Executive roundtable: Toshiba execs see reimbursement as near-term problem, but CT still represents solid long-term value

Congressional moves to cut Medicare payments for outpatient imaging procedures tops the list of what worries executives at Toshiba America Medical Systems. But reimbursement problems won't stop the company from developing and promoting new imaging technologies.

In a sit-down with editors from Diagnostic Imaging at TAMS headquarters in Tustin, CA, top execs at Toshiba America described plans for a 256-slice CT scanner, the prospects for 3T MR, and the growth of cardiac and oncology imaging. Participating were Ed Lodgek, senior vice president and general manager; John A. Zimmer, vice president for marketing; and Doug Ryan, director of the CT business unit. Leading the discussion were John C. Hayes, editor of Diagnostic Imaging magazine, and Jane Lowers, DI special projects editor.

DI: There has been a great deal of concern about the potential impact of cuts in Medicare payments for imaging services recently approved by Congress and set to take effect beginning next year. As a vendor in the imaging marketplace, how does Toshiba view these cuts?

Lodgek: When you look at the cost of healthcare and the pressure that is putting on the system and on budgets, it's not a surprise to us that we're seeing this. That could be very stressful, given the percentages of some of the reductions. But we need to look at everything - the cost of the scanning equipment, the efficiencies relative to throughput - to get the total picture.

If you look at the 64-slice scanner, which has been available from Toshiba for two years, you've probably seen reductions of 10% to 15% in average selling prices. If you look at the 16-slice, which is still a core workhorse, you see even more dramatic reductions in the cost of the imaging equipment. Yes, reimbursements have come down, but the cost of equipment is also coming down. When you look at the speed and efficiencies of this equipment, relative to its ability to put patients through, that presents a more positive light on the future of sales in imaging.

Zimmer: These changes in reimbursement create uncertainty in the marketplace, and uncertainty is generally not a good thing for conservative investors in the market, and thus it creates some churn. In the longer term picture, this is like a pothole on the path of progress. We see it as a real opportunity. Reimbursements are going to be under pressure for a long, long, long time. We're seeing the population continue to age and, hopefully, be healthier than prior generations. That's going to continue to drive the demand for diagnostic imaging sources. It's also important to note that diagnostic imaging is a huge benefit to patients in the overall scheme of healthcare.

The next step, then, is to make this technology extremely productive, so our customers can be as efficient and cost-effective as possible. A great example is what is happening in CT for the coronary arteries. A couple of years ago, before the 64, these applications were nonexistent. Now we have a technology that can provide early warning and treatment for a disease state that in many cases has as its first symptom a heart attack and death. Is imaging really driving the cost of healthcare? We don't think so. We're saying, "Gee, that's a much better solution, over time."

DI: So you're making a very good argument for the technology, in the large sense. The technology is going to continue because it solves a lot of clinical problems that weren't solved before and moves treatment onto the diagnostic curve earlier than we've ever been before. In the short term, though, there are some big challenges, for instance, the cutbacks in payments for imaging, particularly in imaging centers. Does Toshiba have a strategy within that context?

Zimmer: The position that we're taking in the short term is to help our customers understand what the implications are. What doesn't help, quite honestly, are some of the articles that throw percentage numbers around like the world is coming to an end. We see our role with our customers as trying to piece it together. There's an amazing lack of understanding about what is really happening here and what's slated to happen over time. That uncertainty, that churn, is not good for the marketplace, so what we can do is help our customers to walk them through the scenario, and convince them, "Look. There have been reimbursement cuts in the past. This is not the end of the world. Let's take a look at your business model and see what the implications are and what we can do together to get to the next step."

DI: So, your answer to this is, "Yes, we've got some short-term issues, but the long-term outlook is really good."

Zimmer: We think that long-term view is outstanding. To bill for contiguous body part exams and take a cut on that combined package does not seem to be the end of the world to me. This becomes an even greater reason for investing in multislice technology, which gives you the capability to go all the way through the processing, displaying, and communicating to a referring physician almost in one shot. All the information goes to the workstation and gets distributed. Even if we cut that combined package by 25%, it's still a pretty decent number.

Ryan: The trend's been going that way, anyway. A lot of the bigger practices are expecting these changes. I had a long conversation with Dr. Mark Winkler up at Steinberg Medical, which is one of our strategic accounts and perhaps the largest outpatient center in the U.S. Mark was saying that they'd foreseen this, it was common knowledge that it was coming, and they've been restructuring their business to reflect this. In some ways it actually gives them an advantage in their billing procedures: They've got less overhead because they don't need to come up with three separate billing codes for separate procedures. They just do one billing code for the whole exam. So for everything that could be perceived as a negative, there are positives as well.

Zimmer: It's something that we have to be prepared for. Focusing on our core businesses has helped us keep costs down. Fifteen years ago, you paid a million dollars for a CT scanner, but your throughput was lower, your efficiencies were less, and your applications were significantly more limited.

DI: So that's the big picture, in terms of reimbursements. Could you take it to a more micro level and look at some of the specific trends that you see within each of the areas that you're operating in?

Ryan: What's happening with cardiac CT angiography is probably one of the greatest opportunities both for patient healthcare and from a business perspective. The obvious way to get reimbursement to come more quickly is to do worldwide clinical trials like Core 64. That's the main drive for companies like Toshiba and Bracco and Vital Images. We need to show that there's a strong patient healthcare benefit that can be demonstrated over a large case study with a broad range of patients. Too often, clinical trials have been done with a limited scope of patients, in a center that's unique, with low patient volume, or with a series of exclusion criteria. It's important to get away from that and do study trials. Today we're looking at cardiac CTA. Tomorrow we're looking at whole-organ perfusion, myocardial perfusion, and vascular subtraction in the brain. We really need to have a 10-year road map of how we're going to execute these trials and bring these to market, as well as how we're going to influence what decisions are being made in Washington.

Zimmer: Let me start on the vascular side. The trend is away from diagnostics and toward interventional procedures. Most of the growth in interventional procedures will happen on the cardiac side. Stents are really catching on for peripheral procedures. Actually, it's easier to deploy a stent in many arteries than it is around the heart, since the heart is moving.

Flat-panel technology, by providing uniform brightness and better resolution, is a great support tool for interventionalists. The image quality improvements help a great deal, as does having a user interface that makes the system transparent to the procedure. You want the physician worried about the procedure and the patient, not about driving the machine. So you're seeing changes in the interaction between physician and machine. Our Infinix dual-plane system, which has both an 8-inch and a 16-inch flat panel, allows physicians to do the coronary procedures, then swing that arm out and bring another into place without moving the patient off the table. They have a 16-inch view to do all the peripheral activities. That's better patient care by the cardiologist, particularly considering that a high percentage of patients who have coronary disease also have peripheral disease.

On the x-ray side, it's DR and DR and DR. You get incredible productivity being able to network on a digital environment. I think that will continue for the foreseeable future.

With ultrasound, it's the ability to acquire data in 3D and 4D sets, along with the quantification tools. That eliminates the variability and provides an easy tool for confident diagnosis. Ultrasound is a wonderful low-cost tool if we can get even greater utilization than we have today.

On the MR side, I think you're going to see breast imaging becoming a huge deal. It's already the buzz, for obvious reasons. Not only do you get a better specificity and the ability to see the vasculature around tumors - so you have a better understanding of what's really going on in that cancerous tumor - but you're not exposing the patient to radiation. MR also has long-term implications in terms of cardiac follow-up exams. CT is doing a fantastic job in the coronaries that I don't think MR will ever displace. But if you're trying to do viability studies or long-term follow-up, how many times do you want to go back to CT? Depending on how the follow-up plans evolve, MR may play a significant role. The big obstacle there is the acquisition time and the postprocessing, which is pretty complicated.

DI: Can you talk about where you see the CT market going, and how you see your oncology market evolving? What about dedicated scanners?

Ryan: We're being strategic in our approach to oncology. A lot of the large cancer and bariatric centers in the U.S. have been enthralled by the specifications of the Aquilion large bore. That's why we built it with those specs. We did the first installation, at Beth Israel Deaconess, in September of last year, and we go into full production as of April or May this year. But we've really captivated a lot of interesting places, like Cancer Treatment Centers of America - even Sloan-Kettering is interested.

As for dedicated scanners, I think it's risky to build dedicated scanners for specific market segments. In this environment, where people are trying to do multiple procedures, you really want a CT to be versatile. The scanner that sits in oncology is only used for half a day, and the one that sits in cardiology is only used for half a day. The ideal would be to have a CT that can do radiology, oncology, and cardiology all in one application. The goal is to build a CT system that is multifunctional. Patient flow is one issue, temporal resolution is another, and coverage is a third. If we can get an arc that covers all three, then we have a machine that can come to market and have a huge clinical impact. That's where the focus is on the 256.

DI: Okay. But you have developed large-bore scanners, principally for the oncology market.

Ryan: Correct. And the reason is that we want to learn about the oncology market and the demands of oncology customers. So by making a simple modification to the Aquilion - extending the detector and some of the gantry aperture - we were able to put our toe in that market and learn a lot about it.

It's very low risk. The scanner has 95% compatibility with the existing Aquilion. It's just that we've put a bigger geometry into the system and extended the detector to give us more coverage. But it allows us to learn so much in our development process for the 256. The oncology market is going to be huge in the U.S., and everything we're learning, particularly from our partners over at Beth Israel Deaconess, is being fed directly back into the 256 development. It's a very interesting perspective. I'm amazed at the demands of the oncology centers. They've gone from getting the secondhand scanner out of radiology to having their own unique demands for things like brachytherapy and seed placement. There are a lot of important aspects to that, for which they need dedicated CTs.

DI: Where have you seen the oncology procedures shake out vis-á-vis brachytherapy and seed placement and so on, versus planning for IMRT (intensity-modulated radiation therapy) or IGRT (image-guided radiation therapy), versus hard-core diagnostics? Where's the demand for just straight-on CT versus PET/CT, for example?

Ryan: Probably a mix of all of the above. PET/CT has seen a lot of utilization, but the market is oversaturated right now, in my opinion. Certainly, from a perspective of IMRT, respiratory gating, and brachytherapy, we're seeing a huge medical demand for those. One of the most important things, and one of the development ideas behind the Aquilion, was to plant the seeds and do the brachytherapy procedure without moving the patient. Beth Israel Deaconess has an apparatus connected to the end of the couch that allows them to plant seeds under ultrasound and other diagnostic procedures, then scan the patient immediately afterward. All the apparatus can go through the gantry. Which, from a patient-benefit point of view, is huge!

The goal in a future CT system would be to take all those aspects, as well as what we've learned from radiology and cardiology, and combine them into one design platform.

DI: Your next big launch in terms of that new design platform will be the 256-slice scanner, right?

Ryan: The most logical launch for us next would be a 256-slice scanner. A lot of the research being done with that system is being published, but there could be incremental steps toward that technology over the next two or three years.

DI: I've heard some commentators ask why you need more than 64 slices. What's the case for that?

Ryan: The simple answer is that right now, a coronary CTA exam uses somewhere on the order of 12 to 13 millisieverts. When we come out with a 256-slice scanner, we can do a coronary CTA exam for 2 to 3 mSv. It's a significantly lower dose, and you can get it in a single heartbeat. So your reproducibility, sensitivity, and specificity are elevated dramatically, compared with a 64.

DI: Why does that significant drop in dose happen?

Ryan: At the moment, when you do a helical exam, you typically are running at a pitch of a quarter, which means that you've got a constant overlap. You're almost literally irradiating the same area three to four times as you do the acquisition. If you have a large area array, you do just a single rotation with a prospective scan, so you need the x-ray on for only 180º. You not only take away that overlap, but you also take your radiation exposure from a full rotation down to a half rotation. So you're looking at a dose saving of somewhere between six and eight times that of a conventional exam.

DI: Have you started to see a shift in your cath lab sales, and are they being affected by CTA?

Zimmer: Absolutely. A good example would be Woodlands North Houston. They've seen an almost 40% increase in interventional procedures going to the cath lab since they installed the CT. The good news is that, wow! We've just increased the number of interventional procedures by an enormous amount. But the great news is that the CT has opened up access to a much broader population base. We're finding disease earlier and taking an interventional corrective action. That's been true almost across the board. We're seeing a dramatic reduction in the cath lab diagnostic procedures. That's really gone to CT and MR.

DI: So nobody's shutting down their cath labs as a result of MR and CT?

Zimmer: No.

DI: It looks like 3T sales are starting to surge. Are you looking at that market as well?

Lodgek: Yes. We have a significant research and development program in Japan for 3T, and we're continuing to monitor and invest in its development. The gold standard, however, based on dollars we see being invested in MR, is still 1.5T. We are still looking at ways to improve the value of the product we're offering to the customer by expanding the applications. One of our questions is whether 3T plays well in an environment of reduced reimbursements. You're talking about a significant increase in acquisition costs for a system that I'm not sure offers a significant difference in utility and value. The potential is there. The reason to develop and invest is there. But that is an issue the market is going to have to sort through when they look at 3T systems.

DI: You've been working with other vendors regarding PACS alliances. How has this worked out for you, and what has it brought to Toshiba?

Lodgek: We've insisted that all our equipment be in full compliance with the standards of Integrating the Healthcare Enterprise and DICOM, so connectivity is simple and straightforward. We've also looked at working with all of the various providers. That's given us something of an advantage: We're not in a strictly proprietary mode. Beyond that, however, when you look at the additional information and the need for storage and archiving and where PACS is going, we are considering other options and how those may or may not enhance our core business. Our core business is CT, MR, ultrasound, vascular, x-ray, and the provision of service at the highest levels of customer satisfaction. Is something going on with IT and PACS that will enhance that core business for us, if we were to go out and look at some potential partners? There is nothing we can say today about whom we might choose to engage with more formally. Even if we do that, however, it's not going to eliminate what we're able to do in terms of connectivity with all of the vendors that are out there now with PACS offerings.

DI: But there is another big issue here: the huge amounts of data that are being generated by CT. In some cases, the scanners are generating more data than some PACS can handle. Your core business, for example, is moving to 256-slice CT. That's going to increase your data loads even more and increase the demand for PACS. When you look at your core business, might it actually face a limitation by the amount of data you're producing?

Lodgek: Perhaps. But we're no more limited than anyone else. I don't think anyone has an absolute solution to all these data sets. Our strategy will be to say, "Let's stay a little more nimble and a little more flexible, relative to who has the technology and who is developing it. How might we work with them to enhance our core proposition in the marketplace, even if that becomes a 256-slice scanner?"

Ryan: To elaborate on that a little bit, we've released six models of CT scanners in the last five years. We have to realize that 300- and 150-bed hospitals in the U.S. can't afford to constantly upgrade their PACS. So whenever we bring out a new CT - and we're aware of the volume of data that the CT is producing - the onus is on us to find a way to get that data off the console in a form that can be managed by the hospital.

We work very closely with our 3D imaging partner, Vital Images, for example. They're aware of what's going on in our development cycles, and we're working together to make sure that we are able to handle data that's coming out in volumes. You can process a lot of your thin-slice data between your CT and your workstation, using high-speed transfer methods like Enhanced DICOM. You then save the images in volumes down to the PACS. There are simple ways of managing the data. It's just a matter of working with the partner.

DI: You're marketing CT to both cardiology and radiology right now. Within the last two years, where has your greatest growth been?

Lodgek: Our goal has been to outperform market growth rates. We have achieved that goal. We are outperforming the market growth rate and are gaining significant market share with our approach to technology, with the 64, and certainly with our approach to customer satisfaction and service overall. That growth has come from both the radiology and the cardiology segments. But there are few data on what the market is consuming, in terms of cardiac or cardiology scanners. One problem is defining a cardiac scanner. Must it be dedicated to cardiology? If that's the case, does that mean that it can't be bought by a radiologist? We have a focus on cardiology. We've built out a marketing organization to focus on cardiologists and get our message out. And, yes, that is certainly helping us achieve our goal, which is to outperform the market growth rate.

Zimmer: You raise a good point about defining the market. That is an ongoing topic of discussion across all the vendors. We all want to be able to identify sales by market segment in cardiology. What you want to do is understand how the systems are being used, and that's almost impossible to measure. What I can tell you, though, is that if you go back a couple of years, CT utilization by cardiologists, other than EBT, was virtually nonexistent. Since the releases that Doug (Ryan) talked about in the multislice CT segment, up to the 64 today, about 30% of our business is going to sites that intend to use it for cardiac applications. We don't know whether that's full-time or half-time, only that cardiac was the prime reason for buying a 64. So it's become a significant portion of our business.

On the vascular side, we used to split about 50/50 between radiology and cardiology. Today it's about 75% on the cardiac side. Ultrasound has been much more stable. We were maybe under 20% a couple of years ago, going toward cardiology. Now it's about 25% or so of our sales. As for MR, until a couple of years ago, we didn't have a product. With the introduction of our Vantage CGV, we could see about 10% of our business this year going to a cardiology-driven purchase.

DI: What do you see happening with ultrasound and primary care?

Lodgek: Primary care is a very cost-sensitive environment. So Toshiba has developed technologies - the Famio is an example - that address the primary-care marketplace. In fact, our sales in ultrasound have been increasing at a rapid pace. Part of that reflects our strategy to use what we call an alternate distribution channel, which is made up of dealers and agents who are specifically trained and who are calling on that physician-office marketplace. When we compare our results there with direct ultrasound sales for our full-line organization and ultrasound specialists, it is clear that our alternate distribution channel business is growing at the fastest rate.

Zimmer: Everybody can afford ultrasound today, when you look at products like the Famio. That's created an interesting challenge for us: How do you reach these physician practices that are all over the map?

DI: What role do you take in terms of training? Some residency programs are starting to teach ultrasound imaging for nonradiologists and are also working with them to support the reimbursement situation.

Zimmer: That is the change. We're seeing the model shift completely in ultrasound to nonradiologist utilization. Training is a big issue that's being addressed industry-wide, as well as the disbursement of specialties all over the U.S. and how they interact. We are working with our institutions on some of those training programs. We participate in SonoWorld. We supply cases to them for ongoing training. That's really a World Wide Web access capability, in terms of educating the nonsonographer. But it's an interesting shift in that market. That's the reason to go to an alternate distribution channel, where you can dramatically broaden your coverage area.

Lodgek: As that business has developed for us, we've put significant investment into the training aspect with applications specialists. That's been one of our largest growth segments, in terms of adding additional personnel at Toshiba. We've got an organization that is devoted specifically to training. That will have to be ongoing if we're going to get this technology out to a market that wants it and can use it.

DI: So you've got a couple of challenges. You're finding huge growth in the nonradiology market for ultrasound, and you're settling into that market fairly extensively. But how do you educate your practitioners about it?

Lodgek: One of the characteristics we look for in dealers and agents is whether they are qualified or are willing to make the investment to become qualified, not only in demonstrating this equipment but in turning it over and teaching. We have regional seminars where we bring our dealers and agents in to train their people on the technology and its use. Now they've got to get out there to that end user and be able to train them. And if they need assistance, they contact us. In fact, we just dedicated a marketing individual to training in this particular physician office marketplace, which the dealer and agents cover.

DI: That undoubtedly helps. But it's a huge, huge market.

Lodgek: And it's a significant challenge. But there is a concept that medicine needs to be more preemptive, predictive, and preventive. I think ultrasound, in the hands of a qualified individual who's been trained, can fit right into that model.