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Like most industries across the country, the Radiology Information System/Picture Archiving and Communication System (RIS/PACS) industry continues to be affected by the downturn in the state of the United States economy.

Furthermore, the RIS/PACS market is fairly mature, meaning most facilities that require systems already have them. Customers are taking longer time to decide on investing in new RIS/PACS systems. Vendors are using more aggressive pricing. In addition, there has been a move to a subscription pricing model or a per-study pricing model.

The upside is for those PACS manufacturers who offer more than existing systems, especially those providing additional functionality, as well as those serving smaller facilities that still need to install RIS/PACS systems, might be the new winners. Reasons also exist for healthcare facilities to replace their RIS/PACS systems, such as: dissatisfaction with a current vendor, new features of newer systems such as integrated systems, and reaching the capacity limit of the current system are reasons facilities may want to invest in new systems. There is also growth potential in the global RIS/PACS market and continued growth potential in the US.

Installation of replacement RIS/PACS systems is already showing initial signs of continued decline in the current year. Many sales "were expected to be happening now in 2009, but many of those sales will be pushed back to 2010, maybe beyond, depending on how the economy fares,” states Chris Schutz of Millennium Research Group. Mr. Schutz further points out that smaller facilities without RIS/PACS may still have a need to adopt new systems. Although many that would have purchased their first PACS system in 2009 will probably push those purchases back depending on financial restrictions.

Reasons also exist for healthcare facilities to replace their RIS/PACS systems. Dissatisfaction with a current vendor, new features of newer systems, and reaching the capacity limit of the current system are reasons facilities may want to invest in new systems.

Traditionally, PACS systems have been used to save money and improved service quality, however, there is a no reason for a hospital using analog data to purchase a PACS system. “In addition,” explains Mr. Schutz, “the delayed payback for the purchase of new PACS systems may make it prohibitively expensive.”

The successful vendors will be the ones that can make the case that PACS systems are useful for many reasons. Newer PACS systems are not just about cost savings. “They also improve work flow efficiency and help expedite the imaging information into the EMR (Emergency Medical Record) and the billing system,” according to Greg Smith of Ramsoft.

Another advantage of an integrated RIS/PACS system is, "…keeping the data protected and consistent through the imaging process at a hospital or an outpatient clinic and being able to track accurate patient histories," states Nancy Koenig of Merge Healthcare. Optimization opportunities still exist in the last part of the process: “making sure you have clean information, shortening the time of claims processing, and improving the accuracy,” explains Ms. Koenig. "These steps can help improve cash flow of the operation and the resulting revenue.”

In this regard, the budget for a PACS system includes the capital budget and a recurrent budget (Sim LH, Budgeting for PACS. Biomedical Imaging and Intervention Journal. 2008; 4(4): e32). The capital budget represents the initial cost to purchase and implement the technology. The recurrent budget represents the ongoing costs to manage and maintain the system on a month-by-month basis.

The capital budget for the purchase of a RIS/PACS system may make it financially prohibitive for many healthcare facilities— especially smaller ones that do not have the imaging volume to cover high costs.

Larger hospitals may have more access to capital, but the effect of the current economy will have some effect on all facilities. Mr. Schutz points out, "Anybody that currently has a system that they can still work with are probably going to be looking very carefully at whether they need to replace right now."

Many RIS/PACS companies now offer more than just fully integrated models to accommodate the variety of purchasing restrictions of healthcare facilities (Sim LH, Budgeting for PACS. Biomedical Imaging and Intervention Journal. 2008; 4(4): e32). In the traditional purchase model, the healthcare facility purchases the technology and software. The institution provides its own PACS administration with technical support from the vendor under a contract arrangement.

In the application service provider model, the healthcare facility purchases data management service from the vendor without actually owning the hardware or software. This model reduces the capital budget, but mandates a higher recurrent budget.

Hybrid and leasing models also exist. In a hybrid model, the healthcare facility may own some hardware and software, but still pays for some off-site data storage. In a leasing model, the healthcare facility moves all of the capital budget requirements to the recurrent budget, pushing the cost across the life of the system.

Mr. Smith explains how his company Ramsoft, offers "…everything from straight purchase to rental to totally hosted. It is not uncommon for a bigger facility to have their own hardware, have their own IT staff, and basically they are just buying the software and support, where smaller start-ups are looking at the hosted model for their main server." Twenty-four hour support plus the choice to upgrade to larger servers when needed may help make RIS/PACS systems fit within the budgets of smaller healthcare facilities.

Similarly, Ms. Koenig of Merge Healthcare states, "We work with our clients or partner with financial companies to structure the purchase in a way that makes it best for our client, and that is just the nature of the game these days. You have to be able to offer clients multiple ways to buy from you."

Investment in a RIS/PACS system is comparable to an investment in an IT system "…and when you make those investments to improve your operations with technology, you have to be committed to making the operational changes that go along with it," insists Ms. Koenig. "You could find a positive payback on a RIS/PACS investment, but buyers have to be committed to the operational changes that go along with it."

The PACSNet unit in the Centre for Evidence Based Purchasing of the National Health Service (NHS) in England has a useful calculating tool for estimating PACS storage requirements. This tool can be found on the PACSNet website, and may help healthcare facilities decide on what initial purchase would work best for them.

New regulations have also affected the RIS/PACS industry. The Deficit Reduction Act of 2006 reduced the Medicare reimbursement for technical fees in outpatient facilities, resulting in reduction in the growth of the RIS/PACS industry. According to Mr. Schutz, "Where it immediately had an impact is in the smaller facilities that no longer could be reimbursed at the same levels and had to drop their imaging volumes or had to find ways to be more efficient and to do more with less. A lot of those facilities closed or were sold to other owners." Further cuts could worsen the impact on these facilities.

Changes both in technology and the economy may be pushing the healthcare facilities away from the traditional large capital investment of RIS/PACS technology towards instead the application service provider models or leasing models with pay-per-use pricing. "A lot of facilities are going to be looking for that sort of offering from vendors in order to make it a lot more palatable for them to make these kinds of investments because they can fund it from operational budgets instead of from capital budgets, and that makes certain things easier," Mr. Schutz told MedicExchange.

On a positive note, despite the penetration of the RIS/PACS markets, there still may be room for the industry to grow. "In North America, you have a low penetration of truly integrated RIS/PACS systems," according to Ms. Koenig, "So, in North America, the opportunity is to deliver the truly integrated RIS/PACS revenue cycle management solution. In other parts of the world, digital penetration is still is very low. So, the global market still has plenty of runway left for providers to grow in some markets more than others."

Audio Interviews

Nancy Koenig of Merge Healthcare explains how RIS/PACS systems can improve cash flow of operations and the resulting revenues ...

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Greg Smith of Ramsoft provides a detailed perspective on new PACS systems impact on vendors ...

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