1

Healthcare Image Systems 2007

Specialty Medical Gregory Schaeppi

2

Executive Summary

• Although most of the large U.S. hospitals have implemented PACS, the U.S. hospitals industry remains under-penetrated

– In 2004, 82% of the U.S. hospitals with 500 or more beds were using PACS, while only 26% of hospitals with 100 or less beds had installed PACS

• However, expanding usage and technological integration are expected to drive higher penetration

– In 2005, majority of the hospitals planning to install radiology/cardiology PACS were first time buyers of the product

– By 2006, PACS was integrated into cardiology, pathology and dermatology, driving demand for more deployments within a single institution

– PACS market growth is expected to be driven by imaging centers (2007-2012 CAGR: 18.8%), with hospital PACS market growing at 10.0% CAGR

– Penetration of PACS in hospitals and imaging centers is expected to reach 64.2% and 44.6%, respectively

• Growth in the PACS and EMR potentially reflects opportunity in the server racks/cabinets segment

– Patient Management and Scheduling, EHR, EMR, HIS, LIS, EDIS, PACS, Patient Tracking Systems are expected to grow at a CAGR 20.2%, reaching $15.0 billion by 2011

– U.S. market for PACS is expected to grow from $1.0 billion in 2005 to $1.7 billion in 2009 at a CAGR of 14.2%

– Rising overall volumes for EMR and PACS will drive the demand for servers, which in turn will spur server racks/cabinet sales

3

U.S. Healthcare IT market, led by Physician/ home care/ nursing/ hospices sector, is expected to witness double digit growth till 2011

In 2006, less than a third of

all U.S. hospitals and less

than 20% of physicians'

offices had any form of

electronic data handling

capability

Source: BCC Research; Pipal Research analysis

16.418.5

34.7

2005 2006 2011

U.S. Healthcare IT Market Size$ billion

2005-2011 CAGR:13.3%

8.7 9.6

16.9

2005 2006 2011

Market Size for Hospital Segment$ billion

2005-2011 CAGR:11.7%

7.7 8.9

17.8

2005 2006 2011

Market Size for Physician/ home care/ nursing/ hospices Segment$ billion

2005-2011 CAGR:15.0%

The Physician/ home care/

nursing/ hospices sector will

overtake hospitals and will be

worth 51.3% of the U.S. market

by 2011

4

Patient Management and Scheduling, EHR, EMR, HIS, LIS, EDIS, PACS, Patient Tracking Systems are expected to register even higher growth

Source: BCC Research; Pipal Research analysis

5.05.9

15.0

2005 2006 2011

Total Market$ billion

2005-2011 CAGR:20.2%

2.1 2.5

6.2

2005 2006 2011

Market Size for Hospital systems Segment$ billion

2005-2011 CAGR:20.0%

2.9 3.5

8.8

2005 2006 2011

Market Size for Physician/ home care/ nursing/ hospices Segment$ billion

2005-2011 CAGR:20.4%

“In 2005, only 15-20% of physician

offices and 20-25% of hospitals in

the U.S. had adopted EMR

systems”

- RAND Corporation

5

As of 2005, PACS, which is essential for EMR adoption (stage 3), had poor penetration …EMR Adoption Rate in U.S. Hospitals, 2005Percent

100% = 3,917

Stage 0

19.3%

Stage 1

20.5%

Stage 2

49.7%

Stage 3

8.1%

Other Stages

3.4%

* Detailed description of the electronic medical record (EMR) adoption stages given in AppendixSource: HIMSS Analytics; Pipal Research analysis

0-100

18%

101-200

26%201-400

34%

401-600

17%

600+

6%

Hospitals at Stage 3 of EMR Adoption, by Bed size categoryPercent

100% = 318

Hospitals start adopting some level of medical image access from PACS (outside of the radiology department) at Stage 3, which accounted for only 8.1% of hospitals in 2005

– Hospitals with between 101-400 beds represent the majority of stage 3 hospitals

– Also, majority of hospitals in stage 3 are Integrated Delivery Systems (68%), urban (92%), general medical (86%), and non-academic hospitals (90%)

A full complement of radiology PACS systems is available only at stage 6 (0.1% of hospitals)

– Stage 6 hospital are almost equally distributed by bed size, but currently there are more of these hospitals in the >600 bed range (40%)

– Also, majority of hospitals in stage 3 are Integrated Delivery Systems (100%), urban (80%), non-general medical (60%), and academic hospitals (60%)

6

… as most of the small to mid-sized hospitals did not have PACS

43

25

15

13

10

3

31

37

37

33

22

15

26

38

48

54

68

82

Under 100 Beds

100-199 Beds

200-299 Beds

300-399 Beds

400-499

500+ Beds

PACS Systems Installations and Buying Plans, 2004Percent

No PACS, No Plans

No PACS, Plans to Buy

Source: HIMSS Analytics; Pipal Research analysis

PACS Contracted or Installed

• Large hospital sector is nearing saturation

– In 2004, 82% of the U.S. hospitals with 500 or more beds were using PACS

– On the other hand, hospitals with less than 100 beds had a penetration rate of only 26%

• Growth in PACS market is expected to be driven by smaller hospitals

– Most of the planned PACS purchases in 2004, were in the 100-399 bed range hospitals

7

However, with a majority of hospitals planning to purchase PACS being first time buyers …

6

4

4

1

4

7

5

4

94

96

96

99

96

93

95

96

Ultrasound

Nuclear Medicine

DigitalRadiography

DigitalMammography

DigitalFluoroscopy

ComputrizedTomography

ComputedRadiography

Angiography

Hospitals planning to install Radiology PACS, 2005Percent

100% =

395

409

407

396

298

394

396

399

2

100

100

100

100

98

NuclearCardiology

IntravascularUltrasound

Echocardiology

ComputeirzedTomography

Cath Lab

Hospitals planning to install Cardiology PACS, 2005Percent

100% =

88

75

90

79

78

Hospitals with installed software - Replacing Hospitals planning to purchase software for the first time

Source: HIMSS Analytics; Pipal Research analysis

8

... the PACS market is expected to significant growth, reflecting steady improvement in penetration

• By the end of 2007, 2,056 (37.6%) U.S. hospitals and 1,175 (20.1%) U.S. Imaging Centers would have implemented PACS

– Hospital PACS market is expected to grow at 10.0% CAGR over 2007-2012, reflecting a penetration level of 64.2% (3,307 hospitals)

– Also, by 2012, 2,783 (44.6%) Imaging Centers are expected to have PACS, increasing at a rate of 18.8% (2007-2012 CAGR)

• PACS is market is expected to witness double-digit growth to reach $1.7 billion in 2009

– Demand of imaging is outpacing radiologists by 3:1

– Teleradiology is expected to be a significant growth market for medical imaging, and RIS/PACS will be required to support this growth

1.01.1

1.3

1.51.7

2005 2006 2007 2008 2009

Source: Frost & Sullivan; Pipal Research analysis

PACS Market Size (US)$ billion

PACS Market Penetration Forecast (US)

2005-2009 CAGR:14.2%

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2002

2003

2004

2005

2006

E

2007

E

2008

E

2009

E

2010

E

2011

E

2012

E

0

20

40

60

80

100

Total Hospitals Total Imaging Centers

Hospital Penetration Rate Imaging Center Penetration Rate

Total Facilities

Number

Penetration Rate

Percent

9

PACS market is expected to be driven by rising penetration in smaller hospitals and higher technology integration

Rising Penetration

PACS Market

Trends/Drivers

Technology Integration

Hospital Penetration expected to rise from 37.6% in 2007 to 64.2% in 2012

Imaging Center Penetration expected to rise from 20.1% in 2007 to 44.6% in 2012

Market saturation among larger hospitals, market expected to be driven by shift towards upgrades, smaller community hospitals, and imaging centers

– With the prices dropping, PACS are becoming increasingly affordable for smaller players

Source: Frost & Sullivan; industry reporting; Pipal Research analysis

By 2006, PACS had been integrated into cardiology, pathology and dermatology, driving demand for more deployments within a single institution

– These multi-lab, multi-modality PACS solutions enable hospital IT departments to consolidate individual PACS solutions into a cohesive, centralized solution

Over next few years, radiology service providers expect to see the emergence of fully integrated systems that include RIS, PACS, SR, and hospital information systems (HIS)

10

Electronic Medical Record (EMR) Adoption Stages

Stage 0: Some clinical automation may be present, but all three of the major ancillary department systems for laboratory, pharmacy, and radiology are not implemented

Stage 1: All three of the major ancillary clinical systems are installed (i.e., pharmacy, laboratory, radiology) Stage 2: Major ancillary clinical systems feed data to a clinical data repository (CDR) that provides physician access for

retrieving and reviewing results. The CDR contains a controlled medical vocabulary, and the clinical decision support/rules engine for rudimentary conflict checking. Information from document imaging systems may be linked to the CDR at this stage

Stage 3: Clinical documentation (e.g. vital signs, flow sheets) is required; nursing notes, care plan charting, and/or the electronic medication administration record (eMAR) system are scored with extra points, and are implemented and integrated with the CDR for at least one service in the hospital. The first level of clinical decision support is implemented to conduct error checking with order entry (i.e., drug/drug, drug/food, drug/lab conflict checking normally found in the pharmacy). Some level of medical image access from picture archive and communication systems (PACS) is available for access by physicians via the organization’s intranet or other secure networks outside of the radiology department confines

Stage 4: Computerized Practitioner/Physician Order Entry (CPOE) for use by any clinician is added to the nursing and CDR environment along with the second level of clinical decision support capabilities related to evidence based medicine protocols. If one patient service area has implemented CPOE and completed the previous stages, then this stage has been achieved

Stage 5: The closed loop medication administration environment is fully implemented in at least one patient care service area. The eMAR and bar coding or other auto identification technology, such as radio frequency identification (RFID), are implemented and integrated with CPOE and pharmacy to maximize point of care patient safety processes for medication administration

Stage 6: Full physician documentation/charting (structured templates) is implemented for at least one patient care service area. Level three of clinical decision support provides guidance for all clinician activities related to protocols and outcomes in the form of variance and compliance alerts. A full complement of radiology PACS systems provides medical images to physicians via an intranet and displaces all film-based images

Stage 7: The hospital has a paperless EMR environment. Clinical information can be readily shared via electronic transactions or exchange of electronic records with all entities within a regional health network (i.e., other hospitals, ambulatory clinics, subacute environments, employers, payers and patients). This stage allows the HCO to support the true electronic health record as envisioned in the ideal model

11

Healthcare Image Systems 2007

Specialty Medical Gregory Schaeppi