The most successful radiology enterprises are said to be those that shirk not from the imperative of taking risks.1 However, go looking for the biggest of those risk takers these days and you are very likely to find them in the one place you would least expectthe cloistered halls of academia.

Indeed, the new financial realities affecting all of health care are driving university-based departments of radiology to try everything from opening outpatient imaging centers in direct competition with for-profit ventures to exploring various forms of partnership with commercial and governmental entities in order to continue making possible a robust and balanced pursuit of their traditional scholarly endeavors.

Ronald L. Arenson, MD

One such dice-roller is Ronald L. Arenson, MD, holder of the Alexander R. Margulis Distinguished Professorship, and chairman of the Department of Radiology at the University of California, San Francisco (UCSF). Recently, after much cajoling of his institution's top decision-makers, Arenson received the green light to construct in downtown San Francisco an imaging center that will feature MR, CT, and PET, and ultrasound services as well as house a major research wing.

"Without question, the investment in this new facility represents a risk for us, and a big one at that," Arenson acknowledges. "I could be in deep trouble if it turns out to be an unwise investment, if we can't get the patients to go there, or if we can't get the grants to support the research. This is also true for the investment we're about to make in a cyclotron, which I feel is important for the sake of our future financial health. Specifically, we have to take these risks in order to maintain competitive salaries for our faculty, be able to recruit the best and brightest from around the world, and continue to expand our research and teaching efforts."

PUSHING CLINICAL PRODUCTIVITY

That academic institutions even need to identify and exploit opportunities for revenue enhancement is a reflection of how much in jeopardy the historic mission of ivory tower radiology has become since the 1970s.

Robert I. Grossman, MD

"Thirty years ago, it was traditional that people in academics would do some clinical work, some observational studies, some research, and some teachingthere was largesse in the system to permit a balance of these activities, and the system worked reasonably well," recalls Louis Marx Professor Robert I. Grossman, MD, chairman of the Department of Radiology at New York University (NYU) School of Medicine in Manhattan, and a professor of radiology, physiology, neurosurgery, neurology, and neuroscience. "Gradually, since that time, the economics of medicine evolved, and a great deal more pressure was put on academic radiology departments to carry their own weight."

Doing so was most readily and reliably accomplished by increasing the clinical workload. It has gotten to the point now that, for most academic radiology departments, clinical services are a primary means of supporting the education and research portions of their institutional raison d'etre. But simply doing more work no longer is sufficient for this purpose. The demand currently is for more efficiency so that productivityand revenuescan be optimized.

James H. Thrall, MD

This, says James H. Thrall, MD, professor of radiology at Harvard Medical School and chairman of the Department of Radiology at Massachusetts General Hospital, Boston, is traceable to declining third-party reimbursements for services.

"We need to maintain previous income levels, but, in many parts of the country, the reimbursement per unit of clinical service has decreased dramaticallyfor example, the Blue Cross organization here in Massachusetts decreased the fee schedule reimbursements to radiology by about 50% from 1990 to 2000and that has forced us to boost productive output in response," he explains. "It's also forced us to concentrate more on services that are better reimbursed per unit of time spent, such as cross-sectional imaging. The unit-cost of studies is very important to us because, when the unit reimbursement goes down, people have to work more to achieve the same amount of income.

"In the academic setting, this fact of life is magnified by the shortage we face of academic radiologists. However, in response to being shorthanded, academic departments are finding ways of becoming more clinically productive. In just the last couple of years, clinical productivity has gone up very significantly. Data I've seen from the Radiology Business Management Association indicates that per-faculty, relative-value-unit productivity went up about 20% from 2001 to 2002."

Clinical productivity is abetted at most academic centers through investments in the latest information technologies. Innovations such as picture archiving and communications systems (PACS); the integration of PACS, the radiology information system (RIS), and the hospital information system (HIS); and voice-recognition systems are enabling radiologists and staff to accomplish more with less effort.

LOSING TIME

While helping underwrite education and research, increased clinical productivityno matter how efficiently achievedunfortunately leaves academic radiologists with less time to devote to those other activities. At Massachusetts General, for example, faculty spend approximately 4 of every 5 full-time days attending to clinical work, meaning they have only about 1 day out of their entire work week to spend on education and research.

Says UCSF's Arenson, "Whatever balance there was to our mission in the past has been disrupted by the ever-increasing clinical workload. The biggest impact is felt at the viewbox or at the workstation where faculty are supposed to be available to interact with residents and fellows. Faculty are under pressure to get more clinical work done, and that leaves them a reduced number of opportunities in the course of a day to pass along their expertise."

That applies as well to time required for the writing of scientific papers. Thrall says that the major radiology-related societies have witnessed a flattening in the number of abstracts submitted for publication and presentation. He fears that, ultimately, if institutions allow themselves to become appreciably more preoccupied with clinical productivity than they already are, the lack of time for teaching and research will have the net effect of reducing the number of true academic centers around the country to a mere handful.

"Even now, you would find it difficult to name 50 institutions that are seriously committed to a full academic culture," Thrall contends. "This is a trend I don't see being reversed in the next 5 or 10 years. That's regrettable because I think it's important to have as many departments as possible committed to an academic culture."

It would be unfair to place blame for this phenomenon on declining reimbursements alone. To a significant extent, academic radiologists are working harder because their services are in greater demand.

"There is no question that the demand for studies has skyrocketed," says Thrall. "Academic radiology has introduced for patients and referring physicians alike tremendous value in the care process. In particular, cross-sectional imagingwhich is our strong suithas become the guiding hand of medical practice. Along with 3D studies, these new technological capabilities are providing incredible amounts of information for diagnostic, surgical planning, and disease management purposes. We are seeing the increased referral demand coming from every clinical specialtyit is not localized in any single specialty area; it is broad-based."

MORE IRONS IN THE FIRE

The bulk of the clinical proceeds generated by university-based radiology departments are usually allocated to pay for operational expenses, including salaries and equipment. A portion of what remains then goes to underwrite education programs and research projects. Some institutions earmark funds for education and research out of gross revenue, while others, like NYU School of Medicine, prefer to draw them from net income.

"We now take about 10% of our profit for this purpose," says Grossman.

As important as fee-for-service income has become to academic centers, the fact remains that payor stinginess with reimbursement dollars (coupled with marketplace competition from private practices) makes it an imperative for these radiology departments to thrust more than just one iron into the income-producing fire.

Table 1. Academic radiology department statistical snapshots form a basis for comparison.

"We learned fast that the money we make by performing and reading studies is very hard revenue to earn," says Thrall. "One way we've sought to address this is by diversifying our activities into about a half-dozen service lines, all of which are built around our core knowledge and core competencies. Our guiding principle in selecting each service line to diversify into is to try to achieve a higher quality of revenue, meaning more revenue per unit of time spent, better conditions of work, and more reliable payment.

"Originally, our goal was to match our on-campus, fee-for-service income with income from diversification activities. We're now about 55% core practice, 45% diversification sources. We anticipate that next year or the year after we will be at our ideal of a 50-50 split."

Grossman sees diversification as a way to make academic radiology more "activist, as opposed to passive, in terms of seeking out new patients and business. We're looking for new business opportunities as well as maximizing the existing opportunities we've already availed ourselves of. For example, we're looking to expand our interventional radiology practice. We're also looking to set up and market an emergency radiology practice. We've taken steps to increase our work from other hospitals that want us to provide them with additional servicesbut paying close attention to our costs and to properly valuing those services so we can deliver them profitably. In addition to that, we partner with a variety of different city and federal agencies to provide radiologic services."

The diversification at Massachusetts General includes off-campus outpatient imaging centers, a consulting practice that provides services to more than 40 hospitals and privately owned imaging centers across the United States, and an image-processing laboratory foramong other clientsthe pharmaceutical industry.

"We also provide infrastructure support for clinical trials performed at our hospital and have established a service line to provide central reading services for pharmaceutical trials that employ imaging," mentions Thrall.

LOVE THOSE IMAGING CENTERS

For UCSF, a very viable source of diversified clinical revenue has been tele-radiology.

"We provide teleradiology as part of various telemedicine ventures, mostly in other parts of the world," says Arenson. "We have a major contract with a company where we provide second opinions for large populations in other countries. This particular company has contracted with banks, credit card firms, cellular phone businesses, and others so that those enterprises can offer to their own customers the benefit of access to UCSF physicians for second opinions at a fairly dramatic discounted rate. We receive from this an up-front payment of a subscription cost and, later, a fee from the individuals who take advantage of this benefit. Millions of people are signed up for this;  fortunately, though, not every one of them requests from us a second opinion, so it's a fairly good business for us, especially considering that we spend only about 5% of our time at it."

Teleradiology is not every institution's cup of tea, it should be noted. Says Grossman, "Teleradiology can be counterproductive, unless you have a staff that isn't occupied fully, which is not the situation here where we have an optimized faculty-to-case mix. Besides, you have less control over teleradiology cases, and that makes accepting them of marginal utility. Granted, there are opportunities in tele-radiology, and if I were to come across a good one that would not raise my costs and thereby decrease profitability, I'd probably jump at it."

While teleradiology may be a questionable proposition for some, the same cannot be said of those off-campus outpatient facilities. Department chairmen typically cherish them. They are most fond of imaging centers that can be operated as total or quasi private-practice settings, in which faculty who spend time there get to keep some portion of the revenues they generate. For highly skilled radiologists on a teacher's salary, such an arrangement could represent a sweet deal, but university administrators do not always see it that way, as Arenson can attest.

"My institution's top leadership has been steadfastly opposed to letting us set up an imaging center as a private practice," he says. "The nature of their objection is that they don't want to share the technical dollars. However, there are signs that the administration may be ready to relax its opposition a bit. We have been arguing for some time now that, together, the medical center and the department could take advantage of the better reimbursement of the non-APC rates for things like MR, CT, and PET. I've also been arguing that this department can't live on professional fees alone and still compete in the world. The medical center is expressing a willingness to now at least consider what our consultants have to say about joint-venture options, and I find that very encouraging."

The importance of off-campus outpatient imaging centers to academic departments is underscored by Thrall's revelation that about 35% of his team's total practice income is today derived from such facilities. (In contrast, 10 years ago, that number stood at about 10%, he says.)

"At the outpatient centers, we practice as part of a 501c3 professional corporation that is a subsidiary of the holding company that also owns our hospital," Thrall notes. "In this context, we've been able to own the imaging centers through the professional corporation, but we must also do gain-sharing with the hospital so that the hospital realizes along with us a financial benefit from our work."

INTENSIFIED RECRUITMENT EFFORTS

Under whatever legal framework university-owned outpatient imaging centers exist, they tend to do well in head-to-head competition against their purely privately owned, for-profit counterparts within the same market.

"We have an edge because we're often the provider preferred by referring physicians and patients," says Arenson. "To some extent, that's because we offer some of the most advanced technology available. But more so, I believe, it's because of the expertise of our faculty. Our ultrasonographers, for example, are the best in the world. No one in this city can compete with them, and everyone knows itwe have tremendous drawing power because of that. The same with our neuroradiologists, our neurointerventionaliststhere's no one like them, and we have tremendous referrals."

Where imaging centers owned by universities sometimes run into market-oriented trouble is in certificate-of-need (CON) cities and states. CON regulations exist to prevent overutilization of services by limiting the number of providers able to offer those services, but they frequently give rise to unintended consequences that have harmful effects. Thrall explains: "Our state's CON rules prevented us from acquiring sufficient MR capacity in our imaging centers. That meant there were increasingly long waits for MR service. Then, about 4 years ago, the state realized what was happening, so the CON review process was relaxed to the point that we were able to more readily acquire the MR technology that was needed. Now, since our MR capacity has been brought up to where it needs to be and the backlog of cases has been eliminated, we've seen one of the for-profit imaging centers in our market forced to cut back its hours of operation because we're taking business away from them."

More problematic for academic institutions is the nationwide shortage of radiologists with a bent toward research and education. Accordingly, department chairmen are redoubling their faculty recruitment efforts.

"Great research requires great equipment," says Grossman. "But the corollary to that is you can have the greatest equipment in the world and still not have great research if you don't have the people to undertake the task."

Grossman is delighted that he has experienced so much success in attracting talented and influential radiologists to his department. In the last year alone, he recruited 18 of them. He credits several factors for making this possible.

"We've organized our recruiting so that it's handled through one vice-chair and involves a very formal process of identifying the best candidates," he reveals. "We contact them, have them come in and meet all the appropriate people. We also have a lot of assets to offer. And we do a very good job of articulating why someone would want to come to our institution as opposed to any other."

As in real estate sales, location is everything. For recruitment prospects eyeing Thrall's neighborhood, one reason to say yes to his overtures is the fact that Massachusetts General is situated in a mecca of medical training.

"That's one attraction in our favor, and because of it we're seeing an increase in the number of people applying for positions with us from around the country," says Thrall. "However, we think the increase is also a reflection of the difficulties radiologists outside our area are encountering as they attempt to pursue true academic careers in medical centers that have become de facto private practices."

Location cuts two ways in San Francisco, home to some of the nation's most breathtaking sceneryand housing prices. But despite the downside embodied by the latter, Arenson has been able to add to his faculty numbers.

"We've had the most success at the junior faculty level, which is where we can best compete," he says. "It's difficult for us in this Northern California market to recruit more senior individuals because our cost of living is very high and, by the time someone's career in academic radiology is well established, he or she often already has entered a housing market someplace else and has become accustomed to the standard of living possible in that area."

A FAIR WAGE

It would be stating the obvious to say that money is a big issue in the recruitment process. Yet it appears to actually be less of a sticking point than might be supposed when the salaries of a particular market's private-practice radiologists are compared.

"It's something of a myth that private-practice radiologists are significantly better off than academic radiologists," says Arenson. "If you factor in the worth of the many benefits of being in an academic setting, including paid time to teach CME courses and a paid retirement, the economic differences between private and academic aren't that great.

"There is, of course, a discrepancy between the actual salaries paid to private practitioners and academics, and this is something we're not going to be able to overcome. We can't compete on hard dollars. So we have to appeal to the people who want to be in an academic jobpeople who like to teach and publish and explore challenging questions about modalities or science. What's important to them personally is the satisfaction of being recognized nationally and internationally, and being able to make a difference in the world by teaching residents and fellows."

Different institutions hew to different formulas for compensating their faculty and staff.

"I'm not in favor of complex remuneration schemes for the reason that it's too easy for some people to game the system," says Grossman. "Beyond that, remuneration schemes tend to create hostilities. So, rather than encourage those kinds of problems, what I prefer is ascertaining that people are doing what they want to do and are achieving excellence. If I see that happening in research, then I'm willing to reward them well, the same way I would reward clinical excellence. In other words, if you're an excellent researcher, you shouldn't be economically penalized because you're not generating the same amount of clinical revenue as someone doing clinical medicine. Everyone in this department is rewarded equally, as long as they perform in an excellent fashion."

Arenson structures both compensation and bonuses based on revenue-based productivity.

"We use an adjusted RVU, adjusted according to productivity calculations designed to create more of a level playing field when it comes to the different faculty in their different sections," he shares. "We did this because we know that there are certain examsMR, CT, and interventionalthat produce more RVUs per procedure in proportion to others."

OTHER PEOPLE'S MONEY

Besides clinical revenue, institutional radiology departments depend heavily on income derived from philanthropic sources. Times have been tough for many affluent givers since the economy lapsed into mild recession in 2000 and the stock market nosedived shortly afterward. However, neither a tanking gross domestic product nor a soured Dow Jones Industrial Average has much affected some academic radiology departments.

"We've not yet seen a decline in philanthropic support and there hasn't been any significant decline in the availability of funds from not-for-profit foundations," Thrall insists. "Both philanthropic and foundation support for this institution remain strong. Could this change in the future? I thought we would be affected 18 months ago when the stock market was in meltdown. It didn't happen, so I'm hopeful today that the worst of it is behind us and that the economy is recovering enough that we will soon see the public's willingness to support our facility and other academic institutions in their efforts to reach new heights."

Another major source of income is grant funding. Here, the situation appears even healthier. "There are more federal sources of grant money than ever before," Thrall enthuses. "One in particular is the Department of Defense, which has become a very major contributor to the financial support of medical research. The Defense Department's increase in contributions started before the war on terrorism, so the two aren't necessarily connected. However, I do think that the effort to protect America in these troubled times will only enhance the money available for biomedical and bioscientific research.

"Meanwhile, the National Institutes of  Health (NIH) has in the last 5 years doubled its budget for grant-funded research. We've been very successful at winning a good share of those available extra dollars. In fiscal 2001, we received more than $21.5 million in NIH research support. Combined with the $14 million we received from other grant sources, we've been able to greatly expand our basic-science research activities."

Arenson finds UCSF in a unique position in that his department's research funding from the NIH and others totals more than its clinical revenues.

"We achieved this by never ceasing to build programs that emphasize research," he says. "This was a tradition started by Dr Alexander Margulis, long before I arrived here."

NIH dollars loom large as well for Grossman's department. However, what he most appreciates about the NIH's grant program is the agency's peer-review process that precedes every such award.

"Submitting to NIH's peer-reviewed process gives the imprimatur of excellence for our research projects," he says. "It also reinforces the discipline that an academicianan independent research investigator, in particularmust possess in order to be successful."

Grossman mentions one other vital source of research fundingactually, in-kind funding, to be accurate. It is provided through a strategic alliance he has formed with a leading vendor of imaging systems.

"In this relationship, we've leveraged our clinical excellence to be able to acquire cutting-edge technology and thereby improve our research profile," he says. "We take this approach because one requisite for doing good research is you must have good technology."

UNITY OF PURPOSE

Revenue and funding concerns aside, running an academic radiology department is a daunting assignment. To Grossman, the most fundamental key to success in that capacity is the development of a nimble, efficient organization. Thickly layering the hierarchy and creating a bloated bureaucratic structure can be deadly, he warns, as can attempts to micromanage.

"As department chairman, you need to recruit talented individuals who are team players and won't work at cross-purposes," he adds. "You also need to take steps to empower people at every level. Avoid isolating yourself; be sure to talk to as many of your people as possible. Above all, never forget what it's like to be a new member of a departmentin that way, you'll be sure to show the highest level of respect and integrity to everyone."

That is, with the possible exception of dilettantes. Grossman thinks the presence of such triflers encourages departmental mediocrity.

"The thing that most hurts academic radiology is mediocrity," he asserts. "And dilettantes contribute to that because they usually aren't productive."

Arenson, on the other hand, believes success in running an ivory tower enterprise is abetted most effectively by working hard at maintaining the balance among clinical, teaching, and research activities.

"However, a department chairman should also be realistic about what he or she can accomplish," he cautions. "As an example, if the department is, let's say, 40th in NIH funding, he shouldn't expect to go from that rank to number one during his tenure, because it's going to take the entirety of his time with his institution to build up his department's research infrastructure to the requisite level necessary for a shot at significantly greater NIH funding. It is very difficult and time-consuming to build a research infrastructure if you don't have much of one to begin with. The best thing to do is to decide what are your areas of excellence, focus on those, and try to build on them as well as on areas that might be related. I would focus on things like clinical trials and clinically based research. If, instead, you're a department in the middle, with an average research infrastructure in place, then the focus should be on recruitment of PhDs who can provide the necessary muscle and expertise in an area to support those clinical radiologists already working in it."

Making sure one has adequate space for departmental activities also is crucial. "When you're cramped for space, it affects the functioning of the department in many ways," says Arenson. "I know, because we have that problem ourselves. On the clinical side, the biggest impact has been the fact that we couldn't add equipment as fast as we wanted to for our ever-increasing volume. That has translated into some big delays in getting patients in for procedures, which in turn has meant sometimes having to send patients elsewhere for services."

Thrall tenders a similar story. "We've been here since the mid 1800s," he says, "so it's not surprising that space for us is at a premiumthat's one of the reasons we've opened imaging centers out in the community and, right here in our hospital lot, have parked two trailers containing MRIs and one with a PET scanner."

Grossman's department is less physical-plant-challenged than it otherwise would have been because he bargained for extra space as part of his initial contract negotiations with NYU in July 2001.

"I felt the time to address the space issue was at that juncture, since it was then that I would have the most leverage to secure what I felt the department needed," he recalls, demonstrating right from the start a willingness to take big risks.

But radiology departments do not live by risk-taking alone. In addition, they require a unity of purpose in order to truly thrive.1 For Grossman, unity of purpose is defined as striving to be excellent in all aspects of the academic mission.

"Everyone here knows and understands that we want to be the best academic radiology department in the world," he says. "We want to perform excellent, cost-efficient radiology, to be a leader in research, to attract into our program the best possible trainees, and to provide those trainees with outstanding training."

Will his expectation be borne out? Perhaps so. Grossman, like others in his position at institutions across the nation, has become very good at taking all of the many steps necessary for academic radiology to flourish in the years ahead.

Rich Smith is a contributing writer for Decisions in Imaging Economics.

References:

1. Cohen MD, Gunderman RB. Academic radiology: sustaining the mission. Radiology. 2002;224:1-4.