Read the Quinte MRI case, and identify steps/resources in the Quinte MRI’s own process (i.e., not including processes outside of Quinte MRI’s ownoperationssuch as transcription etc

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QUINTE MRI David Wright and Kevin Saskiw prepared this case under the supervision of Professors Carol Prahinski and John Haywood-Farmer solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality. Ivey Management Services prohibits any form of reproduction, storage or transmittal without its written permission. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Management Services, c/o Richard Ivey School of Business, The University of Western Ontario, London, Ontario, Canada, N6A 3K7; phone (519) 661-3208; fax (519) 661-3882; e-mail [email protected] Copyright © 2002, Ivey Management Services Version: (A) 2009-11-30 On June 12, 2002, David Wright and his colleague, Kevin Saskiw, business development co-ordinators at Quinte MRI in Belleville, Ontario, were trying to decide what to propose regarding the magnetic resonance imaging (MRI) facility at Benton-Cooper Medical Center (BCMC) in Palmer, New York. Both men were frustrated and confused. Although the BCMC facility was only six weeks old, it already had a waiting list of 14 days for MRI scans. Because of this backlog, physicians had begun to refer their patients to competing MRI clinics. Dr. Syed Haider, Quinte MRI’s chief executive officer, expected Wright’s and Saskiw’s recommendations and action plan in two days. QUINTE MRI Quinte MRI, Inc. was a small (annual revenues of $1.5 million),1 but growing, international service provider specializing in medical diagnostic technologies, including MRI, nuclear medicine, ultrasound, computerized tomography (CT) scanning, bone densitometry, mammography and teleradiology services. The company helped design, install and operate scanning centres, and provided continued training and support for data interpretation. It maintained a variety of exclusive or partnership business arrangements with both fixed-site and mobile service turnkey operations. Quinte MRI’s equipment and components were from many leading manufacturers. Quinte MRI’s founder, Dr. Syed Haider, received his PhD in electron spin resonance and nuclear magnetic resonance from the University of Wales. After a short time as professor at the University of Guelph, he became a physics and chemistry teacher at Centennial Secondary School in Belleville, Ontario, in 1968. When he retired 30 years later, he started Quinte MRI. Haider firmly believed that the residents of small communities deserved the same level of health services as residents of large urban centres. However, MRI systems in small communities were rare. Haider’s first attempt to establish an MRI facility (in Belleville) was unsuccessful because Canadian regulations prohibited private-sector MRI. Thus, he turned to the Caribbean and the United States.

1All currency in this case is expressed in United States dollars. In June 2002, the Canadian dollar traded at about US$0.63. A ut

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Quinte MRI had established facilities in five locations: the company headquarters in Belleville; a partnership arrangement with a radiologist in Laval, Quebec; and private MRI clinics in St. Louis, Missouri, the Cayman Islands, and Palmer, New York. With the exception of the Palmer facility, Quinte MRI held an interest of less than 20 per cent in each clinic. In June 2002, the company employed a total of about 20 people. Quinte MRI served three distinct client groups: 1. Hospitals seeking to outsource their diagnostic imaging services were particularly interested in service

reliability, access to the diagnostic equipment 24 hours per day, seven days per week and reasonable cost.

2. Physicians wanting to be partners in an independent diagnostic imaging centre saw cash flow, accessibility to the equipment and the strength of the relationship with their diagnostic imaging partner as major criteria.

3. Individuals wanting to operate their own diagnostic imaging centre, using Quinte MRI as a consultant in developing and carrying out the necessary steps to establish the clinic, wanted freedom from the hassles involved with establishing the business and were willing to pay a 10 per cent project development fee.

SCANNING TECHNOLOGY2 Various scanning technologies produced high quality images of the human body. The most obvious imaging technique was to use a camera to capture a visual image on photographic film. Although this technology was simple, it could be invasive, as surgery or probes were required for images of internal tissues, and it was normally limited to the wavelength range of visible light. Modern scanning began in 1895 with the discovery that tissues absorbed X-rays. Although X-ray technology was relatively easy to use and gave high-resolution scans, the rays were penetrating and potentially dangerous,3 and gave unclear images of some body features. They were particularly suited for examining tissue abnormalities, such as fractures, malignant tumors and respiratory diseases. The 1970s saw the first of an explosion in imaging techniques, all of which relied on computers to help gather and analyse scanning data in electronic form. Computerized tomography (CT) relied on a series of X-rays from various angles that were combined to provide a three-dimensional picture from which two- dimensional images from any angle and at any depth could be derived. In positron emission tomography (PET), the patient ingested a positron-emitting radioactive substance that could be monitored as it proceeded through the body. In the closely related technique known as single-photon emission computed tomography (SPECT), the ingested active component emitted high-energy photons. In ultrasound (US), sound waves were bounced off tissues or objects inside the body; the reflected sound waves were converted into an image. MRI relied on the fact that diamagnetic nuclei (those with magnetic moments) interacted with strong magnetic fields to create their own small magnetic fields. The induced fields were studied using variable

2Much of the material in this section was adapted from the Web site:

www.whitaker.org/94_annual_report/over.html, September 20, 2002. 3Although X-rays were potentially dangerous, the low intensity of the radiation and the short duration of typical scans had effectively eliminated the danger to patients. However, medical personnel faced a much higher risk, as they received repeated exposure to this radiation. A ut

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frequency electromagnetic signals. At a certain frequency, the induced field resonated with the electromagnetic signal; this resonance was measured. Water comprised some 70 per cent of the human body, making hydrogen, which was diamagnetic and thus gave an MRI signal, the most common atom in living tissue. Although MRI did not involve the radiation danger of many other scanning techniques, it could heat up the tissues if the radio frequency was too intense. Also, because ferromagnetic materials — those containing iron, nickel or cobalt — interacted strongly with magnetic fields, people with screws, plates or other ferromagnetic materials such as pacemakers or metal fragments in their bodies could not be scanned with MRI. Doing so gave poor resolution scans and could be dangerous to the patient. The many types of scans were valuable and complementary because they relied on different physical phenomena and gave different information. Although X-ray scans differentiated among tissues based on their density, MRI differentiated based on the tissues’ water content. Whereas X-rays and MRI gave information about internal structures, PET, SPECT and US could be used to observe biochemical processes, such as metabolism and fluid flow, as they occurred. Active research continued in scanning technology and techniques. Although conventional MR machines were multi-purpose and expensive, many newer ones were smaller, cheaper, tailored for a particular part of the body and more patient-friendly, with reduced noise and open on one side to reduce the patient’s feelings of claustrophobia. Other research streams aimed to (1) improve the MRI image and scanning depth capabilities by modulating the frequency of the electromagnetic signal; (2) broaden the scanning technique to other diamagnetic atoms, such as carbon, sodium and phosphorus; (3) develop ways to monitor body processes with MRI, (4) combine two or more scanning techniques; and (5) expand the ways in which these technologies could be applied. Image quality depended critically on the strength of the magnet and the time required to produce the image. In 2002, the newest generations of magnets approved for clinical use were 3.0 Tesla, whereas the previous standard had been 1.5 Tesla and 0.7 Tesla for the closed and open MRI unit, respectively.4 Exhibit 1 shows a photograph of a 1.5 Tesla short-bore MRI system. A typical exam took from 30 to 45 minutes, although some exams could be completed in 10 minutes. MRI had become increasingly popular within the medical profession. In 1998, an estimated 11.9 million MRI procedures had been performed in the United States; by 2001, this number had risen to 18 million procedures. In addition to growth in the number of scans, the number of hospital and non-hospital scanning sites had risen from 4,490 in 1998 to 5,550 in 2001.5 MRI equipment represented a significant investment. In 2002, the approximate cost of an MR machine was $1.5 million to $3.5 million. In addition, the facility required space6 and the equipment required shielding from magnetic fields. Installation, including shielding, cost $250,000 to $500,000 depending on the extent of renovations required. The typical reimbursement from United States insurance companies was $700 per scan. Exhibit 2 shows operating costs, which Quinte MRI’s managers believed were conservative, for a typical MRI facility.

4By way of comparison, a 1.0 Tesla magnet had a magnetic field about 20,000 times stronger than the Earth’s natural magnetic field. 5Van Houten, Ben, IMV Census Shows MRI Growth, Decisions in Imaging Economics, 15 (8), August 2002, page 8. 6For example, a model facility proposed by General Electric occupied 167 square metres gross and 154 square metres net. A ut

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BENTON-COOPER MEDICAL CENTER Benton-Cooper Medical Center was a private, not-for-profit, 144-bed community hospital and regional cancer centre that provided primary care to the nearly 16,000 residents of Palmer and regional services to the 118,000 people in Adelaide County, which was in a largely rural area. BCMC had an active medical staff of more than 40 physicians, representing over 20 specialties. Although Creston, another Adelaide County community of 19,000, about 40 kilometres from Palmer, had two 200-bed hospital facilities with MR machines, BCMC’s administrators believed that there was an opportunity to compete successfully with a third MR machine. The primary reason for this view was that there appeared to be enough demand — in the United States the annual scan rate was approximately 68 per 1,000 people and the cancer rate in Adelaide County was somewhat higher than the national average. Second, the administrators anticipated that overall demand for MRI scans in Adelaide County would continue to grow at approximately 15 per cent per year. However, they recognized that the number of scans depended critically on the number of doctors practising various specialties. Because the MRI centre would get referrals from the hospital doctors and promotional support for advertisements with the local print and radio stations, the administrators believed that they would be able to generate sufficient volumes for their own fixed MR systems. In conjunction with the hospital administrators, Quinte MRI staff developed the monthly demand forecasts shown in Exhibit 3, which reflect seasonality owing to doctor vacation schedules and statutory holidays. And finally, the administrators were concerned that if they did not have an MR machine, BCMC would become a second-rate hospital. During the winter of 2001-02, BCMC decided to replace its MRI service provider because the medical centre wanted to increase the number of days of operation beyond the current two days per week. As they searched for a replacement, the administrators became aware of Quinte MRI’s impressive capabilities, such as availability for 24 hours per day and seven days per week, and Haider’s integrity and personal attentiveness. In February 2002, BCMC’s chief executive and board approved the outsourcing of MRI services to Quinte MRI. The agreement specified that Quinte MRI would own 100 per cent of the MRI centre, including imaging equipment, and would be responsible for most of its operation and management, including the hiring and salary of MR technologists to conduct the actual procedures. Quinte MRI would bill the hospital on a fee per scan basis. In the negotiation process, the anticipated average revenue was adjusted based on the expenses that would be covered by BCMC. The hospital would pay the salary and expenses of the radiologist, who would analyse the MRI scan and report the results. The hospital would also schedule the MRI clinic. It would charge Quinte MRI $140 and $5 per scan, respectively, for these two activities. The imaging suite was housed in a trailer connected to a hospital corridor. The other required functions were housed inside the hospital, some distance from the scanning suite. Exhibit 4 shows a layout of the radiology department. The MRI clinic began operations on May 1, 2002. At the hospital’s request, Quinte MRI leased one 1.5-Tesla General Electric (GE) short-bore high-speed MRI system, as shown in Exhibit 1. Although the rated capacity of the machine was two patients per hour, the actual number of scans in any period of time would depend on the types of exams being performed. For example, as shown in Exhibit 5, an abdominal MRI scan without contrast was projected to take 30 minutes, whereas an abdominal scan with contrast was projected to take 45 minutes. Contrast, which provided a more detailed image, was usually required in about 25 per cent of scans.

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THE SCANNING PROCESS To receive an MRI scan at BCMC, patients first had to receive a referral from their doctor. The scanning process commenced when the patient or doctor’s assistant contacted the MRI scheduling department to arrange an appointment. Although the expected lead time for referred patients was 48 hours, some patients, called “walk-ins,” required a scan that day. When the scheduling department received a call, the receptionist wrote the patient’s name and type of procedure on a form with eight time slots, each for a one-hour increment. Exhibit 6 gives the schedule for June 12. Upon arrival at the MRI clinic for their appointment, patients checked in with the receptionist at the front desk and waited for the MR technologist to escort them to the MR machine in the magnet room. Some patients had difficulty walking or were confined to stretchers or wheel chairs. As the patients were escorted, the MR technologist asked questions to determine whether there were any health reasons that would prevent the patients from having an MRI. Patients who indicated possible health risks were further tested. The technologist took approximately five minutes to pick up the patient and determine if there were health conflicts. Patients not fit for the MR test were sent home. In such cases, the machine sat idle. During the first month of operation, an average of 1.2 patients per day were rejected for these reasons. In addition to checking possible health risks, the MR technologist ensured that patients were not wearing clothes with metal components. If the clothes had metal, the patient was required to change into a hospital gown at the change room, which took an additional four minutes, on average. Approximately 25 per cent of patients were in this category. Once in the magnet room, the MR technologist took one minute to provide a brief orientation and verify the paperwork. Patients would lie on a movable bench protruding from the bore, or tunnel, of the MR machine. A surface coil was positioned around the part of the patients’ anatomy of interest, such as the head, and the patients were then moved into the bore where the scanning began. It took approximately four minutes to position the coil and move the patient into the bore. The MR tunnel was relatively small, dark and noisy, which caused a feeling of claustrophobia in some patients. In addition, during scans it was important for patients to remain as motionless as possible. The MR technologist was responsible for conducting a set number of procedures to obtain the images requested by the referring physician. These procedures took a specific amount of time that was easily measured and consistent. For a 30-minute scheduled MRI scan, the actual time in the MR tunnel was 16.5 minutes. While the scans were in progress, the MR technologist sat in the tech room and entered the patients’ information into the hospital information system so that the patients could be tracked. Data entry took one minute, on average. Upon finishing the MRI scan, the MR technologist printed the MRI films and removed the patient from the machine. The technologist then took two minutes to escort the patient back to the front desk, stopping at the change room, if needed, for approximately four minutes. At the receptionist’s desk, the MR technologist checked off the patient’s name on the log to confirm that the task had been completed. Then, the technologist greeted the next patient. Throughout the day, the receptionist printed the confirmations and reports for billing purposes. Because each patient required between four and 16 sheets of film per MRI scan, averaging eight sheets, and it usually took 45 seconds to print each sheet, the MR technologist waited until after the fifth or sixth patient before collecting, sorting, labelling and then transferring the film to the radiologist’s office on his or her way to pick up another patient. The radiologist took approximately five minutes to read the patient’s film and dictate a diagnosis into a recorder. The dictation was transferred electronically to the transcription

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department, where it was typed. The transcription department was located in a building adjacent to the hospital. One to three hours after they received the transcription, the transcription department returned the typed diagnosis to the radiologist for final approval. About every two hours, the radiologist verified and signed a group of transcriptions as a break from reading images. Once approved, the signed transcriptions and MRI films were transferred to the scheduling department, where a copy of the signed diagnosis was printed. The original transcript report and the MRI films were attached to the patient’s files, and together they were sent to the basement for filing and storage. The copy of the transcription report was sent to the referring physician. IMPLEMENTATION ISSUES Now that the BCMC MRI clinic had been in operation for six weeks, Haider was becoming increasingly concerned about its performance. The MRI clinic was not meeting promises made by Haider and GE to scan patients at a rate of two per hour. The hospital’s administrators continued to complain about the MR machine’s low productivity, the strain resulting from the MR technologist’s heavy overtime schedule, and the loss of patient referrals from doctors within the hospital and in the surrounding community. Doctors expected to receive the transcription report within two days of their request. BCMC, Quinte MRI’s customer, was dissatisfied because the backlog had exceeded 14 days by early June and doctors had begun to refer patients to competing clinics to obtain more timely MRI scan results. On June 11, 2002, Haider asked Wright and Saskiw to address the problems. Wright and Saskiw were halfway through the two-year honors business program at the Richard Ivey School of Business, at The University of Western Ontario, London, Ontario. Both of them were seeking challenges in entrepreneurial environments and wanted to avoid positions in large corporate environments, which limited business exposure and responsibility. They viewed the opportunity of summer jobs at Quinte MRI not only as being consistent with this career goal, but also as an opportunity to assist Wright’s long-time family friend, Haider, by applying some of the tools they had learned. Although none of Quinte MRI’s employees had a job description, Wright and Saskiw understood that, as business development co-ordinators, their job was to establish new relationships with doctors and investors, review existing operations and make and implement recommendations to improve operations. MR TECHNOLOGIST Before operating an MRI machine, most MR technologists had earned a two-year degree in radiological technology. If the technologist planned to work solely with MRI, the minimum education requirement was a one-year MR technician diploma. In upstate New York, MR technologists earned approximately $32 per hour; MR technicians earned about $25 per hour.7 Employee benefits typically added an additional 20 per cent to salary figures. After earning a degree and finding employment, new MRI technologists were typically trained by their employer on its MR systems for about three weeks. Jeff Sinclair, BCMC’s sole MR technologist, was scheduled to work 40 hours per week, Monday through Friday, 7:30 a.m. to 4:30 p.m. The first half hour of each day was occupied with setup and debugging of the equipment, called “phantom scanning.” During May, Sinclair had worked an additional 40 hours at a rate of 1.5 times his regular hourly wage. Although the MR machine was scheduled for one scan per hour, 7As a comparison, in 2002, the United States Department of Labor established the minimum wage rate at $5.15 per hour. In upstate New York, an assistant for an MR technologist would earn about $10 per hour. A ut

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