It is an axiom if not a cliché of modern business that decisions are made for many reasons, not just one. So it was when administrators and radiologists at Sentara Healthcare, a not-for-profit company that operates hospitals and other related facilities in southeast Virginia and northeast North Carolina, conceived a plan to let radiologists manage a string of outpatient imaging centers that Sentara, through its hospitals, would own. As designed, the radiologists would be empowered to run the centers but would not have to contribute to their capitalization. The hospitals would own the outpatient centers, which would retain their not-for-profit, provider-based status.

Eventually, four outpatient imaging centers are planned. Each will be owned by one of Sentara's hospitals but managed by one of two radiology groups that will be responsible not only for day-to-day operations but also for planning and marketing. In April, the first of these imaging centers opened in a new medical office building adjacent to Virginia Beach General Hospital. It is called Advanced Imaging Center, First Colonial (AIC). First Colonial Road fronts the hospital and is a landmark street in Virginia Beach. Virginia Beach itself is the largest city in Virginia with a population close to 400,000. Just to the north, across a wide strip of water where the James River empties into Chesapeake Bay, are Hampton and Newport News, cities with a combined population of more than a half million. Hampton and Newport News are called "the peninsula." Virginia Beach and Norfolk are called "the southside." The peninsula and the southside make up the core of Sentara's service area. Virginia Beach General Hospital is licensed for 274 beds. It is one of the major hospitals in Sentara's six-hospital system. The second crown jewel is Norfolk General, which is licensed for 644 beds and is nationally recognized as a cardiac care site.

Danilo Espinola, MD, is a diagnostic radiologist with a subspecialty in nuclear medicine. Espinola is president of Hampton Roads Radiology, a 21-member group that holds the contract to read for Virginia Beach General. Espinola is also the manager of AIC and the strategic medical director for all outpatient imaging. A second radiologist acts as AIC's medical director while Espinola devotes more of his management time to planning and marketing. Only four of Hampton Roads' radiologists work at AIC, and Espinola and the medical director also interpret images.

Kurt Hofelich, MPT, is a former physical therapist who is now coordinator of outpatient imaging and development for Sentara. During the time he worked in PT management, Hofelich helped develop a number of stand-alone PT centers, experience that he says gave him a leg up when he set his sights on developing outpatient imaging at Sentara. Both Hofelich and Espinola say it has been a meeting of the minds between them, or a "synergy" as they put it, that has smoothed the way for the opening of the AIC. By no means do they give themselves credit for the development vision for AIC and its sister centers yet to be built. That credit, they say, should go to the Advisory Committee that Sentara organized about 3 years ago to study outpatient imaging throughout its system. AIC is the first embodiment of the business plan for outpatient imaging that the advisory committee, composed of clinicians, radiologists, and hospital administrators, developed. If AIC succeeds in the way that it seems to be doing, say Espinola and Hofelich, then it will provide the template for the other outpatient facilities.

How AIC began

Hofelich says that entrepreneurs whose business is outpatient imaging routinely study hospital imaging backlogs and radiologist report turnaround times to spot opportunities to open centers. Had they looked at Virginia Beach General a few years ago, they would have spotted such an opportunity. Sentara and its radiologists did. Sentara has recently put in a PACS (picture archiving and communications system) and a VR (voice recognition) system for transcribing radiologists' reports. AIC's report turnaround is now guaranteed same-day for procedures done before noon. It was not long ago that such speed was only a dream. "Back in the transcription world, our report turnaround was 5 or 6 days," Hofelich says. Nonemergency patient imaging backlogs were similarly measured in days and not hours. According to Espinola, the problem was bad enough that the hospital was losing business to competitors. Radiologists went to Sentara to plead for outpatient imaging capacity. Sentara was already studying the same issue, Espinola and Hofelich say. The advisory committee subsequently was formed.

Under other circumstances, it might have made sense for Hampton Roads Radiology to open its own outpatient center. Espinola says that, like radiologists everywhere, his group wanted control of such a center's operation. But Virginia is a certificate of need (CON) state. Before new facilities can be opened or even before new imaging modalities can be put on line, they must be justified by need. Hofelich says the state guideline for CT imaging, for instance, is "4,500 procedures per machine per year." The MRI guideline is 4,000 per year. When the CON guidelines for a modality are exceeded, then a provider goes into what is called "tip over," Hofelich says, meaning that the provider, in this case the hospital, can petition the state to add another modality. While some would argue that CON regulations work in favor of hospitals to stall competition, Hofelich says the rules are actually meant to protect the state and quality of care. "From the state's perspective, when you have an oversited market, utilization goes up. Through the state's eyes, its responsibility is to protect the quality of care and appropriate utilization of imaging for the general population as well as the uninsured and the Medicare population that it manages."

The CON regulations act as a barrier to competition to existing facilities whether their intent is to protect the state from overutilization or not. CON was a significant barrier for Hampton Roads Radiology Associates in forming an independent outpatient center. The group chose to work in partnership with Sentara instead. By forming a system-wide advisory committee and tackling outpatient imaging as a system, Sentara gained several advantages, but key among them was the ability to transfer CON-approved imaging machines from underused spots in the hospitals into outpatient imaging centers, without having to petition for added machines. "We basically had to create a map with all of Sentara's MRI and CT assets on it and determine based on appointment availability and hours of operation where we had duplication and what assets we could redeploy to the outpatient centers," Hofelich says.

"If we had not started the advisory board and the movement to a different way to deliver outpatient care, an additional MRI, if it was justified, may just have gone back into a hospital someplace," Espinola adds.

With redeployment and new CON applications as strategies for gaining outpatient equipment, the advisory committee then had to address how the outpatient centers would be owned and managed. Hampton Roads Radiology wanted involvement, so did a second major radiology group, Medical Center Radiology, Norfolk, Va, that covers the other 3 Sentara hospitals on the southside. One obvious solution was to form joint ventures between Sentara and the radiology groups. This was something both the hospitals and the radiology groups were comfortable with, say Espinola and Hofelich.

"When the math was all done, it was actually more beneficial for this venture to remain on a provider-based status," Espinola notes. "We have a very long-term relationship with this hospital that is a very large book of business for us. To that extent, I and the group agreed that it was better to work with the hospital."

The incentive plan

Having determined a hospital-owned outpatient imaging center was the most viable option, the Sentara advisory committee set about finding a way to satisfy the radiology groups' desire for empowerment. After years of losing outpatient referrals because of backlogs, Espinola says the radiologists were determined to regain lost business and quickly expand the outpatient imaging volumes to levels higher than ever. A key part of the radiologists' marketing plan was to create a situation where the radiologists would themselves be the faces that referring physicians would see (see sidebar, page 22). "It was actually we, the radiologists, who said we want to raise the bar in the way we service our customers," says Espinola, "and the hospital said, Absolutely, that's where we want to go too.'"

When discussions concluded, the advisory committee decided to open four outpatient centers. They designed an agreement that let the radiology groups manage the centers that the hospital would own. To compensate them for managing, the radiology groups would get management fees, and perhaps more important, they would get incentive payments based on service criteria that exceeded historic benchmarks and projected normal growth. Espinola is careful to point out that the incentives apply to the groups, not the individual radiologists. All the incentive pay goes to the groups.

The distinction is important because under another part of the agreement, the technical and clerical staff at the outpatient centers is and will be on an individual incentive plan. Based on procedure volumes, according to Hofelich, individual technicians will have some control over their paycheck destinies. Hofelich will not say how much money is involved in the incentives. He says the technologists at the outpatient centers will have to "take risks" to offset the bonuses. The risks are that if they do not meet incentive plan volumes, they might make less than regular hospital technologists.

"The uniqueness of the incentive plan is that from the clerical person who schedules your appointment to the radiologist who manages the center, the incentive plan is consistent," Hofelich says. "It basically holds the staff and the radiologists accountable for four key things: getting patients in and available within standards, getting reports out the door, customer service ratings, and meeting volume expectations. It's a very simple plan."

AIC opens first

Having arrived at its business model, the Sentara planners determined that Virginia Beach General should open its outpatient imaging center first, because there was readily available real estate, equipment, ease of implementation, and a large, growing market demand in Virginia Beach. With all the approvals in hand, construction of the Advanced Imaging Center got under way.

Hofelich will not say how much the center cost. He says the capital for it came from Sentara's normal allocation, not from borrowing. "We basically utilized the portion of funds that our company makes available to us for strategic capital endeavors."

AIC opened 5 months ago in a structure adjacent to Virginia Beach General that also contains physicians' offices. It is connected to the hospital by a glassed-in hallway. According to Hofelich, about 4,600 square feet are devoted to CT and MRI. Another 4,000 square feet contain mammography, ultrasound, general x-ray, fluoroscopy, and bone densitometry. The 16-slice CT and the 1.5T MRI were purchased new. All the other modalities "were integrated into the center from existing services within the health system," Hofelich says. CT and MRI are read electronically via PACS. The other modalities still demand film.

Espinola says the CT is much faster than previous machines, so fast that patients can be moved through at the rate of one every 20 minutes. But faster machines are a small part of what AIC has done to enhance patient satisfaction and increase referrals from area physicians.

For patients, there is attention to comfort. The term "waiting room" is forbidden at AIC. The patient lounge contains computers that let patients research health matters over Sentara's own network or go anywhere else on the Internet. Some patients do have to wait, sometimes as much as 2 hours, while payment authorization is completed. If they do not want to Web surf, they are given a pager and book of discount coupons the hospital negotiated from merchants along First Colonial Road and they can set off on a shopping spree. When the center is ready to do their procedures, the pager alerts them and they return.

The real benefits in patient care come not from creature comfort add-ons but from the rapid turnarounds that their referring physicians enjoy on reports. AIC guarantees same-day reporting if patients arrive before noon. In almost all cases a report is faxed back to doctors within 3 hours. "We are delivering some reports within the hour, certainly within a half-day of the case being done," Espinola says.

AIC is also being heavily marketed to referring physicians. Sentara employs marketers to contact doctors, but more important, Hofelich and Espinola market heavily themselves. "Hampton Roads Radiology Associates wanted to take advantage of the AIC to reintroduce ourselves to the medical community and this is a great way to do it," Espinola notes, adding that meetings with physician groups to discuss modalities and new techniques are held frequently. "People have to understand these ventures work only if you are on top of them every day. It's not a case of, It is created, so the customers will come.' That doesn't happen. We are constantly reviewing techniques to offer new uses to existing modalities. We have to keep constantly working, because we want to grow."

In its first quarter of operation, AIC apparently more than met its goals. Hofelich says AIC averaged more than  1,500 imaging procedures in each of those 3 months, well above the goals that had been set. "The breakeven is a lot less than 1,500 per month," Hofelich says. "We're far surpassing the expectations that we had in our pro forma." AIC employees and the radiology group received incentive bonuses for the quarter, he adds.

Groundless fears

The initial worry that AIC might not meet its service and volume goals was not the only fear that turned out to be groundless. Espinola says there had been a second fear that AIC would end up in effect stealing business from its hospital and others in the Sentara chain. Quite the opposite has happened, he says. "Our sense has been that the Advanced Imaging Center has actually been a catalyst to generate imaging within the hospital. There have been many instances where we have been back-filling the assets left behind in the hospital because our volume expectations have grown so fast."

Not only have hospital volumes increased by the spillover from AIC, says Espinola, the patient care has benefited. AIC patients who come late can easily be routed to the 24/7 imaging at the hospital. Better yet, daytime emergency department volumes at the hospital can be accommodated more easily since the outpatient load has been shifted to AIC. "We have freed inpatient assets that can now be used to do more emergency cases and more inpatients that would otherwise have had to stay longer in the hospital to get their cases done," Espinola says.

Hofelich says some duplication of staffing and services is required when opening a facility like AIC, but he says the duplication has been more than offset by increased volumes. "We've been able to recover the duplication plus an additional margin," he says. "From the hospital's perspective, I think the business model has proven itself to be competitiveand to secure our direction 3 or 4 years down the line."

When the other outpatient centers now planned have been opened, says Espinola, the whole Sentara imaging enterprise will benefit. "The moment we create other centers, for the growth curve that we projected to be guaranteed, it's going to be more secure," he says. In the overall plan, AIC has been the first critical step. "Now we have a vehicle to say to clinicians, I am going to make myself a lot more accessible to you, and I'm going to improve the way we are caring for your patients,'" Espinola concludes. "I think the Advanced Imaging Center has provided us with that vehicle." n

George Wiley is a contributing writer for Decisions in Imaging Economics.