapan. Mid-field systems sold for about 13 million francs ($2.5million) in France in 1987. Today, 0.5-tesla systems list in the9 million franc ($1.7 million) range. List price for a popularhigh-field system was 16 million francs ($3.1 million) in 1987and has dropped about 25% to 12 million francs ($2.3 million),according to Dr. Robert Lavayssi-ere, general secretary of theheavy equipment branch of the Private Practicing Radiologists'Union.

   "This current (downward) price trend will force some ofthe smaller competitors out, and in the long run prices will flattenout," Andreas said. "There also has to be more consistencyin pricing between the various geographical markets."

   For the time being, however, reimbursement will probably continueto decline and the price of MR systems will have to follow, hesaid.

   "It is like a mini price war and it's unfortunate, becauseyou have to put more R&D into MRI than into any other imagingmodality," Andreas said.

THE INTERNATIONAL BATTLE FOR MARKET SHARE is another reason forfalling prices. Toshiba holds more than 50% of the medical imagingequipment market in Japan, and is struggling to retain it. Thetough MR price competition at mid and high field is largely dueto the efforts of "a very aggressive American company,"said Tadatoki Yoshida, senior manager of Toshiba's MR businessgroup in Tokyo.

   Michael A. Silver, director of MRI programs at Instrumentarium,advanced a different scenario. Japanese mid-field prices are fallingbecause of Toshiba's effort to squeeze Hitachi in low-field competition,he said.

   "Toshiba seems to have targeted Hitachi as a major competitor.They are dropping their (mid-field) system prices into the low$500,000 range," Silver said. The result is that 0.2-teslasystems lose their price advantage over 0.5-tesla systems, hesaid.

   Pressure from Toshiba within Japan is forcing other vendorslike Hitachi into more aggressive selling in all modalities inEurope and the U.S., Silver said.

   Hitachi, however, claims to have edged into the number-oneslot for MRI units installed in Japan, according to ChristianWetzel, director of marketing for Hitachi, Europe (see chart).A 0.5-tesla system that the company does not plan to export madeup almost a third of Hitachi's 1989 sales.

   Philips is also looking for market growth at lower fields.Since the first delivery of its 0.5-tesla T5 in 1988, Philipshas received more than 200 orders worldwide and has installedalmost 100, said Maarten van Herk, director of Philips' worldwideMRI business. Roughly 60% of those systems are outside the U.S.,he said.

   While the overall MRI market continues to grow, the high-fieldportion of it is shrinking, according to Joseph Vacca, directorof MRI for Philips in North America. Sales of 1.5-tesla unitshave shrunk from about 50% to about 30% of the market in the pastfew years, he said. The bulk of sales remains in North America.

   With angiography available at mid field and mid-field subsecondimaging under development, Philips and other manufacturers indicatethat spectroscopy is about the only 1.5-tesla feature that won'tmigrate to 0.5-tesla machines.

Tight reimbursement and improvements in low-field technology havecombined to force down the prices of magnetic resonance imagingsystems sold in Japan and Europe. Japanese MRI prices have beendeclining for at least two years, and this trend has spread