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Parsing the PACS Market

June 26, 2009
by Mark Hagland
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Evaluating a PACS upgrade or replacement decision is all about understanding need

Scott Grier

Scott Grier

Is now a good time to buy a first-time or replacement PACS? It all depends on whom you ask. On the one hand, PACS has become largely commoditized, leaving sellers in a vulnerable position. On the other hand, the HITECH rush on healthcare IT products and services has some vendors feeling quite secure.

While CIOs may be split, most agree on one thing: those in the market for a PACS must read the fine print, especially with regard to the service contract. What's more, these considerations are being made against an extreme drop in sales volume among PACS vendors - a drop of at least 45 percent in the past several months, and over 50 percent among most large vendors, according to Scott Grier, principal at Preferred Healthcare Consulting, Inc., Sarasota, Fla., and a specialist in imaging industry issues. “I don't see PACS systems up for replacement being replaced at anywhere near the rate of the past three years,” he notes. Instead, he says, “Many vendors have laid off between 20 and 45 percent of their technical installation workforces.”

Says Mike Smith, CIO at the four-hospital, 1,500-bed Lee Memorial Health System, based in Fort Myers, Fla.: “I think the deal you get will be somewhat dependent on what you bring to the market in terms of your IT; the PACS market has been tough for everybody. The hospitals have had capital constraints, so that's been hard for the vendors. And the vendors have been going through a sea change because of the maturing of the market. Then the DRA (the federal Deficit Reduction Act) hit, and that hit the outpatient sector. I think the fact that business has been bad could give rise to better deals, but once you get a deal, the layoffs on the vendor side create implementation problems.”

Smith and his colleagues have gradually been rolling out a first-generation, full-fledged PACS across their multi-hospital system.

Deborah Gash

Deborah Gash

That said, Deborah Gash, vice president and CIO at 11-hospital, 1,271-bed St. Luke's Health System in Kansas City, Mo., says she believes that, “Given the current market, now is a great opportunity to get a great deal.” The key to smart purchasing in the current market, Gash says, is that, “You have to really understand very clearly what your radiologists need in terms of workflow, and address those needs, as well as those of your referring physicians. I caution anyone to really validate the service, the support, and the ongoing costs of managing your environment. What does it take to upgrade it, what are the ongoing costs?” For example, she says, “We actually looked at some software-as-a-service model types, but the ‘gotcha’ in that model was the ongoing storage issue. You can only keep the data for so long, and then you have to come up with some kind of ongoing data-storage solution.”

Steve Art

Steve Art

Steve Art, senior vice president and CIO of 476-bed Lutheran Medical Center in Brooklyn, N.Y., says, “Maintenance contracts are 18 percent of the cost of a product, whereas they used to be 15 percent.” He says vendors are pretty much willing to give away almost everything, as long as they can get that 18 percent. “But as you negotiate down the price of the license, the maintenance costs less because it's 18 percent of a smaller number. So I think you could get a great deal now.”

Sharron Finlay, regional manager at the Weymouth, Mass.-based Beacon Partners consulting firm, says that if she were negotiating from scratch, she would avoid volume-based contracts, and would try to push vendors to go at risk for potential savings in terms of avoidance of film and physician adoption. “In other words,” Finlay says, “I would put more risk onto the vendor.” That might mean, for example, that the vendor would have to refund actual dollars if it didn't help the customer achieve financial savings targets.

Sharron Finlay

Sharron Finlay

Not everyone thinks that the broader trends roiling the PACS vendor market right now will necessarily have a huge impact on individual CIOs' situations and options. “I guess I'm not a big believer in the state of the world; it's really about your own individual situation,” says Denis Baker, vice president and CIO of 850-bed Sarasota (Fla.) Memorial Hospital. Baker agrees with others that the PACS product market has largely become commoditized; but also believes vendors which solve the long-term storage problem will gain a major advantage.

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