PACS market moves at brisk pace as interest in technology grows

PACS market moves at brisk pace as interest in technology grows

Stronger growth hindered by cost, long purchasing cycles

For the last decade, the mantra of PACS market participants has been one familiar to any diehard sports fan: "Wait until next year."

Thanks to conditions that favor the implementation of information technology such as PACS, however, the market appears finally to be shifting into high gear. Market growth statistics vary widely, but estimates typically range from 15% to 30% per year.

Getting a handle on annual PACS revenue figures is challenging. Consulting firm Technology Marketing Group has estimated that the U.S. PACS market generated about $400 million in annual revenues in 1997, while Concord Consulting Group puts the figure at $388 million. New York City-based market research firm Frost & Sullivan, however, believes that the U.S. and European market combined totaled just $296.6 million last year. Although market estimates vary considerably due to the inclusion or exclusion of certain criteria, vendor representatives contacted by PACS & Networking News also differed widely, with figures for the U.S. market ranging from $200 million to $400 million.

Despite the divergent figures, most analysts and vendors agree that the market is finally beginning to heat up after years of unrealized expectations. Of the global markets, the U.S. PACS segment remains the furthest along in the adoption of the technology, with the scope of technology utilization expanding in earnest beyond early adopters and large academic institutions. While experiencing healthy growth, European utilization of PACS technology remains primarily confined to large hospitals. The story is much the same elsewhere around the world, with the exception of some hot spots such as Australia, Canada, and some Asian and European countries.

Teleradiology for centralized reading and miniPACS remain popular PACS implementations for customers, who have a strong interest in a technology growth path to filmless or large-scale PACS environments. PACS vendors' Holy Grail-lucrative, multimillion-dollar filmless contract awards-remains rare, and this segment has yet to come of age.

Despite the slow evolution towards filmless environments, PACS technology has by nearly all accounts garnered widespread acceptance as a viable technology. With the rapid pace of hospital consolidation and the impact of managed care, PACS networks are seen as an excellent tool for improving efficiency. Purchasing cycles remain long, however, sometimes lasting 12 to 18 months, and that is not likely to change any time soon.

PACS networks today are typically justified through a combination of both hard and soft benefits. While commonly cited advantages such as savings on film and film consumables are important, often intangible benefits such as increased efficiency and improved competitiveness are increasingly valuable factors for internal hospital selling of PACS, said Michael Cannavo, president of Image Management Consultants in Winter Springs, FL.

"Most of the people who actually buy PACS realize that it's the intangibles that are going to sell it, and not the hard dollar savings," he said. "But there needs to be both hard dollar savings and intangible benefits for the sale to be made."

Customers have also realized that radiology work flow must be reengineered to take advantage of the efficiencies possible with PACS. In fact, customers are increasingly demanding strong work-flow management solutions, said Vishal Wanchoo, general manager of GE Medical Systems' Integrated Imaging Solutions division, based in Mt. Prospect, IL.

"There is a huge (market) emphasis on productivity, and with that emphasis, work-flow management becomes critical to the PACS," Wanchoo said. "If you don't have some sort of work-flow management software in the PACS, you pretty much can't sell a PACS today. It's become a mandatory requirement."

As PACS has grown, so has the comfort level of radiologists in reading images from workstations. Techniques such as image prefetching and hanging protocols are increasingly valued by radiologists making the transition to soft-copy diagnosis. Even so, a step-by-step conversion to soft-copy reading is quite common, said Brad Sauer, president of Imation's Fremont, CA-based Cemax-Icon division.

"People are clearly recognizing that while the production medium is going from film to soft copy, the use of hard copy is still important and is still going to be around for quite a while," he said. "We're seeing people going towards using less film in a phased fashion, taking different parts of their operation and moving them towards less film. People are definitely moving in that direction, but there is a sophistication and awareness that total elimination of film is not around the corner."

Industry consolidation

On the vendor side, consolidation became an industry watchword in 1997, as several prominent firms joined together in efforts to boost their standings and grow market share. In early 1997, GE Medical Systems purchased the assets of Lockheed Martin Medical Imaging Systems, a deal that combined the technology that supported the military's groundbreaking Medical Diagnostic Imaging Support (MDIS) project with the imaging modality strength that GE enjoys (PNN 5/97). Next, Cemax-Icon was bought out by Imation (PNN 6/97). Later in the year, teleradiology firm CompuRad was acquired by digitizer firm Lumisys (PNN 10/97).

While some PACS and teleradiology firms merged or were bought out, other companies made waves with entries into the market. Film and computed radiography vendor Fuji Medical Systems USA announced plans late last year to enter the PACS market (PNN 12/97). The Stamford, CT-based firm is actively developing Synapse, a Windows NT-based line of PACS technology.

And in one of the biggest surprises of the year, computer giant IBM-and its consortium members-emerged out of nowhere to land $32.3 million worth of awards in the military's Digital Imaging Network-Picture Archiving and Communications Systems (DIN-PACS) bids (PNN 4/98). Scoring points with its government contracting experience, the firm's Bethesda, MD-based Global Government Industry Division has landed all DIN-PACS awards to date and has illustrated the success a systems integrator can achieve in this market.

Despite consolidation, however, independent PACS firms continue to play a role in the market, with companies such as Olicon Imaging Systems, ALI Technologies, DR Systems, and others all finding solid niche positions.

On the technology side, the use of Windows NT as a PACS operating system came into its own in the last year. Smaller PACS companies were generally the first in the market to get in on this wave, but nearly all market players have in the last year introduced or soon plan to release NT-based versions of their PACS software. This trend, driven by the platform's low cost and widespread acceptance by IS personnel, has caught on to the point that the absence of an NT product line has become a real liability in the marketplace.

Web revolution

Another notable trend is increased customer demand for dissemination of images throughout the hospital for clinician review. In this regard, the World Wide Web is commonly recognized as a strong approach for the distribution of radiology images and results to referring physicians, both inside and outside the hospital.

The power of the Web may soon be harnessed for other applications inside the hospital. The technology holds strong potential for use in the radiology department, said Bob Cooke, director of image management for Agfa, of Ridgefield Park, NJ.

"We're also seeing it not just as an enterprise-level tool, but also as a departmental tool, where Java applications and applets can become almost full-scale workstations," Cooke said. "Ultimately, it's my belief that as Web technology matures, it will migrate from the enterprise and into more application-specific areas, potentially even into a diagnostic environment."

Many industry watchers believe that PACS will ultimately evolve into being just one component of an electronic patient record. When this occurs, Web environments will dominate, said Ruud Kroon, managing director of Dutch PACS firm Applicare Medical Imaging.

"Web technology two years from now will be the darling of the system integrators," he said.

Despite the potential the Web offers, there are still some drawbacks. Security issues remain, and much of what is currently available in the market for image distribution comes with a high price tag. Still, the Web is most likely here to stay in the PACS market.

The increased role of hospital information systems department in PACS purchasing is one of the key trends of the last two years. PACS as a business is migrating toward an IT-centric business model, said Ajit Singh, director of strategic business development for Siemens Managed Healthcare Services of Iselin, NJ.

The influence of IT officials helps a good deal in managing customer expectation of PACS technology, Kroon said.

"It is a very big relief that IT professionals are at the table when it comes to decision-making on PACS, because they know much more than radiologists and hospital administrators about the limitations of what you can do with networking, speed, bandwidth, and what you can expect of certain hardware platforms," he said.

Overall, IS departments and other hospital personnel are taking a stronger lead in pursuing PACS, due to the quest for total information solutions and improved patient care, said Ronald Ford, president of San Antonio, TX-based EMED. The cost reductions realized by the radiology department in replacing film are taking less of the spotlight, he said.

Of course, radiologists are still the primary users of the PACS network. As such, they will continue to play a key role in PACS purchasing decisions, Imation's Sauer said.

The use of image compression, particularly lossy wavelet algorithms, has been widely touted as an efficacious approach for high-ratio compression without losing diagnostically significant data. While wavelets are in clinical use today in teleradiology situations, the use of lossy compression in archiving has remained minimal, due largely to legal concerns, as well as the lack of support for non-JPEG lossy compression schemes in the DICOM standard (PNN 10/97). Reluctance also remains about using lossy wavelet compression in diagnostic teleradiology situations. That may change soon. Evidence, both empirical and in the radiology literature, is mounting that customers can use wavelet compression at substantial compression ratios, without compromising medical quality, said Scott Sheldon, president of Access Radiology, headquartered in Natick, MA.

The final frontier

This year's meeting of the Healthcare Information and Management Systems Society offered a glimpse into what may be a turbulent and hotly competitive future for PACS as we head into the next millennium (PNN 4/98). At the show, many HIS and RIS vendors showcased their involvement in PACS technology, while PACS firms dramatically increased their presence. It is clear that the market is slowly heading towards integrated image and information management systems. What is not clear, however, is which class of vendor will win the right to provide these systems.

HIS/RIS firms are most familiar to hospital IS officials, and their experience in integrating disparate information systems may prove attractive. PACS vendors, on the other hand, also come to the table from a position of strength. While very familiar with the issues regarding networks and systems integration, the complicated nature of PACS technology is alien to most hospital IS personnel, and the hard-earned experience gained by PACS firms is sure to be accorded respect.

With customer interest definitely on the upswing for these types of systems, a clear market opportunity exists for a firm that can provide a complete image and information system. In the meantime, consolidation among PACS firms-a common occurrence in the last 18 months-may continue.

Meanwhile, work continues towards the integration of PACS with other information systems.

"The biggest trend within the marketplace is the conscious requirement by our customers to have imaging integrated with the rest of the hospital information systems," said David Talton, general manager of Picker International's image management division in Cleveland.

While widespread implementation of electronic patient records has not quite arrived, integration between PACS and HIS/RIS systems has progressed to a point where it is widely cited as a key success factor for digital image management, said Sridhar Seshadri, general manager and vice president of digital imaging systems for Eastman Kodak's Health Imaging division in Dallas.

What lies ahead

Concord Consulting Group sees explosive growth taking place in PACS in 1998, with revenues climbing almost 30% to $502 million. In 1999, the market will tally $693 million and reach $840 million in 2000. The high level of growth will be driven by managed care, hospital consolidation, and the evolution of PACS as a cost-effective technology, said Philip Drew, principal of the Concord, MA-based firm.

While Technology Marketing Group compiled a similar estimate of the size of the 1997 PACS market, its numbers diverge significantly over the next few years. The Des Plaines, IL-based firm believes the growth of the market will be in the range of 5% to 10% over the next five years, and will tally only $450 million in annual sales by 2000. TMG attributed the slow growth in its survey to drastic declines in the price of PACS components, as well as overly optimistic estimates of PACS purchasing by prospective customers.

As is often the case, the real answer to the market's future prospects may lie somewhere in the middle. With evolution of the technology and market acceptance and need for PACS, the breadth and scope of PACS adoption is finally expanding. This development signals the arrival of PACS as a legitimate market.

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