Royal Philips made a splash earlier this week in announcing that it is buying California-based imaging firm Volcano for $1.2 billion.
While that is good news indeed for Volcano, which has had a terrible year landing on MD+DI's Medtech Losers of 2014 list, the overall picture of the U.S. diagnostic imaging market is less than heartening.
A recent report from Decision Resources Group concluded that the market will have only modest growth through 2023, mainly because of the challenges presented by the Affordable Care Act.
The U.S. diagnostic imaging system market is roughly worth $4 billion and is growing annually at the rate of 2%-4% explained Felix Lam, an analyst with Decision Resources Group in an email.
The move to a value-based system means that hospitals are scrutinizing costs of procedures and capital equipment much more closely thereby creating a hurdle for market growth. The growth in the U.S. is forecast to be modest despite the fact that there is an ever-growing demand for diagnostics from an aging population.
The report found that hospitals are opting for lower-cost modalities like ultrasound and eschewing the more-expensive imaging modalities. This creates an opportunity for single-modality vendors to gains share.
"Single-modality vendors tend to have the most success in the general radiography and ultrasound system markets, which generally have lower R&D costs," said Decision Resources Group Senior Analyst Felix Lam in an email.
Aside from U.S. vendors, Asian companies like Mindray Medical International, iRay Technology and Vieworks are "offering affordable alternatives to the bigger brand name systems," Lam said.
With the new focus on cost and value, the radiology department has been transformed from a profit center able to charge high prices for procedures to a cost center, the report found. Radiologists surveyed reported that how good vendors are in servicing their products is the most important factor in evaluating the hospitals' relationship with them. Customer service ranked higher than imaging quality or product features as metrics by which to evaluate a vendor relationship, the report found.
Yet, there is some positive news amidst the story of overall modest growth.
Hospitals and other facilities are upgrading their computer tomography (CT) systems so that they are able to comply with new regulations set to go into effect by January 1, 2016. Under the law, facilities need to have equipment that meet new radiation dosage optimization standards. If facilities don't upgrade, the stand to face Medicare reimbursement reductions tied to CT procedures.
This regulation is naturally helping along market growth as hospitals and providers get rid of older CT scanners and the like.