DI and commoditisation: Meeting the Challenge

Having devoted the previous article to commoditisation in DI, with a discussion of the key drivers of this trend over recent years, it is timely to shift focus to the crux of the debate – the strategic response from the profession. And these strategies should address all elements of the commoditisation issue. Radiologists must take the lead, and gear up to play a clever game. Here’s why.   DI service delivery in most developed countries faces similar issues: a mix of ... Read More

DI and commoditisation: an industry in transition

Recent articles in this series have focused on funding issues, including the government funding review. It is now perhaps time to explore the growth of commoditisation in DI, with particular reference to the Australian context. While a systemic issue for DI, encompassing all segments of supply and demand, a private sector bias is implied when discussing a service with an attached market price. But broad extrapolation of the debate is appropriate.

Although technology and other “market” factors have underpinned the emergence of commoditization, radiologists supposedly reacting to market pressure have facilitated the process. Now from within the profession we have calls for increased awareness of the perceived dangers, even for strategies to save radiology as a clinical specialty. But is there really a fundamental threat to radiology? As always, change brings both risk and opportunity. Let’s examine the dynamics at play, and look for a way forward.

Commoditisation involves portraying the DI service as an undifferentiated tradable commodity, resulting in market behaviour driven solely by price. Many argue this “de-professionalises” the service – reducing it to a dataset of images and report – thus ignoring other elements of radiology practice like consultation activities and monitoring quality and appropriateness. Fair point, but times have changed, and the profession must look forwards objectively, not to the past, as it transitions radiology for the future.

So here is the challenge – to embrace the reality of globalization and other drives of commoditisation, yet maintain professional practice models that promote the role of radiologists in the clinical team. The challenge should not be underestimated. Current debate indicates that radiologists hold divergent views on commoditisation, and while turf protection is ultimately a unifying force, optimal strategic outcomes may require trading short-term commercial gain for future sustainability, surely an added complexity.

But just how has a professional service morphed into a perceived undifferentiated commodity in the real market? While inconceivable a decade ago, the seeds were already there. In a sense, DI as an industry, with radiology its core clinical specialty has fallen victim to its own evolution and success. Okay, so what are the commoditisation drivers?

Governance activities from within the profession and industry have delivered DI practice standards; appropriateness criteria & decision support systems to guide referrers; and funding-linked accreditation criteria for providers. Add the increasing threat of litigation, and we have constant upward pressure on the standard of care. To the DI consumer, usually the referring clinician as patient agent, supply within a “market” (or geographic area of supply & demand) seems undifferentiated. Quality, access, and timely results – products of a competitive market – are a given, so price then drives referrals. Lower prices result. Loyalty, special expertise, and other “value-adds” now exert only minor influence in most segments of the overall market.

We continue to see the above scenario unfold. At the coalface, busy DI practices run on slick work-flow management protocols that embrace scheduling, reception, examination, and report generation. With highly-trained technologists operating the various modalities, radiologist input revolves around reading progressively larger and more complex digital image data-sets. And years of real funding cuts have demanded a massive hike in radiologist productivity, together with overall enterprise efficiency. In the workplace, radiologists are time-poor and under pressure, and can rarely be involved in all elements of the patient episode. In essence, the service has been segmented by necessity, and this resonates with the trend towards commoditisation.

The digital age in DI, together with advances in information and communication technology, has been another key player in commoditisation. While a godsend in facilitating better productivity, PACS and Teleradiology now pose some fundamental questions for the profession. Ability to read digital images anywhere on the globe breaks the historical nexus between patient and radiologist. This unsettles many in the profession, who merely see further erosion of the “integrated service” concept. However, the ability to exploit time-zones and give 24/7 coverage with “wide-awake” radiologists, to provide sub-specialty reporting, and to service remote communities must be positive, trumping the perceived downside. Then as newer generations of radiologists actively seek more flexible working arrangements, teleradiology will be an integral tool in service provision. This technology is here to stay. It is up to radiologists to manage it effectively and limit its power to commoditise.

Returning now to the basic premise of a commoditised service and price-driven market behaviour. As already noted, radiology has been trending in this direction for a number of years, and for a variety of reasons. But one of the most powerful drivers has been our Medicare funding system – specifically the underlying politics. Here, the combination of two levers, 1) a managed fee-for-service environment, and 2) a floor price, lit the commoditisation fuse many years ago. Add to this the initially attractive rebate settings plus pressure on providers to accept this floor price, and commoditisation was inevitable, especially given the evolutionary forces at work within the industry. For once DI was seen as an amorphous offering in the market, lacking qualitative differentiation between providers, the percentage of bulk-billed services began to rise. Now by simply operating the “floor price” lever, government could lower the price, forcing productivity gains and ensuring lower margins. Despite this, providers have increasingly become eager price-takers in search of market share; yet in reality, participants in a potential race to the bottom.

Finally, a short note on corporatization, cited by some as a commoditisation driver in the American market. Possibly so, but Australian health-care has a different set of funding and delivery structures, making any such linkage tenuous at best. Experience here, though to date a mixed bag and generally sub-optimal, suggests that with a well-managed and appropriate business model for DI services corporatization, both professional and shareholder interests can be successfully aligned. Such an outcome should be neutral on commoditisation.

To recap on all the above, commoditisation is occurring in DI, driven by multiple factors. This is not a mortal blow to radiology. But it calls for an objective understanding of the forces at play, acceptance of irreversible change, and a resolve to cement and enhance the relevance of the radiologist in patient management. These goals should not be seen as mutually exclusive. The next article will focus on the profession’s response to commoditisation.

DI Funding Review - Capital Ideas -- October, 2010

One key area of debate in the funding review will be potential changes in the way the capital base of the industry is funded. This has been placed squarely on the agenda in government discussion papers. “Capital funding” influences many aspects of industry operation – some of which will be explored in this article – but it is a safe bet that some potential changes will meet strong resistance from industry. Here’s why. For starters, we need to understand the ... Read More

DI Funding Review - Broad Financial Framework -- July, 2010

This article is designed to explore certain elements of Australia’s funding and delivery model for DI services that, if well managed, will help drive future stability and efficiency across the sector, thereby maximising community value. Only within a strong framework of change to MBS funding arrangements for DI will the potential to enhance productivity and service efficiency be fully realised. Up front, review participants should acknowledge the need for a healthy balance between public ... Read More

DI Funding Review – seeking sustainability -- May, 2010

Having raised, in recent articles, some core policy and structural issues surrounding the funding review – particularly the role and intentions of government – we can now move the focus towards key drivers for change in future funding of DI. One of these will be the issue of sustainability. Sounds simple enough – but differing interpretations of the concept will surely emerge during the course of the review. Managing these differences will largely determine the quality of the outcome. ... Read More

DI Funding Review – big picture issues -- April, 2010

The main thrust of the commentary in Article No.7 was that after decades of MBS operational and policy drift through an unprecedented growth period for DI, it would seem timely to revisit the basics and consider the fundamental role of the MBS in future funding. Then build the parameters for appropriate funding of a service delivery model best suited the Australian community. So the first big question is one for the federal government – and revolves around its perceived role in the system. ... Read More

DI Funding Review – a ground-up approach needed -- March, 2010

The recent Government announcement of a detailed review of the funding arrangements for DI should be welcomed by key industry stakeholders as an opportunity to promote strategic change across the industry as well as locking in appropriate funding. But we should not underestimate the task facing both industry and government as they seek consensus in key areas. Given the pressures on DI through more than a decade of growth and technological advance, the industry has well and truly ... Read More

Utilisation and Service Volumes – the aftermath of a decade of growth -- November, 2009

Dramatic growth in DI services over the past 10-15 years is a matter of record – especially in the high end modalities of CT and MRI. This so-called “shift to the right”, combined with the digital revolution, has challenged key industry stakeholders, and created unresolved issues of a systemic nature. Government has finally agreed that review and strategic planning are needed for the industry. Although welcome, past experience suggests positive change may take time. Let’s evaluate the ... Read More

The Diagnostic Imaging enterprise – radiologists to drive key changes -- May, 2009

Last month’s article focussed on a few fundamental issues that represent a challenge to industry leaders – a challenge to review key drivers of the service delivery model from the “ground up”, with a view to greater efficiency and better community service. This process is currently underway, indicating a shared belief that the industry can evolve and improve. Success requires a balanced commitment to both change and enduring values. Ultimately, the functional units of the delivery ... Read More

Re-shaping the delivery model – some fundamentals -- February, 2009

Recent articles have broadly canvassed macro issues which have put significant stress on DI service delivery; and also technology-driven opportunities to review and improve operational efficiency, while maintaining service levels and quality. But to convert these opportunities there are some fundamentals to consider. Let’s take a look at some of these. As previously noted, the DI sector is dedicated to acquiring and analysing information from patients. In this respect, it acts as an ... Read More