Nov. 18, 2004

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On the cover: Humboldt Radiology's Dr. Abe Pera, top right and Michael Purvis, St. Joseph-Humboldt county CEO, bottom right. Photos by Bob Doran. Altaire promotional photo of MRI unit in background, courtesy Hitachi. Image of abdomen courtesy of TeraRecon, Inc.

by HANK SIMS

LATE LAST WEEK, DR. ABE PERA took a tour through the still-unfinished 11,000-square-foot building he and his colleagues in the Humboldt Radiology group are constructing on Buhne Avenue, just down the hill from their soon-to-be-former partners at St. Joseph Hospital.

Pera, a soft-spoken, serious man, is one of the county's premier radiologists, the doctors who interpret X-rays and other types of medical tests in which pictures are taken of a patient's insides. As he walked through his group's new facility -- the county's first "imaging center" dedicated solely to the practice of his profession -- his enthusiasm superceded the failed negotiations over this building that led St. Joseph to break off its ties with Humboldt Radiology, ties which had stood for some five decades.

"We're bringing in equipment that is completely new, that's not available in our community, and we're very excited about it," he said.

Gee-whiz medicine

Humboldt Radiology's new facility, which is slated to open in January, will contain several state-of-the-art machines never before seen in the county. In particular, Pera is excited about their new magnetic resonance imaging (MRI) machine, which features the most powerful magnet on the market. Unlike the last generation of MRI machines, it is open to the air; patients are not required to lie in a claustrophobic tube while the machine takes its pictures. The group is also buying an advanced CT (or "cat scan") device. The two devices will be able to perform tests previously unavailable in the county.

[photo at right: Dr. Abe Pera shows off his group's new Open MRI machine, a high-powered Hitachi Altaire., pictured in Hitachi Medical Systems promotional photo below.]

But diagnostic equipment is only a small part of the advanced technology the group will be using in the new facility. Every piece of machinery, down to the lowly X-ray machine, will be digital. Computerized pictures will stream from the machines over to the central server, where the radiologists will read the images with the assistance of software designed to catch areas of concern -- for instance, spots in a mammogram that could indicate the beginnings of a tumor. Additional software will be able to make three-dimensional, full-color models from the images, detailing bones, blood vessels and organs in minute, beautiful detail. At any time -- minutes or years later -- doctors will be able to log onto the server to retrieve their patients' exams, along with the radiologists' comments and diagnoses. Photographic film, which is still used in every other facility in the county, will be a thing of the past.

Taken together, the new machinery and the software that helps interpret images will allow Humboldt Radiology to perform many types of medical tests in safer, less invasive ways. An angiogram -- a type of test used to detect hardening of the arteries -- usually requires a doctor or technician to insert a catheter directly into an artery in the patient's leg. There is always a chance that the doctor might rip the artery. With the new equipment, though, Humboldt Radiology will be able to do the test without the catheter, making the procedure next to foolproof. Also, the group will now be able to use safe ultrasound equipment in some procedures that formerly required X-ray radiation. And the test results will be more precise than those taken by the outmoded, invasive techniques.

The center, which will change the way medicine is practiced on the North Coast, cost Humboldt Radiology around $7 million to build. But that's not the only price they've had to pay.

As of Dec. 1, the group will lose its longstanding job providing services to St. Joseph. The hospital, which had spent two years negotiating unsuccessfully with the group to find an way to share ownership of the new facility, declined to give the radiologists a new contract. Instead of being partners, the two will become competitors -- a move that has rent the local medical community. Some doctors argue that it's time to assert their rights to a hospital that they say is standing in the way of progress.

The new Humboldt Radiology imaging center under construction.

Germ of an idea

In the last few years, according to Pera and Dr. Greg Holland, another Humboldt Radiology partner, two different investment groups affiliated with other imaging centers had come to them with offers to hire them to staff a new facility in Eureka. Humboldt Radiology turned them down on both occasions. There was always a chance, of course, that the outside groups could recruit doctors to staff a new center, but the chances were slim -- nationwide, qualified radiologists are in short supply.

Though they didn't accept the offers, the idea stuck in the heads of the radiologists. They felt that a center would eventually be built in the North Coast whether they were a part of it or not, and they decided to preempt the competition by building it themselves. They didn't take the plunge lightly, as imaging centers are expensive to build from the ground up. But they relished the idea of being able to run their own center -- to be able to choose their own equipment and to provide top-end service at a reasonable cost. They felt that St. Joseph had fallen short on both counts of late.

Nevertheless, the group and St. Joseph entered into negotiations early on on how they might partner on a new center. St. Joseph had access to capital that the radiologists did not. Talks with the hospital continued while the group went ahead with its plans.

Michael Purvis, CEO of St. Joseph-Humboldt County [photo at left] , said last week that for his part, the hospital was interested in bringing a new imaging center to the North Coast, as it would fill a critical need in the community.

"I think the community needs a good outpatient facility for providing imaging care," he said. "I think that's absolutely a positive. The hospital's commitment was to find a way to do that in a collaborative way with Humboldt Radiology."

In most of the country, when you need an X-ray, a CT scan or an ultrasound, you don't go to the hospital. You go to an outpatient radiology facility, also known as an imaging center.

Cheryl Proval is the editor of Imaging Economics, a trade journal serving the radiology industry. She said that there has been a boom in imaging centers over the past 10 years -- from 2,188 nationwide in 1993 to 5,450 today. Entrepreneurs have found imaging to be one of the few profitable sectors in medicine today, and have rushed into the business, sometimes in partnership with doctors' groups or hospitals.

"In a lot of markets, there are MRIs on every corner," Proval said. "It's extremely competitive." She expressed surprise that Humboldt County did not have a full-service imaging center already. The only thing that comes close is the few, relatively low-tech machines that Humboldt Radiology has in its current office.

There are many reasons why a separate imaging facility for outpatients -- people not admitted to the hospital -- makes sense. A person who need an X-ray can schedule an appointment a few days in advance and be sure that she won't be forced to wait while critically ill patients bump her to the back of the line. She won't have to share a waiting room with people who may be sick or infectious. And centers can generally provide services cheaper than hospitals can, as will be the case with Humboldt Radiology.

Irreconcilable differences

Over time, it became clear that hospital and the radiologists each wanted different things. The radiologists wanted to maintain majority ownership in the imaging center, for three reasons -- control over staffing, control over equipment purchases and control of pricing. They insisted on these things because they wanted to address some of what they felt were management problems that had arisen at the hospital over the years.

In particular, the radiologists were disappointed at St. Joseph's record in buying upgraded equipment. They disliked having to work with old machines -- one of their main motivations for building a center would be to get state-of-the-art equipment to serve their patients, and they didn't trust St. Joseph to put out the continual capital investment required to keep up to date.

Secondly, they believed that St. Joseph charges far more for radiological services than they actually cost. Outpatient facilities are much cheaper to run, and so they can charge less. But if the hospital were to set prices at the facility, they might also keep them high so as not to compete with their own, in-hospital services.

On the other hand, St. Joseph thought that it needed to maintain ownership of the center in order to protect its revenues. Radiology is one of the most profitable segments in the hospital, and it felt it needed to protect the business in order to subsidize other, less profitable or unprofitable services.

In its last offer, made this summer, Humboldt Radiology proposed giving St. Joseph a 49 percent stake with 80 percent of the profits. The hospital said no. The radiologists' lawyer, whom they had paid $30,000 to represent the group during negotiations, advised the radiologists to abandon the idea of a joint venture with the hospital, saying that "the parties are miles apart in their vision for the imaging center," according to a letter she wrote to the group. In August, the radiologists told St. Joseph that a partnership did not appear feasible, and that the group would go it alone.

The radiologists offered to continue to work at St. Joseph, but from the hospital's perspective they had become competitors. The hospital instead decided to pursue a completely different course, hiring a new group from out of town and employing "teleradiology," in which pictures are sent overseas to be read by radiologists licensed to practice in California but living in other countries. (Humboldt Radiology's staff has pledged to step in and provide services to the hospital if it is not able to get its new system up and running in time.)

"We were stretching, trying to find that win-win," Purvis said. "I'm disappointed we didn't find it, I really am. Unfortunately, there were no other alternatives to consider. So we agreed to move down the path of competition." He said that the hospital would be getting new equipment that would be "extremely competitive" with the imaging center's.

Bad blood

For many local physicians, St. Joseph's decision to back away from partnering with the radiologists on the new center -- and, perhaps more importantly, to refuse to keep them at the hospital -- was a shocking and troubling turn of events. First, St. Joseph was replacing tried-and-true professionals with radiologists unknown to the local medical community -- including temporary workers, at least at first. Earlier this year, a survey of doctors who work at the hospital gave the radiology department the highest satisfaction ratings out of all the services St. Joseph offers. To some doctors, firing Humboldt Radiology felt like a betrayal of their patients' right to the highest quality medical care available.

In September, Dr. Nathan Shishido, an orthopedist, wrote a letter to Purvis expressing his great dismay over the hospital's loss of Humboldt Radiology's services. The letter, copies of which were sent to many local physicians, excoriated St. Joe's management team for choosing "the bottom line" over the professed values -- dignity, excellence, service and justice -- that hang on its walls.

"Your momentous decision will mean imaging mediocrity at the hospital in the best of circumstances," he wrote. "At worst, your decision does it great harm To the extent that I represent the hospital as a member of the hospital staff there is no doubt in my mind that you have chosen a very rocky and risky course, the results of which will be very difficult to undo."

Shishedo's reaction was mild compared with that of Dr. David Ploss, a cardiologist [photo at right] . Frustration with what he characterized as St. Joseph's monopolistic tendencies prompted Ploss to write a call to arms in this month's issue of the Humboldt-Del Norte Medical Society's newsletter. For him, St. Joseph's heavy-handed dealings with Humboldt Radiology was the last straw -- the most recent and egregious example of a hospital that seems to him bent on dominating the local medical community to its own economic advantage.

"What can you do to reverse this course?" Ploss wrote to his fellow doctors. "You can make it hurt when the hospital doesn't treat you as a customer. You can direct business away. You can damage their image and you can interrupt their funding from outside sources. Your patients are more likely to believe you than the hospital."

Ploss said last week that in other areas of the country, hospitals treat physicians as customers. They strive to provide the best service possible for doctors and their patients. Hospitals know that physicians have the option of moving their patients elsewhere. That used to be the case in Humboldt County, he said, before St. Joseph bought out Eureka's General Hospital in late 2000 for around $30 million -- a vastly inflated sum, he and many others believe, spent simply to put the competition out of business.

Nowadays, Ploss said, St. Joseph has grown accustomed to being the only game in town, and it expects its staff to toe the line. Morale among the medical staff -- the nurses the hospital employs and the physicians who use its facilities -- is at an all-time low, to the degree that nurses, some of whom have worked at the hospital for decades, voted to unionize last year. The break with Humboldt Radiology is emblematic of the hospital's treatment of medical professionals as "cogs in a machine," Ploss said. He thought it was time to fight back.

"Nobody is obligated to unilaterally disarm," he said. "For the physicians to unilaterally disarm and for the hospital not to do so is crazy. The hospital will always do what is in its best interest -- which is generally not in the best interests of the patients."

Purvis disagreed. He said that given the size of the market on the North Coast, there was really only room for one full-service hospital, and that having all different types of medicine available was what patients needed in a remote area such as Humboldt County.

"If we want a hospital that has a wide scope of service, that includes cardiac care, advanced cancer care, neurology, orthopedic care, urology -- a remarkable level of quality and scope for a community this size -- it takes some patient volume to make those services happen," he said.

Actual high-resolution images of the type that Humboldt Radiology will soon be able to produce.
From left to right: an abdominal aneurysm, a fractured tibia, a segment of spine, and pulmonary vessels.
Images courtesy TeraRecon, Inc.

Going it alone

Purvis said he had a great deal of respect for Humboldt Radiology and was "very sad" that they couldn't reach an agreement. He estimates that the imaging center will cost St. Joseph around $20 million in revenue over the next 10 years. He said that there would have been a nearly equivalent loss even if the hospital had partnered with the radiologists on their terms. Such a blow to the hospital wasn't necessary, Purvis said; he disagreed with the idea that an outpatient facility was coming to the North Coast whether or not the radiologists or the hospital wanted it.

"I don't agree with the premise that it was inevitable that we'd have an outside interest come into this community and set up an imaging center," he said. "Certainly there was some potential of that, but it was extreme. There would be some outside interest in doing that, but I don't think it would happen unless the local physicians were willing to support it."

Meanwhile, the five doctors who make up Humboldt Radiology have made enormous sacrifices in order to bring their dream of using modern, up-to-date equipment to serve Humboldt County to fruition. They have mortgaged their homes, Pera said, and taken out loans against their retirement savings, in addition to receiving bank loans in order to finance their new center. But just a few weeks before the center is set to open, while St. Joseph scrambles to organize its response, Pera and his colleagues were eager to get down to work.

"We're going to do fine, the hospital's going to do fine," he said. "What we're really excited about is bringing in this new equipment. We think we're going to be a real service to the community. Our commitment is here, and we're going to have the top-end equipment."

Most people preparing to enter into competition with more powerful business rivals wouldn't be so sanguine, but Humboldt Radiology has many assets to capitalize on: its superior technology, the reputations of its radiologists and lingering resentment toward St. Joseph in the physician community.

To say nothing of price. Pera recounted an experience that a friend of his had a few months ago. The friend's son had injured himself playing sports. A doctor recommended that the son get a CT scan. A few weeks later, he received a bill from St. Joseph for $3,600 -- money that his insurance company would not pay. Stunned at the price, the man was able to haggle St. Joseph administration down a few hundred dollars, but left the exchange resenting the hospital.

Pera said he and his colleagues hadn't run the precise numbers yet, but they were reasonably confident that even with state-of-the-art equipment, they would be able to charge just about exactly what St. Joseph charged for a CT scan four years ago, before the General Hospital buy-out: $1,200.

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