Search tips
Search criteria 


Logo of jopHomeThis ArticleASCO JOPSearchSubmitASCO JOP Homepage
J Oncol Pract. 2006 May; 2(3): 113–115.
PMCID: PMC2794597

Diagnostic Imaging in Community Practice

Change has come fast to the business side of medical oncology practice. With implementation of the Medicare Modernization Act of 2003, revenues from chemotherapy infusion fell. At the same time, new imaging technology—especially positron emission tomography (PET)/computed tomography (CT)—that would vastly improve decision making in oncology care was becoming available. The combination of the newly available PET with the familiar CT imaging technology offers the potential to benefit patient care and diagnosis. Medical oncology practices that seized the opportunity to add PET/CT and other imaging modalities to their businesses not only added useful patient-care capabilities but also recovered lost income and sometimes much more.

Should you follow suit? After all, adding these technologies requires huge capital investments, often from $1 to $2 million at one site, so you incur great financial risk. Right now, imaging has good margins for patients with both Medicare and other insurance coverage, but the reimbursement landscape is constantly shifting. In fact, Medicare reimbursement has already been lowered for imaging services, and more change in reimbursement is inevitable. Also, the technology has spread so fast that the market, after less than 3 years, is already mature in some parts of the country.

The answer, according to oncologists, practice administrators, and practice consultants around the country seems to be yes, but move forward with your eyes wide open. You have to be sure that you are filling a need in your community, have your financial and legal ducks in a row, plan for the technology's obsolescence, and are poised to take advantage of new technology.

Are You Ready?

Tom Barr, executive director of Oncology Metrics (Fort Worth, Texas), an oncology business consulting firm, tells practices that, of course, they want to consider adding diagnostic imaging—but first, he asks, “Are you ready to do it?”

Any practice considering the investment must already be keeping up with Medicare change, be efficient in terms of producing service relative to overhead, and have a strong management infrastructure, he said. That infrastructure will include a physician leader who will make sure there is enough profit to support the practice's mission, and a capable, qualified administrator who can do financial analysis, read and write contracts, and negotiate and manage relationships with payers and hospitals.

In addition, Barr emphasized, the practice needs to have clear goals for the expansion. That's rarely just to make up for falling reimbursement dollars. In one practice he advised, the physicians' primary goal was to build long-term relationships with other physicians, and making money from the expansion was fourth on the list.

For New Mexico Cancer Center (Albuquerque, New Mexico), explained Chief Executive Officer Barbara McAneny, MD, the goal was to provide exactly what the patients needed and wanted, and that meant being able to give them immediate assessment of their condition. “Patients hate running around to get a CT and then waiting in agony, wondering if the cancer is back, while you're trying to get the results from someplace else,” said McAneny. The practice first added CT, then PET, then PET/CT and hired radiation oncologists. Now, with growth, the practice sees 40% of the cancer patients in New Mexico and has had to buy a faster PET/CT. But even if the revenue goes down to the break-even point, said McAneny, she would still keep imaging as a service to patients.

Similarly, John Hennessy, administrator of US Oncology's Kansas City Cancer Center (Kansas City, Missouri), noted that adding imaging to the practice was a positive financially, “but it's also helped establish us as the go-to resource for cancer care.”

Building the Business Model

Everyone who spoke to JOP about adding imaging to the practice advised building the business model only on business you already have, which means finding out how many studies you can capture for your current patients. “Do not just guess how many scans you order,” said Barry Russo, administrator of Texas Cancer Care, based in Fort Worth. In this practice, the numbers were easy to capture from electronic medical records.

New Mexico Cancer Center, for example, did a month-long internal study of all the orders for studies on the equipment they were considering. After you do that, McAneny advised, look at your payer mix. Know how many patients are Medicaid, Medicare, and private health insurance with payers willing to contract for the service and what the reimbursements are. For example, make sure whether, if you serve patients in a health management organization (HMO) that already has that equipment, the HMO will pay for your scans. Be sure to account for free service to the uninsured. Then, calculate the income.

Balance that with all your costs, she said, including maintenance and upkeep; all personnel, including their training; and build-out, which can cost some $225 per square foot. Be sure that you retain income for upgrades or replacing outdated equipment.

Part of doing the homework for Kansas City Cancer Center, said Hennessy, was aggressively assessing whether the practice could capture contracts with managed care plans and be the primary provider of PET services. The practice had every local health plan medical director visit the PET scanner and sit down with the radiologist.

The practices we interviewed were able to depend on their capable administrators for financial planning, but legal consulting is a must, said McAneny. Although she read pertinent parts of the Stark law herself, she depended on a local health care lawyer and national legal experts to make sure the operation was “squeaky clean.” She brought radiation oncologists into her practice, so met the “in-office ancillary exception” for referrals within a practice. Other practices, such as Texas Cancer Care, contract with radiology groups, not to own the equipment, but to operate it and even to provide staffing and quality assurance, arrangements that can still fall under Stark law exceptions.

The Stark law isn't the only consideration in how to arrange radiology services, said Hennessy, who noted that, for credentialing, some health plans require a radiologist to be on site while the equipment is being used.

Achievable Returns

Practices with financially savvy administrators, and those that are generally early adopters of imaging and other services, reached the break-even point quickly and saw high returns. Steve Elconin, executive director of Tower Hematology Oncology in Los Angeles, California, pointed out that imaging and radiation oncology are largely fixed-cost businesses with high capital costs compared with medical oncology, which has a variable cost model. “This means that, as your patient volume, and therefore revenues, exceed your fixed costs, the incremental increase in patient volume will have a much higher profit margin.” At Texas Cancer Care, the break-even point for CT was three patients a day, and at New Mexico Cancer Center, that point was 2.5 to three PETs/CTs a day. Tower Oncology surpassed that break-even point within a couple weeks of their go-live date. “Most practices with more than three medical oncologists should have the volume to easily justify this service line,” Elconin said.

Today, it will take somewhat longer to break even. Between 2005 and 2006, Medicare reduced reimbursement 25% for multiple scans on the same day, so that the second and subsequent scans are paid at 75% of the previous fee schedule. In 2007, that will fall to 50%, Elconin noted.

“Imaging is not a windfall,” warned Russo, who advised treating it as just one more modality that adds some income, enhances service, and helps diversify your income stream. “It's possible to lose financially, and not just because of falling reimbursement.”

What Can Go Wrong?

You can stumble in this investment with poor cash management, implementing the wrong technology at the wrong time, and not assessing your competition.

Don't be reluctant to retain earnings in the practice, advised Barr. “One of the worst things you can do in a business that has a high capital front end is to take all the money back out of it as fast as possible,” he said. That can leave you with outdated equipment for which you still owe money. In addition, you need to build capital for the next piece of equipment.

And don't count on your equipment remaining competitive for long. “There are PET scanners sitting in trade-in lots all over the country because advanced PET/CT technology outdistanced PET alone in 2 years, probably the fastest turnover in technology that I've ever seen in my life,” said Hennessy.

Making sure you can invest in new treatment technology in the future, whatever that might be, can keep your business healthy, said Barr. “This opportunity will be there forever if you treat diagnostic imaging as the surrogate for new treatment technology.”

An important consideration for community practices that haven't yet incorporated imaging is competition. The practices we interviewed for this article entered the market early, used the equipment enough to earn a return, and prevented a lot of market entry from competitors. So, as McAneny put it, “if you can't do it better than the competition, don't do it.”

Nevertheless, said Hennessy, “If you are genuinely offering a better, truly differentiated service to patients and are able to demonstrate and prove that, then adding imaging service is more than advisable—it's essential.”

Adding Imaging in a Certificate-of-Need State

It may be difficult to add imaging to your practice in a state with certificate-of-need (CON) laws, which apply in about a third of the United States. Although the intent of CON laws is to promote rational distribution of health care resources and control costs, the result can sometimes be to discourage modernization or expansion of health care technology. The regulations also tend to maintain hospitals' hold on imaging technologies. Today, the trend is toward major revision or repeal of these laws. But if your practice is in a CON state, that doesn't mean you can't add imaging to your practice. You simply need to understand your options.

Tennessee is a CON state, and when Tennessee Oncology, based in Nashville, wanted to add positron emission tomography (PET)/computed tomography (CT) to its Nashville location, the practice exercised the most obvious option—just jump through all the CON hoops. The process, explained Administrator Bill Alexander, includes studying the state's needs—providing statistics about the number of scanners already in the state and showing that scanning demand exceeds supply, for example. Five years ago, when the practice applied to add PET/CT, it was able to show that the imaging then available in Nashville wasn't up to date, and that hospitals didn't have plans for the technology in their capital budgets and would be unlikely to accommodate the volume of scans that Tennessee Oncology would need.

“We had no problem proving need. We presented this in such a way that it wasn't even controversial,” said Alexander. At that time, Tennessee Oncology was an early adopter of the technology, but 2 years ago, when the practice proposed adding PET/CT to a practice in a small community southeast of Nashville, the practice was again able to demonstrate they were meeting a need that wasn't yet served in this community.

Kansas City Cancer Center has practice sites in Kansas, which is not a CON state, and Missouri, which is. The practice's first application to add PET in Missouri was denied. But Missouri, like most CON states, specifies an equipment cost threshold for CON review. In Missouri, it was $1 million.

“About a year later, we were able to get a PET scanner on the resale market for about $800,000, so we were able to put that in place without a CON,” explained Kansas City Cancer Center Administrator John Hennessy. Then, three years later, when the physicians at the site decided to move to PET/CT, a $1.5-million piece of equipment, the practice applied to replace the existing equipment that had outlived its service life. For that, in Missouri, you don't have to demonstrate need, only that the old technology needs to be replaced.

If those strategies won't work for your practice, another option in a CON state, explained Tom Barr, executive director of Oncology Metrics (Fort Worth, Texas), is to partner with a hospital and aggregate resources. If the hospital already provides the imaging you need to bring to your community, you may be able to move it into a cancer-center type of program, growing market share for both the practice and the hospital. Another possibility may be for the community practice to buy the equipment, put it into the practice facility, and then lease the equipment back to the hospital, along with some space, for a flat rate for a certain number of years. The practice would then earn enough money to pay for the equipment, regardless of the utilization.

The American Health Planning Association has a useful guide to the dollar thresholds and types of services regulated in each state at, but be sure to check for up-to-date regulations in your state. APHA lists state Web sites at

Articles from Journal of Oncology Practice are provided here courtesy of American Society of Clinical Oncology