Nuclear Magnetic Resonance Imaging

Technology: A Clinical, Industrial, and

Policy Analysis

September 1984

NTIS order #PB85-146207
—

HEALTH TECHNOLOGY CASE STUDY 27:

Nuclear Magnetic Resonance

Imaging Technology

A Clinical, Industrial, and

Policy Analysis

SEPTEMBER 1984

This case study was performed as a part of OTA’s Assessment of

Federal Policies and the Medical Devices Industry

Prepared for OTA by:

Earl P. Steinberg, M. D., M.P.P.

Assistant Professor, Johns Hopkins School of Medicine and John Hopkins School of Hygiene and Public Health;

Senior Associate, Office of Medical Practice Evaluation;

also w/Henry J. Kaiser Family Foundation Faculty Scholar in General Internal Medicine

and

Alan B. Cohen, Sc.D.

Associate Director, Center for Hospital Finance and Management;

also w/Assistant Professor of Health Policy and Management,

Johns Hopkins School of Hygiene and Public Health

f I

OTA Case Studies are documents containing information on a specific medical

technology or area of application that supplements formal OTA assessments. The

material is not normally of as immediate policy interest as that in an OTA Report,

nor does it present options for Congress to consider.

CONGRESS OF THE UNITED STATES

Office of Technology Assessment

Washington, D C 20510
Recommended Citation:

Health Technology Case Study 27: Nuclear Magnetic Resonance Imaging Technology: A

Clinical, Industrial, and Policy Analysis (Washington, DC: U.S. Congress, Office of Technology Assessment, OTA-HCS-27, September 1984). This case study was performed as

part of OTA’s assessment of Federal Policies and the Medical Devices Industry.

Library of Congress Catalog Card Number 84-601123

For sale by the Superintendent of Documents,

U.S. Government Printing Office, Washington, D.C. 20402
Preface

Nuclear Magnetic Resonance Imaging Technology: A Clinical, Industrial, and Policy Analysis is Case Study 27 in OTA’s Health Technology

Case Study Series. This case study has been prepared

in connection with OTA’s project on Federal

Policies and the Medical Devices Industry, re -

quested by the Senate Committee on Labor and

Human Resources and endorsed by the Senate

Committee on Veterans’ Affairs. A listing of other

case studies in the series is included at the end of

this preface.

OTA case studies are designed to fulfill two

functions. The primary purpose is to provide

OTA with specific information that can be used

in forming general conclusions regarding broader

policy issues. The first 19 cases in the Health Technology Case Study Series, for example, were conducted in conjunction with OTA’s overall project

on The Implications of Cost-Effectiveness Analysis of Medical Technology. By examining the 19

cases as a group and looking for common problems or strengths in the techniques of cost-effectiveness or cost-benefit analysis, OTA was able

to better analyze the potential contribution that

those techniques might make to the management

of medical technology and health care costs and

quality.

The second function of the case studies is to

provide useful information on the specific technologies covered. The design and the funding levels of most of the case studies are such that they

should be read primarily in the context of the associated overall OTA projects. Nevertheless, in

many instances, the case studies do represent extensive reviews of the literature on the efficacy,

safety, and costs of the specific technologies and

as such can stand on their own as a useful contribution to the field.

Case studies are prepared in some instances because they have been specifically requested by

congressional committees and in others because

they have been selected through an extensive review process involving OTA staff and consultations with the congressional staffs, advisory panel

to the associated overall project, the Health Program Advisory Committee, and other experts in

various fields. Selection criteria were developed

to ensure that case studies provide the following:

Ž examples of types of technologies by function (preventive, diagnostic, therapeutic, and

rehabilitative);

examples of types of technologies by physical

nature (drugs, devices, and procedures);

examples of technologies in different stages

of development and diffusion (new, emerging, and established);

examples from different areas of medicine

(e.g., general medical practice, pediatrics,

radiology, and surgery);

examples addressing medical problems that

are important because of their high frequency or significant impacts (e. g., cost);

examples of technologies with associated high

costs either because of high volume (for lowcost technologies) or high individual costs;

examples that could provide information material relating to the broader policy and methodological issues being examined in the

particular overall project; and

examples with sufficient scientific literature.

Case studies are either prepared by OTA staff,

commissioned by OTA and performed under contract by experts (generally in academia), or written by OTA staff on the basis of contractors’

papers.

OTA subjects each case study to an extensive

review process. Initial drafts of cases are reviewed

by OTA staff and by members of the advisory

panel to the associated project. For commissioned

cases, comments are provided to authors, along

with OTA’s suggestions for revisions. Subsequent

drafts are sent by OTA to numerous experts for

review and comment. Each case is seen by at least

30 reviewers, and sometimes by 80 or more outside reviewers. These individuals may be from

relevant Government agencies, professional societies, consumer and public interest groups, medical practice, and academic medicine. Academicians such as economists, sociologists, decision

analysts, biologists, and so forth, as appropriate,

also review the cases.

Although cases are not statements of official

OTA position, the review process is designed to

satisfy OTA’s concern with each case study’s

scientific quality and objectivity. During the various stages of the review and revision process,

therefore, OTA encourages, and to the extent

possible requires, authors to present balanced information and recognize divergent points of view.

,.. 111
Health Technology Case Study Seriesa

— . . . ——. . —. . . .-. —.. ————...— — —— —— .

Case Study Case Study

Series Case study title; author(s); Series Case study title; author(s);

number OTA publication numberb

number OTA publication numberb

1

2

3

4

5

6

7

8

9

10

11

12

13

Formal Analysis, Policy Formulation, and End-Stage

Renal Disease;

Richard A. Rettig (OTA-BP-H-9(1))C

The Feasibility of Economic Evaluation of

Diagnostic Procedures: The Case of CT Scanning;

Judith L. Wagner (OTA-BP-H-9(2))

Screening for Colon Cancer: A Technology

Assessment;

David M. Eddy (OTA-BP-H-9(3))

Cost Effectiveness of Automated Multichannel

Chemistry Analyzers;

Milton C. Weinstein and Laurie A. Pearlman

(OTA-BP-H-9(4))

Periodontal Disease: Assessing the Effectiveness and

Costs of the Keyes Technique;

Richard M. Scheffler and Sheldon Rovin

(OTA-BP-H-9(5))

The Cost Effectiveness of Bone Marrow Transplant

Therapy and Its Policy Implications;

Stuart O. Schweitzer and C. C. Scalzi

(OTA-BP-H-9(6))

Allocating Costs and Benefits in Disease Prevention

Programs: An Application to Cervical Cancer

Screening;

Bryan R. Luce (Office of Technology Assessment)

(OTA-BP-H-9(7))

The Cost Effectiveness of Upper Gastrointestinal

Endoscopy;

Jonathan A. Showstack and Steven A. Schroeder

(OTA-BP-H-9(8))

The Artificial Heart: Cost, Risks, and Benefits;

Deborah P. Lubeck and John P. Bunker

(OTA-BP-H-9(9))

The Costs and Effectiveness of Neonatal Intensive

Care;

Peter Budetti, Peggy McManus, Nancy Barrand,

and Lu Ann Heinen (OTA-BP-H-9(1O))

Benefit and Cost Analysis of Medical Interventions:

The Case of Cimetidine and Peptic Ulcer Disease;

Harvey V. Fineberg and Laurie A. Pearlman

(OTA-BP-H-9(11))

Assessing Selected Respiratory Therapy Modalities:

Trends and Relative Costs in the Washington, D.C.

Area;

Richard M. Scheffler and Morgan Delaney

(OTA-BP-H-9(12))

Cardiac Radionuclide Imaging and Cost

Effectiveness;

William B. Stason and Eric Fortess

(OTA-BP-H-9(13))

14

15

16

17

18

19

20

21

22

23

24

25

26

27

Cost Benefit/Cost Effectiveness of Medical

Technologies: A Case Study of Orthopedic Joint

Implants;

Judith D. Bentkover and Philip G. Drew

(OTA-BP-H-9(14))

Elective Hysterectomy: Costs, Risks, and Benefits;

Carol Korenbrot, Ann B. Flood, Michael Higgins,

Noralou Roos, and John P. Bunker

(OTA-BP-H-9(15))

The Costs and Effectiveness of Nurse Practitioners;

Lauren LeRoy and Sharon Solkowitz

(OTA-BP-H-9(16))

Surgery for Breast Cancer;

Karen Schachter Weingrod and Duncan Neuhauser

(OTA-BP-H-9(17))

The Efficacy and Cost Effectiveness of

Psychotherapy;

Leonard Saxe (Office of Technology Assessment)

(OTA-BP-H-9(18)) d

Assessment of Four Common X-Ray Procedures;

Judith L. Wagner (OTA-BP-H-9(19))e

Mandatory Passive Restraint Systems in

Automobiles: Issues and Evidence;

Kenneth E. Warner (OTA-BP-H-15(20))f

Selected Telecommunications Devices for HearingImpaired Persons;

Virginia W. Stern and Martha Ross Redden

(OTA-BP-H-16(21)) g

The Effectiveness and Costs of Alcoholism

Treatment;

Leonard Saxe, Denise Dougherty, Katharine Esty,

and Michelle Fine (OTA-HCS-22)

The Safety, Efficacy, and Cost Effectiveness of

Therapeutic Apheresis;

John C. Langenbrunner (Office of Technology

Assessment) (OTA-HCS-23)

Variation in Length of Hospital Stay: Their

Relationship to Health Outcomes;

Mark R. Chassin (OTA-HCS-24)

Technology and Learning Disabilities;

Candis Cousins and Leonard Duhl (OTA-HCS-25)

Assistive Devices for Severe Speech Impairments;

Judith Randal (Office of Technology Assessment)

(OTA-HCS-26)

Nuclear Magnetic Resonance Imaging Technology:

A Clinical, Industrial, and Policy Analysis;

Earl P. Steinberg and Alan Cohen (OTA-HCS-27)

available for sale by the Superintendent of Documents, U.S. Government dBackground paper #3 to The Implications of Cost-Effectiveness Analysis of

Printing Office, Washington, D. C., 20402, and by the National Technical Medical Technology.

Information Service, 5285 Port Royal Road, Springfield, Va., 22161, Cal] eBackground paper #5 to The lmplicat;ons of Cost-Effectiveness Analysis of

OTA’S Publishing Office (224-8996) for availability and ordering infor- Medical Technology.

mation. fBackground paper #l 10 OTA’S May 1982 report Technology and ~=fiborigina] publication numbers appear in parentheses. capped People.

cThe first 17 cases in the series were 17 separately issued cases in Background gBackground Paper 42 to Technolog y and Handicapped People.

Paper #2: Case Studies of Medical Technologies, prepared in conjunction

with OTA’S August 1980 report The Implications of Cost-Effectiveness Analysis of Medical Technology.

iv
OTA Project Staff for Case Study #27

Jane E. Sisk, Project Director

Katherine E. Locke, Research Assistant

Christopher G. Bailey, Research Assistant’

H. Christy Bergemann, Editor

Virginia Cwalina, Administrative Assistant

Rebecca I. Erickson, Secretary/Word Processor Specialist

Brenda Miller, Word Processor/P. C. Specialist

Clyde J. Behney, Health Program Manager

Roger Herdman

2 and H. David Banta, 3 Assistant Director, OTA

Health and Life Sciences Division

ISummer 1984.

IFrom December 1983

‘Until August 1983.

u
ADVISORY PANEL FOR FEDERAL POLICIES AND

THE MEDICAL DEVICES INDUSTRY

Richard R. Nelson, Chair

Institute for Social and Policy Studies, Yale University

New Haven, CT

William F. Ballhaus

International Numatics, Inc.

Beverly Hills, CA

Ruth Farrisey

Massachusetts General Hospital

Boston, MA

Peter Barton Hutt

Covington & Burling

Washington, DC

Alan R. Kahn

Consultant

Cincinnati, OH

Grace Kraft

Kidney Foundation of the Upper Midwest

Cannon Falls, MN

Joyce Lashof

School of Public Health

University of California

Berkeley, CA

Penn Lupovich

Group Health Association

Washington, DC

Victor McCoy

Paralyzed Veterans of America

Washington, DC

Robert M. Moliter

Medical Systems Division

General Electric

Washington, DC

Louise B. Russell

The Brookings Institution

Washington, DC

Earl J. Saltzgiver

Foremost Contact Lens Service, Inc.

Salt Lake City, UT

Rosemary Stevens

Department of History and Sociology of Science

University of Pennsylvania

Philadelphia, PA

Allan R. Thieme

Amigo Sales, Inc.

Albuquerque, NM

Eric von Hippel

Sloan School

Massachusetts Institute of Technology

Cambridge, MA

Edwin C. Whitehead

Technicon Corp.

Tarrytown, NY
Contents

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CHAPTER 1: INTRODUCTION AND SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

NMR—Historical and Technical Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Clinical Applications of NOR. . . . . . . . .

The NMR Imaging Device Industry . . . .

Hospital Costs and Strategies . . . . . . . . .

History of Funding for NMR Research .

FDA Regulation . . . . . . . . . . . . . . . . . . . . .

Third-Party Payment Policies . . . . . . . . .

State Certificate-of-Need Programs . . . .

Regulatory Overview . . . . . . . . . . . . . . . .

CHAPTER 2: NMR–HISTORICAL AND

Historical Background . . . . . . . . . . . . . . . . .

Basic Technical Background . . . . . . . . . . . .

Magnets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Magnet Type . . . . . . . . . . . . . . . . . . . . . . .

Field Strength . . . . . . . . . . . . . . . . . . . . . . .

Bore Size . . . . . . . . . . . . . . . . . . . . . . . . . . .

Homogeneity of Field . . . . . . . . . . . . . . . .

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TECHNICAL BACKGROUND. . . . . . . . .

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CHAPTER 3: CLINICAL APPLICATIONS OF NOR . . . . . . . . . . . . . . . . . . . . . . . . . . .

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Potential Biological Hazards of NMR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Proton Imaging: A Clinical Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Brain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Mediastinum, Hilum, and Lung . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Heart . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Breast . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Abdomen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Kidneys . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Pelvis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Musculoskeletal System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Clinical Oncology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Blood Vessels and Flow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Putting Proton NMR Imaging Into Perspective . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Relaxation Parameters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Putting T1 and T2 Relaxation Times Into Perspective. . . . . . . . . . . . . . . . . . . . . . . . . . . .

In Vivo Spectroscopy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Putting In Vivo Spectroscopy Into Perspective . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

CHAPTER 4:THE NMR

Introduction . . . . . . . . . . .

Industry Structure . . . . . .

Seller Concentration . .

Buyer Concentration. .

Barriers to Entry . . . . .

Diversification of Firms

Acquisition and Merger

Industry Conduct . . . . . . . .

Product Pricing Policies

Nonprice Competition .

IMAGING

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,... . . . . .

,... . . . . .

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. . . . . . . . .

Activity .

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DEVICE INDUSTRY. . . . . . . . . . . . . . . . . . . . . . .

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vii
Contents—continued

Industry Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The Future of NMR Imaging in Relation to Other Diagnostic Imaging Modalities . .

CHAPTER 5: HOSPITAL COSTS AND STRATEGIES . . . . . . . . . . . . . . . . . . . . . . . . .

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Capital and Operating Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Patient-Care Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Hospital Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

University Teaching Hospitals and Major Medical Centers . . . . . . . . . . . . . . . . . . . . .

The Veterans Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Investor-Owned Hospitals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

CHAPTER 6: HISTORY OF FUNDING FOR NMR RESEARCH . . . . . . . . . . . . . . . . .

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

National Institutes of Health . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

National Science Foundation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

England and Scotland.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Research and Development Policy Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

CHAPTER 7: REGULATION BY THE FOOD AND DRUG ADMINISTRATION . .

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Sources of FDA Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Radiation Control for Health and Safety Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Food, Drug, and Cosmetic Act..... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Regulation of New Medical Devices Under the Food, Drug, and Cosmetic Act . . . . .

Premarket Notification of Intent To Market a New Device . . . . . . . . . . . . .

Getting a Class III Device to Market... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Conclusions: The PMA Process as a Whole . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

CHAPTER 8: THIRD-PARTY PAYMENT POLICIES . . . . . . . . . . . . . . . . . . . .

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Third-Party Payer Decisions . . . . . . . . . . . . . . . . . .

Coverage Policies. . . . . . . . . . . . . . . . . . . . . . . . . .

Reimbursement or Payment Level Policies . . . .

History and Status of Coverage Policy

Medicare . . . . . . . . . . . . . . . . . . . . . . . .

Medicaid . . . . . . . . . . . . . . . . . . . . . . . .

Blue Cross and Blue Shield Plans...

Commercial Insurance Companies . .

Conclusions . . . . . . . . . . . . . . . . . . . . . . .

Decisions

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for NMR Imaging Devices

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CHAPTER 9: STATE CERTIFICATE-OF-NEED PROGRAMS

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Certificate-of-Need Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Relationship of CON Review to the FDA Premarket Approval

Lessons From the Experience With X-ray CT Scanning . . . . . . .

CON Activities Related to NMR Imaging Devices . . . . . . . . . . .

CON Reviews.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

CON Criteria or Standards Development.. . . . . . . . . . . . . . . .

State CON Legislation/Regulations . . . . . . . . . . . . . . . . . . . . . .

Future Prospects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

APPENDIX A.–NMR: TECHNICAL BACKGROUND . . . . . .

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Contents—continued Page

APPENDIX B.–SURVEY OF MANUFACTURERS: METHODS. . . . . . . . . . . . . . . . . . 122

APPENDIX C.–MANUFACTURERS OF NMR IMAGING DEVICES. . . . . . . . . . . . . 123

APPENDIX D.–GLOSSARY OF TERMS AND ACRONYMS . . . . . . . . . . . . . . . . . . . 140

APPENDIX E.–ACKNOWLEDGMENTS AND HEALTH PROGRAM

ADVISORY COMMITTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142

REFERENCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149

Tables

Table No. Page

1.

2.

3.

4.

5.

6.

7.

8.

9.

10.

11.

12.

13.

14.

15.

16.

17.

Suggested Guidelines for Safe Operation of NMR Imagers . . . . . . . . . . . . . . . . . . . . 26

Demonstrated and Potential Advantages of NMR Imaging . . . . . . . . . . . . . . . . . . . . 30

Current and Potential Disadvantages of NMR Imaging . . . . . . . . . . . . . . . . . . . . . . . 30

Likely Areas for Future NMR Research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

The NMR Imaging Device Industry, October 1983 . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

The NMR Imaging Device Industry: Company Profile. . . . . . . . . . . . . . . . . . . . . . . . 41

The NMR Imaging Device Industry: Market Share as Reflected in

Clinical Placements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

Status of NMR Imaging Systems. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

Research and Development Expenditures Among Firms in the

NMR Imaging Device Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

Manufacturers’ Collaborative Arrangements With Universities/

Medical Centers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

Diversification Among Firms in the NMR Imaging Device Industry . . . . . . . . . . . . 51

Acquisitions, Mergers, and Key Trade Agreements in the

NMR Imaging Device Industry Since 1971 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

Diagnostic Imaging Industry Sales Growth Projections . . . . . . . . . . . . . . . . . . . . . . . 58

Estimated Worldwide NMR Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

Range of Estimated Costs for NMR Imaging Systems by

Type of Magnet, 1983 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64

Estimated Annual Costs for NMR Imaging Systems by

Type of Magnet, 1983 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65

1983 Estimated Costs per NMR Imaging Study by Type of Magnet . . . . . . . . . . . . 65

Figures

Figure No. Page

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9.

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12.

First NMR Image . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

First In Vivo Human Whole-Body NMR Scan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

First NMR Image of a Human Head . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

1983 NMR Image . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

An NMR Image of a Normal Head From an Axial View

With Changes in Pulse Sequence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Schematic Diagram of NMR Scanner Instrumentation . . . . . . . . . . . . . . . . . . . . . . . . 20

Modern Day NMR Imager . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Mean and Standard Deviations for T1 and T2 of Various Tissues in

a Live Rat . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

NMR Phosphorus Spectrogram . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

Chronological Development of the NMR Imaging Device Industry . . . . . . . . . . . . . 45

Cumulative Number of Worldwide Clinical NMR Placements Over Time . . . . . . . 59

How To Get a New Medical Device to Market.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87

A-1. Energy Levels of Hydrogen Atoms in Applied Magnetic Fields . . . . . . . . . . . . . . 119

A-2. Schematic Diagram of NMR System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120

A-3. Experimental Sample in Magnetic Field Gradient . . . . . . . . . . . . . . . . . . . . . . . . . . 121

il
OTA Note

These case studies are authored works commissioned by OTA. Each author

is responsible for the conclusions of specific case studies. These cases are not statements of official OTA position. OTA does not make recommendations or endorse

particular technologies. During the various stages of review and revision, therefore,

OTA encouraged the authors to present balanced information and to recognize

divergent points of view.

Introduction and Summary

INTRODUCTION

Nuclear magnetic resonance (NMR) imaging’ is

an exciting new diagnostic imaging modality that

has captured the interest of the medical profession for a number of reasons. First, it employs

radiowaves and magnetic fields rather than ionizing radiation, thus eliminating the risk of Xirradiation that is associated with use of devices

such as X-ray computed tomography (CT) scanners. Second, in addition to providing excellent

distinction between adjacent structures (spatial

resolution), the technique uses differences in the

density and the molecular environment of different substances to provide excellent tissue contrast without the need for injection of potentially

toxic contrast agents. Third, because bone does

not interfere with NMR signals (the absence of

signal artifact from bone), physicians can visualize

areas such as the posterior fossa, brain stem, and

spinal cord with NMR that previously were not

well seen with other noninvasive imaging techniques. Finally, and potentially of greatest importance, because NMR imagers are sensitive to fundamental physical and chemical characteristics of

cells, the technique offers the possibility of detecting diseases at earlier stages than is currently possible and of permitting accurate diagnoses to be

made noninvasively.

Along with these attractive attributes, however,

NMR has its disadvantages. At present, NMR imagers are expensive, and installation of them is

costly and logistically difficult. Furthermore, until

(and possibly after) more experience with the

modality is obtained, NMR imaging may require

more physician time in performance of patient examinations than is the case with X-ray CT or other

imaging techniques. Moreover, despite the rapid

improvement in the quality of NMR images that

has occurred over the past several years and the

increasingly large number of clinical situations in

which NMR imaging might prove to be of value,

the exact role of NMR imaging in clinical mediIThe term “NMR imaging, ” used in this case study, is increasingly being replaced by the term “magnetic resonance imaging. ”

cine, particularly its efficacy compared to other

imaging modalities, has yet to be defined.

Despite these concerns, NMR imagers are diffusing very rapidly. In January 1983, 14 units were

in place in the United States outside manufacturers’ facilities. By October 1983, 34 units had

been installed in the United States, and by August

1984, at least 145 units were installed worldwide,

of which 93 were in the United States.

Given the rapid rate of change in both the clinical and scientific status of NMR imaging, as well

as in the number of units being installed worldwide, it is impossible to publish a review that accurately describes the “current status” of NMR imaging in almost any dimension. Such a review

quickly becomes outdated as the field continues

to evolve. This case study was written, therefore,

with the following limited goals in mind:

To provide a vehicle for gaining insight into

the impact that Federal policies have had on

the development of NMR imaging as a modality, on the industry that manufactures the

imagers, on the hospitals and medical centers

that might consider acquiring NMR imagers,

and on a public interested not only in the

timely introduction of valuable innovations,

but also in protection from unsafe devices

and rapid increases in health care costs. By

identifying and analyzing a number of policy issues, the case study is intended to help

the Federal Government and other interested

parties assess the process through which new

devices are made available.

To make available a large amount of technical, clinical, industrial, and policy information under a single cover, and in the process to provide a “snapshot” view of the status

of NMR imaging in several dimensions. z

‘The material was first compiled in fall 1983. App. C and policies

of the Food and Drug Administration and third-party payers were

updated in August 1984.

3
4 • Health Technology Case Study 27: Nuclear Magnetic Resonance Imaging Technology: A Clinical, industrial, and Policy Analysis

SUMMARY

The body of the case study is organized into

nine chapters. Each of the chapters is briefly summarized below.

NMR—Historical and

Technical Background

The existence of the NMR phenomenon was

first demonstrated in 1946 by two American scientists, Felix Bloch and Edward Purcell, who jointly

received the Nobel Prize for Physics in 1952 for

their discovery. The first NMR image (of two

tubes of water) was published by Paul Lauterbur

of the State University of New York (SUNY) at

Stony Brook in 1973, the same year X-ray CT

scanning was introduced into the United States.

Remarkable progress in the quality and capabilities of NMR imaging has been made in the years

since Lauterbur imaged his two tubes of water,

with no plateau in the rate of improvement in

sight.

The nucleus of the hydrogen atom (proton)3 has

been most successfully exploited to produce highquality NMR images because of its desirable magnetic properties and the high concentration with

which it is present in the body. NMR images are

fundamentally different from X-ray CT images.

The latter rely on partial absorption and partial

transmission of X-rays (linear attenuation) to produce images that reflect differences in the electron

density and specific gravity of adjacent tissues.

Proton NMR images are formed without the use

of ionizing radiation and reflect the proton density of the tissues being imaged, as well as the velocity with which fluid is flowing through the

structures being imaged and the rate at which

tissue hydrogen atoms return to their equilibrium

states after being excited by radiofrequency energy

(proton relaxation time). The excitement about

and investment in NMR have arisen from the

belief that enormous clinical benefits might derive from the ability to obtain information about

both the tissues of the body and certain kinds of

chemical activity.

3

Since the hydrogen atom has one unpaired proton, the terms

hydrogen atom and proton are used interchangeably.

Clinical Applications of NMR

Concerns regarding the safety of NMR imaging have focused on magnetic fields and radiofrequency energy. To date, since adequate precautions have been taken, no significant biological

risks associated with use of NMR have been identified. Other potential sources of concern relate

to damage that could be caused by the possibility that metallic objects in the vicinity of NMR

magnets could become projectiles, or that the

strong magnetic fields used in NMR imaging could

damage computer tape or other objects in the surrounding environment.

The National Radiological Protection Board in

the United Kingdom is maintaining a record of

patients and volunteers who have undergone

NMR imaging studies in order to evaluate problems that arise in the future in individuals

undergoing NMR scanning. The American College of Radiology is attempting to collect similar

information in the United States. It would seem

advisable to establish uniform guidelines for worldwide collection of this type of data, at least for

the near future. Issues of who should be responsible for collecting and maintaining such data, and

at whose expense, as well as issues pertaining to

patient confidentiality, remain and need to be resolved.

The clinical application of NMR imaging in

which the most experience has been gained and

which so far has proven most efficacious is imaging of the brain and central nervous system.

Results of studies of NMR imaging of the heart

and pelvis are also particularly promising.

The scope of the role of NMR imaging in medicine is yet to be determined. Although there is

some plausibility to the hundreds of applications

that have been cited for NMR imaging, the majority of such applications must, for now, be considered potential rather than demonstrated.

Although future NMR production models are

likely to simplify image acquisition for physicians,

and although the time required to produce highquality NMR images will likely decrease, it should

not be assumed that images of the same quality
. — .

Ch. 1—Introduction and Summary 5

. — . .-

as those being published by research institutions

will necessarily be produced immediately in hospitals that are not able to spend equivalent time

and effort on their production.

In the early stages of evaluation of NMR imaging, many, if not most, of the patients that have

been studied have appropriately been patients

with known pathologies. It is not necessarily the

case that NMR will be shown to have the same

sensitivity and specificity when used to image patients with unknown pathology. Given the rapid

improvements taking place in NMR imaging,

however, current assessments may underestimate

the ultimate sensitivity and specificity of NMR imaging in many applications.

It is likely that algorithms with pulse sequences

(patterns of radiofrequency energy used to excite

protons) specific to different pathologies will be

built into NMR software in the future. While this

means that NMR images of individual types of

pathology are likely to become even better than

they are today, it also means that if patients with

unknown types of pathology are referred for a

“screening” NMR scan, multiple scans, using

multiple pulse sequences, may have to be performed in order to exclude with a reasonable degree of certainty the existence of an abnormality.

Such use of multiple pulse sequences may increase

the time and expense required to perform NMR

studies.

To the extent that use of multiple pulse sequences does increase patient examination times,

a tension may develop between the economic

pressure to maintain reasonable patient flow and

the clinical requirement that pathologic abnormalities be excluded with a high degree of certainty. To the extent that the latter predominates,

the number of patients seen may decrease, producing a rise in average cost per NMR study, To

the extent that the former predominates, the sensitivity and specificity of NMR may decrease.

Because the risks of NMR imaging appear to

be low, NMR scans maybe performed on patients

repeatedly over time to monitor therapeutic progress or the natural history of disease. Such usage

could result in increased demands being placed

on NMR machines and in increased health care

costs .

Within certain numerical ranges, relaxation

times may provide sufficient pathologic specificity

to be clinically useful. Because of overlap between

the relaxation values of normal and abnormal

tissues, however, relaxation times alone are unlikely

to permit reliable pathologic diagnoses, despite

the theoretical attractiveness of using such measurements. The possibility exists that nontoxic contrast agents can be devised that will enhance the

pathologic specificity associated with relaxation

time values. Considerable research remains to be

done in the exploration of what physical, chemical, and biological factors give rise to and influence NMR relaxation times. Only through answers

to these questions will it be possible to exploit

relaxation times’ full medical and scientific potential.

NMR is also used to perform in vivo phosphorus NMR spectroscopy, in which the “chemical

shift” phenomenon is used to provide an indication of the relative concentrations in which compounds such as phosphocreatine, adenosine triphosphate, and inorganic phosphate are present

in intact human tissues or organs. Much additional research is required before an assessment

can be made of the extent to which in vivo NMR

spectroscopy can be used to provide diagnostically

useful information regarding the metabolic and

functional status of normal and abnormal tissues.

It should also be recognized that the technology required for in vivo human NMR spectroscopy is considerably more sophisticated than that

required to perform proton NMR imaging. Thus,

most of the NMR imagers that are generally being installed in hospitals today cannot currently

be used to perform NMR spectroscopy. Hospitals desirous of performing spectroscopy and imaging may need either to obtain more than one

NMR machine or to tolerate potentially costly

amounts of time while field strengths are changed

and the NMR machine is not operational. For the

present, in vivo NMR spectroscopy should be

considered an exciting and promising area of research that is of questionable feasibility for most

hospitals.

The NMR Imaging Device Industry

The NMR imaging device industry, as it now

exists, is both dynamic and intensely competitive.
6 Ž Health Technology Case Study 27: Nuclear Magnetic Resonance Imaging Technology: A Clinical, industrial, and Policy Analysis

Since 1976, at least 23 companies worldwide have

decided to enter the NMR imaging marketplace.

Eight firms have reached an advanced stage of

development, whereas at least three others are

engaged in intermediate-level activities. The industry has a multinational character, with firms

based in the United States, Japan, West Germany,

Great Britain, France, Israel, and The Netherlands. All but three of the firms have multiple

product lines. The industry appears concentrated

among four firms, which accounted for 79 percent of the 145 known worldwide placements existing in August 1984.

At present, small firms can enter the market,

but entry depends on several key factors, including their ability to attract capital and scientific or

technical talent for research and development

(R&D), to develop strong university or medical

center ties for collaborative research, and to market products once they have been developed. The

pathways to market entry are varied, but involve

essentially four different routes: governmentsupported R&D, university-based R&D, acquired

technology, and internally based R&D. Initial

capitalization for market entry is estimated to be

between $4 million and $15 million. University

or medical center research ties are considered

essential in the industry, and every firm that has

attained either intermediate or advanced stage

R&D has a close collaborative relationship with

one or more universities or major medical centers.

The existence of at least 19 NMR imaging device manufacturers suggests that patents have not

created a significant barrier to the entry of competitors into the marketplace. Whether patentable

discoveries will emerge, prohibitively expensive

cross-licensing agreements will be devised, or pending lawsuits will be settled in such a way as to

change this situation is difficult to predict. It is

also difficult to assess how beneficial the protection afforded by patents has been to the commercial development of NMR imaging in this country. It is possible, if not likely, that many manufacturers have opted to retain discoveries as “tradesecrets, ” rather than to reveal confidential information in patent applications.

There is considerable diversity in the product

lines and operations of firms in the NMR imaging industry. Sixty-three percent of the companies

manufacture non-health-care related products

either directly or through a parent firm. Since the

1970s, the NMR imaging device industry has

witnessed a large number of acquisitions, mergers,

and trade agreements. At least three mergers in

the industry have involved vertical integration

either to acquire magnet manufacturing capabilities or to expand sales or distributorship networks

to specific geographic areas. Vertical integration

is expected to increase in the industry over the

next 2 to 5 years.

Most firms in the industry believe that nonprice factors will prove more important than

product price in determining future NMR sales

and market share. Product differentiation is expected to figure prominently in the non-price competition strategies of NMR imaging device firms.

Manufacturers believe that the most important

factors are likely to be image quality, product

features or capabilities, product reliability, and

product service. Various manufacturers are placing different emphasis on these factors as part of

their marketing strategies. Buyers’ perceptions of

a corporation’s chances for long-term survival will

probably also be important.

It is expected that NMR imaging sales will

become an important source of company revenues

for many manufacturers over the next few years.

Firms are expected to maintain heavy investment

in R&D activities even after receiving Food and

Drug Administration (FDA) premarket approval

and introducing commercial NMR imaging prototypes. NMR sales could increase from $100 million per year in 1983 to $2.5 billion per year in

1988, amounting to an annual rate of growth in

sales of 90 percent. The percentage of diagnostic

imaging industry sales attributable to sales of

NMR imaging systems could increase from 2.5

percent in 1983 to 30 percent by 1988.

Hospital Costs and Strategies

One of the major concerns that has emerged

regarding NMR imaging relates to the impact this

new technology will have on health care costs.

These concerns derive in part from the high anticipated costs associated with the purchase and

installation of an NMR imaging system and from

uncertainties regarding the extent to which NMR

imagers will be used in conjunction with other

diagnostic modalities.
— ——. ———

Ch. 1—Introduction and Summary 7

Capital and operating expenses for NMR imaging are primarily determined by the type of

magnet (resistive, permanent, or superconducting)

used to produce the static magnetic field. Purchase

prices range from approximately $800,000 for a

resistive system to $1.5 million for a permanent

magnet system or a 0.5 tesla superconducting system and to over $2 million for a 1.5 tesla superconducting system. Installation costs range from

$25,000 to $75,000 for a permanent magnet system to up to $1 million for a 1.5 tesla superconducting system. Estimates of the average cost of

an imaging study, exclusive of professional fees,

are difficult to make at this time, but range from

as low as $180 for a resistive system to as high

as $700 for a superconductive system. These estimates are quite sensitive to a number of key

assumptions, such as the time needed to process

patients.

The likely effect of NMR imaging on health care

costs will depend on how it is employed by physicians in actual practice situations. Several factors need to be considered in this regard. First is

the extent to which NMR imaging is performed

instead of other diagnostic modalities in the management of specific patient complaints or disease

entities. Second is the extent to which NMR is

used in situations in which no diagnostic modality

is currently used. Such situations are likely to include the use of sequential NMR scanning to monitor the natural history of diseases and the progress of chemo- and other therapies. Finally, much

will depend on such factors as how much surgery

is avoided, whether hospital lengths of stay are

shortened, and whether diagnostic workups that

were performed in the hospital are shifted to the

outpatient setting.

Most of the early NMR units acquired by hospitals have been installed in university teaching

hospitals. This situation is not surprising, given

the interest such hospitals have in performing research and being at the “cutting edge” of medical

developments, and given the research needs of

manufacturers in order to obtain FDA premarket

approval. In addition, university hospitals have

been able to use their special strengths to obtain

NMR imaging systems at decreased or nominal

cost. Price and operating costs of experimental

systems have frequently been further subsidized

by research grants from manufacturers and have

often been shared between hospitals and universities. These observations suggest that many of

the university hospitals that have obtained NMR

imaging systems to date may have done so in part

because they did not have to be so concerned with

acquisition costs and early operating costs as other

hospitals have to be.

In 1983 the Veterans Administration (VA) decided to initiate a staged program of acquisition

of NMR devices with a single NMR demonstration and evaluation project. The decision to acquire an NMR device for the VA system derived

from an interest in “helping the VA march into

the future” (171). No estimates of the impact of

NMR on the cost of patient care were made. The

decision to restrict the initial purchase to a single

unit emanated from a concern about the rapid rate

at which NMR technology was changing and the

resultant desire to avoid installing a large number of systems that might soon become obsolete.

NMR manufacturers have suggested, however,

that due to the ability to upgrade their systems,

early obsolescence may be less of a problem with

NMR imagers than it was with X-ray CT.

Investor-owned hospitals have also followed a

cautious approach to acquisition of NMR imaging equipment. The Hospital Corp. of America

and Humana, for example, have each decided to

acquire a small number of systems in the near

future in order to conduct in-house evaluations

of the cost, utility, and ideal configuration of

NMR imaging systems in the community hospital setting. Others, such as American Medical International, National Medical Enterprises, and

Lifemark, have postponed acquisition of NMR

equipment until additional information regarding

the cost, utility, and reimbursement rates for

NMR imaging is available. Finally, investorowned companies that operate hospital chains

plan to use their ability to buy in volume to obtain special price consideration from manufacturers.

History of Funding for NMR Research

In the United States, both the National Institutes of Health (NIH) and the National Science

25-341 0 - 84 - 2 : QL 3
8 • Health TechnologyCase Study 27: Nuclear Magnetic Resonance Imaging Technology: A Clinical, Industrial, and Policy Analysis

Foundation have provided considerable support

to basic NMR research over the past decade. NIH

is currently funding approximately $2 million in

research in at least 10 different institutions relating

to NMR imaging or in vivo spectroscopy. Announcement of awards from the Diagnostic Imaging Research Branch of the National Cancer Institute to assess the comparative efficacy of NMR

imaging and other diagnostic modalities were

made in mid-1984.

At least three different noncommercial entities

provided support for NMR research in England

and Scotland over the past decade. These include

the Wolfson Foundation, and two government

entities, the Medical Research Council and the

Department of Health and Social Security in

England.

Certain contrasts between the history of the development of NMR imaging in the United States

and Great Britain can be identified. Unlike the situation in the United States, in Britain the government undertook a concerted effort to develop

technology that might be of use specifically in hospitals. This effort was focused through a program

funded by the Department of Health and Social

Security which lent considerable financial support

to the development of NMR imaging techniques.

It is interesting to note, however, that once it

became apparent that the development of NMR

imaging systems was not only commercially viable, but also potentially extremely profitable,

U.S. manufacturers rapidly and intensively began

investing in NMR imager development programs.

In Britain there also seem to have been several

interdisciplinary groups that collaborated on the

development of NMR imaging techniques. In the

United States, in contrast, most of the early work

on NMR imaging was done by Lauterbur and

Damadian with apparently little, if any, interaction between the two, despite the fact that both

were at campuses of the State University of New

York. There also seem to have been fewer centers

in the United States in which scientists with varied backgrounds collaborated on the type of interdisciplinary research that resulted in the advances in NMR imaging that took place in Britain.

FDA Regulation

FDA authority over NMR imaging devices

derives from two Federal acts: the Radiation Control for Health and Safety Act (RCHSA) of 1968

and the Food, Drug, and Cosmetic Act (FDCA),

as amended in 1976. FDA has not established radiation emission performance standards for NMR

devices under its RCHSA authority, and it is not

likely that the RCHSA will have a significant impact on the development of NMR imaging as a

medical diagnostic modality. The FDCA, in contrast, has had and continues to have a significant

impact on the development of NMR imaging

devices.

The 1976 Medical Device Amendments require

that all medical devices be classified into one of

three regulatory categories based on the extent of

control necessary to provide reasonable assurance

of safety and effectiveness. NMR imaging devices

are the first imaging devices to be classified into

Class III for which premarket approval (PMA) has

been required. The premarket approval applications (PMAAs) submitted by three companies

were deemed “approvable” by the FDA Radiologic

Devices Advisory Panel in July 1983, and were

granted formal premarket approval by FDA in

spring 1984.

Some general insights into the PMA process can

be gained from examining how NMR has fared

in its interactions with it to date. It should be

realized, however, that the experiences that an extremely promising, high R&D-cost device such as

NMR has had with the FDA may not be representative of those that other devices may have in

the future.

In the case of NMR, it appears that the FDA

PMA process is primarily playing a qualityassurance role—a role that Congress intended it

to play. PMA does not appear to have constrained

NMR technological development. However, in its

attempt to assist manufacturers and institutional

review boards to define when experimental use

of NMR does not pose a significant risk, FDA may

have influenced the technological development of

NMR devices.
FDA clearly has not constrained the number of

NMR imagers that could be installed on an experimental basis in the United States. Of the approximately 34 NMR systems installed in the

United States by October 1983, 15 were by a single

manufacturer. It appears, therefore, that the FDA

PMA process will not act as a major constraint

on the rate at which NMR devices are adopted

and used throughout the United States. This situation may, in large part, be a result of the long

gestation period required for development of a

production model of a high R&D-cost device, such

as an NMR imager.

If PMA is not granted to other manufacturers

in a timely fashion, however, manufacturers may

begin to suffer from delays in receiving revenues

to cover their development costs. Because the

Health Care Financing Administration (HCFA) requires FDA approval of a device before it approves coverage for it, undue delay in PMA could

injure manufacturers because of the constraining

influence that the absence of Medicare reimbursement would have on hospital acquisition decisions.

Two final impacts of the FDA PMA process

should be identified. First, in their quest for PMA,

manufacturers have subsidized a considerable

amount of research in order to establish the safety

and effectiveness of NMR imaging devices. How

much of this research would have been subsidized

or performed by manufacturers in the absence of

the PMA process is impossible to estimate. Finally, it appears that the PMA process may prove

capable of conferring a competitive advantage

upon those manufacturers who are first to receive

PMA, particularly if third-party payers decide to

approve coverage only for those manufacturers’

devices that have received PMA. How much of

a financial benefit, in both the short run and the

long run, accrues to those “early bird” manufacturers who obtain PMA while others still await

it may help determine not only the future of the

NMR manufacturing industry, but also the speed

with which manufacturers pursue development of

other new technologies in the future.

Third-Party Payment Policies

In determining coverage policy for new medical technologies, third-party payers look first to

FDA for some indication of a device’s status.

Ch. 1—Introduction and Summary 9

— — . .

Third-party payers generally will not reimburse

for clinical services performed with “investigational” devices. HCFA will provide coverage

under the Medicare program only for those devices, services, or procedures that are determined

to be both “reasonable and necessary. ” HCFA

generally does not approve coverage of a new device unless FDA has already found it to be “safe

and effective. ” FDA determination of safety and

effectiveness, however, does not ensure that the

device will satisfy HCFA’s criteria of reasonableness and necessity.

Other third-party payers, such as State Medicaid programs, Blue Cross and Blue Shield plans,

and private insurance companies consider similar factors in making coverage decisions, but vary

in their general procedures, methods of assessment, and decision criteria.

HCFA conducts the most in-depth assessment

of a new technology, with the aid of the Public

Health Service’s Office of Health Technology

Assessment (OHTA).4 In performing a technology assessment, OHTA gathers and analyzes relevant data on clinical safety and efficacy from

various public and private sources. The assessment process often takes between 8 and 18 months

to perform.

The national Blue Cross and Blue Shield Association also conducts technology assessments at

the request of member plans. Association staff review available literature and elicit expert opinion

from medical specialty societies in determining the

safety and effectiveness of a new device. Staff

assessments of new technologies frequently result

in Uniform Medical Policy statements, which are

intended only to guide coverage policy decisions

of member plans. Each plan, however, may make

its own independent coverage decision.

Commercial insurance companies follow a less

formal procedure in conducting technology assessments. The Health Insurance Association of America (HIAA), a private organization serving the

commercial insurance industry, furnishes information on new technologies to its members. At

the request of a member company, HIAA will solicit an expert opinion regarding a new device

‘This executive office differs from the Health Program in the Congressional Office of Technology Assessment.
10 Ž Health Technology Case Study 27: Nuclear Magnetic Resonance Imaging Technology: A Clinical, Industrial, and Policy Analysis

from the Council on Medical Specialty Societies.

The information will be synthesized and forwarded

to member companies, who independently interpret it and make coverage policy decisions.

The major third-party payers also differ in the

criteria they employ in setting payment levels for

covered services. Important factors in these decisions include where the technology will be used

(e.g., hospital, physician’s office), in what circumstances it will be used (e.g., certain clinical situations or diseases), and by whom it will be used

(e.g., physicians with general versus specialty

training). Payment levels are generally based on

criteria of “prevailing, customary, and reasonable” charges, allowing for differences in geographic area, past experience of individual practitioners, and prevailing market prices or fees.

Third-party payers are evaluating their coverage of NMR imaging. Some third-party payers

have already begun to pay for NMR scans. Technology assessments of NMR imaging are now being performed by OHTA (for the Medicare program) and by the Blue Cross and Blue Shield

Association.

State Certificate-of= Need Programs

Although State certificate-of-need (CON) programs were never specifically intended to constrain the diffusion of medical technology, they

constitute one of the major policy mechanisms

available to health planners for control over technology adoption. CON review of “need” may be

based on numerous factors, including clinical use

of technology, institutional characteristics, economic and financial effects, and population-based

considerations. In the past, CON programs have

employed at least four different policy orientations or strategies regarding technology introduction and distribution: pro forma denial, formalized strategy of delay, predetermined limits on

diffusion, and uncontested approval.

The CON experience with X-ray CT scanners

points out two problems that could arise in the

future with NMR imaging: the fragility of sharedservice arrangements among hospitals and the creation of incentives that encourage “anticipatory

acquisition” of new technology. The latter situation can produce a “franchising” effect whereby

hospitals that adopt technology early—often

while the technology is still considered “investigational’’—become well-positioned to keep the technology once its status changes and diffusion accelerates. Those hospitals that wait to submit

CON applications risk being “disenfranchised”

from obtaining the technology.

Various State and local planning agencies report increasing CON activity related to NMR imaging. As of September 12, 1983, at least 33 CON

applications for NMR had been reviewed nationwide. Of these, 19 had received approval: 16 by

State Health Planning and Development Agencies and 3 by local Health Systems Agencies.

Twenty-five health planning agencies across the

Nation also reported that they either had NMRspecific review criteria in force or were planning

to develop them in the near future. Pending or

recently enacted State legislation or regulations

related to NMR were reported in at least six

States.

Several distinct CON strategies regarding NMR

appear to have emerged among the States. For example, New York, Illinois, Ohio, New Jersey, and

Kentucky have each adopted predetermined limits

on NMR imager diffusion. The Southeast Kansas

Health Systems Agency has invoked a moratorium on NMR until community hospital planning

has been completed. The District of Columbia

CON program also has statutory power to employ

a formalized strategy of delay. Nebraska, by contrast, is encouraging group applications involving shared-service arrangements among hospitals.

Utah and California, through recent amendments

to their respective State CON laws, appear to be

following a strategy of uncontested approval for

NMR imagers. No CON program, on the other

hand, has adopted a policy of pro forma denial.

It is anticipated that CON agencies will witness

a rapid increase in the number of NMR applications filed by hospitals once HCFA policies regarding NMR are finalized.

Regulatory Overview

Since FDA has granted premarket approval to

the first NMR imaging manufacturers, third-party

payers have a position of major influence over

the rate at which NMR imagers are acquired by

hospitals. This influence will derive from their

decisions regarding: 1) whether to cover use of
Ch. l—introduction and Summary 1 1

NMR imaging at all; 2) whether to cover NMR

devices only of those manufacturers that have received premarket approval or those of any manufacturer; 3) which types of NMR scans to cover

(e.g., head studies only or head and body studies);

4) the monetary level at which use of NMR will

be reimbursed; and 5) the level at which professional fees for NMR imaging are set. If initial coverage of NMR is limited to a small number of clinical circumstances or reimbursement rates do not

reflect the increased professional time that will initially be required for NMR scanning, hospitals

may be restrained in the speed with which they

acquire NMR devices.

The introduction of prospective payment based

on diagnosis related groups (DRGs) under Medicare is also expected to affect the rate of diffusion of NMR devices into hospital settings. Hospitals now have to weigh financial considerations

against patient care benefits more carefully when

deciding whether to acquire an NMR imager and

in deciding how an acquired NMR scanner is to

be used. For some hospitals, such as municipal

facilities serving large Medicare and Medicaid

populations, the DRG payment system may exacerbate an already financially distressed situation and further impede those institutions’ efforts

regarding capital formation. The net effect may

be to weaken the hospitals that serve as primary

sources of care for disadvantaged populations.

The ultimate impact of the prospective payment

system on acquisition of NMR scanners is likely

to depend on future HCFA decisions regarding

recalibration of DRG payment rates to take account of introduction of new technology over time

and regarding inclusion of capital expenditures in

the DRG rate,

The final major regulatory influence on the rate

at which new technology, such as NMR imagers,

diffuses throughout the medical system is State

certificate-of-need (CON) policies. There is

already evidence that CON agencies are delaying the acquisition of NMR devices by some hospitals. Whether State agencies are adequately informed to be able to make appropriate decisions

regarding whether and when NMR scanners should

be introduced into hospitals is questionable.

A number of problems with CON policies that

have appeared over the past decade in the experience with X-ray CT are likely to affect the course

of NMR as well. Evidence for “franchising” and

“anticipatory acquisition” of NMR is already

available and will need to be addressed by CON

programs. In addition, there is evidence of considerable interest on the part of private radiology

groups, as well as hospitals, in establishing outpatient diagnostic centers which will include, but

not be limited to, NMR devices. In most States,

such ambulatory placements do not require CON

approval. If State agencies are interested in controlling the introduction of new technologies, such

as NMR, they will have to address themselves to

this limitation in their purview. Alternatively,

CON agencies could leave control over the “introduction” of technology to the FDA and thirdparty payers and concentrate on playing a complimentary role by assuring equitable distribution

of new technologies within their jurisdictions.

In addition to these influences on the rate at

which new technologies such as NMR imagers diffuse, two final policy issues should be addressed.

First, there appears to be a large amount of duplicated effort on the part of FDA, third-party

payers, CON agencies, and hospitals with regard

to the assessment of new technology. Although

it is unclear whether it would be beneficial to increase the coordination among these separate

technology assessment efforts, the issue should be

addressed. If HCFA is to continue relying on the

Public Health Service’s OHTA as an impartial

source of advice, attention should be given to

whether the resources available to OHTA are

adequate.

Finally, as more technologies become available,

it becomes increasingly important that the comparative efficacy of each be adequately evaluated

and defined. How such comparative efficacy data

will be acquired and who will fund the studies necessary to generate them are increasingly important issues that the Federal Government and

others need to address if appropriate reimbursement policy decisions are to be made. In the case

of a rapidly evolving technology, such as NMR

imaging, the question of when to perform such

comparative assessments also needs to be addressed. This “moving target” issue has hampered

comparative efficacy assessments in the past.
2.

NMR—Historical and

Technical Background
2.

NMR— Historical and

Technical Background

It is not possible to provide either a comprehensive historical profile of nuclear magnetic resonance (NMR) or a detailed technical explanation

of the NMR phenomenon within the scope of this

document. In order to fully appreciate the excitement about the implications of being able to produce hydrogen

NMR, however,

some historical

or other atomic images using

it is essential that the reader have

and technical background. The

HISTORICAL BACKGROUND

The existence of the phenomenon of nuclear

magnetic resonance was predicted by a Dutch

physicist, Gorter, in 1936. Gorter sought, unsuccessfully, to demonstrate the NMR phenomenon

in lithium fluoride. A decade later, in 1946, two

American scientists, Felix Bloch and Edward

Purcell, working independently, simultaneously

discovered and demonstrated the existence of

NMR. Bloch’s observations were made with studies

of water at Stanford; Purcell’s with studies of paraffin wax at Harvard. The two were jointly awarded

the Nobel Prize for Physics in 1952. Since then

chemists and physicists worldwide have routinely

employed uniform magnetic fields in what can

now be considered “conventional NMR spectroscopy” to study the molecular structure and

dynamics of small homogeneous specimens (8).

The NMR imaging techniques that have evolved

over the past decade derive in large part from the

25 years of experience that had been accumulated

prior to 1973 in the application of NMR spectroscopic techniques to the study of solids and

liquids.

The establishment of a magnetic field gradient

(a magnetic field that increases or decreases in

strength in a given direction along a sample)

across a sample was the key to going from spectroscopy to spatially encoding the information

that forms the basis of NMR tomographic imagfollowing sections attempt to provide that background. The first section discusses the historical

development of NMR. The second section provides basic technical background about NMR and

NMR imaging, including a description of the technical components used in NMR imaging systems.

The final section introduces the types of magnets

used in NMR imaging. Appendix A contains additional technical information.

ing. Although magnetic field gradients had been

employed by scientists since the 1950s in studies

of molecular diffusion in liquids (78), phase separation (separation of homogeneous but physically

distinct portions of matter) in helium solutions

(199), and methods of information storage (7), it

was not until 1971 that Paul Lauterbur working

at the State University of New York (SUNY) at

Stony Brook conceived of the idea of manipulating magnetic field gradients to obtain a twodimensional NMR image (116).1 In his now classic

experiment in which the first NMR image was produced, Lauterbur rotated magnetic field gradients

(changed magnetic field gradients) in a technique

he called zeugmatography to reconstruct a twodimensional image of two tubes of water (115) (see

fig. 1). In discussing the implications of his results,

Lauterbur recognized the potential applicability

of his technique to the imaging of soft tissue structures and malignant growths in vivo (115).2

ILauterbur was aware of the studies performed by Damadian (42)

and Hollis (93), which demonstrated that excised tumors manifested

prolonged NMR relaxation times. Recognizing that it might be

tremendously beneficial to be able to make such measurements in

vivo, Lauterbur worked to develop a technique in which NMR could

be used to produce images (116).

‘In 1973, Mansfield and Grannell published a letter in which they

described a method, involving magnetic field gradients, through

which NMR could be used to determine spatial structure in solids

(121). No mention is made in the letter, however, of a proposal to

use NMR to produce images.

15
16 • Health Technology Case Study 27: Nuclear Magnetic Resonance Imaging Technology: A Clinical, industrial, and Policy Analysis

.- -. .— — —

Figure 1 .—First NMR Image

t

:.

. . .

NMR image of two tubes of water

SOURCE P C Lauterbur, “Image Formation by Induced Local Interactions. Examples Employing Nuclear Magnetic Resonance, ” Nature 242 (5394)

190.191, Mar 16, 1973,

Remarkable progress in the quality and capabilities of NMR imaging has been made in the 10

years since Lauterbur imaged his two tubes of water. In 1974, Peter Mansfield and his colleagues

BASIC TECHNICAL BACKGROUND

An understanding of nuclear magnetic resonance (NMR) requires a familiarity with certain

natural phenomena. The first phenomenon is that

all atoms, of which everything in nature is made,

contain nuclei which, in turn, are made up of particles called protons and neutrons. It is these

atomic nuclei to which the “N” in NMR refers.

The second natural phenomenon pertinent to

an understanding of NMR is that certain nuclei,

namely those that contain an odd number of protons, or an odd number of neutrons, or both,

at Nottingham University published the first crude

NMR medical image (of a human finger) (122).

Only the gross outline of the finger without any

internal detail was revealed. Improved images of

human fingers were produced by the same group

2 years later using a different imaging technique

that relied on selective radiation3 of the specimen

in switched magnetic field gradients (123). In 1976,

Damadian and colleagues, working at SUNY at

Brooklyn, employed a Field Focussing Nuclear

Magnetic Resonance technique (FONAR) to produce the first NMR image of a tumor in a live animal (44). A year later a human wrist was imaged

(91) and the first in vivo human whole-body NMR

tomographic scan (image of an individual slice)

was produced (43). In the latter scan, crude by

current standards, the heart, lungs, mediastinum,

and descending aorta could be detected (43) (see

fig. 2). In 1978a team led by Hugh Clew and Ian

Young, working at English Music Industries’

(EMI’s) laboratories in London, produced what

is believed to be the first NMR image of a human

head (96) (see fig. 3). Since then considerable improvements have been made in NMR imaging of

both the head and body, with no plateau in the

rate of improvement in sight (see fig. 4).

3

The radiant energy used for NMR is low-frequency, non-ionizing

radiofrequency waves, not the high-frequency waves used in X-rays.

possess an intrinsic angular momentum, called

“spin.” Since nuclei are electrically charged, those

nuclei that spin generate tiny magnetic fields. That

is, they are magnetic. Only those nuclei that are

magnetic, such as 1Hydrogen, 13 Carbon, 19Flourine,

23Sodium, and 31Phosphorus, can be exploited in

NMR experiments. It is this phenomenon of nuclear magnetism to which the “M” in NMR refers.

Supplying radiofrequency energy of the appropriate rotational frequency will excite hydrogen

nuclei from a lower energy level, E1

, to a higher
— —..—.

Ch. 2–NMR Historical and Technical Background 1 7

Figure 2.–First In Vivo Human Whole-Body NMR Scan

SOURCE Provided by Raymond Damadien, President, FONAR Corp

level, E2. If the radiofrequency energy is turned

off after the nuclei have been raised into the higher

energy level, the excited hydrogen nuclei drop

back down to level E1

, i.e., they relax. In the process of relaxing, the hydrogen nuclei re-emit the

energy they had initially absorbed, If this radiofrequency energy is repeatedly applied, hydrogen

nuclei will oscillate, or resonate, back and forth

between El and E2

, alternately absorbing and emitting energy. It is this type of radiofrequencyinduced resonance to which the “R” in NMR

refers.

Since the NMR signals that are emitted by magnetic nuclei are extremely weak, atoms must be

present in sufficient concentration in order to produce an NMR signal that is strong enough to be

converted into an image exhibiting clinically useful spatial discrimination. To date, the nucleus of

the hydrogen atom, which is the most prevalent

in the body and has a single unpaired proton, has

been most commonly exploited to produce highquality NMR images.4

As Raymond Andrew has explained in his review of NMR imaging (8), NMR images are spatial

representations of NMR signals. Although the

signal detected in proton imaging is proportional

to proton density, the image is not just a twodimensional representation of that proton density.

Rather, the signal also depends on three other

parameters.

The first parameter is the velocity with which

fluid is flowing through the structure being imaged, since the movement of protons in that fluid

4Recently, sodium and phosphorus have also been imaged in some

research centers.
18 • Health Technology Case Study 27: Nuclear Magnetic Resonance Imaging Technology: A Clinical, Industrial, and Policy Analysis

rameter, called the “spin-lattice” relaxation time,

or Tl

, is a time constant that reflects the rate at

which excited protons exchange energy with the

surrounding environment. The other, called “spinspin” relaxation time, or T2

, is a time constant

that reflects the rate of loss of coherence (the rate

at which protons stop rotating in phase with each

other) due to the local magnetic fields of adjacent

nuclei. Naturally occurring variations in relaxation times may have biomedical significance.

The extent to which any single NMR image

reflects each of these four parameters (proton density, flow, T1

, and T2) depends on the particular

radiofrequency pulse sequence employed to excite the protons in a region being imaged (see app.

A). Thus, there is no such thing as a unique NMR

“picture” of any region of the body. Rather, as

is illustrated in figure 5, NMR images of a single

region vary depending on the pulse sequence used

to produce them.

NMR images thus are fundamentally different

from computed tomographic (CT) X-ray images.

Whereas the latter rely on the linear attenuation

of ionizing X-radiation to produce images that reflect differences in the electron density and specific gravity of adjacent tissues, NMR images are

formed without use of ionizing radiation and reflect fundamental physiochemical differences between adjacent tissues. It is from the belief that

enormous clinical benefits might be derived from

obtaining information at a nuclear level through

NMR, that the excitement about and investment

in NMR have arisen.

Except for the addition of a computer and a system for producing a magnetic field gradient, the

basic components used in modern day NMR imaging devices (see figs. 6 and 7) are qualitatively

similar to those employed in the first NMR experiments performed by Bloch and Purcell in

1946. These components include: 1) a magnet

whose aperture or bore (diameter) is large enough

to enclose the structure being imaged (the magnet

is used to produce a highly uniform magnetic field

around the structure being imaged); 2) a set of

gradient cods to impose the magnetic field gra-
.— . . . ———

Ch. 2–NMR Historical and Technical Background 1 9

————— — -- ——

Figure 5. —An NMR Image (3 mm slice) of a Normal Head From an Axial View With Changes

in Pulse Sequence

SOURCE General Electric Co , 1984

client required to provide the system with spatial during the process of relaxation; 5) a computer

discrimination; 3) a radiofrequency transmitter to to control instrument operation and to reconstruct

produce radiowaves that excite the nuclei being and store the image produced from the NMR freimaged; 4) a radiofrequency receiver to detect the quency signals being detected; and 6) a display

radiofrequencies being emitted by excited nuclei system.

MAGNETS

Although small-bore magnets had been em- bores large enough to accommodate a human beployed in conventional NMR spectroscopy for ing were designed and built. Much of the recent

many years, it was not until interest in NMR im- research and development on magnets for NMR

aging emerged in the 1970s that magnets with imaging and in vivo spectroscopy has been funded
20 Ž Health Technology Case Study 27: Nuclear Magnetic Resonance Imaging Technology: A C/inical, Industrial, and Policy Analysis

Figure 6.—Schematic Diagram of NMR Scanner Instrumentation

MAGNET

I

CONTROL

INTERFACE

ANALOG

TO DIGITAL

CONVERTER

/ \

IMAGE

DISPLAY

SYSTEM

4

COMPUTER

SOURCE C L Partain, R, R. Pricel J, A, Patton, et al, “Nuclear Magnetic Resonance Imaging,” in Radiological Society of North America, Inc.l 1984, figure 11, D 13.

(Courtesy of C. L. Partain).

in part by the NMR imaging industry and carried out by magnet manufacturers. The design of

magnets manufactured specifically for NMR imaging, however, is still in an early stage of evolution, with improvements likely to be made as interest intensifies.

There are four main characteristics of magnets

used in NMR scanners with which one should

have some familiarity: magnet type, field strength,

bore size, and homogeneity of field.5

Magnet Type

Two different classes of magnets can be used

to produce the static magnetic field employed in

an NMR scanner: electromagnets (either resistive

or superconductive) or permanent magnets. Resistive magnets use electric current carried by copper or aluminum wire to create a magnetic field.

Because copper and aluminum offer resistance to

the flow of electric current, power must be supplied to force current through the wire. Energy

supplied to power the system is lost as heat, requiring employment of a cooling system (usually

5

Individuals interested in more than the following brief description of these features can consult standard physics texts or reviews

written about magnets used in NMR imaging systems (57,126).

cold water). Resistive magnets are comparatively

light and inexpensive, and, because they can be

shipped in parts, the costs of installing them are

comparatively less than that for superconductive

magnets. Resistive magnets do have high power

requirements (50 to 100 kilowatts) resulting in

operating costs of about $20,000 per year (6),

however, and field strength is limited by cooling

considerations to about 0.15 tesla6 (126).

Superconductive magnets also utilize electric

current to create a magnetic field, but instead of

employing resistive materials such as aluminum

or copper wire to carry the current, they use wire

made from superconductive materials such as

niobium-titanium alloys. Such alloys offer no resistance to current flow when operated at temperatures near absolute zero (126). In contrast to

a resistive magnet, a superconductive magnet does

not require an external source of electrical energy

to sustain current flow once it has been started,

as long as temperatures are maintained near absolute zero (126). Cooling of superconductive magnets is accomplished through use of liquid helium

and liquid nitrogen. Helium needs to be replenbMagnetic field strengths are measured in units of tesla (T).

1 T = 10,000 gauss (10 kilogauss). For perspective, the magnetic

field strength of the Earth is approximately half a gauss.
Ch. 2—NMR—Historical and Technical Background 21

——. ———. — —.——

Figure 7.—Modern Day NMR Imager

SOURCE Picker International

ished approximately once per month, whereas nitrogen needs to be replenished every one to two

weeks.

Manufacturers are developing systems to reduce

the loss, and therefore expense, of these coolants.

Considerable research, for example, is being directed at development of techniques for recycling and liquefying the helium that now boils off

into the atmosphere. In the event of excessive

helium boil off, a superconductive magnet can

quench (i.e., lose its superconductive properties).

At least a day can be required to recool the magnet, during which time the instrument is unusable

(126). The primary advantage of superconductive

magnets is that they can carry high current densities, enabling generation of very high magnetic

field strengths (see “Field Strength” below). Superconducting magnets can also provide magnetic

fields that are both highly uniform and stable,

once equilibrium is established.

Probably the most serious problem associated

with use of resistive or superconductive magnets

for NMR imaging derives from the external magnetic fields produced by the magnets and disruptions in the magnet’s magnetic field produced by

ferromagnetic objects (e.g., passing vehicles or

elevators) in the vicinity of the magnet. The fringe

field produced by electromagnets can erase mag-
22 • Health Technology Case Study 27: Nuclear Magnetic Resonance imaging Technology: A Clinical, industrial, and Policy Analysis

netic tape and disrupt pacemakers. Magnetic objects in the environment, in turn, can cause unacceptable distortions in the primary magnetic field

that degrade image quality. Because of these potential distortions, expensive preventive site preparation or renovation is necessary.

Problems related to stray magnetic fields do not

occur with permanent magnets (126), resulting in

fewer siting problems with the installation of permanent magnets. Because permanent magnets

eliminate the need for either electrical power or

liquid helium, they also have the advantage of

lower operating costs. Permanent magnets tend

to be extremely heavy (as much as 100 tons), however, often creating a need for reinforced floors.

The field strength of most currently available permanent magnets does not exceed 0.3T.

Field Strength

The optimum field strength for proton NMR

imaging is the subject of intensive research and

debate. It is likely that no one field strength will

be optimum for all NMR applications. Higher

field strengths might be preferable to lower ones

because a higher field strength increases the NMR

signal/noise ratio, and increased signal to noise

translates directly into improved image quality,

finer spatial resolution, or reduced scan times, all

other parameters being equal (21). Still at issue,

however, is whether improvements in image quality

achieved through increases in field strength above

0.3T will result in clinical benefits.

Bore Size

The size of specimens that can be imaged with

NMR is limited by the diameter of the magnet

bore. Whole body NMR scanners therefore require magnets with an effective bore diameter sufficient to accommodate a human body. Approximately 1 to 3 percent of patients that have been

imaged to date have complained of feeling claustrophobic in the magnet.

Homogeneity of Field

Inhomogeneities in the magnetic field (lack of

uniformity in magnetic field strength) can result

in clinically important distortions in NMR images.

As mentioned previously, both stationary and

moving ferromagnetic objects can produce such

inhomogeneities in the fields of resistive and

superconductive magnets. Many of these problems can be minimized (albeit at significant expense) by magnetic field shimming (adjustments

such as addition of special coils made to eliminate inhomogeneities in the magnetic field) and

appropriate site renovations. Higher degrees of

field homogeneity are required to perform 3

1P

spectroscopy than to perform proton imaging.
3.

Clinical Applications of NMR
3.

Clinical Applications of NMR

INTRODUCTION

When a new imaging modality is evolving as

rapidly as NMR imaging, it is impossible to publish a review that accurately describes the “current status” of its clinical use, By the time such

a review is published, it is out of date. Therefore,

the goals of this chapter are: to provide a “snapshot” view of the state of the clinical applications

of NMR in mid-1983 and to attempt to put the

current status of various clinical applications into

perspective, highlighting current limitations as

well as advantages and distinguishing between potential applications and those that have been

demonstrated with scientific rigor. More detailed

clinical reviews are available (see, for example,

27,86,125,137,142,148,166) .

The first section in the chapter provides a brief

overview of potential biological hazards of NMR.

The rest of the chapter is organized around the

three clinical applications of NMR in which the

most research had been performed as of this

writing: 1) imaging of protons to assess normal

and abnormal structure, metabolic processes, and

fluid flow; 2) use of proton relaxation times1 in

the diagnosis of disease; and 3) use of the chemical shift phenomenon to assess biochemical processes in vivo (in vivo spectroscopy ).2

‘These relaxation times are estimated from NMR images.

‘Imaging of nuclei other than hydrogen, such as sodium or

phosphorus, has recently been accomplished, but is not included

The second section provides a clinical overview

of proton (hydrogen) imaging, briefly summarizing results of research on proton imaging of the

brain, mediastinum, hilum, lung, heart, breast,

abdomen, kidneys, pelvis, musculoskeletal system, clinical oncology, and blood vessels. Readers

without clinical background may wish to skip the

second section and proceed directly to the third

section (Putting Proton NMR Imaging Into Perspective), which discusses the advantages and disadvantages of NMR imaging and addresses a

number of clinical and practical issues which help

put the status of proton imaging into perspective,

Section 4 (Relaxation Parameters) provides a brief

overview of research relating to the clinical use

of measurements of proton relaxation times. Again,

readers without clinical or scientific background

may want to skip this section and proceed directly

to section 5 (Putting T1 and T2 Relaxation Times

Into Perspective), which discusses the conclusions

to be drawn from the research described in section 4. Finally, sections 6 and 7 briefly address

in vivo spectroscopy. Non-scientists may wish to

read only section 7, which attempts to place the

current status of in vivo spectroscopy into perspective.

in this list. A discussion of the accumulated experience with such

imaging is beyond the scope of this case study.

POTENTIAL BIOLOGICAL HAZARDS OF NMR

One of the primary advantages of NMR imaging is that it does not employ X-rays. Although

there is thus no safety concern regarding X-irradiation with NMR imaging, concern has arisen regarding other potential hazards associated with

use of NMR.

NMR safety concerns have focused on three

NMR parameters: 1) time-varying magnetic fields,

2) radiofrequency electromagnetic fields, and 3)

static magnetic fields.

Although the possibility exists that time-varying

magnetic fields could induce electric currents that

could cause ventricular fibrillation, cardiac arrest,

inhibition of respiration, or tetanization (sustained

muscular contraction), none of these potential

adverse effects has been observed in over 2,000
26 Ž Health Technology Case Study 27: Nuclear Magnetic Resonance Imaging Technology: A Clinical, Industrial, and Policy Analysis

NMR studies performed in England (179). Nor

have significant problems relating to local heating

induced by radiofrequency pulses, or pathological, developmental, genetic, or behavioral hazards

caused by prolonged exposure to static NMR

fields been observed (161). In fact, the only complications reported at a July 1983 FDA Radiologic

Devices Panel meeting by Professor Robert Steiner,

of Hammersmith Hospital, London, in his discussion of the British NMR studies, were that one

baby had vomited and aspirated during positioning in the NMR scanner and that 3 percent of the

subjects had opted out of having an NMR scan

secondary to development of a feeling of claustrophobia when positioned in the magnet. Other

centers have reported claustrophobic feelings in

1 percent of subjects (147).

Potential nonbiological hazards include projectiles of metallic objects in the vicinity of NMR

magnets and damage to computer tape or other

objects in the surrounding environment.

The unblemished NMR safety record is perhaps

related to the extreme caution that has been exercised by clinical researchers working with NMR.

Researchers have, for example, tended to exclude

from their studies patients in whom cardiac pacemakers, large pieces of metal (such as an artificial hip), metallic cranial aneurysm clips, or metallic intrauterine devices have been implanted.

Pregnant women have also tended to be excluded.

It is possible that these restrictions will be relaxed

in the future. For now, however, no harmful effects have been associated with NMR imaging

under existing conditions of use.

In 1980, Great Britain’s National Radiological

Protection Board (NRPB) issued interim safety

guidelines pertaining to NMR imaging of humans

(table 1); revised guidelines are expected to be

published soon. In 1982, the U.S. Food and Drug

Administration (FDA) also issued guidelines, but

FDA’s guidelines were intended only to assist Institutional Review Boards in making decisions

regarding what constituted “significant risk. ”

Table 1 .—Suggested Guidelines for Safe Operation

of NMR Imagers

National Bureau of

Radiological Radiological

Protection Health

Board (FDA)

(U. K.) 1980a

(USA) 1982bc

Static magnet field

(tesla) (whole or

partial body

exposure) . . . . . . . . . . <2.5 T <2 T

Time-varying magnetic

fields (whole or

partial body

exposure) . . . . . . . . . . <20 T/sec <3 T/see

for pulses for

> 10 msec

Radiofrequency electromagnetic fields . . . . . <15 MHz < 0.4 W/kgd

(<70 w averaged

average power over whole

absorbed) body; <2

W/kg over any

one gram of

tissue

aR. D. Saunders and J S. Orr, “Biologic Effects of NM R,” in Nuclear Mafvreflc

Resonance (NMR) /rnagirrg, C L Partain, A. E James, F. D. Rollo, et al. (eds )

(Philadelphia: W, B Saunders, 1983).

bW. E Gundaker, Guidelines for Evaluating Hecfromagrretic Risk for Tr/a/s of

C/lnica/ NMR Systems, FDA Bureau of Radiological Health, Dwision of Compliance, Feb. 25, 1982

‘ T he NRPB guidelines specify Upper limits that I17USt nOt be exceeded. ‘he ‘DA

guidelines, in contrast, are intended to serve as an aid for Institutional Review

Boards making determinations of what constitutes “significant risk” under an

Investigational Device Exemption. Thus, the FDA does not prohibit use of NMR

dlmagers that operate outside these recommendations

Average specific absorption rate rather than fixed frequency.

Some attempts are underway to maintain records of individuals who have undergone NMR imaging studies so that they can be contacted in the

future. The NRPB is collating this type of exposure record, and the NMR Commission of the

American College of Radiology has distributed

patient data forms that are to be completed each

time a patient undergoes an NMR imaging study.

It would be advisable to establish uniform guidelines for collection of this type of data worldwide,

at least for the near future. Who should be responsible for collecting and maintaining such data and

who should bear the expense need to be determined. In addition, patient confidentiality issues

need to be resolved.
Ch. 3–Clinical Applications of NMR 2 7

PROTON IMAGING: A CLINICAL OVERVIEW

Brain

Thus far, the widest and most efficacious use

of clinical proton NMR imaging has been for the

brain and central nervous system. NMR’s prowess in demonstrating the anatomy of the central

nervous system derives in large part from two

facts. First, although the proton density in the

gray and white matter of the brain is approximately equal, gray matter contains approximately 15 percent more water than white matter. This difference in the chemical environment

in which gray and white matter protons exist,

which is reflected in differences in the T1 relaxation time of gray and white matter, results in a

significant level of gray versus white matter contrast in NMR images (30,52). This differentiation

is much more striking with NMR imaging than

with X-ray computed tomography (CT) because

X-ray CT’s linear attenuation coefficient for gray

matter is only slightly different from that for white

matter (24). Second, because cortical bone has a

very low NMR signal strength, it is possible to

image with NMR areas such as the posterior fossa,

brain stem, and spinal cord that are not well seen

by CT because the skull and vertebrae are impervious to the X-rays used in CT (136). In work

done in Aberdeen, Scotland (166) and at Hammersmith Hospital in England (30), for example,

NMR has produced clear images of the cerebellum

and brain stem, and has demonstrated brain stem

hemorrhages and cerebella tumors not seen with

CT.

NMR also appears to be more sensitive than

X-ray CT to the demyelinating lesions that occur

in multiple sclerosis (207).

In a report on cranial NMR scans performed

on 140 patients with a broad spectrum of neurologic diseases and on 13 healthy volunteers, Bydder,

et al., demonstrated NMR’s ability to detect tumors,

hemorrhages, infarctions, and ventricular size

(30). It remains to be seen whether NMR will be

superior to X-ray CT in demonstrating these types

of pathologies in areas of the brain other than the

posterior fossa and brain stem.

One final interesting central nervous system application of NMR is the study of brain development. Researchers at Aberdeen and Hammersmith, for example, have begun to explore the

time course of myelination in newborns (166,178).

Given the presumed safety of NMR imaging, further studies can be anticipated.

Mediastinum, Hilum, and Lung

Although recent evaluations of NMR imaging

of the thorax suggest that the technique may prove

useful in assessing mediastinal, hilar (referring to

the anatomic area where the bronchus blood

vessels, nerves, and lymphatic enter or leave the

lung), and lung abnormalities (71,166), the data

are still insufficient for comparing the efficacy of

NMR with other imaging techniques in evaluating

these structures. The possibility exists that variations in the T1 relaxation time between blood and

soft tissues might permit clinically useful discriminations between blood, fat, and hilar tumors to

be made without use of intravenous contrast

materials. Clinical trials are necessary, however,

to assess the sensitivity and specificity of NMR

imaging in these applications. Early work at Aberdeen suggests that some peripheral lung tumors

may not be so well seen with NMR as with X-ray

CT (166). If this proves to be the case, clinicians

might use X-ray CT to evaluate lung parenchyma

and NMR to evaluate the hilum. Finally, the possibility of exploiting differences in relaxation times

between flowing, static, and clotted blood suggests that NMR might be used to diagnose pulmonary emboli. Respiratory gating (a technique

in which image acquisition is coordinated with the

breathing cycle) may improve the diagnostic quality

of all types of NMR studies of the lung.

Heart

Researchers have begun investigating the potential for using NMR to produce tomographic

images of the heart muscle, chambers, and valvular structures (27,43,56,83,142). Although the

spatial resolution in images of the heart obtained

to date is crude compared to that of images of the

brain, advances in cardiac imaging are being made

as techniques for gating of images to the electrocardiogram are developed (114) and refinements
28 Ž Health Technology Case Study 27: Nuclear Magnetic Resonance imaging Technology: A Clinical, Industrial, and Policy Analysis

are made in the application of high-speed imaging techniques (such as the echo-planar technique—a particular type of NMR imaging in

which an image of a plane is obtained from an

excitation pulse) (124) to visualization of the

beating heart (27,142). Although NMR tomographic imaging of the anatomical structures of

the heart must for now be considered experimental, evidence is accumulating that NMR may

emerge as the modality of choice in the imaging

of certain structures. (See, for example (176),

relating to imaging the pericardium with NMR

versus X-ray CT. )

Another potential cardiac application of proton NMR imaging is discrimination between infarcted, ischemic, and normal myocardium

(27,142). In early work performed at Massachusetts General Hospital, researchers were able to

distinguish ischemic from non-ischemic canine

myocardium with, but not without, use of a

paramagnetic (a substance with a small but positive

magnetic susceptibility (magnetizability) that may

increase the contrast between tissues and NMR

images) (4) contrast agent (76). Although manganese, the contrast agent used, may be too toxic

to be used in humans, other less toxic paramagnetic agents might be developed (23,76). More

recently, investigators at the Massachusetts General Hospital have used anti-myosin (antibodies

directed against myosin, a component of muscle)

monoclinal antibodies labeled with manganese

and injected into the coronary arteries to visualize

acutely infarcted myocardium in dogs (110).

Finally, researchers at the University of California at San Francisco have been able to distinguish

in vivo between normal tissue and experimentally

induced infarcts in the lower extremities of rats

within 24 hours of infarction (89). Further research

needs to be performed before the implications of

these findings to the diagnosis of myocardial

ischemia and infarction in humans can be determined.

Breast

Ross, et al., reported on a series of NMR scans

of 128 breasts examined in 65 patients (155). Scans

were obtained using a magnetic field strength of

0.045 T. The investigators found that although

normal breast tissue could often be distinguished

from abnormal breast tissue, there was some difficulty in localizing abnormalities, as well as some

degree of overlap of T1 values obtained from

benign and malignant breast tissues. The latter

may limit NMR’s diagnostic efficacy in this application.

Ross, et al., also cited the prolonged time required to do an NMR breast scan as a possible

limitation of the technique (at a relatively low

magnetic field strength). In Ross’ study, the average total examination time per patient was 1 hour.

Pairs of transverse sections of the breasts were

produced in 10 minutes; T1 measurements were

made in 6 minutes. The average total examination time per patient exceeds the time required to

produce individual transverse sections because images of several sections are used in the process of

completing a patient examination.

Yousef, et al., employing a 0.3 T superconducting magnet, recently reported experience with

NMR imaging of two patients with breast abnormalities (58). Three-dimensional NMR images in

one case and single-slice planar images (images

taken through a single plane) in the other correlated well with mammograms performed in the

same patients. The authors suggest that NMR imaging may prove useful as a noninvasive probe

of breast lesions, but acknowledge that it is

premature to predict the efficacy of NMR in the

assessment of human breast disease (58).

Abdomen

Although the T1 values of the major abdominal

organs are sufficiently specific to make recognition of those organs relatively easy with proton

NMR imaging, there may not be sufficient difference between the values in normal and diseased

states to permit pathologic diagnoses to be made

with a high degree of accuracy (166). Results of

small clinical series of NMR imaging of the liver

(53,132,167) and pancreas (169,175) have been

reported, but further comparative studies need to

be performed before the clinical utility of NMR

imaging of space-occupying lesions in the abdomen can be defined.

There is some indication that metabolic liver

disease may also be amenable to evaluation by

hydrogen NMR imaging techniques. NMR can be
—-

Ch. 3–Clinical Applications of NMR • 29

used to measure liver iron overload in patients

with hemochromatosis (173), for example, and to

demonstrate focal areas of inflammation in patients with chronic active hepatitis (174).

Kidneys

Although several studies of proton NMR imaging of the kidney have been reported (98,118,

168,170), NMR investigations of the anatomy and

function of the kidneys must be considered experimental at this time. The possibility of distinguishing between renal cortex and medulla with

NMR (98) has been demonstrated, but further

studies are needed before the clinical utility of such

NMR data can be defined. Similarly, NMR’s role

in the clinical evaluation of renal diseases such

as glomerulonephritis remains to be demonstrated

(98). One potential disadvantage of using NMR

to evaluate the kidney is its inability to detect

calcifications. In another area, Ackerman, et al.,

have begun exploring the possibility of employing NMR to evaluate transplanted kidneys (2).

Pelvis

Researchers at Aberdeen were able to correctly

differentiate between benign prostatic hyperplasia

and prostatic carcinoma with proton NMR in 27

of 30 men with symptoms of urethral obstruction.

Two cases, however, were misdiagnosed as cancer when, in fact, prostatitis was present (166),

again illustrating that pathologic diagnoses made

with proton NMR may not be sufficiently specific

to obviate the need for biopsy. Bladder tumors

have also been imaged (178). It is too early to

assess the utility of using NMR in the staging of

cervical, uterine, and ovarian cancer. The fact that

NMR imaging does not employ ionizing radiation,

however, makes it attractive as a potential means

of imaging the pelvis, particularly in children and

pregnant women. More recent developments in

NMR imaging of the pelvis have been reviewed

elsewhere (97).

Musculoskeletal System

Although NMR does not visualize bone cortex,

it can be used to demonstrate bone marrow and

alterations in bone architecture. Consequently

NMR has been used to demonstrate osteomyelitis

and tumor metastasis in vertebral bodies and

pelvic bones (166). Because of its ability to provide sagittal and coronal images, NMR may prove

useful in examination of the spinal canal, but

again studies comparing NMR to other techniques

need to be performed before NMR’s role in this

regard can be defined. Early work has suggested

that both the spinal cord and nucleus pulposus

can be discerned in NMR images. Images of muscles, tendons, and ligaments demonstrating great

detail have also been produced with NMR (131),

suggesting that NMR imaging is likely to prove

valuable in the evaluation of musculoskeletal

disorders.

Clinical Oncology

As has been discussed, further research needs

to be performed before the role of proton NMR

imaging in the diagnosis of cancer can be defined

(14). Additional techniques need to be developed

before NMR can be used to distinguish with clinically useful accuracy between benign and malignant lesions. Because NMR does not employ

ionizing radiation, it might be used frequently to

closely monitor the progress of pediatric and adult

cancer patients being treated with radiation or

chemotherapy. Finally, the exciting possibility exists, but remains to be demonstrated, that NMR

could prove capable of detecting malignant abnormalities at a stage earlier than is currently possible. If that potential is realized, the additional

possibility exists that clinicians will become more

successful in treating the malignancies that are

detected.

Blood Vessels and Flow

NMR imaging offers two different approaches

to the evaluation of vascular disease, Although

it is still too early to assess the sensitivity and

specificity of NMR techniques in the detection of

vascular obstructions, a number of investigations

have suggested that proton NMR imaging can be

used not only to demonstrate atherosclerotic

vascular disease, but also to qualitatively assess

flow in major vessels (3,41,81,108,109). These

findings are particularly interesting since NMR

imaging does not require the potentially toxic

radiopaque dyes and catheterization of traditional

angiography.
30 Ž Health Technology Case Study 27: Nuclear Magnetic Resonance Imaging Technology: A Clinical, Industrial, and Policy Analysis

PUTTING PROTON NMR IMAGING INTO PERSPECTIVE

NMR imaging has captured the interest of the

medical profession for a number of reasons. First,

it eliminates the risk of X-radiation exposure that

is associated with use of devices such as X-ray CT

scanners. Second, in addition to providing excellent spatial resolution (on the order of 1.0 millimeter), the technique provides excellent contrast

resolution without the need for injection of potentially toxic contrast agents. Third, because of

the absence of NMR signal artifact from bone,

physicians can visualize areas such as the posterior

fossa, brain stem, and spinal cord with NMR that

were not well seen with other noninvasive imaging modalities. Finally, because NMR images are

sensitive to fundamental physical and chemical

characteristics of cells, the technique offers the

possibility of detecting diseases at earlier stages

than is currently possible and of permitting accurate pathologic tissue diagnoses to be made

noninvasively. These and other potential clinical

or practical benefits associated with NMR imaging are summarized in table 2.

NMR imaging is not without its disadvantages,

however (see table 3). NMR imagers, for example, are expensive and their installation is costly

and difficult. In addition, the magnetic fields used

to generate NMR images with resistive and superconducting systems are sensitive to radiofrequency

interference and may damage computer tape or

other objects in the surrounding environment.

Furthermore, it is currently thought not to be safe

to perform NMR imaging on certain patients (e.g.,

those with pacemakers or metal implants, such

as aneurysm clips). Finally, until more experience

with the modality is obtained, NMR imaging may

require more physician time in performance of patient examinations than X-ray CT or other imaging modalities.

Because the number of clinical applications of

NMR imaging and the utility of each is constantly

evolving (table 2), NMR’s role in medicine has yet

to be determined. As Kaufman, Tosteson, et al.,

have pointed out, many of the claims that NMR

will provide detailed chemical information specific enough to be diagnostically useful are premature (109). Although there is some plausibility

to the hundreds of applications that have been

Table 2.—Demonstrated and Potential Advantages

of NMR Imaging

A. Demonstrated benefits

1.

2.

3.

4.

5.

Uses no ionizing radiation; currently free of known biological hazards

Sensitive to differences in proton density and relaxation

parameters, providing a basis for a high degree of soft

tissue contrast

Does not require injection of potentially toxic contrast

agents (In the future paramagnetic contrast agents may

be developed for use with NMR. The risk associated with

use of such agents will have to be evaluated.)

Low-intensity signal from bone, resulting in improved

visualization of the posterior fossa, brain stem, and spinal

cord

Can produce three-dimensional as well as tomographic images in virtually any imaging plane without reformatting

(computer manipulation of the image)

B. Potential clinical or practical benefits

1. Increased sensitivity to physiochemical characteristics

of tissues may permit enhanced detection of disease (if,

for example, alterations in tissue physiochemical character can be detected prior to alterations in organ function or morphology)

2. Increased sensitivity to physiochemical characteristics

of tissues may permit accurate pathologic tissue diagnoses to be made noninvasively (The development of nontoxic paramagnetic contrast agents would be particularly

useful in this regard.)

3. Potential for analysis of flow of blood and other fluids, such

as cerebrospinal fluid

4. Absence of moving parts may decrease maintenance costs

and increase the useful lifetime of NM R imagers

SOURCE E P Steinberg, Johns Hopkins Medical Instltutlons, Baltlmore, MD,

1983

Table 3.—Current and Potential Disadvantages

of NMR Imaging

A. Current disadvantages

1. NMR imagers are expensive

2. Difficult and expensive site preparation

3. Exclusion of patients with pacemakers; metal implants,

such as aneurysm clips; or claustrophobia. (Patients who

have undergone brain surgery in whom there is uncertainty

regarding whether metal clips were implanted may need

to be X-rayed before being imaged with NMR. Metal detectors are also being used.)

4. Insensitivity to dense bone and calcifications

5. Relatively prolonged acquisition times and sensitivity to

motion result in degradation of images of moving anatomic

structures

B. Potential disadvantages

1. May require more physician time in performance of patient

examinations compared to other imaging modalities

2. Examination times could prove to be longer than with Xray CT or ultrasound, resulting in fewer patients examined

and increased average cost. (Newer developments in imaging techniques may change this)

SOURCE: E P Steinberg, Johns Hopkins Medical Institutions, Baltimore, MD,

1983
Ch. 3–Clinical Applications of NMR 3 1

cited for NMR, the majority of such applications

must be considered potential rather than demonstrated. Although T1 and T2 relaxation times have

been found to vary in different pathologic processes, for example, researchers have so far been

unable to characterize tissue pathology as specifically as had originally been expected using T1 and

T2 values, The possibility exists, however, that

through the development of nontoxic paramagnetic contrast agents, much of the noninvasive

diagnostic potential of NMR that had been hoped

for can be realized.

Whether the results that have been observed in

research institutions to date will be easily duplicated by other institutions remains to be seen. The

NMR imaging that has been performed so far has

taken place in research centers that possessed or

acquired considerable background and expertise

in NMR prior to initiation of an NMR imaging

program. Most, if not all, such centers have utilized interdisciplinary teams consisting of physicians, physicists, engineers, and others to produce

the images that have been published so far. In addition, the exquisite images that are helping to fuel

excitement about NMR imaging have often required prolonged amounts of time that it may not

be practical to expect most hospitals to expend,

Although future NMR production models are

likely to simplify image acquisition for the physician, and although the time required to produce

high-quality images is likely to decrease, it should

not be assumed that images of the same quality

as those published or displayed to date will necessarily be produced immediately in hospitals that

are not able to spend equivalent time and effort

on their production.

Furthermore, although in most research studies

performed to date several physicians have interpreted NMR scans independently and without access to comparative X-ray CT scans to guide them,

in many, if not most, instances patients with

known pathologies were being imaged. This is,

of course, not only reasonable, but also advisable

in the early stages of evaluation of a new technology. Nonetheless, NMR will not necessarily

be shown to have the same sensitivity and specificity when used to image patients with unknown

types of pathology.3 (See (149), for example. )

Although researchers have reported the ability

to produce head and body images with NMR in

times comparable to those required for X-ray CT

scanning (41), it is possible that the time required

to perform NMR studies on patients with unknown types of pathology will be longer than that

required by experts imaging patients with known

pathology (table 3). Given the variability in NMR

images depending on the pulse sequence employed, researchers are finding that certain pulse

sequences are better for demonstrating one type

of pathology, while different pulse sequences are

better able to demonstrate other types of pathology. Optimal pulse sequences for different pathologies are therefore being sought. It is likely that

in the future pulse-sequence algorithms that are

best suited to imaging specific medical problems

such as abscesses, hemorrhages, and tumors will

be built into NMR software. Although this development implies improvement in NMR images

of individual types of pathology, it also implies

that patients with unknown types of pathology

who are referred for a “screening” NMR scan in

the workup of symptoms such as fever, weight

loss, or pain will have to receive multiple scans

using multiple pulse sequences to exclude an abnormality. Such use of multiple pulse sequences

may increase the time required to perform NMR

studies.

The relationship between pulse sequence and

pathology suggests two additional issues. The first

is the issue of how many different pulse sequences .

will have to be employed before an examining

physician is comfortable with concluding that a

patient is normal. The second is that unless examining physicians are thorough, existing pathology

may be overlooked. It is thus possible that a tension will develop between the economic pressure

to maintain scheduling of a reasonable number

of patients and the clinical requirement that pa3

0n the other hand, given the rapid improvements taking place

in NMR imaging, current assessments may underestimate the ultimate sensitivity and specificity of NMR in many applications.
32 • Health Technology Case Study 27: Nuclear Magnetic Resonance Imaging Technology: A Clinical, Industrial, and Policy Analysis

thologic abnormalities be excluded with a high degree of certainty. To the extent that the latter

predominates, fewer patients may be seen, producing a rise in average cost per NMR study. To

the extent that the former predominates, the sensitivity and specificity of NMR may decrease.

Finally, since NMR imaging employs no ionizing radiation, it is possible that patients can safely

have repeated NMR scans over time to monitor

therapeutic progress or the natural history of disease. To the extent that such monitoring is demonstrated to provide clinically useful information,

the temptation to scan a single patient more frequently may increase. Such an effect would increase demands on NMR machines, which would

result in hospitals’ having to either ration time on

NMR machines or purchase more NMR scanners.

A second potential effect of “sequential scanning”

is that in the absence of prospective payment (as

is now the case for patients in many States), health

care bills might increase (see ch. 8). The occurrence and magnitude of such increases depend on

the extent to which sequential NMR scanning decreases or increases total patient management

costs and improves patient care.

In conclusion, NMR imaging is a new modality

thought to be capable of providing not only

anatomic information comparable or superior to

that obtainable with other imaging techniques, but

also chemical and metabolic information that

could yield noninvasive insights into tissue histology and function. Were NMR to be considered

just another means of visually demonstrating

RELAXATION PARAMETERS

As has been mentioned previously, proton

NMR images reflect not only the proton density

of the tissues being imaged, but also the proton

relaxation time characteristics of those tissues. In

addition to exploiting these relaxation parameters

to enhance the contrast of NMR images, researchers over the past decade have been investigating

the extent to which quantitative measurements of

T1 and T2 can be employed to make precise, yet

noninvasive pathologic assessments.

anatomy, therefore, its true potential would be

drastically underestimated. The lack of ionizing

radiation or demonstrated hazard associated with

NMR imaging, as well as the apparent lack of

need to employ toxic contrast agents to obtain

high-contrast images, would suggest an important

clinical role for NMR imaging in medicine even

if it proved to be no more efficacious than X-ray

CT scanning. Considerably more research, such

as that described in table 4, will be required before

NMR’s potential is determined and its most appropriate roles in clinical medicine are defined.

Table 4.—Likely Areas for Future NMR Research

1.

2.

3.

4.

5.

6.

7.

8.

9.

10.

11.

Determination of clinical utility of NMR imaging compared

to other imaging modalities

Improvements in magnet design (e.g., increased field

uniformity; increased field strength; techniques for conserving liquid helium and nitrogen)

Determination of magnetic field strength that yields optimum image quality for hydrogen, for other nuclei, or for

combinations of hydrogen and other nuclei)

Identification of pulse sequences optimal for demonstrating different types of pathologies

Improvements in imaging software and techniques affecting image quality, resolution, and scan time

Optimization of radiofrequency coils

Development of new and improved surface coils

Improvements in siting and shielding techniques

Development of paramagnetic agents for assessing tissue

pathophysiology

Further development of whole-body spectroscopic techniques and applications

Imaging of nuclei other than hydrogen (e.g., sodium or

phosphorus)

SOURCE E P Steinberg, Johns Hopkins Medical Institutions, Balt!more, MD,

1983

The first indication that relaxation times might

have diagnostic significance emerged from the

early work of Raymond Damadian at the State

University of New York, Brooklyn. In 1971,

Damadian demonstrated that the proton spinlattice relaxation time (T1

) in excised tumors that

had been experimentally induced in rat livers was

prolonged compared to the T1 values of normal

rat liver tissue (42). The T1 relaxation times of two

benign fibroadenomas were likewise found to be
——— .—— .—————

Ch. 3–Clinical Applications of NMR 3 3

distinguishable from those of the malignant tissue

(42). Similar results were observed by others

shortly thereafter (32,84,93,160). In 1974, Damadian extended this work to humans, finding the

T1 values of 106 surgically excised human tumors

to be longer than the T1 values of the corresponding normal tissues (45,46). About the same time,

Weisman and Bennett discovered that they could

use NMR to differentiate in vivo between the normal tissue of a mouse’s tail and a malignant

melanoma transplanted into the tail (202).

Out of concern that experimental malignant

tumors with slower growth rates might manifest

T1 values within the range observed for normal

tissues of nontumor bearing animals, Hollis, et

al., studied intermediate and slow-growing malignant tumors in rats (92). The authors found that

the T1 values of these more slowly growing tumors

were again longer than those of normal rat liver,

but overlapped T1 values of other types of normal tissues (92). In view of this finding, Hollis and

his co-workers voiced the concern that “. . . the

overlap of T1 values for malignant and normal

specimens raises the possibility of confusion between primary tumors adjacent to sites of similar or higher T1 value, or between normal tissue

and metastatic tumors having a similar or lower

T1 value” (92).

Similar observations were subsequently made

by others. Herfkens and co-workers at the University of California at San Francisco, for example,

found that the T1 values of in vivo tumors in rats

estimated by NMR imaging techniques varied

widely, and, although mean T1 values of the

tumors were high, individual T1 values overlapped

the full range of normal and other types of abnormal tissues (87). The same group also explored

the possibility of using both T1 and T2 values estimated by NMR imaging techniques to distinguish

between different types of pathologic abnormalities and found that contrast differentiation between normal and abnormal tissues was improved,

albeit still imperfect (87) (see fig. 8).

Figure 8.— Mean and Standard Deviations for

T1 and T2 of Various Tissues in a Live Rat

?

110 I 1 1 1 1 I 1 b

1 1

00

4 0

PUTTING T1 AND T2 RELAXATION TIMES INTO PERSPECTIVE

A number of conclusions can be drawn from

the results of studies on the potential use of quantitative T1 and T2 values for pathologic diagnosis. First, within certain numerical ranges, relaxation times may provide sufficient pathologic

specificity (to distinguish normal from abnormal,

and one disease from another) to be clinically

useful in understanding disease processes. Second,

in instances in which overlap exists between the

T1 and T2 values of normal and abnormal tissues,

it will not be possible to use relaxation values

alone to make reliable pathologic diagnoses, despite the theoretical attractiveness of doing so. “ .

Third, even if “natural” T1 and T2 values do not

prove to provide the pathologic specificity that

had been hoped, they may be useful in understanding disease processes. In addition, there is

the possibility that nontoxic paramagnetic contrast agents (21,23,156) may modify relaxation

properties and enhance diagnostic specificity.

Fourth, the possibility exists, yet remains to be

demonstrated, that detectable changes in T1 and

T2 values may precede the development of noticeable anatomical changes in ways that will be clinically useful. Studies of early changes in T1 and

T2 during oncogenesis, radiotherapy, and chemo-
34 Ž Health Technology Case Study 27: Nuclear Magnetic Resonance Imaging Technology: A Clinical, Industrial, and Policy Analysis

therapy, for example, may provide immediate

clinical dividends, as well as insights into the

etiology of cancer and new modes of cancer therapy. Finally, considerable research remains to be

done in the exploration of which physical, chemIN VIVO SPECTROSCOPY

Although small concentrations of phosphorus

are present in the body, researchers have recently

detected NMR signals from phosphorus of sufficient intensity to produce images. Researchers

have also been able to perform in vivo phosphorous NMR spectroscopy in which the “chemical

shift” phenomenon is used to indicate the relative

concentrations of compounds such as phosphocreatine, adenosine triphosphatase (ATP), and inorganic phosphate in human tissues or organs (see

fig. 9). Such a noninvasive metabolic probe has

tremendous potential applications in medicine.

It has been demonstrated, for example, that

levels of inorganic phosphate rise, while the concentration of phosphocreatine falls, in cells deprived

ical, and biological factors give rise to and influence NMR relaxation times. Only through answers

to these questions will it be possible to exploit

relaxation times’ full medical and scientific potential.

of oxygen (165). The possibility thus exists that

NMR spectroscopy could be employed not only

to assess the utilization of ATP and the viability

of oxygen-deprived brain or heart tissue (22), but

also to gain insight into the functional and metabolic status of brain, heart, or peripheral muscle

tissues in various physiologic and pathologic

states. It has been demonstrated, for example, that

the pH of oxygen-deprived tissue can be calculated from the positions of inorganic phosphorus

peaks observed with NMR spectroscopy (22,26)

and that changes in muscular metabolism during

exercise can be detected by NMR (70,145), Rare

diseases due to inborn errors of metabolism, such

as McArdle’s syndrome, can also be diagnosed

using in vivo NMR spectroscopy (146).

Figure 9.— NMR Phosphorus Spectrograma

I

Phosphocreatine

Inorganic phosphate

Signal

strength

Sugar

phosphates

ATP

1 1 1 1 I T -

– 5 o 5 10 15 20 Chemical shift p.p.m

%raphic depiction of the Indwidual components of NMR signals from phoshorus-containing compounds arranged according to the frequency of electromagnetic radiation

SOURCE D I Hoult, “An Overview of NMR in Medicine, ” U S. Department of Health and Human Services, National Center for Health Care Technology, February 1981
.

Ch. 3–Clinical Applications of NMR 3 5

—— —.. — —

PUTTING

Much addit

IN VIVO SPECTROSCOPY

onal research is required before an

INTO PERSPECTIVE

neither proton imaging nor in vivo spec

assessment can be made of the extent to which

in vivo NMR spectroscopy can be used to provide diagnostically useful clinical information

regarding the metabolic and functional status of

normal and abnormal tissues. It should also be

recognized that the technology required for in

vivo human NMR spectroscopy of organs such

as the heart or brain is considerably more sophisticated than that required to perform proton NMR

imaging. Superconducting magnets operating at

high field strengths (on the order of 1.5 T or

greater) with extremely high levels of field uniformity, for example, seem to be required to provide adequate resolution of the peaks emanating

from various phosphorus-containing compounds.

Thus most of the NMR imagers that are generally being installed in hospitals today (i. e., ones

with field strengths less than 1.5 T) may not be

capable of performing NMR spectroscopy, In addition, even though it has been proven feasible

to perform spectroscopy on the 1.5 T imaging systems currently being installed, it is possible that

roscopy

can be performed optimally at a field strength-of

1.5 T.4 Hospitals desirous of performing spectroscopy and imaging, therefore, may need either to

obtain more than one NMR machine or be content to tolerate potentially costly periods during

which field strengths are changed and the NMR

machine is therefore not operational.5 Considerably more research is also required before specialized equipment, such as auxiliary surface coils,

are designed that permit NMR spectroscopy of

phosphorus and other nuclei to be performed optimally. For the present, therefore, in vivo NMR

spectroscopy should be considered an exciting and

promising area of research that is of questionable

feasibility for most hospitals.

4High-quality images of both the head and body have recently

been produced at 1.5 T. It is too early to know whether images produced at Is T will be better or faster than those produced at lower

field strengths,

5

In addition, alterations in software may need to be made in

association with adjustments in the field strength, and such software changes may prove to be too time-consuming to be practical.
4.

The NMR Imaging Device lndustry
4.

The NMR Imaging Device lndustry

INTRODUCTION

NMR imaging is fast emerging as the “growth”

technology in the diagnostic imaging field. The

possibility of unrivaled image quality, coupled

with the perceived demand for a less risky alternative to X-ray computed tomography (CT) and

radionuclide scanning, has led numerous firms to

invest heavily in NMR imaging research and development. Since 1976, at least 23 companies

worldwide have entered the NMR imaging marketplace. The industry is both dynamic and intensely competitive, Sales of NMR imaging devices over the next 5 years have been estimated

by one source at $6.4 billion (60), an estimate that

some manufacturers contend is conservative. The

future of the industry, however, will depend not

only on the internal composition and behavior of

the industry, but also on external economic and

regulatory forces, including Federal and State policies toward technology development and diffusion, and third-party decisions regarding payment.

This chapter will focus on the NMR imaging industry, while succeeding chapters will address exterINDUSTRY STRUCTURE

The NMR imaging device industry may be examined through several important structural features, including seller and buyer concentrations,

barriers to entry, diversification of firms, and acquisition and merger activity. The findings presented here reflect our own interpretations of data

from multiple sources and do not represent the

official views of the firms concerned. (A description of the methods employed in our survey of

manufacturers appears as app. B; detailed descriptions of manufacturers, products, and clinical

placements of NMR imaging units appear in app.

c.)

Seller Concentration

The NMR imaging device industry may be

divided into three groups of manufacturers, based

nal economic and regulatory forces affecting that

industry.

To understand the forces driving the NMR imaging device industry, it is necessary first to focus

on three elements that have become standard in

the analysis of American industry: structure, conduct, and performance (31). Structure refers to

the composition and boundaries of an industry,

i.e., the number and size distribution of its firms

and their ability to enter the marketplace. Conduct pertains to the behavior of such firms once

they gain entry to the marketplace, e.g., their policies toward setting prices, differentiating their

products, and engaging in competition with one

another. Performance relates to the results of

firms’ behavior, i.e., how well the industry is able

to achieve recognized economic goals of efficiency

and profitability. Industry structure often influences the nature of market conduct, which, in turn,

may affect the quality of industry performance.

on their stage of research and development (R&D)

as of October 1983 (see table 5). Of the 20 firms

for which we have information, seven had reached

an advanced stage in which they had conducted

extensive preproduction technical testing and had

placed numerous units in clinical sites outside their

factories. Each of these advanced stage firms had

also developed a commercial prototype system1

that was available for placement. Two companies,

Diasonics and Technicare, obtained FDA premarket approval for the sale of their devices in

March 1984, and a third, Picker International, in

May 1984.

‘See subsequent discussion of industry development for definition of a commercial prototype system. By August 1984 Elscint had

also reached the advanced stage. See app. C.

39
40 Ž Health Technology Case Study 27: Nuclear Magnetic Resonance Imaging Technology: A Clinical, Industrial, and Policy Analysis

Table 5.—The NMR Imaging Device Industry,

October 1983

Companies in advanced stage of development

Engineering model(s) complete; mu/tip/e clinical

placements outside factory; ongoing clinical studies

since 1982 or earlier; commercial prototype system(s)

available for placement:

Bruker Instruments

Diasonics Inc.a

Fonar Corp.

Philips Medical Systems

Picker Internationala

Siemens Medical Systems

Technicare Corp.a

Elscint Ltd.b

Companies in intermediate stage of development

Engineering model(s) complete; limited clinical

placements outside factory; generally limited clinical

study thus far; commercial prototype system(s) generally

not yet available for placement:

General Electric Co.

M&D Technology Ltd.c

Toshiba Corp.

Companies in early stage of development: d

Engineering model(s) under development; no clinical

placements outside factory; commercial prototype

system(s) still to be defined:

ADAC Laboratories

CGR Medical Corp.e

Fischer Imaging Corp.f

Hitachi Ltd.

JEOL USA

Nalorac Cryogenicsg

OMR Technologyh

Sanyo Electric

Shimadzu Corp.

aFDA grantedpremarket approval in SPrin9 19~

bln the advanced stage by August 1964 (see aPP. C)

cHad extensive clinical experience prior to formation of company.

dT wo other firms that have announced plans to develop NMR ima9in9 sYstems

are Ansoldo SPA and Instrumentarium Oy

engineering model complete, but clinical placement iS not expected Until 1964.

fHad been developing its own NMR imaging systems until acquired by Diasonics

Inc in May 1983.

gAs Indicated in ‘pp. c, Nalorac Cryogenics had two cl!n!cal placements by

August 1964 However, these are small bore, high field strength systems that

are currently being used for research purposes only.

h Acqulre d by )(onics Inc. In late 1963

SOURCES Interviews with manufacturers; American Hospital Assoclatlon, 1963

(6); Boteler, 1963 (20); and “Imaging Equipment Sales Close In On $4

Billion Mark, ” f2/ag Irrrag 5(11)”55431, November 1963

By October 1983 four firms had progressed to

an intermediate stage of R&D in which engineering and experimental models had been completed,

but commercial prototype systems had either not

yet been developed or not yet been installed in

clinical sites. The extent of clinical study also varied widely among these manufacturers. M&D

Technology Ltd. had the benefit of clinical experience acquired by its founders at the University

of Aberdeen (Scotland) prior to its incorporation,

but it had yet to reach the advanced production

prototype stage.

Nine other manufacturers could be characterized as engaged in early R&D work in October

1983. Of these, only one (CGR Medical Corp. )

had completed an experimental prototype on

which clinical testing was expected to begin in

1984, One firm, Fischer Imaging Corp., had been

acquired (May 1983) by a manufacturer in the advanced R&D group, Diasonics Inc. Complete

details on the future organizational structure of

the two companies and their respective NMR imaging programs are not available at this time.

Industry Profile. The multinational character

of the NMR imaging device industry is reflected

in the 19 firms listed in table 6.2 In October 1983,

U.S. companies accounted for 37 percent of the

total, while Japanese corporations comprised

another 26 percent. Five other nations had entries

in the world market: West Germany and Great

Britain with two companies each; and France,

Israel, and the Netherlands with one apiece.3

Thirteen of the manufacturers (68 percent) are

public corporations, some of which are giants in

other fields (General Electric, Hitachi, Philips,

Sanyo Electric, Siemens, Toshiba). Of the six privately held firms, two are owned by small groups

of investors (Nalorac Cryogenics, OMR Technology4

), while three others are subsidiaries of major corporations (Picker International, Bruker

Instruments, CGR Medical Corp.). M&D Technology Ltd. is a unique entity financed by a combination of private individuals and public trusts

in Aberdeen, Scotland.

In terms of organizational structure, 11 NMR

imaging device manufacturers (58 percent) are independent firms, seven (37 percent) are wholly

owned subsidiaries, and one is the Medical Systems Division of a major public corporation (General Electric). Fifteen NMR manufacturers (79 percent) have multiple product lines. Some of these

‘Because Fischer has been acquired by Diasonics, we have excluded

it from table 6.

‘Two other firms that have announced plans to develop NMR

imaging systems are Ansoldo SPA of Genoa, Italy, and Instrumentarium Oy of Helsinki, Finland.

4

0MR Technology has recently been acquired by Xonics Inc. , a

publicly owned multiproduct firm in the United States.
—

Ch. 4–The NMR Imaging Device industry 4 1 — ——— —

Table 6.—The NMR Imaging Device Industry: Company Profile”

Company b

ADAC Laboratories . . . . . . . . . . . .

Bruker Instruments ., . . . . . . . . . .

CGR Medical Corp. . . . . . . . . . . . .

Diasonics Inc. . . . . . . . . . . . . . . . .

Elscint Ltd. . . . . . . . . . . . . . . . . . . .

Fonar Corp. . . . . . . . . . . . . . . . . . . .

General Electric Co. . . . . . . . . . . .

Hitachi Ltd. . . . . . . . . . . . . . . . . . . .

JEOL USA . . . . . . . . . . . . . . . . . . . .

M&D Technology Ltd. . . . . . . . . . .

Nalorac Cryogenics . . . . . . . . . . . .

OMR Technologyd 

. . . . . . . . . . . . .

Philips Medical Systems . . . . . . .

Picker International . . . . . . . . . . .

Sanyo Electric . . . . . . . . . . . . . . . .

Shimadzu Corp. . . . . . . . . . . . . . . .

Siemens Medical Systems . . . . . .

Technicare Corp. . . . . . . . . . . . .

Toshiba Corp. . . . . . . . . . . . . . . . .

Ownership

Public

Private

Private

Public

Public

Public

Public

Public

Public

Private

Private

Private

Public

Private

Public

Public

Public

Public

Public

Product lines Organizational

(single or multi) structure

Multi Independent

Multi Subsidiary of Bruker Physik

R.A.G

Multi Subsidiary of ThompsonBrandt

Multi Independent

Multi Independent

Single Independent

Multi Independentc

Multi Independent

Multi Subsidiary of JEOL

Single Independent

Single Independent

Single Independent

Multi Subsidiary of North American

Philips e

Multi Subsidiary of GEC

Multi Independent

Multi Independent

Multi Subsidiary of Siemens A.G.

Multi Subsidiary of Johnson &

Johnson

Multi lndependent

Country

United States

West Germany

France

United States

Israel

United States

United States

Japan

Japan

United Kingdom

United States

United States

Netherlands

United Kingdom

Japan

Japan

West Germany

United States

.

Japan

aA~ of October lg@ Two other firmS that have announc~ plans to deve[~p NMR irnaglng systems are Ansoldo SpA of Genoa, Italy, and lrl Str(JITIentari I.irTl C)Y Of Helsinki,

Finland

b

ln alphabetical order

cMedlcal Systems D!vision IS responsible for NMR lma9in9 R~D

dAcqulred by )(on~s Inc in late 1983 Information on the merger not available

eNotih American ph IIIpS IS a trust associated with N V Philips of the Netherlands

SOURCES Interviews w!th manufacturers, Dun & Bradstreet, M///ion Do//ar Directory, 1983, Parsipanny, NJ, 1983, Moody’s Investors Service, Moody’s /ndusfr/a/ Manual

1982, and Moody’s /n/ernat/ona/ Manual, 7982, New York, 1982, and “Imaging Equipment Sales Close In On $4 Blll!on Mak, ’ D/ag /rnag 5(11) 55-61, November

1983

have parent firms with products that extend beyond

the boundaries of health care (see later discussion

of diversification among firms). Of the three firms

pursuing NMR imaging solely, all are independent, only one is publicly owned (Fonar Corp.),

and all but one (M&D Technology Ltd. ) are based

in the United States (see table 6).

The number of employees engaged by each firm

in NMR imaging-related work varies across the

industry. Of the 12 companies for which such information could be obtained in August 1984, 4

had fewer than 50 full-time NMR employees,

with 2 of these reporting NMR programs utilizing 10 or fewer full-time employees. At the other

extreme, 8 firms reported program staffs (R&D

plus administrative/marketing personnel) of 100

or more individuals, with one company (General

Electric) employing over 500 persons.5 Individuals

with doctorates in physics, physical chemistry,

and engineering comprise a substantial propor-

‘See app. C for intormat[on on specific manufacturers,

tion of all full-time employees, ranging from at

least 75 percent in the smallest firms to at least

12 percent in the NMR work forces of the largest

companies.

Market Share. The traditional measure of seller

concentration in an industry is the four-firm or

eight-firm “concentration ratio, ” i.e., the combined market share of the top four or eight firms

as reflected in their annual sales (31). Because

NMR imaging units have been considered investigational devices by the FDA and, thus, could

not be sold at a profit in the United States, information on U.S. sales is not readily available.

However, using the number of clinical placements

as a proxy for sales, the industry appears to be

concentrated among four firms that account for

79 percent of worldwide placements and 83 percent of placements in the United States (see table

7). As of August 1984, Technicare Corp. had

placed more operational units in clinical settings

(44) than any other manufacturer, garnering 30

percent of the 145 worldwide placements and 39
42 Ž Health Technology Case Study 27: Nuclear Magnetic Resonance Imaging Technology: A Clinical, Industrial, and Policy Analysis

Table 7.—The NMR Imaging Device Industry: Market Share as Reflected

in Clinical Placementsa

Current placements

(as of August 1984) Current market sharec

Company b Worldwide U.S. only Worldwide U.S. only

Technicare Corp. . . . . . . . . . . . . . . . . . . 44 36 30 ”/0 39 ”/0

Picker International . . . . . . . . . . . . . . . . 28 12 19 13

Diasonics Inc. . . . . . . . . . . . . . . . . . . . . . 23 19 16 20

Siemens Medical Systems . . . . . . . . . . 19 10 13 11

Fonar Corp. . . . . . . . . . . . . . . . . . . . . . . . 9 6 6 6

Philips Medical Systems. . . . . . . . . . . . 5 1 3 1

Bruker Instruments . . . . . . . . . . . . . . . . 4 2 3 2

Elscint Ltd. . . . . . . . . . . . . . . . . . . . . . . . 4 2 3 2

General Electric Co. . . . . . . . . . . . . . . . 4 3 3 3

M&D Technology Ltd.d . . . . . . . . . . . . . 2 0 1 0

Nalorac Cryogenics . . . . . . . . . . . . . . . . 2 2 1 2

Toshiba Corp.d . . . . . . . . . . . . . . . . . . . . 1 0 1 0

Totals . . . . . . . . . . . . . . . . . . . . . . . . . . 145 93 100 % 100%

aNMR imaging systems Flaced in clinical sites outside facto~, human Systems onlY (whole body and head).

bin descending order of worldwide market share, aS Of August 19~

cExpressed as ~rcentage of total current placements Detail may not sum to 100 Percent because of rounding

dAs of October 1983.

SOURCES Interviews with manufacturers, Boteler, 1983 (20), American Hospital Association, 1983 (6); and “Imaging Equipment Sales Close In On $4 Billion Mark, ” LVag. /rnag. 5(1 1):55-61, November 1983

percent of those in the United States (36 of 93).

Picker International was second, with 28 units

worldwide (19 percent) and 12 in the United States

(13 percent). Diasonics Inc. had placed 23 units

worldwide (16 percent), with 19 of those in the

United States (20 percent of the U.S. market).

Siemens Medical Systems had slightly fewer placements, with 19 worldwide (13 percent) and 10 in

the United States (11 percent).

NMR Imaging Systems. An important determinant of industry growth and seller concentration will be the product features offered in the

NMR imaging systems. Manufacturers are investing great energy in product differentiation

strategies designed to segment the market for

NMR imaging devices (see discussion of nonprice

competition policies of firms in the industry conduct section of this chapter). Considerable controversy exists over the optimal design and configuration of NMR imaging units (20). Much

of the debate centers on magnet design (6),

with various manufacturers pursuing different

strategies.

At present, M&D Technology Ltd. is the only

company that appears committed to resistive

magnet design operating at relatively low field

strengths (see table 8). At least five firms (Diasonics, Philips, Siemens, General Electric, and

Nalorac Cryogenics) are strongly committed to

superconducting magnet technology only. Philips

and Siemens now offer both 5 and 15 kilogauss

systems, whereas General Electric plans to market a 15 kilogauss model in 1984. Nalorac Cryogenics is developing three superconducting systems intended largely for research applications,

with magnet strengths ranging from 10 to 40

kilogauss (see app. C).

Superconducting magnet systems are now offered by at least four other manufacturers, but

three of them also offer resistive systems (Picker

International, Technicare Corp., and Bruker Instruments) and one is experimenting actively with

permanent magnets (Elscint Ltd.). Fonar Corp. is

the only manufacturer that now bases its system

design on permanent magnet technology, including a 3 kilogauss mobile, whole body unit. ADAC

Laboratories is also developing a permanent

magnet NMR imager and expects to have a production model ready in late 1985.

Buyer Concentration

Unlike the high seller concentration in the NMR

imaging device industry, the number and diversity of potential buyers in the market is extraordinarily large, covering research laboratories and
Ch 4–The NMR Imaging Device Industry 4 3

—— —.. .——

Table 8.—Status of NMR Imaging Systemsa

—

NMR imaging system

—

Clinical

Magnet Field strength Bore Year first patients studied

Company b

type (kilogauss) size available to datec

Bruker Instruments R 1 .3d B 1979 100

s 47 A 1979

s 19d A or H 1982

R 2.4 B 1984

CGR Medical Corp. R 1.5 B 1982 0

s 3.5 B 1983

s 5 B 1983

Diasonics Inc. s 5

d

’

e

‘B 1981 NA

Elscint Ltd. s 5 B 1982 N A

Fonar Corp. P 0.4 B 1980 2,200

P 3

d B 1983

P 3

d BM 1983

General Electric Co. R 1 .2f B 1982 600

R 1.5f B 1983

s 15d B 1984

M&D Technology Ltd. R 0.4 B 197? 1,200

R 0.8 B 1982

Philips Medical Systems R 1.5 B 1982 300

s 30 A 1982

s 15d B 1983

s 5

d B 1983

Picker International R 1 .5d B 1978

s 3 B 1981 NA

s 5

d B 1983

Siemens Medical Systems R 1,2 B 1980

R 2 B 1981 800

s 5

d

B 1983

s 15d

B 1983

Technicare Corp. s 15d A 1980 4,750

R 1 .5d H 1981

s 3

f B 1982

s 5

d B 1983

s 6 B 1983

s 15 B 1983

Toshiba Corp. R 1.5 B NA NA

NA = Not available

KEY Magnet type P = Permanent

R = Resistive

S =Superconductlng

Bore size A = Animal

B = Whole body

BM = Whole body (mobile)

H = Head

aAs of August 1984

b

ln alphabetical order

CAS of October 1983

dprobable commercial prototype System(S)

esystem operating at 35

‘No longer available

SOURCES Interviews w!th manufacturers, Boteler, 1983 (20), and American Hospital Association, 1983 (6)

various types of clinical facilities. Likely buyers in the United States (5) will purchase NMR imin the clinical segment of the market include hos- agers by 1990. The prime buyers will be the

pitals, private radiology groups, and health main- leading teaching hospitals and medical centers,

tenance organizations (HMOs). Many manufac- followed by large urban and moderate-sized comturers are optimistic that more than half of the munity hospitals with bed capacities of at least

5,900 non-Federal, short-term general hospitals 200. In the United States alone there are over
44 • Health Technology Case Study 27: Nuclear Magnetic Resonance Imaging Technology: A Clinical, Industrial, and Policy Analysis

1,700 hospitals meeting this description (5) and

a large number in Canada and Western Europe.

NMR imaging manufacturers also expect to make

in-roads into other segments of the U.S. hospital

industry, including the smaller independent community hospitals (100 to 199 beds); Federal Government hospitals in the Veterans Administration,

Department of Defense, and Public Health Service systems (numbering around 350 facilities); and

long-term and specialty hospitals (roughly 1,000).

Hospital chains, particularly investor-owned corporations, are expected to be prime purchasers of

NMR imagers (see the discussion of hospital strategies in ch. .5).

Several hundred NMR imaging units are expected to be sold worldwide to private radiology

groups and to physicians’ offices outside hospitals. The approximately 236 HMOs and prepaid

health plans in the United States (193) are another

potential source of buyers, with some likely to

purchase multiple units for outpatient as well as

inpatient settings.

Finally, the medical research community is

viewed as an important market segment. At least

two manufacturers (Nalorac Cryogenics and JEOL)

are firmly committed to developing NMR imaging systems specifically intended for research

applications. Both firms are investing in superconducting magnet systems that will operate at

relatively high field strengths and be capable of

performing phosphorus spectroscopy as well as

proton NMR imaging.

Barriers to Entry

The ability of relatively small firms to enter the

NMR imaging device industry depends on several

key factors: their ability to attract adequate

capitalization and technical/scientific talent for

R&D, the development of strong university ties

for collaborative research, and the ability to market products once they have been developed. At

present, three small, single-product firms comprise

16 percent of the total number of firms in the industry (3 of 19 firms). Among them, one (Fonar

Corp. ) has attained advanced R&D status, and

a second (M&D Technology Ltd. ) stands on the

threshold of commercial production. In order to

understand the importance of these achievements,

it is necessary first to examine the chronological development of the NMR imaging device industry.

Industry Development. The birth of the NMR

imaging device industry can be traced to 1976

when EMI began work on building an NMR imaging machine. In 1977, two other companies

(Bruker Instruments and Philips Medical Systems)

embarked on parallel courses of NMR imaging

R&D (see fig. 10). Between 1978 and 1980, five

additional firms entered the industry. Fonar,

drawing on several years of research by Raymond

Damadian, was the first American company (and

the only small single-product firm) to make a firm

financial commitment to NMR imaging R&D during this period. Since 1980, the industry has experienced rapid growth, with four new entries in

1981 and another four in 1982. Data for the Japanese NMR imaging device industry are incomplete, but it is believed that several Japanese companies also entered the market during this time.

The pattern of NMR imaging development, i.e.,

the sequence of steps through which a manufacturer must pass in order to reach full production

capability, generally consists of four major steps

(see

1.

2.

3.

fig. 10):

Corporate decision— the manufacturer makes

a corporate decision to invest in R&D activities and marshals its resources (capital, staff,

facilities, materials) to assemble a program

development effort whose first objective is

to produce an experimental prototype or

engineering model.

Experimental prototype—upon attaining this

goal, the manufacturer can begin in-house

testing that proceeds through several stages

using “phantom” (inanimate) objects at first,

and then laboratory animals and humans as

imaging subjects. The knowledge and experience gained in the process facilitate the refinement of both system hardware and imaging techniques.

Clinical placement outside the company

plant—manufacturers differ somewhat in

their approach to clinical testing. Some prefer initial testing with humans on experimental in-house systems before seeking outside clinical placements of investigational

units. Others choose to perform all clinical
Ch. 4--The NMR Imaging Device Industry 45

—— —

Figure 10.–Chronological Development of the NMR Imaging Device Industrya

Company b

EM I’

Bruker Instruments

Philips Medical Systems

Siemens Medical Systems

Fonar Corp2

Technicare Corp.3 

CGR Medical Corp

General Electric Co 4

Diasonics lnc.5

Picker International’

Elscint Ltd

Nalorac Cryogenics7

M&D Technology Ltd.8 

ADAC Laboratories

Fischer Imaging Corp. ’

JEOL USA

D E C,w

D E c M

D E C M

D E c M

alnformat!on on chronology of events not available for Ansoldo SPA H !tachl Ltd Instrument arlum Oy, OMR Technology (now Xonlcs) Sanyo Elect rlc. Sh{madzu Corp

and Tosh{ba Corp

bln order of market entry based on corporate dec[slon to Invest (n NMR lma91n9

KEY D = Corporate declslon to Invest In R&D efforts for NMR Imaging

E – First experimental prototype/engineering model available

C = Ftrst cllnlcal placement of an NMR Imaging unit outs!de the company’s plant

M = First commercial/marketing prototype system available for placement

A - Acqulsitlon of company by other firm

W = Withdrawal of company from the industry

Letter symbols In parentheses ( ) Indicate projected events In the future

Dotted I!nes to the left of declslon (D) points reflect R&D work that preceded formal company involvement or formation

‘Began NMR R&D In 1976 produced first engineering model in 1978 sold tts NMR Imaging technology to Picker International In October 1981

‘Founded In 1978 as RAAN EX Corp became Fonar Corp In 1980

‘Parent company John son & Johnson, made I n itiai commitment as early as 1977, but major R&D effort dld not begin untl I the acqu Isltton of Techn I care I n 1979

‘Early R&D work In phosphorus spectroscopy began In 1978, but firm corporate commitment to NMR Imaging was not made until 1980

‘1 n Itlal R & D bagan as a U n Iversl ty of Cal I fern la, San Francisco (UCSF) project wlt h outside funding. In 1976, the Pf!zer Corp began funding the work I n 1981, Dlason I cs

Inc purchased the rights to all patentable NMR technology developed under the UCSF-Pfizer agreement

0 Formed I n Aprl I 1981 after G EC of England acqul red the Picker Corp and merged It wlt h GEC Medical and Cambridge Medical Instruments G EC of En g! and had begun

NMR imagtng R&D In 1977 In October 1981, Picker International purchased all NMR Imaging technology that had been developed Independently by EM I of England

since 1976

‘Began early R&D on superconducting NMR systems In 1976 In 1977, the company was acquired by Ntcolet Instruments Corp In 1981, the orlglnal founder of Nalorac

Cryogenics purchased the company back from Nlcolet and reaffirmed Its commitment to developing NMR imaging systems

“Formed I n 1982 to commercially develop the N M R I magi ng system that had evolved from the work of Professor Mallard at Aberdeen, Scotland SI nce 1974

SOURCE Interviews with manufacturers

testing in outside clinical facilities with whom

they have established close collaborative

relationships. Regardless of the strategy

employed, clinical placement of investigational systems outside the company’s plant

is a major step toward obtaining critical data

for further refinement of the product and for

defining the optimal configuration of the

commercial system to be produced.

4. Commercial prototype—this is the last step

of advanced R&D prior to full commercial

production. The design and development of

this prototype or commercial model often

occurs concurrently with intensive clinical

testing. Some manufacturers have cautiously

delayed commercial prototype development

until after thorough clinical testing in order

to specify the best commercial design possible.
46 Ž Health Technology Case Study 27: Nuclear Magnetic Resonance Imaging Technology: A Clinical, industrial, and Policy Analysis

—

In the case of NMR imaging R&D, the time

span required for completion of all four steps appears to have decreased over the years (see fig.

10). The early firms entering the market (e.g.,

EMI, Bruker Instruments, Philips Medical Systems, Siemens Medical Systems, and Fonar Corp. )

each took 2 to 4 years to produce their first experimental systems. By contrast, firms entering

the market in the last 2 to 3 years either have attained, or plan to attain, this goal in significantly

less time. Overall, the actual or projected time

frames of these late participants in NMR imaging are very much compressed, owing to the

strong pressures of competition and to the knowledge about NMR imaging design conferred upon

them by the pioneering efforts of their predecessors.

The pathways for entry6 into the market have

varied by manufacturer (see fig. 10). Essentially,

four different routes have been followed, some

simultaneously:

Government-supported R&D—EMI entered

the NMR market in 1976 with grant support

from the Department of Health and Social

Security (DHSS) in Great Britain. British

Government support of university-based

R&D at Nottingham and Aberdeen during

the 1970s also later benefited Picker International and M&D Technology Ltd., respectively, when they decided to enter the NMR

imaging market. Three firms (Bruker, Philips,

and Siemens) have received grants from the

West German Government, but only after

each had initiated NMR program development with company resources.

University-based R&D—all four small, single-product firms emerged as a direct result

of university-based R&D at the following institutions: State University of New York

(Fonar Corp.); University of Aberdeen (M&D

Technology Ltd.); University of Nottingham

(Nalorac Cryogenics); and University of

California, Los Angeles (OMR Technology).

In the case of Nalorac Cryogenics, the company’s founder, James Carolan, had worked

‘The paths for entry do not necessarily reflect subsequent R&D

strategy and are not mutually exclusive.

at Nottingham and later at Bruker before

establishing his own firm.

Acquired technology—two firms have successfully employed this strategy to accelerate their market entry and their progress

toward advanced R&D. Picker International

in 1981 purchased all NMR imaging technology that had been developed by EMI of

England since 1976. That same year, Diasonics

Inc. purchased the rights to all patentable

NMR technology developed by Pfizer under

an agreement with the University of California, San Francisco. A third firm, Fischer Imaging Corp., also sought to purchase NMR

imaging technology from other manufacturers, but eventually was acquired by Diasonics Inc. in May 1983.

Internally based R&D—the remaining firms

in the industry have generally relied on internal R&D operations to develop their own

NMR imaging technology. General Electric,

Philips, Siemens and Technicare are examples

of large companies marshaling their considerable R&D resources for directed NMR program development. Elscint and ADAC Laboratories have also committed themselves to

internal R&D without benefit of government

funding or of “off-the-shelf” technology. At

least three firms (Bruker, Philips, and JEOL)

have been able to draw directly on their corporate experience in manufacturing research

laboratory NMR spectrometers.

The major elements affecting a company’s ability to enter the marketplace generally have included the availability of capital, staff expertise,

corporate experience, and collaborative links with

major university research groups.

Capital Requirements for Market Entry. Interviews with manufacturers suggest that capital requirements for R&D have not been unduly excessive for those who have entered the field.

Industry sources estimate that a new firm, or a

firm lacking prior experience in NMR spectroscopy, requires between $4 million and $15 million for initial capitalization of R&D. This estimate does not include the capital required for

expanding production capacity or for vertical integration of NMR imaging-related products, e.g.,

the capacity to build one’s own magnets.
—

Ch. 4– The NMR Imaging Device industry 4 7

Table 9 shows the R&D expenditures incurred

up to October 1983 by 12 companies involved in

NMR program development. Expenditure levels

are reflections, in part, of a company’s stage of

R&D effort. For instance, the four firms reporting expenditures of $1 million to $5 million have

only recently entered the market and are engaged

in early R&D. By contrast, the six companies

reporting expenditures in excess of $10 million are

involved in inter-mediate (two firms) or advanced

(four) stages of R&D. There are exceptions to this

pattern: the two firms with expenditures in the

$6 million to $10 million range have both attained

advanced R&D status.

Staff Requirements for Market Entry. The importance of staff expertise to R&D activities in

NMR imaging cannot be overstated. As mentioned earlier, Fonar Corp. and M&D Technology Ltd. were formed around innovative scientists and their specific techniques or methodologies.

The technical complexity of NMR imaging dictates that manufacturers assemble R&D teams

with expertise in such fields as physics, chemistry,

engineering, and computer science. Specific knowledge of NMR spectroscopy is valuable. Several

firms, including Technicare, Picker International,

and General Electric, have aggressively recruited

individuals who conducted some of the earliest

NMR research in England in order to augment

their in-house R&D staff talent.

For small firms, staff recruitment and development may be a constraint. A “critical mass” of

at least five to six scientists appears to be necessary before a company can actively initiate R&D.

Continued staff growth, as R&D activities mature,

is vital to company survival. In the face of tight

resource constraints, some firms have had to augTable 9.—Research and Development Expenditures

Among Firms in the NMR Imaging Device Industry

R&D expenditures Number of

to datea

firms reporting Percentage

<$5 million . . . . . . . . . . . 4 33%

$6-10 million . . . . . . . . . . . 2 17

$11-20 million . . . . . . . . . . 1 8

>$20 million . . . . . . . . . . 5 42

Total . . . . . . . . . . . . . . 12 100%0

aAs of October 1963

SOURCE Interviews with manufacturers

ment in-house expertise with outside consultants.

Equally important for sustained program development is the need to establish a top-notch marketing and sales force. The larger, well-established

firms with existing sales networks hold a critical

competitive edge over smaller companies that lack

such organization and expertise. Marketing and

sales acumen may prove to be a decisive factor

in the competitive marketplace that is rapidly developing.

Collaborative Research With Universities and

Major Medical Centers. University or major medical center research ties are considered essential

in the industry, Every manufacturer engaged in

either intermediate or advanced stage R&D in October 1983 had a close collaborative relationship

with one or more universities or major medical

centers (see table 10). The lack of university research links early in R&D is not necessarily a barrier to market entry for small firms, but future

company survival—particularly in the clinical

phases of product testing—may depend on the

nature and quality of such agreements. Large

firms also recognize the importance of collaborative research. Technicare, for example, has a

stated policy of not placing units in clinical sites

unless close working arrangements with the institutions can be established. Acquisition of clinical data is extremely important to the manufacturer in preparing for FDA premarket approval

and for coverage decisions by third-party payers

in the health care system.

Patents. Among the Federal policies that have

been developed to promote innovative research

and product development are those related to the

protection of discoveries by patents. Although a

thorough discussion of patent law and its commercial and societal ramifications is beyond the

scope of this report (and the expertise of its

authors), a few comments can be made regarding

the NMR-related patents and their impacts.

A number of components of NMR imaging and

spectroscopy systems would seem patentable.

Among these are designs of: 1) the magnet used

to produce the static magnetic field; 2) the radiofrequency coils used to emit and receive radiofrequency waves; 3) the gradient coils used to permit spatial encoding; and 4) the software techniques
48 Ž Health Technology Case Study 27: Nuclear Magnetic Resonance Imaging Technology: A Clinical, industrial, and Policy Analysis

Table 10.—Manufacturers’ Collaborative Arrangements With Universities/Medical Centersa

Company: b Company: b

university/medical center university/medical center

ADAC Laboratories:

Negotiated, yet to be announced.

Bruker Instruments:

Baylor College of Medicine, Houston, TX

Yale University, New Haven, CT

CGR Medical Corp.:

None in USA (number in Europe not available)

Diasonics Inc.:

University of California, San Francisco (UCSF)

University of Texas, Dallas

University of Michigan, Ann Arbor

Elscint Ltd.:

Hebrew University, Jerusalem, Israel

Weitzman Institute, Rehovoth, Israel

Fonar Corp.:

University of California, Los Angeles (UCLA)

General Electric Co.:

Medical College of Wisconsin, Milwaukee

University of Pennsylvania, Philadelphia

Yale University, New Haven, CT

Duke University, Durham, NC

JEOL USA:

None at present

M&D Technology Ltd.:

University of Aberdeen, Scotland, U.K.

Nalorac Cryogenics:

None at present

Philips Medical Systems:

Neurological Institute, Columbia-Presbyterian Hospital,

New York

University of Leiden, The Netherlands

Picker International:

University of Nottingham, Nottingham, U.K.

Royal Postgraduate Medical School and Hammersmith

Hospital, London, U.K.

Mount Sinai Hospital, Cleveland, OH

Mayo Clinic, Rochester, MN

Bowman Gray Medical School, Winston-Salem, NC

University of British Columbia, Vancouver, Canada

City of Faith Medical and Research Center, Tulsa, OK

National Institutes of Health, Bethesda MD

University of lowa, Iowa City

Queens Square Hospital, London, U.K.

Siemens Medical Systems:

Washington University, St. Louis, MO

University of Hanover Medical Center, Hanover, West

Germany

Radiological Institute, Frankfurt, West Germany

Radiological Institute, Munich, West Germany

Mount Sinai Medical Center, Miami, FL

Allegheny General Hospital, Pittsburgh, PA

Technicare Corp.:

Massachusetts General Hospital, Boston, MA

University Hospital, Cleveland, OH

Cleveland Clinic Foundation, Cleveland, OH

University of Kentucky, Lexington

Indiana University, Indianapolis

Hershey Medical Center, Hershey, PA

Millard Fillmore Hospital, Buffalo, NY

St. Joseph’s Hospital, London, Ontario, Canada

Johns Hopkins University, Baltimore, MD

Ontario Cancer Institute, Toronto, Canada

Charlotte Memorial Hospital, Charlotte, NC

New York Hospital, New York

Vanderbilt University, Nashville, TN

Defalque Clinic, Charleroi, Belgium

University of Florida, Gainesville

Baylor University Medical Center, Dallas, TX

Rush Presbyterian-St. Luke’s Medical Center, Chicago

Toshiba Corp.:

Toshiba General Hospital, University of Tokyo,

Japan — a~of AuguSt 1 g84, except M&D Technology Ltd, and Toshiba Corp. are as of October 1983 I nformatlon not avallabie for H Itachi Ltd , OM R Technology (fIOW xOfIICS

Inc.), Sanyo Electric, and Shimadzu Corp

b

ln alphabetical order

SOURCES Interwews with manufacturers and American Hospital Association, 1983 (6)

used for spatial encoding, data gathering and image reconstruction.

Neither Lauterbur nor SUNY-Stony Brook

patented Lauterbur’s original NMR imaging technique or the apparatus (115).7 On March 17, 1972,

however, Raymond Damadian filed a patent application for an “Apparatus and Method for Detecting Cancer in Tissue” and received a patent

in February 1974. Damadian has apparently filed

an additional patent application in the United

States, as well as patent applications in foreign

‘Apparently, the SUNY-Stony Brook was advised by an outside

consultant not to proceed with a patent application.

countries (65). A number of NMR-related patents

are apparently also held in a patent portfolio by

the British Technology Group, formerly the National Research Development Corp. (120). Information regarding the types of license agreements,

if any, related to such patents is not available.

No attempt has been made to gather comprehensive information for this report regarding the

number and types of patents held by NMR manufacturers.

A primary concern regarding patents is that

they might create undesirable barriers to the entry of potential NMR manufacturing competitors

into the marketplace. However, the existence of
—

— —

at least 19 manufacturers of NMR imaging systems suggests that patents have not created such

a barrier; the manufacturers we interviewed concurred with this view. Whether patentable discoveries will emerge, prohibitively expensive

cross-licensing agreements will be devised, or

pending lawsuits’ will be settled in such a way

as to change this situation is difficult to predict.

A second policy concern regarding patents is

that manufacturers might: 1) stifle the prompt

dissemination of scientific discoveries made by

those university-based researchers whom they

support in order to provide time for filing patents

or 2) redirect the focus of university-based research away from “basic science” and toward the

development of patentable devices and techniques.

The existence of a large number of industryuniversity collaborative NMR research relationships (see table 10) suggests that universities have

not found such research agreements prohibitively

restrictive. 9

This empirical inference was confirmed by

discussions with a number of investigators whose

NMR research is being supported in part by industry (1,184). Others, however, voiced concern

that the scope of their research was more constrained when sponsored by industry than by

NIH. Such a concern would seem to be more an

argument for Federal research funds than an indictment of patents.

Finally, it is difficult to determine how beneficial the protection afforded by patents has been

to the commercial development of NMR in this

“On Sept. 20, 1982, Fonar Corp. and Dr. Raymond Damadian

filed suit in the U.S. District Court in Massachusetts against Johnson

& Johnson and its subsidiary, Technicare Corp. (65). The suit charges

Johnson & Johnson and Technicare with willfully infringing on

Damadian’s patent for using Nuclear Magnetic Resonance in detecting and diagnosing human disease and with unfair competition and

interference in Fonar’s ability to successfully market the apparatus

covered by the patent. The defendants have denied the allegations

and requested a judgment declaring the patent invalid. The matter

is in the discovery stage (65).

‘Nlany research agreement~ between industry and academia enable

universities to benefit financially from the discoveries made by their

faculty. Diasonics Inc., for example, holds the exclusive right to obtain an exclusive license to all patentable NMR technology discovered

pursuant to the research project it supports at the University of

California Under the terms of the license, the university is entitled

to a royalty of 0.56 percent of the selling price of any NMR system

sold by Diasonics that includes technology patented by the university (51 ).

Ch. 4–The NMR Imaging Device Industry 4 9

country. It is possible, for example, that many

manufacturers have relied more on maintaining

discoveries as “trade-secrets,” rather than revealing confidential information in patent applications. Of interest in this regard, however, is the

belief voiced by Lauterbur that acquisition of a

patent by either SUNY-Stony Brook or himself

would have accelerated commercial development

of NMR imaging devices in the United States by

virtue of providing a means of protecting a manufacturer’s competitive advantage (116).

Regulatory Policies. We surveyed NMR manufacturers about their perceptions of the impact

of various regulatory policies on the placement

of their products in clinical sites.10

Of the various Federal and State policies affecting technological development and diffusion, none

was perceived by manufacturers to be a serious

constraint on NMR development. The FDA premarket approval (PMA) process is generally regarded as a time-consuming “hurdle” that is not

overly obstructive. None of the firms interviewed

felt that the PMA process had influenced either

the pace of R&D activities or the placement of

investigational units at clinical sites. (For a more

complete discussion of issues pertaining to the

FDA and its PMA process, see ch. 7.)

By contrast, third-party payment policies, and

to a lesser degree, State certificate-of-need programs, appear to cause major concern among

manufacturers as potential barriers to NMR diffusion. Coverage policy decisions of the Federal

Medicare program, State Medicaid agencies, local

Blue Cross/Blue Shield plans, and commercial insurance companies are considered critical to the

future marketing of NMR imaging devices. Unfavorable coverage decisions—or even moderate

delays in decision making—by the Health Care

Financing Administration (HCFA) and other thirdparty payers could pose serious financial problems for those manufacturers in advanced stages

of R&D. Coverage denials for NMR imaging

could conceivably destroy the hospital segment

of the market and militate strongly against entry

of new firms into the industry. State prospective

—.

I

L

’ The views expressed by the manufacturers should not be considered to represent the views of either the authors or OTA.
50 Ž Health Technology Case Study 27: Nuclear Magnetic Resonance Imaging Technology: A Clinical, Industrial, and Policy Analysis

— .—

payment programs are viewed by manufacturers

with considerably less trepidation since, under

many such programs (e.g., Maryland, New York,

Massachusetts), hospitals have retained wide

discretion in their capital-equipment purchases.

State certificate-of-need (CON) programs, on

the other hand, are perceived as potentially troublesome constraints that might delay—or even limit

—the placement of NMR imaging devices in specified geographic areas. Some manufacturers feel

that CON policies could prove unusually restrictive in some areas of the country despite favorable

coverage decisions by third-party payers. Should

this occur, NMR diffusion could slow noticeably

in the United States, sending discouraging signals

to firms contemplating market entry.

Diversification of Firms

The firms that constitute the NMR imaging device industry display considerable diversity in

their product lines and operations. Twelve companies (63 percent) manufacture nonhealth care

related products either directly or through a

parent firm (see table 11). These products range

from assorted electrical equipment and household

appliances to electron microscopes and instruments for testing. In many instances, sales of these

products far exceed those of health care related

equipment and products.

Of the 15 firms identified in table 11 as multiproduct entities, all but two (Bruker Instruments

and JEOL) produce diagnostic imaging equipment

other than NMR imaging. Of these, six (CGR,

Elscint, General Electric, Philips, ” Picker, and

Siemens) offer full diagnostic imaging productlines, including CT, ultrasound, nuclear medicine,

digital radiography, and conventional X-ray and

fluoroscope. An additional four firms (ADAC

Laboratories, Hitachi, Technicare, and Toshiba)

manufacture products in three or more diagnostic imaging modalities.

The diverse nature of industry firms serves to

benefit their R&D efforts in NMR imaging by:

offering technical expertise gained in the deI Iphi]ips manufactures nuc]ear cameras, sold in the United States

through ADAC Laboratories.

—

velopment and marketing of other diagnostic imaging modalities, such as CT and nuclear medicine;

accelerating product development based on

corporate experience with related technologies in nonhealth care fields, such as NMR

spectroscopy; and

increasing the R&D resource base available

to NMR imaging development through the

sales of various other products in both health

care and nonhealth care fields.

Diversification in the industry is likely to increase in the future, as some small firms expand

operations into new product lines and as some

large companies augment their already diverse

portfolios.

Acquisition and Merger Activity

Since its inception in the mid-1970s, the NMR

imaging device industry has witnessed a considerable number of acquisitions, mergers, and important trade agreements among its member firms.

Acquisition and merger activity may be classified

into four major groups (9,31,139):

Product extension—in which a company

gains entry into a related market by acquiring a firm that sells products not presently

produced by the parent.

Market extension—in which a company consolidates or increases its market share by acquiring a firm in the same product line.

Conglomerate merger—in which a parent

company acquires another company that is

unrelated in either product or market.

Vertical integration-in which a company acquires another firm whose activity is important to the processing, manufacturing, sale,

or distribution of the parent company’s

product.

Most acquisitions and mergers in the industry

have been oriented toward product extension involving various diagnostic imaging modalities (see

table 12). Among these have been two cases involving NMR imaging. In one instance, Diasonics

Inc., acquired the rights to NMR imaging technology developed under an agreement between

Pfizer, Inc. and the University of California, San

Francisco (UCSF) Radiological Imaging Labora-
... — —- . . — —

Ch. 4– The NMR imaging Device Industry 5 1

Table 11 .—Diversification Among Firms in the NMR Imaging Device Industrya

.

Health-care-related products —

Diagnostic imagingb

Company CT US NM DR XR Other medical products Non-health-care-related products

ADAC Laboratories / # / Radiation therapy planning; Instruments for non-destructive

special procedures room; testing

clinical information systems;

medical linear accelerators

Bruker Medical Instruments NMR only ECG monitorsc

; mobile NMR spectrometers

defibrillators c

; patient

monitoring systemsc

.

CGR Medical Corp

—

/ / / < / None Assorted electrical appliances

Diasonics In c

d- —

and equipmentc

fl None None —

Elscint Ltd. @ / / fl / None None -

Fonar Corp NMR only None None

-—.

General Electric Co / # / / / Assorted electromedical Assorted electrical appliances

equipment and equipment

Hitachi Ltd. / / NA H NA Assorted electrical appliances

and equipment

JEOL USA NMR only Radioimmunoassay equipment; NMR spectrometers, electron

blood gas analyzers; fluid microscopes c

analyzers

M&D-Technology Ltd. NMR only

.

None None

Nalorac Cryogenics NMR only None Superconducting high-resolution

analytical NMR magnets,

gradient coils, power supplies,

dewars, NMR probeheads —

OMR Technology NMR Only

—

None None

Philips Medical Systemse - # ~ # < ‘ # Surgical supplies;c dental NMR spectrometers; assorted

equipment; c assorted electrical appliances and

electromedical equipment equipment c

Picker International

— .

ECG equipment; other

.

/ # / / / N-one

electromedical equipment

Shimadzu Corp e NA < Assorted electromedical Assorted products and

equipment equipment

Siemens Medical Systems / / / fl / Assorted electromedical Assorted electrical appliances –

equipment and equipment — .—

Technicare Corp / / / / Surgical instruments and None -

supplies; c dental equipment

Toshiba Corp

— . .

/ # / / NA Assorted electrical appliances –

and equipment —

NA = Information IS either unavailable or unknown

— ——

aFlrm~ Ilsted ,n al Phabetl~al order N. data for Sanyo Electric, which IS recognized for its assorted non. health-care. related Products Informa!lon IS as of August 1984

except for Hltachl Ltd , M&D Technology Ltd , OMR Technology, Shlmadzu Corp and Toshiba Corp , all of which are as of October 1983

bDlagnostlc lmaglng modalities other than NMR lma91n9

cproducts made by parent firm only (see table 6 fOr lflf OrmatiOfl On Parent cOm Panles)

dDlasonlcs also manufactures surgical C-arm lmaglng equl Pmeflt

ephlllps designs and manufactures nuclear cameras, sold in the Un!ted States through ADAC Laboratories

Key for diagnostic Imag{ng CT = computed tomography, US = ultrasonography, NM = nuclear medlctne, DR = d{g{tal radiography, XR conventional X-ray

and fluoroscope

SOURCE Interwews with manufacturers, Arthur Young & Co , 1981 (9), Boteler, 1983 (20), and Emmltt & Lasersohn 1983 (60)

tory. In the other, Fischer Imaging Corp. entered

into an agreement (not a merger) with M&D

Technology Ltd. to become the exclusive marketing agent for M&D’s NMR imager. This agreement was soon terminated, however, when Fischer

was acquired by Diasonics in a product extension

merger whose prime target was Fischer’s line of

X-ray equipment.

Market extension mergers have occurred less

frequently in the young industry, but one case involving NMR imaging stands out: Picker International’s acquisition of the technology developed

by EMI of England. In this instance, Picker sought

to reinforce and complement the NMR imaging

technology previously developed independently

by its parent firm, GEC of England. As with
52 Ž Health Technology Case Study 27: Nuclear Magnetic Resonance Imaging Technology: A Clinical, industrial, and Policy Analysis

Table 12.—Acquisitions, Mergers, and Key Trade Agreements in the NMR Imaging Device Industry Since 1971

Year and nature of acquisition/merger/trade agreement activity Comment

ADAC Laboratories:

1981: Agreement with Picker International for manufacturing digital

angiography systems

1982: Agreement with Fischer Imaging Corp. for manufacturing digital

angiography systems

Bruker Instruments:

1982: 25% of company ownership acquired by IBM

1983: Acquired Oxford Research Systems from Oxford Instruments

CGR Medical Corp:

1971 : Created by the acquisition of Westinghouse Medical X-Ray Division

by CGR of France

1979: CGR of France merged with Thompson-CSF to form ThompsonBrandt

Diasonics Inc.:

1981: Acquired rights to NMR technology developed under agreement

between Pfizer and the UCSF Radiological Imaging Laboratory

1981: Acquired rights to cardiology ultrasound technology developed by

Varian Associates

1982: Acquired Sonotron Holding A.G.

1983: Acquired Sonics Imaging, Inc.

1983: Acquired Fischer Imaging Corp.

Fischer imaging Corp.:

1980: Acquired the Medical Ultrasound Division of EMI

1982: Agreement with ADAC Laboratories (see above)

1983: Agreement with M&D Technology Ltd. to become exclusive

marketing agent for M&D NMR imager

1983: Acquired by Diasonics Inc.

General Electric:

1980: Acquired Thorn (CT Scanning Division of EMI)

JEOL USA:

1973: Parent firm, JEOL of Japan, acquired by Mitsubishi

1982: Agreement with Smith, Kline & French Laboratories for joint

research into NMR spectroscopy

M&D Technology Ltd.:

1982: Formed and financed by a combination of private and public

investors

1983: Agreement with Fischer Imaging Corp. (see above)

Nalorac Cryogenics:

1977: Acquired by Nicolet Instruments

1982: Divested by Nicolet Instruments and reestablished as independent

firm

Picker international:

1981 : Created by the acquisition of the Picker Corp. by GEC of England,

and its subsequent merger with GEC Medical and Cambridge

Medical Instruments

1981 : Acquired rights to NMR technology developed by EMI

1981: Agreement with ADAC Laboratories (see above)

Technicare Corp.:

1979 Acquired by Johnson & Johnson, Inc., from Ohio Nuclear

1982: Acquired Magnet Corp. of America —

—

Agreement terminated same year

IBM provides grant support to MIT and Harvard for

NMR imaging research at Brigham & Women’s

Hospital (Boston) using Bruker equipment

—

Market extension: X-ray equipment

Conglomerate merger

Product extension: NMR imaging

Product/market extension: phased array ultrasound

Vertical integration: Western European

distributorship

Vertical integration: Southeastern U.S.

distributorship

Product extension: X-ray equipment

Product extension: ultrasound

(See ADAC Laboratories above)

Product extension: NMR imagingb

; agreement

terminated same year following acquisition by

Diasonics (NMR) Ltd.

(See Diasonics Inc. above)

Market extension: CT scanning

Conglomerate merger: NMR spectroscopic

—

—

(See Fischer Imaging Corp. above)

Product extension: superconducting magnets

Product extension: X-ray equipment, CT scanning

Market extension: NMR imaging

(See ADAC Laboratories above)

Product extension: CT scanning

Vertical integration: superconducting magnets

aDia~~ni~~, prime ~urpo~e in acquiring Fischer Imaging corp. Was to Obtalrl radiographic and fluoroscopic equipment to which it could add i!S comPuter software.

Fischer Imaging Corp had, by May 1983, already made a commitment to NMR imaging, but had not yet begun extensive R&D.

bFischer,s May 1963 marketing agreement with f$f&D Technology Ltd. was an attempt to extend its product line into NMR imaging without having to conduct extensive

R&D efforts, Two weeks after signing the agreement, Fischer was acquired by Dlasonics.

CJEOL of Japan had been manufactur~ng NMR spectrometers since Iwo Followlng its acquisition by fditsublsht, R&D efforts continued but It was not Untl[ 1982 that

the company formally entered the NMR imaging field.

dJohnson & Johnson had developed interest in NMR imaging as early as 1977, but it was not until after the acquisition of Technicare (and Its CT technology) that

serious R&D efforts into NMR imaging were undertaken

SOURCES Interviews with manufacturers, Arthur Young & Co., 1981 (9), and Emmitt & Lasersohn, 1983 (60)
——

Ch. 4–- The NMR Imaging Device Industry 53

— ——

Diasonics’ acquisition of the Pfizer-UCSF technology, Picker used its new technology to accelerate its market entry and to catapult to the industry forefront.

At least three mergers in the industry have involved vertical integration. In one case, integration has been “backward”: Technicare’s purchase

of Magnet Corp. of America for the purpose of

building its own superconducting magnet systems

(see subsequent discussion in this chapter of the

magnet manufacturing industry). The other two

mergers represent “forward” integration whereby

Diasonics acquired companies to expand its sales

and distributorship network to specific geographic

areas (see table 12 and later discussion in this

chapter of vertical integration under “industry

conduct”).

Trade agreements involving marketing and distribution rights are fairly common in the industry, and those listed in table 12 are probably but

a subset of all transactions that have taken place.

Joint research ventures among firms, on the other

hand, are rare, if not nonexistent. Manufacturers

tend to be secretive about their NMR imaging designs and place units in clinical settings only if the

hospitals agree not to accept a companion unit

from a competitor for comparative study purposes.

As the NMR imaging device industry matures,

one may expect further market extension and

product extension mergers as some smaller firms

are acquired by larger competitors or by firms

seeking to enter the industry .12 A high degree of

vertical integration is also likely, as many firms

will seek to expand internal capacity for marketing and distribution of products and for production of NMR component parts (e.g., magnets,

cryogenic systems, and computer consoles and

software). Magnet production capabilities are particularly important to manufacturers who wish

to minimize both production costs and delays in

receiving supplies in order to stay competitive

with other companies. In addition to Technicare,

which owns a magnet company, at least five other

firms (Bruker, Diasonics, Elscint, Fonar, and

Nalorac Cyogenics) possess in-house magnet manufacturing capabilities, while another seven plan

“The acqul>]t ion of ON!I< Technology>’ b} Xonlcs in late 1 Q83 IS

a turtht’r example of produ[ t twtens](>n,

to vertically integrate this function over the next

2 to 5 years.

The Magnet Manufacturing Industry. T h e

magnet manufacturing industry is considerably

more concentrated than the NMR imaging system manufacturing industry, Only a small number of firms make superconducting magnets, and

little is known about manufacturers of resistive

magnets.

According to a report from Hambrecht & Quist,

as of September 1982 the majority of superconducting magnets used in NMR imaging systems

worldwide had been supplied by a single manufacturer, Oxford Instruments, Ltd., a company

based in the United Kingdom (80). For the year

ended March 1983, Oxford Instruments had sales

of 30 million English pounds, with profits of over

2.5 million pounds, an increase from 17.7 million

pounds in sales and approximately 2 million

pounds in profits in 1981-82 (1 19). In 1983, Oxford Instruments produced about six magnets per

month and had secured long-term contracts to

supply magnets to several NMR imaging manufacturers, including General Electric and Siemens

(119). These orders would require an increase i n

Oxford’s production capacity to about 12 magnets

per month (119). To fulfill this increased demand,

Oxford planned to hold a public stock offering

in 1983 to secure funds to expand its production

capability (119), and opened a manufacturing facility in the United States in a joint venture with

Airco, Inc. (51). (Airco, a subsidiary of the British Oxygen Co. International, Ltd., has the capability of producing superconducting materials

required in the manufacture of superconducting

magnets. )

According to a 1982 prospectus issued by an

American magnet manufacturer, Intermagnetics

General Corp. (IGC), there are at least six American manufacturers selling superconducting magnets to NMR imaging manufacturers. To date,

however, compared to Oxford Instruments, Ltd.,

these magnet manufacturers have not supplied significant numbers of superconducting magnets to

NMR imaging manufacturers. 13 

11 l~;~- Ic)r ~XamPle has been invo] veci tor over 10 years i n the

manufacture ot the materials from which super-conducting magnets

are const ructecl. Rec-entl}’, it has begun appl}’ing it~ expertise in \uperL onduct ing techn[)log}” to the dci’elopment of superc(~nduc t in~
54 • Health Technology Case Study 27: Nuclear Magnetic Resonance imaging Technology: A Clinical, Industrial, and Policy Analysis

Two principal superconducting materials are

commercially available for the construction of

superconducting magnets: niobium - titanium

(Nb-Ti) wire and niobium - tin (Nb3Sn) tape.

According to the 1982 IGC prospectus, there are

several foreign manufacturers of Nb-Ti and Nb3Sn.

and IGC is the leading domestic producer of both

materials (150). Airco, Inc.; Magnet Corp. of

America (now a subsidiary of Technicare); and

Supercon, Inc., are the other domestic suppliers

of Nb-Ti and Nb3Sn.

magnets for use in NMR imaging systems. IGC increased its R&D

expenditures from $264,000 in fiscal year 1981 to $1.5 million in

fiscal year 1982 to help develop its magnet manufacturing capacity

(104). It is currently manufacturing 0.5 tesla (T) and 1.5 T magnets.

IGC supplied its first 1.5 T magnet (to Columbia-Presbyterian

Medical Center) in March 1983 and planned to produce one to three

magnets per month for the remainder of 1983. IGC has also begun

construction of a new factory, which should be operational by 1984

and which will double its magnet production capacity. As of the

end of August 1982, IGC had a backlog of $2.2 million in orders

for superconducting magnets from NMR imaging manufacturers

(105).

INDUSTRY CONDUCT

The structural characteristics of

aging device industry (i.e., its high

the NMR imseller concentration, relatively easy market entry, considerable

diversification, high degree of acquisition and

merger activity, and low buyer concentration)

have conflicting implications for competition

among manufacturers. The behavior, or conduct,

of the market is likely to be influenced not only

by the policies and actions of individual firms,

but also by their reactions to the policies of their

rivals, Two important aspects of industry and

market conduct are product pricing policies and

nonprice competition strategies.

Product Pricing Policies

Based on interviews with manufacturers in

1983, the estimated sales price of a resistive magnet system is likely to range from $800,000 to $1.2

million. Superconducting magnet systems, depending on size and field strength, are expected

to command prices between $1 million and $3 million, with the median expectation closer to $2 milOxford Instruments is the major supplier worldwide of resistive magnets for NMR imaging systems (80). Technicare and Bruker manufacture

their own resistive magnets, and Fonar and OMR

make their own permanent magnets.

With magnets accounting for an estimated 30

to 50 percent of the cost of NMR imaging systems,14 it is not surprising that NMR imaging manufacturers are seeking to develop their own capacity to produce magnets. As stated previously,

our survey of manufacturers found that six firms

now produce at least some of their own magnets

and seven others plan to develop their own capacity to manufacture magnets. According to

IGC, however, it is unlikely that NMR imaging

manufacturers will be able to meet their magnet

supply needs themselves, and they are likely to

want to have more than one source of magnets

(154).

.—

IdAccording to Ivl. J, Ross of IGC, 0.5 T magnets cost $300,000

to $350,000 and 1.5 T magnets cost over $500,000 (154).

lion. Since the FDA has only recently granted

premarket approval for NMR imaging devices,

there has been little experience with product pricing and sales.

Most of the manufacturers queried about sales

price felt that it would not be a significant factor

in determining future company market share.

They instead stressed the importance of nonprice

factors in differentiating their products from those

of competitors (see discussion of product differentiation in this chapter). Only four firms viewed

sales price as key to the coming competition for

market share. Two companies expressly plan to

segment the market on the basis of price, with

lower magnet strength, less expensive NMR systems being offered to community hospitals and

private radiology groups that may lack the requisite financial resources for purchasing the higher

magnet strength, more costly models. One firm

intends to develop medium-sized superconducting

magnet systems that would sell for as low as

$500,000 to $700,000. All four believe, though,
that industrywide prices will decrease in the longterm (3 to 7 years from now) if for no other reason than that: 1) new magnet designs may lead

to some efficiencies, 2) increased vertical integration in many companies should reduce production costs and create economies of scale, and 3)

further experience with NMR imaging in clinical

applications may point to an optimal system configuration that is less expensive to produce. It

should be noted, however, that increased vertical

integration could actually result in higher prices

if such activity serves to diminish competition in

the industry.

At least two manufacturers also believe that

price cutting will not evolve simply as a consequence of the factors cited above, but rather

become a conscious policy of the larger firms intent upon weakening and acquiring, or possibly

driving out, smaller competitors. Such “predatory

pricing” policies are employed in other industries

(31). Their application here would, in the long

run, make the NMR imaging device industry more

concentrated than the current trend suggests (see

earlier discussion of seller concentration and market share in this chapter). On the other hand, if

one draws inferences from the experience with Xray CT scanning, price competition may play little

or no role in the coming industry “shakeout. ”

Rather, as the next section suggests, nonprice factors may prove more important to company

strategies.

Nonprice Competition

Product differentiation and vertical integration

are both expected to figure prominently in the

nonprice competition strategies of NMR imaging

device firms, Given the diversity of potential

buyers, the ability to differentiate one’s product

favorably from that of a rival may prove important to future company sales and market share.

Vertical integration, in addition to its obvious economic benefits, may offer further advantage by

raising barriers to entry for potential rivals (31),

Product Differentiation. Interviews with manufacturers have led to the identification and relative ranking, by tier, of nine nonprice factors considered important to NMR product differentiation

Ch. 4— The NMR Imaging Device Industry 55

———

in future sales efforts. In descending order of relative importance, 15 these elements are:

First Tier (4 factors):

1.

2.

3.

4.

Image quality—high-resolution images of

various soft tissues in the head and body are

considered essential to product sales. Almost

without exception, this factor ranked first or

among the top tier of elements.

Product features and capabilities—product

features refer to the magnet type and field

strength, bore size, radiofrequency coil design, computer system console and software,

cryogenic systems for superconducting magnets, magnetic shields, etc. Product capabilities refer to measurement of T1 and T2 relaxation times, imaging capabilities, and

spectral analysis capabilities in addition to

proton NMR imaging. The relative importance of each feature or capability to a prospective buyer will depend on the buyer’s

fundamental imaging needs (e.g., clinical v.

research) and level of sophistication. Innovative product capabilities, such as multislice

imaging, are important means of product differentiation.

Product reliability—reliability is essential to

the continuous operation of an imager and,

therefore, is valued highly by prospective

buyers. Lack of product reliability, such as

the tendency for a magnet to “quench” (i. e.,

lose its magnetic properties), can have serious adverse effect on imager sales.

Product service—timely and responsive

maintenance and repair service is important

both for ensuring client satisfaction and for

preserving company image. Distributor and

service networks covering broad geographic

areas are an important asset to marketing the

product.

Second Tier (3 factors):

5. Delivery time—at present, delivery time can

be very important to some buyers. Over

time, however, as the industry matures and

“The reader should bear in mind that these views are those expressed by NMR manufacturers, which may or may not coinc]de

with the percept ions of potential buyers and users of the techno]og}r.
56 Ž Health Technology Case Study 27: Nuclear Magnetic Resonance Imaging Technology: A Clinical, Industrial, and Policy Analysis

the production of NMR imaging units is

streamlined in many firms, delivery time

should become less important to buyers.

Long-term viability of the manufacturer—

the larger, more well-established firms believe that size and tradition are important

assets, and that buyers respond positively to

companies whom they perceive to be viable

for years to come. The smaller, newer firms

concede this point, but argue that product

characteristics (e.g., features and capabilities,

image quality, reliability) will take precedence over company characteristics in determining future NMR imaging sales.

7. Guarantee against technological obsolescence—when purchasing expensive, new

technologies, buyers frequently want assurance that the model they purchase today will

not become obsolete in a short period of

time. With a technology that is evolving and

changing as rapidly as NMR imaging, such

guarantees are difficult to make. Several

manufacturers, therefore, have either: 1) delayed introduction of a commercial prototype until optimal system design can be

satisfactorily determined, or 2) designed

NMR systems that can be “upgraded” to accommodate new imaging needs or new advances in technology as they arise. However,

when compared with other factors listed in

the first tier, guarantees against product obsolescence were secondary in importance.

Third Tier (2 factors):

8.

9.

Collaborative research—at present, in the

premarket stage of NMR imaging R&D, collaborative research with clinical centers holds

great importance for manufacturers and hospitals alike. In the future, however, many

firms expect that collaborative research will

hold no more than tertiary importance (relative to the preceding factors) in influencing

buyers’ purchase decisions.

Training and education—a few firms believe

that providing training services to buyers

may become a distinguishing feature of some

manufacturers’ marketing and sales strategies. The relative importance of this factor

to future sales, though, is not expected to be

high.

————. -.— .—

Overall, product differentiation is emerging as

an important part of each NMR manufacturer’s

nonprice competition strategy. Fonar Corp., for

example, is placing great emphasis on its permanent magnet design. ADAC Laboratories, an acknowledged leader in “add-on” computer systems

for diagnostic imaging modalities (185), intends

to emphasize the company’s strengths in image

processing, data communication, and radiofrequency coil design as part of its marketing strategy, in addition to pursuing proprietary permanent magnet designs. General Electric has adopted

a different tack, developing a 15 kilogauss superconducting magnet prototype, which the company believes will appeal to hospitals concerned

about buying “adequate” magnet strength. Nalorac

Cryogenics expects to differentiate its product by

offering superconducting magnet systems that can

operate within 10 to 20 kilogauss, but which can

also be upgraded to 40 kilogauss for high-resolution animal studies and NMR spectroscopy. Regardless of the specific strategy employed, it seems

clear that product differentiation will be important to each manufacturer’s success and, in some

cases, corporate survival.

Vertical Integration. In the earlier discussion of

industry structure and corporate acquisition and

merger activity, vertical integration in the NMR

imaging device industry appeared to have important implications for production costs and, hence,

for product pricing policies. Vertical integration

can also be used by manufacturers to coerce rivals

and influence market entry. For instance, in the

NMR imaging device industry, the forward integration of distributorship networks could impede other firms from selling their products in

some areas. Similarly, backward integration of

magnet manufacturers could conceivably bar entry to potential competitors who are not capable

of producing their own magnets and, therefore,

must depend on outside suppliers.

Although at least one case of backward integration involving magnets has taken place in recent

years (see Technicare in table 12), it is not likely

that NMR manufacturers will gain control of

either of the two major worldwide magnet suppliers (Oxford Instruments and Intermagnetics

General Corp.). Instead, the net effect of many

NMR manufacturers’ plans to develop in-house
.

Ch. 4—The NMR Imaging Device Industry 5 7

— .

magnet manufacturing capabilities will likely be

to achieve greater independence from the magnet

suppliers. An individual NMR imaging firm that

chooses this strategy could gain a competitive edge

only if its rivals did not vertically integrate in similar fashion, or, assuming that its rivals did follow suit, if its magnet operations were more effiINDUSTRY PERFORMANCE

Industry performance is most frequently evaluated in terms of the efficiency and profitability

of its firms (31). Common measures of efficiency

include costs-to-sales ratios and percent of advertising or promotional costs-to-sales ratios (9).

Data on advertising and sales in the NMR imaging device industry are nonexistent because the

FDA prohibits promotion and profitmaking sales

during the premarket approval stage of development. Thus, the relative efficiency with which

various firms allocate their resources to build

NMR imagers cannot be determined at this time.

It is expected that, following FDA approval, promotional activities will abound in the industry,

largely for product differentiation purposes.

cient or produced higher quality magnets than

those of its competitors. Vertical integration in

the NMR imaging device industry, therefore, is

more likely over the long run to influence industry conduct (i. e., product pricing and product differentiation) than industry structure (i.e., market

entry by newcomers).

Profitability has been measured as the rate of

return on investment (or assets) or the price-cost

margin (i. e., the gap between price and marginal

cost). As with the previous case of measuring efficiency, FDA prohibition on making a profit from

the placement of an investigational device has

precluded the quantitative assessment of NMR industry profitability. Available data on the X-ray

and electromedical industry show returns on

assets ranging from 5.6 percent for the larger firms

to 11.4 percent for companies with smaller assets

(9). It is expected that NMR imaging sales will

likely become an important source of company

revenues for many manufacturers over the next

few years (60).

THE FUTURE OF NMR IMAGING IN RELATION TO OTHER

DIAGNOSTIC IMAGING MODALITIES

Given the uncertainties regarding the nature

and impact of future health care regulations, as

well as the extent to which the clinical potential

of NMR imaging will be realized, it is difficult to

make estimates of future sales of NMR imagers

with any degree of certainty.

Table 13 provides data on estimated sales of

various diagnostic imaging modalities projected

by F. Eberstadt & Co., Inc. (60). As can be seen

from the table, in mid-1983, worldwide sales of

the diagnostic imaging industry were estimated

at $4 billion per year, and this worldwide market is currently projected to continue expansion

at a rate of 15 percent per year (60). Sales of ultrasound, digital X-ray equipment, and NMR imagers are expected to grow more rapidly than

other segments of the diagnostic imaging market,

primarily due to the reduction in or elimination

of ionizing radiation associated with their use.

The table also shows that, despite a projected

21-percent increase in aggregate sales of X-ray

modalities over the next 5 years, the percentage

of all diagnostic imaging industry sales that can

be attributed to X-ray modalities is expected to

decrease by 41 percent (from a 72 percent to a 43

percent share) between 1983 and 1988. X-ray CT

unit sales are projected to decrease during that

time from $1 billion per year to $0.5 billion per

year, a 76-percent decrease (from 25 percent down

to 6 percent).
58 Health Technology Case Study 27: Nuclear Magnetic Resonance Imaging Technology: A Clinical, Industrial, and Policy Analysis

—. —— ————— —-———

Table 13.—Diagnostic Imaging industry Sales Growth Projections

1983(E) 1988(E) 1983 to 1988

Overall Annual Overall

Percentage Percentage percentage percentage change in

of industry of industry change in change in fraction of

Market size sales Market size sales market size market size industry sales

Modality ($ millions) — (% )

($ millions) (%) (%) (%) (“/0 )

All X-ray modalities ., . . $2,900 72.5% $3,500 43% +21% + 4 % –41 %

Conventional X-ray . . . . . . (1 ,300) (32.5) (500) (6) (-61) (– 17) (-82)

Digital X-raya

. . . . . . . . . . . . . . (600) (15,0) (2,500) (30) (+317) (+33) (+100)

CT . . . . . . . . . . . . . (1 ,000) (25,0) (500) (6) ( -50) (- 13) (-76)

Ultrasound . . . . . . . . . . . . . . . . . . 750 19,0 1,900 23 + 153 +20 +21

Nuclear medicine ... . . . . . . 250 6.0 300 4 +20 + 5 –33

NMR . . . . . . . . . 100 2,5 2,500 30 +2,500 +90 + 1,100

Total . . . . . . . . . . . 4,000 100,0 8,200 100 + 105 + 15.0 —

alncludes both digital acid-on and full. syslems with a dlwtal capablhty

—.

SOURCE R B Emm!tt and J W Lasersohn, “Company Report on Dlasonics, ” F. Eberstadt & Co , Inc , New York, May 26, 1983

NMR sales, in contrast, are expected to increase

from $100 million per year in 1983 to $2.5 billion per year in 1988 (see tables 13 and 14 and

fig. 11), an annual rate of growth in market size

of 90 percent. According to this estimate, the percentage of industry sales attributable to sales of

NMR imaging systems will increase from 2.5 percent in 1983 to 30 percent by 1988. The estimated

rate of growth in worldwide NMR sales displayed

in table 14 can be compared to a worldwide

growth of X-ray CT unit sales of approximately

600 units per year over the first 5 years of X-ray

CT availability (59). Most manufacturers with

whom we spoke believed that the 50-50 percent

split between U.S. and non-U. S. sales currently

existing for X-ray CT systems will be observed

for NMR sales as well.

It is useful to consider the assumptions on which

the estimates are based. First, the estimates assume

that, given the expected change to prospective systems of hospital payment, the hospital industry

will be unable to bear a major increment in capital expenditures over the next several years. It is

assumed, however, that although the rate of increase of hospital expenditures on imaging equipment may slow over the next several years, the

slowing will be offset by increases in purchases

by private radiology groups and that the recent

growth in sales of diagnostic imaging equipment

of 15 percent annually will remain constant over

the next 5 years.

The second major assumption is that, at least

in the near future, sales of NMR imaging systems

will compete primarily with sales of X-ray CT systems. This situation is thought to be the case because both systems provide cross-sectional tomographic images with what is expected to be similar

spatial resolution in the near future. The estimates

therefore assume that many hospitals will be making decisions about purchasing either NMR imagers or X-ray CT scanners.16

10ThiS wi]l a]so be the Case for hospitals that have one or more

X-ray CT scanners and are contemplating buying additional ones,

In 1980, more than 100 U.S. hospitals had more than one X-ray CT

Table 14.— Estimated Worldwide NMR Market

Annual unit Cumulative unit Average Annual sale s

Year a

deliveries deliveries sales price ($ million)

1982 . . . . . . . . . . . . . . . . . 15 15 $1,300,000 $ 20

1983E . . . . . . . . . . . . . . . . 75 90 1,300,000 100

1984E . . . . . . . . . . . . . . . . 200 290 1,500,000 300

1985E . . . . . . . . . . . . . . . . 400 690 1,600,000 650

1986E . . . . . . . . . . . . . . . . 650 1,340 1,700,000 1,100

1987E . . . . . . . . . . . . . . . . 905 2,290 1,850,000 1,750

1988E . . . . . . . . . . . . . . . . 1,250 3,540 2,000,000 2,500

aE ~ Est!mated

SOURCE R B Emmitt and J W Lasersohn, “Company Report on D!asontcs, ” F Eberstadt & Co , Inc , New York, May 26, 1983
Figure 11 .—Cumulative Number of Worldwide Clinical NMR

Ch. 4–- The NMR Imaging Device Industry • 59

. . . .—

Placements Over Time

7 3 •

60

42

40

27

14

9

11

1978 1979 1980

SOURCE Interviews with NMR manufacturers

The third major assumption is that, if NMR imaging did not exist, the growth in X-ray CT-guided

procedures would increase the sales of X-ray CT

systems by 10 to 15 percent per year. Given cur-

—

>C.I n n(, r J nd .Ippro< I m~ t (,1 \ 450 add I t lc~na I ho~p i t al>, <III \vI t h nlt~re

t h.] n 3(30 bed~, had at le.]~t [)nv ,Y-ra}r C-T scanner ( 5Q I Slxt >’ per-

( (n t ( )t ‘i-r.] > CT ~}>t(,nli sold I n the U n ] ted Sta tw i n 1 Q82, I n tact,

ii t’r(, the L+,c oncl th]rd or t{)urth ~1’stem~ ~icqulrc>d b~ a h{~>p]tal f o ] t

1981 1982 1983

rent, annual sales of 1,000 X-ray CT units worldwide, this assumption implies that, without NMR,

there would be the potential for sales of 2,000 Xray CT units per year in 1988.

The fourth assumption is that, in the NMR

versus X-ray CT competition for this 2,000 unitper-year market in 1988, NMR will capture 1,500

of the projected 2,000 unit sales. It should be
60 • Health Technology Case Study 27: Nuclear Magnetic Resonance Imaging Technology: A Clinical, Industrial, and Policy Analysis

noted, though, that while the model assumes that

sales of NMR imagers will exceed sales of X-ray

CT imagers in 1988, it does not assume that use

of NMR will replace use of X-ray CT clinically

in the near future. 17

Finally, the estimates assume an annual inflation rate of 5 percent.

In addition to it being difficult to predict the

magnitude and nature of future diagnostic imaging equipment sales, it seems equally hazardous

at this time to project what the character of the

’71t seems very likely that NMR will not replace X-ray CT in the

near future. There may always be a role, for example, for X-ray

CT in patients with metallic implants who will not be considered

candidates for NMR, and for guiding biopsy or surgical procedures

that employ metallic instruments. Furthermore, it is difficult to

predict the extent to which X-ray CT scanning techniques will improve in the future. In the 10 years since X-ray CT scanners were

introduced, their scanning speed has increased 300 times, their spatial

resolution has increased 8 times, their density resolution has increased

3 times, and their radiation dosage to the patient has decreased

markedly (15). In addition, new X-ray CT scanners are being developed that are capable of completing a scan in about 30 milliseconds, permitting performance of real-time cardiac X-ray CT

imaging (15).

NMR imager manufacturing industry will be 5

years hence. Although no predictions can be made

regarding how many or which of the current

NMR imaging manufacturers will be involved in

the field in 1988, two general comments can be

made. First, to the extent that “turf battles” between radiologists, nuclear medicine specialists,

pathologists, neurologists, and cardiologists develop over control of NMR imaging and spectroscopy, the market shares of large X-ray manufacturing companies that are currently based on

radiology franchises may decrease (60). Second,

although the emergence of new imaging modalities

was thought to be the primary challenge to major X-ray manufacturers in the 1970s, it is anticipated that the rapidly expanding role of data

and image processing across all imaging modalities

will become the major challenge to X-ray equipment manufacturers in the 1980s (60). To the extent that this does, in fact, become the case, future

concentration or fragmentation in the diagnostic

imaging market may, in large part, be determined

by the responsiveness of large diagnostic imaging conglomerates to this anticipated trend (60).
5.

Hospital Costs and Strategies
Hospital Costs and Strategies

INTRODUCTION

One of the major concerns regarding NMR imaging relates to the impact this new technology

will have on health care costs. This concern

derives in part from the high costs anticipated for

the purchase and installation of an NMR imaging system and uncertainties regarding the extent

to which NMR imagers will be used in addition

to, rather than instead of, other diagnostic modalities already in hospitals. The purpose of this

chapter is to present a framework for addressing

CAPITAL AND OPERATING COSTS

Initial capital expenses and routine operating

expenses for an NMR imaging system are primarily determined by the type of magnet used to produce the static magnetic field. Although insufficient experience has been accumulated to permit

accurate predictions of the likely expenses of acquiring and operating an NMR imaging system,

tables 15 to 17 attempt to provide the best available estimates of such expenses for four different

types of NMR systems. It should be emphasized

that the values provided in the following tables

are estimates, and nothing more. They should

therefore be interpreted in that spirit. Our purpose in presenting these estimates is to provide

some indication of the factors that will contribute to the cost of operating NMR imaging systems and what total costs are likely to be, given

reasonable assumptions.

In determining annualized capital costs, we

have made the assumption that the useful life of

the NMR imaging system itself is 5 years, while

that of the site renovation is 10 years. A 10-

percent interest rate has been employed. Physician costs (i. e., professional fees) have not been

included.

supply costs,

dure, vary with

estimated to be $15 per procethe number of procedures perthe cost issue. The chapter is organized into three

sections. The first section presents data regarding

the likely capital and operating costs of different

types of NMR systems. The second section addresses other factors that will influence the effect

of NMR imaging on patient care costs, and the

final section describes the NMR acquisition strategies and decisions of different segments of the

hospital industry.

formed per day. In the near future, while NMR

remains investigational, it is probably reasonable

to assume that no more than 10 procedures will

be performed per day. By 1985 or 1986, it is reasonable to assume that 20 procedures per day will

be performed on a single machine. If paramagnetic

contrast agents come into use, supply costs will

increase.

Maintenance costs are estimated to be either 5

or 7 percent of the purchase price. The former estimate is more reflective of the cost of maintenance

performed by the hospital; the latter of the cost

of maintenance provided by a manufacturer as

part of a service contract. Given the absence of

moving parts in NMR imaging systems, actual

maintenance costs may be less than the estimates

provided. Finally, overhead, which has been estimated to be 25 percent of operating costs, will

vary from institution to institution.

As can be seen in table 15, purchase prices for

permanent and superconducting NMR units tend

to be higher than those for current generation

X-ray CT scanners (estimated to be $600,000 to

$1,200,000) (180,181). Based on the assumptions

implicit in this analysis, including the performance of 10 procedures per day, the cost of an NMR

imaging study in 1983 exclusive of professional

63
64 Ž Health Technology Case Study 27: Nuclear Magnetic Resonance Imaging Technology: A Clinical, Industrial, and Policy Analysis

Table 15.–Range of Estimated Costs for NMR Imaging Systems by Type of Magnet, 1983

Resistive Permanent Superconductive Superconductive

(0.15 T) (0.3 T) (0.5 T) (1.5 T)

Capital costs:

Purchase price . . . . . . . . . . . . . . . . . . . $ 800,00 0

2 b

1,200,000’ c

$1 ,500,000’ 4$1,500,0002 b$2,000,0004

1 ,700,000’ c

Facility modification:

Renovation . . . . . . . . . . . . . . . . . . . . 150,000

to

250,000 4

20,000

to

50,0004

50,000

to

75,000

75,000’ b

250,0002 c

New construction . . . . . . . . . . . . . .

150,000 3 b

510,000’ c

650,000’ 250,000b

to

1,000,0004 c

Unspecified modifications . . . . . . .

Annual operating costs:

Electricity (and cryogensa

) . . . . . . . . . $ 3,000’ b

8,200’ c

$ 60,000’ c

$ 30,000b

to

50,0004 c

$20,0001

20,000b

to

40,0003

10,000b

to

30,0003 c

Personnel:

Single shift . . . . . . . . . . . . . . . . . . . .

Double shift . . . . . . . . . . . . . . . . . . .

Supplies ($15/procedure):

10 procedures/day

(2,500/year) . . . . . . . . . . . . . . . . . .

20 procedures/day

(5,000/year) . . . . . . . . . . . . . . . . . .

70,0003

140,0003

70,0003

140,0003

70,0003

140,0003

70,0003

140,0003

37,5003

75,0003

100,000 4 b

140,0004 c

37,500337,5003

75,0003

37,5003

75,0003

75,0003

Maintenance:

5°/0 of purchase price . . . . . . . . . . . 40,0002 b

60,000’

56,0002

84,000’ c

75,000’ 4 b

105,000’ 4 c

75,0002 b

85,000’

105,0002

1 19,000’ c

7°/0 of purchase price . . . . . . . . . . .

Annual overhead:

25°/0 of operating costs . . . . . . . . . . . $46,375 d

to

82,050’

$ 50,625 d

to

98,500’

$ 59,375 d

to

103,750e

$39,375 d

to

82,250’

%ryogens apply only to superconductive systems

b

Low estimate.

cHigh estimate

dThe lower estimates of operating costs are derived from the IOW estimates of electricity (and cryogensa) costs and of maintenance costs, as lndlcated, For perSOnnei

costs, a single shift and 10 procedures per day are assumed

eThe higher estimates of operating costs are derived from the high estimates of ‘Iectriclty (and Cryogerlsa) costs and of maintenance Costs, as indicated For perSOnnel

costs, a double shift and 20 procedures per day are assumed.

SOURCES. ‘American Hospital Association, Nuclear Magnefic Resonance Guideline Reporl AHA Hospital Technology Series, VOI 2, No 8. (Chicago’ AHA, 1983)

‘W H Stephens, A E James, A. C. Win field, et al., “Financial Implications of NMR Imaging, ” In Nuclear A4agrretlc Resonance (lV&f/?) /rrrag/ng, C L, Partaln,

A. E James, F. D. Rollo, et al. (eds.) (Philadelphia: W. B Saunders, 1983)

‘W H Stephens, J A Patton, J. E Lagan, et al., “Certain Economic Considerations In NMR Imaging, ” In Nuc/ear Magnet/c Resonance and Correlative /rnag.

~rrg Modalities, C. L, Partain (cd. ) (New York: The Society of Nuclear Medicine, Inc , 1983).

“Interviews with manufacturers

‘E F Kuntz, “New Magnet May Lower Cost of NMR, ” Modern Ffealfh Care 1C6, January 1983

‘Fonar Corp , “Cost.Effectiveness in NMR Scanning” Making NMR Available to the Public at an Affordable Cost,” October 1983
Ch. 5—Hospital Costs and Strategies 65

Table 16.—Estimated Annual Costs for NMR Imaging Systems by Type of Magnet, 1983

Resistive Permanent

(0.15 T) (0.3 T)

Annual capital costs: a

Purchaseb . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Facility modification . . . . . . . . . . . . . . . . . . . . . . . .

Total annual capital costs . . . . . . . . . . . . . . . . . . . .

Annual operating costs.d

# procedures

Shift maintenance per day

Single

Single

Single

Single

Double

Double

Double

Double

5 %

5 %

7 %

7 %

5 %

5 %

7 %

7 %

10 ..., . . . . . . .

20 . . . . . . . . . . .

10 . . . . . . . . . . .

20 . . . . . . . . . . .

10 . . . . . . . . . . .

20 . . . . . . . . . . .

10 . . . . . . . . . . .

20 .., . . . . . . . .

Range of operating costs . . . . . . . . . . . . . . . . . .

Annual overhead:

25°/0 of operating costs . . . . . . . . . . . . . . . . . .

Total annual costs. . . . . . . . . . . . . . . . . . . . . .

$203,972

(800,000)

23,787

(150,000)

$227,759

$177,500

215,000

193,500

231,000

247,600

285,000

263,500

301,000

177,500

to

301,000

44,375

to

75,250

449,634

to

604,009

$ 382,44 7

(1,500,000)

11,894

(75,000)

$ 394,341

$ 190,700

228,200

220,700

258,200

260,700

298,200

290,700

328,200

190,700

to

328,200

47,675

to

82,050

632,716

to

804,591

Superconductive Superconductive

(0.5 T) (1,5 T)

$ 382,447

(1 ,500,000)

103,078

(650,000)

$ 485,525

$ 232,500

270,000

262,500

300,000

302,500

340,000

332,500

370,000

232,500

to

370,000

58,125

to

92,500

776,150

to

948,025

$ 509,92 9

(2,000,000)

111,007

(700,000)

$ 620,936

$ 267,500

305,000

307,500

345,000

337,500

375,000

377,500

415,000

267,500

to

415,000

66,875

t o

103,750

955,311

to

1,139,686

aTotal costs on which annualized costs are based are in parentheses

bAssumlng 5.year useful life, IO percent interest, and 60 equal monthly PaYments

cAssumlng lo.year useful ilfe, IO percent interest, and 120 equal monthly PaYments

d T he ~lectrlclty and Cwogens costs assumed (~ryogens apply only to superconductive systems) were as follows (S00 table 15)

Resistive (O 15 T) &30,c#o

Permanent (O 3 T) $ 8,200

Superconductive (O 5 T) ~ ~ $50,000

Superconductive (1 5 T ) $60,000

SOURCE Table 15

Table 17.—1983 Estimated Costs per NMR Imaging Study by Type of Magnet

Resistive Permanent Superconductive Superconductive

(0.15 T) (0.3 T) (0.5 T) (1.5 T)

Single shift, 5% maintenance,

—

10 procedures per day:

Annual cost ... ... . . . . . . . . . . . . . . . . . . . . . . $449,634 $632,716 $776,150 $ 955,311

Cost per procedure. ., . . . . . . . . . . . . . . . . . . . . . . $ 180 $ 253 $ 310 $ 382

Double shift, 7% maintenance,

20 procedures per day:

Annual cost ... . . . . . . . . . . . . . . . . . . . . . . . . $604,009 $804,591 $948,025 $1,139,686

Cost per procedure ... . . . . . . . . . . . . . . . . . . . . $ 121 $ 161 $ 190 $ 228

SOURCE Table 16
66 Health Technology Case Study 27: Nuclear Magnetic Resonance Imaging Technology: A Clinical, Industrial, and Policy Analysis

—.—— — —

fees will likely range between $180 and $382,

depending on the type of magnet system employed

(see tables 16 and 17). However, Joseph P. Whalen,

Chief of Radiology at The New York HospitalCornell Medical Center, New York City, recently

estimated the cost of an NMR study as $700 (111),

and recent industry estimates range from $382-

$632 (66) to $500-$700 (159). This range of estiPATIENT-CARE COSTS

To consider only capital and operating expenses

in a discussion of the fiscal impact of NMR imaging on hospital costs (or health care costs in

general) ignores the effect of NMR imaging on patterns of patient management. Although physicians, hospital administrators, and health care

researchers have alluded in the past to the importance of technology’s effect on patterns of patient

management, techniques for estimating the magnitude of a technology’s effect on health costs are

fairly primitive. With the advent of prospective,

per-case systems of hospital payment, however,

it has become increasingly important, particularly

with regard to decisions to acquire new technology, for hospital managers to be able to explicitly

assess the expected marginal cost of new services

in relation to projected marginal benefits (102).

Regardless of the potential attractiveness of

NMR imaging (or spectroscopy) as a diagnostic

or research tool and the potential of NMR to be

a cost-saving addition to physicians’ diagnostic

armamentarium, the actual impact of NMR on

health care costs will depend not only on its diagnostic efficacy, but also on how it is employed

by physicians in actual practice situations. Several factors should be considered in this regard.

The first is the extent to which NMR imaging is

performed instead of, as opposed to in addition

to, other diagnostic modalities in the management

of specific patient complaints or disease entities.

It is possible, for example, that NMR will be used

to assess the existence of lumbar disc protrusion

in the evaluation of patients with low back pain,

since it can provide excellent images of the vertebral column. To the extent that NMR imaging

substitutes for the more invasive and risky technique of myelography (in which a radiopaque

mates derives from differences in underlying assumptions and suggests that it is too early to make

cost-per-stud y estimates with much precision. In

particular, lower estimates appear to reflect personnel and maintenance costs more typical of

routine operations of a settled and defined technology, not of one still in an uncertain and developmental phase.

substance is injected into the spinal arachnoid

space), NMR may decrease the cost of managing

and increase the quality of care of such patients.

To the extent that NMR is used in addition to

myelography, however, NMR might improve patient care, but at additional expense.

A second determinant of NMR’s impact on

health care costs is the extent to which it will be

used in situations in which no diagnostic modality

is currently used.1 Since NMR use does not involve radiation risk, such “newly induced” test

usage may occur frequently. Consider, for example, the patient with low back pain alluded to previously. Patients suspected of having low back

strain might in the future undergo NMR scans to

confirm the clinical assessment of strain, rather

than being treated with bed rest, heat, and analgesics without the use of any diagnostic imaging

modality. Such use of NMR is likely to increase

health care costs.

Two other potential newly induced test uses can

be foreseen with the introduction of NMR. The

first is “sequential NMR scanning” (see ch. 2) to

monitor the natural history of disease in patients

with atherosclerosis, multiple sclerosis, cysts, etc.,

in whom symptoms have either increased, decreased, or even not changed. The second is “sequential NMR scanning” to monitor therapeutic

progress in patients being treated for cancer, infections, etc. The extent to which NMR will, in

fact, be used in such a fashion should be determined by the sensitivity and specificity of the technique in each clinical application. The impact such

‘This could be considered a special case of “add-on, ” with the

patient history and physical examination being construed as diagnostic tests,
.

Ch. 5—Hospital Costs and Strategies 67

—. —

usage will have on health care costs will depend

on the as yet undemonstrated extent to which such

usage decreases or increases total patient management costs in addition to improving diagnostic information or the quality of patient care.

Recent analyses have suggested that over the

past decade there have been striking increases in

the amount of real inputs employed both per patient-day and per admission in U.S. hospitals (48).

It is much too early to determine the aggregate

effect of NMR imaging on patient care costs.

Much will depend on such factors as how much

surgery is avoided, whether hospital lengths of

stay are shortened, and whether diagnostic workups that were previously performed in the hospital are shifted to the outpatient setting.

With the advent of prospective, per-case systems of hospital payment and increasing competiHOSPITAL

Introduction

STRATEGIES

Different segments of the hospital industry have

employed different strategies for determining

whether, when, and what type of NMR imaging

equipment to buy. Each strategy and subsequent

acquisition decision reflects the priorities of the

hospital-industr y segment or of particular hospitals within a segment and provides insights not

only into technology assessment as practiced by

hospitals, but also into hospitals’ perceptions of

the state of development of NMR imaging technology. An attempt has been made in this section to describe the acquisition strategies and decisions of three different segments of the hospital

industry: university teaching hospitals and major medical centers; the Veterans Administration;

and investor-owned hospital chains.

University Teaching Hospitals and

Major Medical Centers

The Acquisition Decision

Most of the early NMR units acquired by hospitals have been installed in university teaching

hospitals or major medical centers. This is not surtion in health care, it is likely that those vested

with the responsibility for making decisions regarding the acquisition of new technology such

as NMR for hospitals will increasingly feel the

force of two conflicting incentives. On the one

hand, there will be the already mentioned fiscal

pressure to be increasingly discerning of the patient care benefits compared to costs associated

with acquisition of new technology. On the other

hand, there will be pressure to offer the “best” and

most recently available services in order to protect (or increase) an individual hospital’s share of

patients in the increasingly competitive market for

patients. Whether and how hospital directors will

obtain the type of information necessary to make

such decisions may determine not only which hospitals survive in the current economic climate, but

also the rate at which they acquire promising new

technology such as NMR imagers.

prising given the interest such hospitals have in

performing research and being at the “cutting

edge” of medical developments, the manufacturers’ need to have research performed in order

to obtain FDA premarket approval, and the tendency of such hospitals to have large numbers of

beds and a complicated mix of patients.

In addition to these forces driving university

hospitals to acquire NMR imaging technology

early on, several benefits that have accrued to

those university hospitals that were among the

earliest to acquire NMR imaging systems may help

explain their acquisition decisions.

First, university centers have been able to use

their special strengths to obtain NMR imaging systems from manufacturers at decreased or even no

cost, Among the assets that university hospitals

offer to manufacturers are: 1) their ability to provide a “laboratory setting” in which clinical data,

needed by manufacturers for preparation of an

FDA premarket approval application (PMAA),

can be collected; 2) their special research talents

in basic science, engineering, and clinical trial design, from which manufacturers have derived benefits in the form of improved system design, help

with PMAAs, and publicity from publications in
68 Ž Health Technology Case Study 27: Nuclear Magnetic Resonance Imaging Technology: A Clinical, industrial, and Policy Analysis

professional journals or presentations at professional meetings; and 3) the prestige associated

with their institutions, which manufacturers’ marketing divisions can convert into an effective form

of advertising.

Second, because many of the university hospitals that were first to obtain NMR systems did

so at little or no charge, they have ironically protected themselves from much of the cost associated with technological obsolescence.2

Third, the “price” and operating costs of these

experimental systems are often partly subsidized

by research grants provided to the hospital by the

manufacturers.

Fourth, because many university hospitals have

shared their NMR imaging systems with nonhospital university researchers, some of the acquisition expenses were often shared with the university. Finally, those hospitals and universities that

obtained NMR imaging systems early are now in

a position to capitalize on any research funds that

will be awarded in early 1984 by the National

Cancer Institute as part of its “Comparative NMR

Imaging Studies” program (see ch. 6).

These observations suggest that many of the

university hospitals that have obtained NMR imaging systems to date may have done so partly

because they did not have to be so concerned with

acquisition and early operating costs as other hospitals have to be.

Interestingly, in the case of NMR, a second opportunity to capitalize on university teaching hospital assets is now emerging for those hospitals

that did not benefit the first time around. This

‘Although NMR imaging systems will undoubtedly change over

time, some experts believe that the changes in the hardware will

be much less dramatic than those that have occurred with X-ray

CT scanners. Aside from the possibility that low field strength

resistive systems will become obsolete compared to higher field

strength superconducting systems (which could be a concern for those

“early bird” hospitals that acquired resistive systems), NMR systems may simply evolve through a continuing series of upgrades

in software and minor changes in electronics (90). With X-ray CT

scanners, in contrast, the entire set of electronics as well as the

reconstruction algorithm, and other parts of the system are specific

to the particular gantry being used. Thus, improvements have come

in generations rather than through a process of simple upgrades (90).

One other issue to be considered in this regard is that “early bird”

hospitals might also have to redesign their facilities in the future

to accommodate changes in magnet design or field strengths.

second opportunity derives from the fact that increasing numbers of manufacturers are beginning

to offer high field strength (1.5 T) NMR systems

on which spectroscopic applications (an area in

which many universities are replete with talent)

need to be explored. These second-round hospitals can be expected to be fewer in number than

those in the first round and are likely to obtain

their benefits in the form of “two-for-one” bargains in which a 1.5 T system and a lower field

strength system are obtained for close to the price

of the lower field strength systems. Second-round

buyers will benefit from the experience in siteplanning gained by first-round hospitals.

Choosing a Manufacturer (or University)

Manufacturers have tended initially to install

equipment in prestigious university centers. There

is little information available on whether these

first-round hospitals sought out the manufacturers

or whether the manufacturers courted the hospitals, In some instances (such as Siemens and

Washington University in St. Louis), installations

have been a natural consequence of longstanding

business relationships and research collaborations.

Several factors can be expected to influence

university teaching hospitals’ choices of manufacturers in future rounds of buying. Potentially most

important are the hospitals’ perceptions of a manufacturer’s survivability in the NMR industry, the

NMR system’s features and capabilities, image

quality, system reliability (up-time), manufacturers’ interest in collaborative research, and the

effect of a hospital’s choice on its existing relationships with radiology equipment manufacturers. Potentially of lesser importance to university

hospitals interested in performing research are

price, protection against early obsolescence, and

delivery time. To the extent that a research collaboration evolves, good service and technology

upgrades (software and hardware) can be expected.

The Veterans Administration3

The Veterans Administration operates 172 medical centers nationwide in 6 regions and 28 districts

3

The information in this section was drawn from a personal communication with S. Smith (171).
.- .-

Ch. 5—Hospital Costs and Strategies 6 9

on an annual medical service budget of $7 billion

to $8 billion. Of these 172 medical centers 130

have onsite nuclear medicine services, and 80 to

90 have X-ray CT scanners.

The VA central office must approve acquisition

of technology costing more than $100,000 (a sort

of “certification-of-need” (CON) analog). These

high-cost items are apparently not considered part

of the budgets allocated to individual hospitals,

districts, or regions by the VA central office.

The NMR Decision

The VA’s interest in acquiring an NMR imager

originated in the VA central office rather than in

one of its hospitals. In December 1981, after a

presentation by an NMR manufacturer, VA elected

to defer acquisition of an NMR system.

In early 1983, the VA decided to initiate what

could become a program of staged acquisition

with a single NMR demonstration and evaluation

project. This decision derived from an interest in

“helping the VA march into the future” (171). No

estimates of the fiscal impact of NMR on the cost

of patient care were made. The decision to restrict

the initial purchase to a single unit emanated from

a concern about the rapid rate at which NMR

technology was changing and the desire to avoid

installing a large number of systems that might

soon become obsolete.

Choosing a Manufacturer

In early 1983, the VA solicited bids from manufacturers for a single system. No specifications

were given regarding the type of magnet desired.

Two bids, both for 0.15 T resistive magnet systems, were received.

Three factors guided the VA in its final choice

of a system and manufacturer. First was a concern about manufacturer “corporate durability. ”

(The VA regrets having bought six to eight X-ray

CT scanners from Pfizer, which subsequently

stopped manufacturing X-ray CT systems. ) Second was evidence of a manufacturer’s proven record of reliability in its already existing installations. Third was price.

Choosing a Site

The 0.15 T system obtained by the VA was to

have been installed in the Cochran VA Hospital

in St. Louis in October 1983. This decision was

again made centrally with interest expressed by

the Cochran VA. Three factors were considered

in the choice of an installation site: the site had

to have all other major diagnostic imaging modalities, a proven ability in high technology, and

a good working relationship with the university

with which it was affiliated. NMR expertise was

desirable, but not necessary. CON controls were

not a consideration because they do not apply to

VA installations.

Site Operations

The NMR imaging system will be under the

control of the hospital Chief of Staff, rather than

being placed in either Radiology or Nuclear Medicine, This administrative decision was made to

help foster the multidisciplinary team effort that

the VA would like in its NMR program. Research

protocols will be developed with input from the

St. Louis staff, the VA central office, and outside

consultants. The VA has not yet allocated monies

specifically for NMR research. It should be recalled that the VA does not charge its patients.

The VA will be getting a small research grant (approximately $75,000 per year for 2 years) from

Technicare, the manufacturer of the VA’s unit.

Future NMR Acquisitions

In June 1983, Dr. Donald Custis, the Chief

Medical Director of the VA, formed a High Technology Assessment Group to determine what

course the VA should follow with respect to acquisition of major new technology such as NMR

imagers (e. g., what type, how many, over what

time period).

lnvestor-Owned Hospitals

Humana4

Background.—Humana, based in Louisville,

KY, owns or operates 92 hospitals. Humana has

4

The information in this section was drawn from a personal communication with F. D. Rollo ( 153).
70 Ž Health Technology Case Study 27: Nuclear Magnetic Resonance Imaging Technology: A Clinical, Industrial, and Policy Analysis

invested considerable effort in an assessment of

NMR technology over the past 2 years. It has actively monitored NMR developments and discussed the technology frequently with manufacturers to help it decide what and when to buy.

In addition, Humana has undertaken an interesting joint venture with Vanderbilt University,

Through this arrangement, Humana obtains detailed information from Vanderbilt regarding

NMR installation and operating costs, advice

from Vanderbilt personnel regarding important

questions to pose to manufacturers, and data from

clinical studies. In return, Humana helps Vanderbilt obtain special consideration regarding price,

software, and access to scientific and engineering

expertise from the manufacturer(s) hoping to obtain a high-volume purchase agreement from Humana. (Humana conducted a similar joint venture with Vanderbilt before purchasing digital

radiography equipment for Humana hospitals. )

Humana is also providing a grant to Vanderbilt

to assess the value of NMR in community hospitals.

The NMR Decision.—Although Humana has

not made final decisions regarding what type(s)

of and how many NMR systems to buy, it will

probably buy in a phased approach, beginning

with a purchase of three systems in the near

future. Humana feels that such an approach will

enable it to conduct an in-house evaluation of

NMR, yet take advantage of future progress in

the development of NMR imagers, particularly

the possibility that permanent magnet systems will

become more practical for smaller hospitals.

Humana’s decision to acquire an NMR system(s) in the near future is based more on strategic considerations than on a belief that NMR’s

clinical role has been proven. These considerations

are that Humana should not depend on either

manufacturers or university hospitals to determine

the optimal type of NMR system and NMR clinical applications in community hospitals.

Choosing a Manufacturer.—Humana identified

seven criteria that it would employ in choosing

a manufacturer: corporate durability, system

quality, system reliability, how NMR information is related to the user, manufacturer agreements related to upgrading of a purchased sys-

.- —

tern, quality of a service program, manufacturer’s

interest in collaborating with Humana’s research

interests, and price. Of these, price was considered to be the least important and corporate

durability the most important.

Site Selection.--Humana considered three main

criteria in determining which of its hospitals were

appropriate for installation of NMR imaging systems. Appropriate hospitals were considered to

be those with: 1) multispecialty practices with

heavy emphasis on the neuroscience, oncology,

and cardiovascular diseases; 2) high-volume outpatient services; and 3) adequate land for creation of an outpatient diagnostic center that would

include, but not be limited to, NMR imaging

equipment. In addition to these primary criteria,

consideration was also given to the existence of

NMR expertise among hospital staff and to whether NMR facilities would enhance the Preferred

Provider Organization (PPO) and Health Maintenance Organization (HMO) programs Humana

is developing. Finally, since Humana intends its

NMR facilities to serve as community resources,

it has sought to place them in areas with large patient populations.

Using these criteria in conjunction with in-depth

financial analyses, Humana has identified three

of its hospitals as appropriate for NMR installations: one each in St. Petersburg, FL (300 beds),

Louisville, KY (484 beds), and Dallas, TX (600

beds). CON applications have been filed for two

of these installations (the Louisville application

was approved in September 1983), and a letter

of intent has been filed for the third.

Site Operations.—Humana plans to undertake

an educational program for the administrators

and medical staff of the hospitals in which the

NMR systems will be installed. These programs

will deal with NMR in general and with physicians’ use of NMR in diagnostic strategies, Access to an NMR system within a hospital will be

governed by that hospital. Hospital administrators may undertake studies to evaluate the impact

of NMR on the cost of managing various types

of patients.

Future.—Humana could purchase as many as

12 NMR imaging systems over the next 3 to 5

years,
AMI Diagnostic Services, Inc.5 6 

Background.—AMI owns 90 hospitals a nd

plans to build 50 to 100 freestanding diagnostic

centers that will be affiliated with physician

groups or hospitals. When considering the acquisition of new technology, AMI generally tries to

assess whether the new technology will replace

existing technology, whether it will do so at less

cost, and whether it will shorten the length of inpatient stays. AMI requires an expectation of 20

percent return (pre-tax) on any of its investments.

The NMR Decision.—AMI started its strategic

planning related to NMR technology in October

1982. It views NMR as safe and effective, especially in necrologic applications. It has questions,

however, regarding the potential applicability of

NMR to body imaging. AMI estimates that initial patient throughput is likely to be 10 to 15 patients per day per machine. Because of continued

uncertainty regarding when reimbursement for

NMR imaging will be approved, whether reimbursement for NMR will be sufficient to cover its

costs, the safety regulations regarding siting requirements that State and Federal agencies will

impose, and the impact a decision not to acquire

NMR imaging technology will have on AMI’s professional staff, AMI has not yet decided whether

or when to acquire an NMR imaging system.

Choosing a Manufacturer.—The three most

important criteria identified by AMI for choosing a manufacturer were perceived corporate longevity, service quality, and reliability (up-time)

based on experience in existing installations. As

was the case with other hospital chains, price was

a less important consideration. Once the field is

narrowed to manufacturers satisfying these concerns, AMI will leave the final decision to individual hospitals and physicians. AMI does establish national contracts for maintenance of its

equipment, however.

Site Selection.—AMI identified four characteristics for determining which of its hospitals would

be appropriate sites for installation of NMR imaging equipment: bed-size (greater than 250 beds),

‘An American Medical International, Inc , health care subsicllary.

“The lntt~rmati{~n ]n this sect]on was dra~jn trom a p(,rw>nal conv

munlcatl(~n w]th 1 Atk]n\ ( 10 I

Ch. 5—Hospital Costs and Strategies 71

—

patient mix (heavy emphasis on necrologic and

cardiac disease), large outpatient volume, and a

dominant position in the community. Using these

criteria, AMI currently considers 12 of its 90 hospitals to be appropriate for NMR installations and

is applying for a CON in each of these cases.

Site Operations .—AMI does not intend to impose control over physician decisionmaking regarding use of NMR. It does intend, however, to

implement a physician-education program pertaining to NMR and diagnostic-test-ordering strategy in general.

Future.—If AMI decides to purchase NMR

equipment, it could purchase 50 to 100 units for

its planned diagnostic centers and 12 units for hospitals, over a 24- to 36-month period.

National Medical Enterprises, Inc. (NME)7

NME owns, operates, or manages 339 acute,

psychiatric, and long-term hospitals.

NMR.—NME began its strategic planning for

NMR in October 1982. At the present time, NME

does not plan to budget for NMR equipment u ntil fiscal year 1986. It is maintaining close communication with manufacturers and with institutions that have already acquired NMR devices,

however, to be aware of developments that might

lead to a change in plans.

NME decided to defer acquisition of NMR technology because of its uncertainty regarding which

magnet types and field strengths would prove to

be most effective and whether separate systems

would be required to perform proton imaging and

spectroscopic analysis.

Site Selection.—NME has not decided which

of its facilities would be appropriate sites for

placement of NMR technology. It did believe that

it would tend to put NMR imagers in its larger

facilities, however.

Site Operations.–NME believes that NMR

technology in the near future will be complementary to, rather than competitive with, X-ray CT.
72 • Health Technology Case Study 27: Nuclear Magnetic Resonance Imaging Technology: A Clinical, Industrial, and Policy Analysis

Lifemark8

NMR.—Lifemark owns or operates 30 hospital facilities. Since it began assessing NMR imaging technology in early 1983, Lifemark has attempted to keep abreast of NMR developments

and to assess the instruments manufactured by

various companies. It has made no decision regarding whether or when to acquire NMR imaging equipment, because it would like to be fairly

certain that third-party payment is forthcoming

before deciding to acquire NMR technology. It

has as yet made no assessment of the likely impact of NMR on total patient-management costs.

Choosing a Manufacturer.—The major factors

considered by Lifemark in any major equipment

purchase are corporate durability, service commitment, and protection against technological obsolescence (as evidenced by manufacturers’ ongoing R&D programs and willingness to supply

software or hardware updates).

Site Selection. --Lifemark believes that the three

hospitals it owns that have more than 300 beds

and the one 300-bed hospital it has under construction will be the most likely early candidates

for NMR imaging technology. Smaller hospitals

that have a strong neurological or neurosurgical

orientation would also be potential candidates,

Lifemark’s Columbia Regional Hospital in Missouri, a 300-bed general medical-surgical, multispecialty referral hospital, expressed an interest

in obtaining an NMR unit over a year ago. Although the hospital received CON approval in

March 1983, no definite purchase decision has

been made.

Site Operations.—No definite decisions have

been made regarding how NMR units would be

utilized in hospitals. Any restrictions on NMR use

would depend on the type of payment that is approved by third-parties,

Future.—Lifemark anticipates the possibility of

purchasing four NMR imaging systems over the

next 3 to 4 years.

Hospital Corp. of America’

Background. -Hospital Corp. of America (HCA)

owns 150 hospitals and manages 150 others. It has

an internal diagnostic-imaging technology advisory board that has traditionally taken a cautious

approach to acquiring new technology. This approach has often resulted in HCA’s getting new

equipment up to 18 months after other hospitals.

Recently, HCA decided that it would like to begin

evaluating new technology such as NMR at an

earlier point in the technology’s evolution. This

decision is based on the need to generate information regarding the likely role, operating costs,

and patient throughput for new imaging technology in community hospital settings. (HCA has

concluded that data emanating from university

hospitals are not always applicable to their community hospitals. ) In addition to recognizing the

need for this type of information, HCA believes

that it has sufficient numbers of 300- to 400-bed

hospitals to be able to generate this information

internally and that such information could help

manufacturers obtain FDA and third-party payment approval.

The NMR Decision.—With this strategy in

mind, HCA has decided to purchase five NMR

systems—one 0.15 T resistive system, three 0.5 T

superconductive systems, and one permanentmagnet system—from four manufacturers (Technicare, Picker, Philips, and Fonar), enabling HCA

to evaluate several different magnets and manufacturers simultaneously. Each of the five hospitals earmarked to receive an NMR unit has analyzed the likely financial impact of introducing

NMR on its patient care costs.

Choosing a Manufacturer.—HCA considered

several factors in choosing the manufacturers: perceived corporate durability; maintenance capabilities; expected delivery time; and interest in HCA’s

research programs, as manifested by a willingness

to supply onsite product specialists to help HCA

evaluate instruments in community hospitals and

to ensure that HCA obtains software updates. In

‘The information in this section was drawn from a personal com- ‘The information in this section was drawn from a personal communication with K. Harville (82). munication with R. Bird (16).
Ch. 5–Hospital Costs and Strategies 7 3

general, HCA likes to obtain equipment from at

least two, but not more than three, preferred manufacturers. HCA believes that such a strategy

helps ensure against a manufacturer’s “getting lax”

in service and being unable to accommodate all

of HCA’s needs. Within this limited range of potential manufacturers, HCA permits each of its

hospitals to make its own acquisition decision.

Site Selection. --HCA considered four primary

criteria in choosing the five sites for initial installations: bed size (250 to 400 beds); type of hospital

(acute-care hospital with a large nearby clinical

referral base and a sophisticated emergency room

capable of handling trauma patients); type of patient-mix (with neurology, oncology, cardiology,

and orthopedics emphasized); and degree of sophistication of the hospital’s imaging department.

On the basis of these criteria, HCA decided to install three units in 400-bed hospitals and two units

in 250-bed hospitals. 10 Each of these hospitals have

either applied for or are in the process of applying for CON.

Site Operation.—Each NMR facility will be

operated as a separate cost center to improve the

quality of financial information pertaining to the

use of NMR. NMR units will be installed within

imaging departments, which include both Radiology and Nuclear Medicine. Physician education

“’The five hospitals are Chippenham Hospital in Richmond, VA;

Medical Center Hospital in Large, FL; West Florida Hospital in Pensacola, FL; Coliseum Park Hospital in Macon, GA; and Parkview

Hospital in Nashville, TN.

programs will be prepared. The various NMR facilities may have different clinical emphases,

depending on manufacturer needs.

Future.—The first stage of HCA’s evaluation

will involve five or six installations. Over the next

5 years, HCA could obtain as many as 25 to 50

NMR imaging systems.

Conclusions

Organizations that own or operate multiple

hospitals seem to be employing two different strategies regarding acquisition of NMR imaging equipment. The first strategy is to obtain one or more

NMR imaging systems as part of an in-house

evaluation project to guide future decisions regarding acquisition of the technology. The alternative strategy is to defer any acquisition until

additional information about NMR is available.

What is clear is that no one considers it advisable

to make large-scale purchases of NMR imaging

equipment at this time. Although all hospitals are

concerned about the impact of NMR on total patient management costs, only Humana and HCA

appear to have conducted a formal, patient-management, cost-impact assessment. Finally, while

many university teaching hospitals are able to use

their prestige to obtain “favored status” from manufacturers, companies that operate chains of hospitals are able to elicit special consideration from

‘manufacturers because of their buying power. The

VA could capitalize on its potential to make highvolume purchases by following HCA’s approach

of designating a small number of preferred manufacturers.
6.

History of Funding for

NMR Research
6

History of Funding for NMR Research

INTRODUCTION

Government policies related to funding of medical device research and development by universities and manufacturers can have important impacts on the evolution of technology and the

shape of particular device industries. The purpose

of this chapter is to review the history of government funding for NMR research in the United

States and in England and Scotland where much

UNITED STATES

National Institutes of Health

Over the past decade, the National Institutes

of Health (NIH) have supported research relating

to NMR imaging, biomedical applications of

NMR relaxation-time parameters, and biomedical

applications of NMR spectroscopy. Although NIH

has provided some funds for the development and

use of software and ancillary hardware, NIH has

not provided, and does not plan to provide, support to clinical or research institutions to be used

either to develop or purchase NMR imaging machines for use in human imaging.

Intramural Research

Conventional Spectroscopy.—NIH has had an

active intramural program of research involving

conventional chemical and physical applications

of NMR spectroscopy for many years. A description of these activities is beyond the scope of this

report.

Instrumentation and Imaging Techniques. -Dr.

David Hoult, a physicist and electronics engineer

formerly involved with in vivo phosphorus spectroscopic research at Oxford University, has been

at the Biomedical Engineering and Instrumentation Branch of NIH since 1977. Over the past 6

years, his research at NIH has focused on NMR

imaging instrumentation and techniques. In addition to developing the rotating frame technique

of the early work on NMR imaging was performed. Policy issues that emerge from this review are discussed in the final section of this

chapter. 1

‘Readers who are not interested in the details of government funding of NTMR research may want to read only the final section of

this chapter,

of NMR imaging (94) and systematically exploring the parameters affecting image quality, resolution, contrast and signal-to-noise ratio, Hoult has

built a small-bore (30 cm diameter) 0.117 tesla (T)

NMR imager. The imager as yet has been used

only to image phantoms, but may be used for

studies of animals or newborns in the future.

Physiology.--Dr. Robert Balaban, Senior Staff

Fellow at the National Heart, Lung, and Blood

Institute, has been studying physiological applications of phosphorus, sodium, and nitrogen NMR

spectroscopy for the past 31⁄2 years. In his research

at NIH Balaban has employed in vivo 31P NMR

spectroscopy to measure the phosphorus content

of cardiac muscle under varying physiological

conditions, has measured the kinetics of metabolic

reactions such as the transfer of phosphorus from

adenosine triphosphate to creatine phosphate, and

has studied sodium transport across plasma membranes and the concentration of various nitrogencontaining buffers in various tissues in the body.

Clinical Research. —Using funds contributed

from many of its Institutes, NIH has purchased

a 0.5 T whole-body NMR imaging system from

Picker International. This system has been delivered to NIH and clinical studies were scheduled

to begin in September 1983. This system, which

was slated to be placed in the Department of

Radiology, will be utilized by several Institutes

to carry out research protocols approved by an

77
78 • Health Technology Case Study 27: Nuclear Magnetic Resonance Imaging Technology; A Clinical, Industrial, and Policy Analysis

NIH NMR Users Committee. Initial studies will

be done at a magnetic field strength of 0.15 T and

will include investigations of demyelinating disease, the effects of chemotherapy and radiation

therapy on NMR parameters, and whether NMR

can be used to predict patients’ responses to

chemotherapy and radiation therapy.

Cellular Metabolism.—A fifth NMR research

group has been formed at NIH by Charles Meyers,

Chief of the Clinical Pharmacology Branch of the

Division of Cancer Treatment at the National

Cancer Institute (NCI). This group will be exploring the use of NMR in the study of the metabolism of both normal and cancer cells, as well as

the effect of various drugs on cellular metabolism.

The group will also be exploring possible applications of NMR to the study of the development

of tumors (37).

Meyers’ group will be drawing on the expertise of Dr. Jack Cohen, an NIH veteran of 15

years, whose research has focused on biochemical

applications of NMR. Over the past 3 years,

Cohen has used NMR spectroscopic techniques

to study cellular metabolism (67), proteins, DNA

conformation (34), and drug binding, including

the binding of the chemotherapeutic agent Adriamycin to specific DNA sequences. Cohen has recently developed a method to perfuse living cells

in an NMR spectrometer (68), which he has used

to study ATP metabolism in mammalian cells

(Chinese hamster lung fibroblasts).

Extramural Research: Past

NIH-Supported NMR Spectroscopy Research

Facilities.—Although a complete description of

NIH-supported, conventional NMR spectroscopic

research is beyond the scope of this report, mention should be made of a number of NIH-supported NMR-spectroscopy research facilities

around the United States that are devoted to the

study of biological molecules. These include the

Middle Atlantic NMR Research Facility at the

University of Pennsylvania, the Western Regional

NMR Biomedical Facility at the University of

Utah, the Stanford Magnetic Resonance Laboratory, the Purdue Biochemical Magnetic Resonance

Laboratory, the NMR Facility for Biomedical

Studies in Pittsburgh, and the Francis Bitter National Magnet Laboratory at the Massachusetts

Institute of Technology (190). The MIT National

Magnet Laboratory, run by Dr. Leo J. Neuringer,

is a national resource that makes available high

field NMR spectrometers to biomedical investigators. 2

NMR Imaging.–Although a few of the NMRrelated extramural grants that have been funded

by NIH over the past decade have been funded

by the National Heart, Lung, and Blood Institute

(NHLBI) (e.g., research by Lauterbur in 1975

related to the use of NMR imaging to study blood

flow and about $200,000 per year provided to

Lauterbur by NHLBI since 1978) and other Institutes, most of them have been funded by NCI.

The first extramural NCI grant related to NMR

imaging was awarded to Lauterbur at SUNYStony Brook in 1973 after publication of his landmark article (115). The award was made to help

Lauterbur further develop his technique of NMR

imaging and investigate its application to cancer

research. His initial funding of approximately

$100,000 per year for 3 years has been renewed

at an approximately constant level, without interruption, since 1973. NIH also supported early

work on T1 measurements of surgically excised

human tumors (45,46) and tumors in mice and

rats (85,92), as well as on the imaging of tumors

in live animals (44).

Extramural Research: Present

NIH is currently funding approximately $2 million of research relating to NMR imaging and/or

in vivo spectroscopy in at least 10 different institutions (204). A complete description of the content of this research is beyond the scope of this

report. The Department of Energy has awarded

an additional $1.8 million for NMR-related research (204). It should also be noted that in 1983,

NIH began providing support for innovative research performed by small businesses in a program similar to the one sponsored by the National

‘Of interest is the fact that IBM has recently supplied several million dollars to the Brigham & Women’s Hospital in Boston, the

University of California at Berkeley, and the MIT National Magnet

Laboratory for a joint research program aimed at addressing basic

biological and medical questions and developing a high-field, wholebody magnet with sufficient field homogeneity to permit performance of in vivo “P spectroscopy (1).
—. — —

Science Foundation (197). No information was

available regarding whether support has been provided for NMR research under this program.

Extramural Research: Future

The dramatic advances over the past decade in

diagnostic imaging technologies, many of which

can assist clinicians in diagnosing multiple types

of pathologies, have created the need for comparative performance studies to clarify how our

expanding diagnostic imaging arsenal can be used

most effectively and efficiently. In October 1981,

the NCI expanded its focus beyond supporting research directed principally at cancer detection and

diagnosis by forming a Diagnostic Imaging Research Branch to advance the art of imaging all

types of morphologic and functional pathologies.

In October 1982, this Diagnostic Imaging Research Branch announced a solicitation of proposals (191) for the performance of studies: 1) to

explore and define the current and potential usefulness of present-day NMR imaging systems in

clinical applications; 2) to establish optimal imaging conditions for NMR use in specific clinical

problems; and 3) to carry out comparative performance and evaluation studies to determine the

capabilities and limitations of NMR imaging systems in comparison with other modalities for clinical applications in human subjects in the detection, imaging, quantification, and diagnosis of

morphological and functional pathology and in

the noninvasive characterization of tissue (191).

The other techniques with which NMR is to be

compared could include, but are not limited to,

conventional X-ray imaging, computed tomography (CT), ultrasonic imaging, and radioisotope

imaging, including single photon emission computed tomography (SPECT), and positron emission tomography (PET). Awards are to be for 3

years and are in the form of cost-reimbursement

contracts. Announcements of awards, originally

scheduled for June 1983, were made in mid-1984

(144).

There were three minimum requirements for

qualification for an award: award recipients must

own or have available a working NMR-imaging

system of sufficient size and image quality for

meaningful whole-body or head studies of human

Ch. 6-–History of Funding for NMR Research 7 9

———— —-- .. —.——.

subjects; recipients must have access to equipment

to carry out comparative imaging with one or

more of the other techniques listed previously; recipients must be capable of imaging at least 150

patients in the first year and at least 200 patients

in each of years 2 and 3 (191).

NIH is also planning to issue a Request for

Applications for grants to study the physical,

chemical, and biological bases for T1 and T2 relaxation times to gain further insight into the information implicit in these parameters. Although a

3-year program, with up to $1 million in grants

in the first year, is being considered, no funds have

actually been approved (144).

NIH is also considering the possibility of funding a small number of training fellowships in NMR

(144).

National Science Foundation

The National Science Foundation (NSF), an independent agency of the Federal Government that

supports basic research in 18 different scientific

subject areas, supported a pioneering research

project in NMR imaging through its Research Applications Directorate (Instrumentation Technology Program) during 1977-793 as well as a 3-year

($95,000) project by Lauterbur related to microscopic NMR imaging. NSF currently has no programs that support research in NMR imaging per

se. However, NSF has provided, and continues

to provide considerable support for investigations

relating to digital signal processing, two- and

three-dimensional analyses and image reconstruction, as well as other scientific principles on which

NMR imaging is based (49).

NSF Regional Instrumentation Facilities

In 1978, NSF initiated a program designed to

improve the quality and scope of research conducted in the United States by making sophisticated instruments broadly available to researchers in both academia and industry (196). This

program of Regional Instrumentation Facilities

was predicated on two beliefs. First, there was

thought to be a growing need for researcher ac-

‘There was $309,500 awarded under grant FApR-7708185, “InL’ivo Nuclear Magnetic Resonance of Flow Patterns” to the Un]\’ersity of California at Berkeley in 1977.
80 • Health Technology Case Study 27: Nuclear Magnetic Resonance imaging Technology: A Clinical, Industrial, and Policy Analysis

—

cess to the powerful scientific instrumentation that

had evolved out of recent advances in electronics,

but which unfortunately was affordable by only

a few research institutions. Second, it was thought

that a program of instrumentation sharing might

encourage interaction and cooperation between

researchers from scientific disciplines that do not

ordinarily collaborate with one another (150).

By November of 1979, NSF had awarded a total

of $11,392,000 to eight universities in seven States

for the establishment of such regional instrumentation facilities (196). Of the 14 grants awarded

during the first 2 years of the program, 5 went

to universities to establish facilities for the performance of high-resolution NMR spectroscopy,

at a cost of over $5 million.4 Researchers in these

instrument facilities used the NMR spectrometers

in a broad range of physical, chemical, biochemical, biophysical, and molecular biologic experiments. No NMR imaging instruments were installed in the facilities and no imaging research

was performed. No information is available regarding the extent to which the spectroscopic research performed in these facilities was pertinent

to the later development of NMR imaging techniques.

NSF also provides institutional support to the

National Magnet Laboratory at the Massachusetts

Institute of Technology.

Small Business Innovation Research Program

Although NSF directs most of its research support to basic scientific and engineering projects

at academic institutions in the United States, since

1977 it has also operated a Small Business Innovation Research (SBIR) program. This program encourages science-based and high-technology small

businesses with strong research capabilities in applied science, basic science, or engineering to submit proposals pertaining to research in scientific

or engineering problems that could lead to significant public benefit (197). Three primary objectives of this program are to stimulate technologi-

.——— 4NMR spectroscopy centers were established at Colorado State

University, the University of South Carolina, the California Institute of Technology, the University of Illinois, and Yale University.

cal innovation in the private sector, to increase

the commercial application of NSF-supported research results, and to increase the national economic and social benefits derivable from Federal

research investments (197).

Awards under the most recent SBIR program

solicitation were to have been announced in January 1984. Research proposals pertaining to:

1) the application of superconductivity to electronically oriented industries; 2) improved NMR

probes; and 3) new procedures for NMR data

display have been particularly encouraged. NSF

expects to award about 100 Phase I (feasibility

study) grants of up to $35,000 each. One-third

to one-half of Phase I awardees will receive Phase

II grants, which will cover 2 years of research and

are expected to average $200,000 each.

NSF and ACR Research Workshop

In November 1982, NSF and the American College of Radiology (ACR) sponsored an engineering research workshop for engineers, physicists,

computer experts, physicians, product developers,

and business managers to identify critical gaps in

imaging knowledge that require engineering support and to examine how engineering researchers, medical scientists, and clinicians could develop effective collaborative relationships out of

which advances in radiological imaging might

emerge (49).

In addition to identifying areas in which basic

imaging research is needed, the conference attendees addressed the current research and development roles of various elements along the research-development-production-application continuum. They concluded that the medical imaging-system manufacturers perform little of the

basic research on which advances in imaging technologies depend:

. . . The instrument producer functions largely as

a designer/integrator of high technologies into

functional systems, taking the knowledge resulting from research done elsewhere and converting

it into clinically useful imaging systems (49).

The need for additional sources of support for

basic research was underscored.
. . ——— .-

—

ENGLAND AND SCOTLAND

Between 1973 and 1983, at least three different

noncommercial entities provided financial support

for NMR research in England and Scotland. Between 1974 and 1979, the Medical Research Council, the British analog of our NIH, provided support to three different groups. Two of these groups

were based at the University of Nottingham, one

under the direction of Professor Peter Mansfield,

the other under Professor Raymond Andrew. The

third group was based at the University of Aberdeen in Scotland, under Professor John Mallard.

Andrew’s and Mallard’s groups received support

from the Medical Research Council between 1975

and 1978; Mansfield’s group received support between 1976 and 1979.

In late 1977, the Wolfson Foundation, a private

philanthropic organization in England, announced

the availability of funds for medical research. Andrew’s group at the University of Nottingham

used funds received from the Wolf son Foundation between 1978 and 1980 to do NMR imaging

research, including construction of a whole-body

NMR imaging system.

Finally, the Department of Health and Social

Security (DHSS) in England, through a program

designed to support development of technology

that might be of use in hospitals, also provided

significant financial support for the development

of NMR imaging technology. In 1976, DHSS provided funds to help establish an NMR research

team at the London-based company EMI (29). A

resistive magnet-based machine was built at EMI

and head images were produced in 1978 (29). Following 2 additional years of developmental research, the EMI team constructed a superconducting, whole-body NMR imaging system, which

was installed in Hammersmith Hospital in London in March 1981 (29). EMI also contributed

funds to this development project. ’

In 1981, NMR imaging began at the Hammersmith Hospital using the resistive NMR unit developed by EMI. DHSS apparently has also provided support to the clinical imaging program at

Hammersmith, as well as support for NMR research to Professor Mansfield at the University

of Nottingham (177).

——

‘In approximately 1977, GEC of England independently began

work on the development of an NMR imaging system. In April 1Q81 ~€

GEC acquired the Picker Corp. and formed Picker International by

consolidating the Picker Corp., GEC Medical, and Cambridge Medical Instruments. In October 1Q81 Picker Intern atlona] I.td. Division in England purchased EMI’s NTMR technology and program,

]ncluding its program at Hammersmith Hospital

RESEARCH AND DEVELOPMENT POLICY ISSUES

Certain differences between the history of the

development of NMR imaging in the United States

and Great Britain should be considered. In contrast to the NSF program’s supporting basic research by small businesses on a broad spectrum

of scientific and engineering problems (as opposed

to product development research), the British

Government attempted to develop technology

that might specifically be of use in hospitals. This

effort was focused through a program funded by

DHSS that lent considerable financial support to

the development of NMR imaging techniques.

Comparatively little support for the specific development of NMR imaging technology was provided by the U.S. Government. However, once

it became apparent that the development of NMR

imaging systems was not only commercially viable, but also potentially extremely profitable,

U.S. manufacturers rapidly and intensively began

investing in NMR imaging development programs.

In addition to applying their considerable electronics and engineering resources to this effort,

U.S. manufacturers aggressively (and successfully)

recruited scientists who had been actively involved in the early NMR development programs

in British universities. Similarly, U.S. universities

and hospitals have recruited British NMR scientists to help initiate and promote active NMR im-
82 • Health Technology Case Study 27: Nuclear Magnetic Resonance Imaging Technology: A Clinical, Industrial, and Policy Analysis

aging research and development programs, contributing to what has become somewhat of a

“brain drain” from Britain.

Finally, in Britain there seem to have been several groups of physicists based in university settings who had background and interest in the development of NMR imaging techniques and who

interacted and collaborated with medical researchers, clinicians, and each other. In the United

States, in contrast, most of the early work on

NMR imaging was done by Lauterbur and Damadian with apparently little, if any, interaction between the two, despite the fact that both were at

SUNY campuses. In addition, there seem to have

been fewer centers in the United States in which

scientists with varied backgrounds collaborated

on the type of interdisciplinary research that

resulted in the NMR imaging advances in Britain.

Perhaps the collaborations between physicists and

physicians that are now developing as part of

hospital- and university-based NMR imaging programs, as well as the recognized need for interdisciplinary research collaborations that emerged

from the 1982 NSF and ACR research workshop,

will change this situation in the future.
7.

Regulation by the Food and

Drug Administration
7.

Regulation by the Food and

Drug Administration

INTRODUCTION

NMR imaging devices are the first imaging devices for which the Food and Drug Administration (FDA) premarket approval has been required

under the Medical Device Amendments of 1976.

(Previous imaging devices, such as X-ray CT scanners, were introduced before the amendments

were passed. ) Because the FDA approval process

can have such an important effect on the rate at

which new technology is introduced into the

health care system, it is important to examine how

the FDA regulatory process operates and how a

promising technology such as NMR imaging has

fared in its encounter with it. This chapter is

devoted to those two tasks,

SOURCES OF FDA AUTHORITY

Radiation Control for

Health and Safety Act

FDA authority over NMR imaging devices derives from two Federal acts. The first is the Radiation Control for Health and Safety Act of 1968,

established to protect the public from hazardous

radiation emitted by electronic devices. Because

no hazards deriving from electromagnetic fields

have been identified with current NMR devices,

FDA has not established any radiation emission

performance standards for NMR devices under

the authority of the Radiation Control Act.

According to the Director of Electronic Products

in FDA’s Center for Devices and Radiological

Health, “. . . it is not likely that the Radiation

Control Act will have any significant impact on

the development of NMR imaging as a medical

diagnostic modality” (164). However, if defects

were found in NMR devices that rendered them

unsafe, FDA could use the authority of the act

The chapter is divided into three sections. The

first section describes the statutory sources of FDA

authority over NMR imaging devices. The second

section describes the process through which new

devices such as NMR imagers are brought to market. The section includes a flow diagram (fig. 12)

that illustrates the process, and a summary of how

NMR imagers have fared in each stage of the approval process. The final section assesses the

premarket approval process as a whole and raises

a number of policy issues that should be addressed

in evaluating it.

to recall them, even though no performance standards have been developed.

Food, Drug, and Cosmetic Act

The second source of FDA authority over NMR

imaging devices is the Food, Drug, and Cosmetic

Act as amended in 1976, which controls the introduction of medical devices into commerce. In contrast to the Radiation Control Act, the Food,

Drug, and Cosmetic Act has had, and continues

to have, a significant impact on the development

of NMR imaging devices. The 1976 Medical Device Amendments require that all medical devices

intended for human use be classified into three

regulatory categories (classes) based on the extent

of control necessary to provide reasonable assurance of the safety and effectiveness of each device.

Class I devices are those for which general

controls relating to adulteration, misbranding,

85
86 • Health Technology Case Study 27: Nuclear Magnetic Resonance Imaging Technology: A Clinical, Industrial, and Policy Analysis

banning, notification, reporting, registration,

restrictions on sale or distribution, and good manufacturing practices are considered sufficient to

provide reasonable assurance of safety and effectiveness.

Class II devices are those for which general controls are considered insufficient to provide reasonable assurance of safety and effectiveness, and

for which there is sufficient information to establish a performance standard to provide such

assurance.

Class III is reserved for devices: 1) that are used

in supporting or sustaining human life, are of substantial importance in preventing impairment of

human health, or present a potential unreasonable

risk of illness or injury; and 2) for which Class

I and Class II controls are either insufficient to

provide reasonable assurance of safety and effectiveness or for which insufficient information exists to establish a performance standard that

would provide this assurance. Class III devices require premarket approval (PMA) from FDA.

Figure 12 provides a flow diagram that illustrates how a new medical device, such as an NMR

imager, finds its way through the FDA process

into commercial distribution. The following sections describe the illustrated process in more

detail.

REGULATION OF NEW MEDICAL DEVICES UNDER THE

FOOD, DRUG, AND COSMETIC ACT

Premarket Notification of Intent To

Market a New Device

The Medical Device Amendments of 1976 include a provision titled Premarket Notification

(sec. 510(k)), which was designed to ensure that

manufacturers did not begin marketing new devices until such devices had either received

premarket approval or had been reclassified into

Class I or II. Under this provision, a manufacturer must notify the FDA 90 days before it intends to begin marketing a device that was not

sold prior to May 28, 1976. At the time of this

Premarket Notification, the manufacturer must

also specify the class into which the device has

been classified or state the fact that the device has

not yet been classified.

Under the 1976 amendments, any new device

is automatically classified into Class III unless it

is deemed to be “substantially equivalent” to either

a preenactment device (i. e., one introduced prior

to May 28, 1976) or a postenactment device that

has already been classified into either Class I or

Class 11. ’

‘If the new device is deemed to be “substantially equivalent” to

a preenactment device, then the new device automatically assumes

the classification of that preenactment device. Of significant importance is the fact that if a new device is deemed to be substantially

equivalent to a preenactment Class III device, it may immediately

be marketed without a premarket approval application.

To our knowledge, no NMR imaging manufacturer has submitted a petition to FDA arguing that

NMR imaging devices are substantially equivalent

to either a preenactment device or a postenactment Class I or Class II device. NMR imaging

devices thus are Class III devices that unless

reclassified, cannot be marketed prior to approval

of a premarket approval application (PMAA) or

a Product Development Protocol before marketing (see below).

Getting a Class Ill Device to Market

As indicated in figure 12, a Class III device such

as NMR imagers can be brought to market

through one of several pathways: reclassification

into Class I or II, initiated either by a petition or

FDA; premarket approval; or Product Development Protocol.2 Although NMR manufacturers

considered reclassification, they have used the premarket approval approach.

-——

‘Under a Product Development Protocol, a manufacturer and FDA

would agree on a plan of study to demonstrate reasonable assurance

of the safety and effectiveness of a device. After receipt of a notice

of completion of an approved protocol, FDA may declare the protocol completed or find that the results of the trials performed under

the protocol differ substantially from the results required by the protocol, or that the results do not provide reasonable assurance of

the safety and effectiveness of the device under the conditions of

use in the proposed labeling. At least until December 1983, no manufacturer had elected the approach of a Product Development

Protocol.
. .

m

n

UJ
88 Ž Health Technology Case Study 27: Nuclear Magnetic Resonance Imaging Technology: A Clinical, Industrial, and Policy Analysis

—

Reclassification

According to the Medical Device Amendments

of 1976, a manufacturer may petition FDA to

reclassify a Class III device into either Class I or

II. Reclassification petitions are referred to an expert advisory panel that within 90 days must recommend to FDA whether classification of the device in Class 111 is required to provide reasonable

assurance of the device’s safety and effectiveness.

Within 90 days of receipt of the panel’s recommendation, FDA must either approve or deny the

petition.

On July 6, 1982, the National Electrical Manufacturers Association (NEMA), a trade association representing 13 companies involved in the

development of NMR imaging systems and magnets, requested a meeting with FDA to discuss the

possibility of initiating the reclassification process. At a meeting in December 1982, NEMA offered the view that NMR was an anatomical imaging modality whose safety and effectiveness

were adequately assured by the General Controls

of Class 1. FDA expressed concern that NMR was

a rapidly developing technology whose safety and

effectiveness had yet to be demonstrated. According to the Director of the Division of Electronic

Products in the Center for Devices and Radiological Health:

The clinical possibilities for NMR imaging and

the immaturity of its current applications were

factors behind the FDA’s opinion that Class III

is appropriate for the modality. NMR’s promise,

while immense, is still unrealized. Clinical experience is still inadequate to establish effectiveness

of specific NMR applications and to permit the

development of adequate labeling, indications,

techniques, and instructions. Each area of research will have to be studied scientifically and

clinically to develop this information (164).

The official minutes of the December 8, 1982,

meeting state:

There were a number of concerns that the data

presented left a clear impression that industry has

not substantiated a general claim that NMR was

an effective device that could be utilized across

the spectrum as an imaging modality. It was further stated that it would be advisable for industry

to start with a limited claim on the effectiveness

of NMR with supporting scientific documentation

. . . (It was further stated) that the Panel would

review a reclassification petition if it were submitted in the appropriate legal manner (140).

No reclassification petition had been submitted

as of December 1, 1983.

The NMR imager manufacturers that we surveyed were divided over whether it was redundant or wasteful to require that all manufacturers

obtain PMA (see below). About half of the manufacturers felt that NMR imaging was sufficiently

generic that once a PMAA was approved, FDA

should set performance standards rather than continue the PMA requirement for each device. The

other half of the manufacturers felt that NMR imaging is not “generic” because important differences exist between available NMR imaging systems, and that, consequently, each manufacturer

should be required to obtain PMA (see below),

These manufacturers argued in addition that the

PMA process serves an important quality-assurance function and should be applied to all manufacturers. Although we think it is important to

identify these two viewpoints, we lack sufficient

information to comment on either the extent to

which different manufacturers’ NMR imaging systems do, in fact, differ, or the extent to which

manufacturers’ opinions reflect, in part, how close

they are to obtaining PMA.

The Premarket Approval Process

In order to obtain premarket approval for a device, a manufacturer must provide reasonable assurance that the device is safe and effective under

the conditions of use prescribed, recommended,

or suggested in the proposed labeling. NMR imaging devices are the first imaging devices to have

encountered this process. The following sections

explain how the PMA process works and describe

how FDA has applied the process to NMR imaging devices.

Significant Risk Devices

A manufacturer may place a device at an investigational site to collect data pertaining to safety
—.

Ch. 7—Regulation by the Food and Drug Administration 8 9

and effectiveness. Such data can be collected according to a plan approved either by a local Institutional Review Board (IRB) (a local committee that reviews proposed scientific studies) or

FDA. If the IRB approves the investigation as involving a nonsignificant risk device (one that does

not pose serious risk to experimental subjects), the

investigation is deemed to have an approved Investigational Device Exemption (IDE) and an application to FDA is not necessary. A sponsor need

apply to FDA for approval to conduct clinical

studies under an IDE only if an IRB has determined a device to be a “significant risk device, ”

i.e., a device that presents a potential for serious

risk to the health, safety, or welfare of experimental subjects. FDA does not maintain records

of nonsignificant risk investigations and may not

even be aware that such investigations are being

conducted.

On February 25, 1982, FDA issued “Guidelines

for Evaluating Electromagnetic Risks for Trials of

Clinical NMR Systems” (188). The guidelines were

issued by FDA to “provide assistance to sponsors

of clinical investigations, researchers, and IRBs

in determining when a clinical study involving an

NMR device might represent a ‘significant risk’

under the Investigational Device Exemption . . .

and to prevent submission of IDE applications [to

FDA] when they are not necessary” (188). The

guidelines related to details of NMR imaging that

the FDA believed would be least familiar to the

IRBs:

On the basis of current information the bureau

believes that a study which does not exceed these

guidelines probably does not present an unacceptable

1.

2.

3.

risk in these ‘three areas:

Static (Direct Current) Magnetic Fields—

whole or partial body exposures of 2 tesla

(T).

Time Varying Magnetic Fields—whole or

partial body exposures of 3 T/second.

Radiofrequency Electromagnetic Fields—

exposure to RF fields that result in a specific

absorption rate that exceeds 0.4 W/kg as

averaged over the whole body, or 2 W/kg

as averaged over one gram of tissue, Studies

that expose patients above these guidelines

should be considered to pose “significant

risk” (188).

It should be emphasized that in issuing these

guidelines, FDA did not declare that NMR imaging was “safe. ” Rather, it stated that it was reasonable to proceed with investigations that

adhered to these guidelines.

Ten months later in a December 28, 1982, memo

to NMR manufacturers, the Director of FDA’s Division of Compliance stated that “. . . over the

past few months it has become clear that the intention of the guidelines has been widely misunderstood, ” and that “. . . it has been rather

widely reported to us that the guidelines have been

interpreted as limits for patient exposures in NMR

imaging investigations . . . This is not our intent”

(189).

In an effort to clarify this misunderstanding,

FDA stated that:

It continues to be our view that within the context of the present understanding of the biologic

effects of electric and magnetic fields, the medical NMR imaging devices currently in investigational use span a range from those which require

no detailed analysis to demonstrate that they do

not meet the definition of significant risk to those

which do require analysis to make such a determination. It is the purpose of the guidelines to

provide some simple criteria for use in establishing that demarcation. No implication should be

taken that a device which exceeds the guidelines

should necessarily be considered a significant risk

device (189).

Our survey of NMR imager manufacturers revealed that most manufacturers found FDA’s promulgation of “Significant Risk Guidelines” to have

been quite helpful, but expressed two strong concerns. First, although FDA has clearly described

its guidelines as an aid to IRBs in making significant risk determinations and not as limits governing patient exposures, simply by virtue of their

existence, the guidelines have inevitably tended

to become product specifications with which manufacturers are loath not to comply. Second, the

manufacturers felt that the FDA guidelines were

“poorly conceived. ” For example, manufacturers

suggested that the 3 T/second guideline pertaining to time-varying magnetic fields was uninterpretable in the absence of a specified pulse duration. (The National Radiologic Protection Board
90 • Health Technology Case Study 27: Nuclear Magnetic Resonance Imaging Technology: A Clinical, Industrial, and Policy Analysis

in Great Britain, for example, suggested a guideline of 20 T/second for pulses more than or equal

to 10 millisecond in its 1980 guidelines. )

These two concerns relate more to a disagreement over the content of FDA’s guidelines than

to their issuance per se. It seems appropriate for

FDA to have issued the guidelines. If their content is deficient (and we are not in a position to

evaluate that issue), scientific experts could help

to change them, and the process through which

they were established could be reviewed to assure

that it provides for adequate expert scientific

input.

Regulations Pertaining to Investigational Devices

During the period in which a device is considered to be investigational (i. e., while it is being

assessed under an IDE), manufacturers and investigators must comply with four regulatory prohibitions:

1.

2.

3.

4.

I n

t w o

they may not engage in promotion or test

marketing of the investigational device (21

CFR 812.7(a));

they may not commercialize an investigational device by charging the subjects or

investigators more for it than the amount

necessary to recover costs of manufacture,

research, development, and handling (21

CFR 812.7(b));3

they may not prolong an investigation of a

Class III device beyond the point where it

has become apparent that premarket approval cannot be justified (21 CFR 812.7(c)); and

they may not represent an investigational device as being safe or effective for the purposes for which it is being investigated (21

CFR 812.7(d)).

our survey of NMR imager manufacturers,

issues related to IDE regulations were iden3According to an undated policy statement issued by the Office

of Radiological Health’s Division of Compliance, “. . . investigators

may charge a patient their normal physician’s fee and the cost of

scanning the patient, provided the scanning costs do not include

a profit. ” The letter continues, however, that sec. 50.25(b)(3) of the

informed consent regulation requires that “any additional cost to

the subject that may result from participation in the research be included in the consent form where appropriate. ” FDA agrees that

it is appropriate in this situation, since third-party reimbursement

may not occur. (141).

tified. First, a number of manufacturers complained that other manufacturers were not adhering to the spirit of the IDE prohibitions on

proapproval promotion and test-marketing of

NMR imaging devices. Such behavior, these manufacturers asserted, created a situation in which

all manufacturers were forced to either test-market

and promote, or suffer while following the law.

One manufacturer said that to avoid this situation in the future, FDA should limit the number

of research sites in which manufacturers are permitted to install investigational devices. In a few

instances, such as Neodymium YAG (Yttrium

Aluminum Garnet) lasers, FDA has established

guidelines for the numbers of patients and the

length of followup required in studies of investigational devices (50). Other manufacturers, however, were pleased that FDA was not being more

strict in its enforcement activities. They considered the existing situation to be an acceptable

compromise between prohibitions and no prohibitions.

The second IDE issue raised by our survey pertains to the prohibition on making a profit from

investigational devices. Although manufacturers

voiced a preference for being able to make a profit

during the IDE stage, most thought the existing

prohibition was logical and reasonable in concept. 4 Furthermore, they suggested that, in the

case of “high R&D cost” devices such as NMR imagers, it is difficult to recoup R&D expenses during the IDE stage because of the small number installed.

In a recent article, Anthony Young, a Washington, DC, attorney, concurred with the view

that the IDE regulations should not present a

problem to device manufacturers:

Existing regulations allow a manufacturer to

charge for investigational devices and thus to defray a portion of the expense involved in bring4

0ne manufacturer felt that the existing prohibition on profitmaking from proapproval devices disproportionately hurt small manufacturers. Small manufacturers, it was argued, generally are dependent on external sources of capital to fund research and development

and do not fare well in their quest for funds when they are prohibited from demonstrating a profit. Others argued, in contrast, that

what is required for success in external capital markets is profitmaking potential, rather than profits themselves. It would seem that

without the prohibition on profitmaking during the IDE stage manufacturers would have less incentive to apply for PMA.
Ch. 7—Regulation by the Food and Drug Administration 91

—

ing a new device to market. There is sufficient

latitude in the regulations concerning publicity of

availability of the device that the manufacturer

can reach those practitioners who will eventually

become customers. A manufacturer who is straightforward in his claims for his device and who does

not attempt to circumvent regulations in an attempt to get a jump on competitors should have

no problems with FDA (206). 5

Clinical Studies

With an IDE in hand, manufacturers may conduct clinical studies to substantiate the safety and

effectiveness of the devices they propose to market, Under Federal regulations, well-controlled investigations are the principal means used to establish the effectiveness of a device. However,

according to the committee report accompanying the Medical Device Amendments, FDA is

authorized to accept meaningful data developed

under procedures less rigorous than wellcontrolled investigations when well-documented

case histories assure protection of the public health

or when well-controlled investigations would present undue risks for subjects or patients. This provision is not intended to authorize approval on

the basis of anecdotal medical experience with the

device or unsubstantiated opinion as proof of effectiveness (183).

During the proapproval period, FDA realized

that manufacturers were concerned about how to

establish the safety of NMR. FDA responded to

this concern by exempting manufacturers from

responsibility for submitting data on electromagnetic interactions in their PMA applications.

FDA’s actions and rationale were summarized by

Mr. Schneider of the Center for Devices and

Radiological Health:

After considering the biological interactions of

the fields used in NMR imaging, [FDA] concluded

that the existing fundamental scientific uncertainties could not be resolved by experiments normally associated with device evaluation.

In fact, it would probably be economically impractical for any individual sponsor to assume the

financial burden of supporting the research necessary to make significant progress in eliminat5Mr. Young’s statement should in no way be construed as representative of FDA’s viewpoint.

ing these uncertainties. Further, it would seem unwise, with respect to societal benefits, to suspend

the development and deployment of NMR imaging as a medical diagnostic modality pending

substantial improvement in the understanding of

the biological interactions of radiofrequency electromagnetic fields and static magnetic fields.

From available information, no immediate

acute effects are expected from exposure conditions prevailing in the devices under investigation.

Further, it seems that whatever risks maybe associated with these exposures will be small compared to the potential medical benefits of the

modality. [Therefore], potential sponsors have

been advised that they need not submit experimental data on electromagnetic biological interactions as part of the safety component of a premarket approval application. Each sponsor was

asked to provide an assessment of the physical exposure conditions in its device. The FDA will conduct a continuing review of the risk potential of

these exposures in light of developing scientific

knowledge (164).

The Premarket Approval Application

When a manufacturer believes it has collected

sufficient data to establish the safety and effectiveness of its device, it submits a premarket approval application (PMAA) to FDA. The PMAA

must include:

1. a statement of the components of the device;

2. a statement of the principles of operation of

the device;

3. a description of the methods used in the manufacture of the device;

4. a summary of investigations and information bearing on the safety and effectiveness

of the device under the proposed conditions

of use; and

5. specification of the claims, indications, and

instructions with which the manufacturer

proposes to label the device.

The type and breadth of the claims made in the

proposed device label determine, in part, the scope

of the research that must be performed prior to

submission of a PMAA. As Schneider of FDA explains:

Each claim that is made must be supported by

adequate scientific and clinical research. This

means that in broadening the range of claims for
92 • Health Technology Case Study 27: Nuclear Magnetic Resonance Imaging Technology: A Clinical, Industrial, and Policy Analysis

a device, a sponsor increases the expense and effort necessary to secure premarket approval (164).

With regard to NMR, Schneider has stated that:

. . . there is a natural temptation to be enthusiastic about all possible applications of the modality. Under the premarket approval process, this

can be expensive when a device is as new as NMR

imaging . . . Under these circumstances, a sponsor may wish to make claims that insure commercial viability of a system but that are not inordinately costly (164).

In November 1980, FDA published a “Guideline

for the Arrangement and Content of a Premarket

Approval Application” to aid sponsors in the

preparation of such applications (187). According to those guidelines, a PMA application should

include a description of the disease(s) or condition(s) that the device will diagnose and the patient population for whom the device is intended.

About half of the manufacturers surveyed

stated that they would have liked more precise

guidelines from FDA regarding the required content for a PMAA (e.g., how many patients need

to be studied, whether studies need to be blinded,

etc. ); the others felt that sufficient guidance had

been provided by FDA. Manufacturers who had

received feedback from FDA on submitted PMAAs

felt that FDA officials had been extremely helpful,

fair, and reasonable in their review of PMAAs,

particularly since NMR was the first Class 111 imaging device to go through the PMA process. A

fairly common complaint from manufacturers,

however, was that the PMAA format was unnecessarily tedious and complicated.

FDA Review

FDA is allotted 180 days to review and either

approve or disapprove a PMAA that satisfies all

regulatory requirements. During this review process, FDA customarily provides feedback to sponsors regarding possible deficiencies in their

PMAAs. The underlined qualifier can thus take

on significant importance, since FDA can stop the

180-day clock while a sponsor responds to or

remedies the possible deficiencies that have been

identified by FDA.

Panel Review

The Medical Device Amendments require that

FDA refer each PMAA to an appropriate expert

advisory panel which, after considering all data

provided, makes a nonbinding recommendation

to FDA regarding whether the PMAA at issue

should be disapproved, approved, subject to certain modifications, or approved. On July 6 and

7, 1983, FDA conducted an open hearing of the

Radiologic Devices Panel on three NMR device

PMAAs submitted by Diasonics, Picker International, and Technicare. Picker’s PMAA pertained

to NMR imaging of the head and neck only, while

Diasonics’ and Technicare’s pertained to NMR imaging of both the head and body, The panel considered all the applications “approvable” and

voted unanimously to recommend approval of all

three PMAAs, subject to various contingencies,

such as making specified modifications in Site

Planning Guides or labeling.

FDA Approval

The Medical Device Amendments state that a

PMAA is to be denied if:

1.

2.

3.

4.

reasonable assurance is lacking that the device is both safe and effective under the conditions of use prescribed, recommended, or

suggested in the proposed labeling;

the methods used in the manufacture of the

device do not conform to Good Manufacturing Practices;

the proposed labeling is false or misleading

in any particular; or

the device does not conform to a performance standard with which it is to comply.

In evaluating the safety and effectiveness of a

device for PMA of a Class III device, FDA considers, among other relevant factors:

1.

2.

the persons for whom the device is represented or intended;

the conditions of use for the device, including

conditions prescribed, recommended, or suggested in the labeling or advertising of the

device, and other intended conditions of use;
Ch. 7—Regulation by the Food and Drug Administration 9 3

3.

4.

the probable benefit to health from the use

of the device weighed against any probable

injury or illness from such use; and

the reliability of the device (21 CFR 860.7).

After having considered these factors, FDA regulations specify that:

1. There is reasonable assurance that a device

is safe when it can be determined, based

upon valid scientific evidence, that the probable benefits to health from use of the device for its intended uses and conditions of

use, when accompanied by adequate directions and warnings against unsafe use, outweigh any probable risks. The valid scientific evidence used to determine the safety of

a device shall adequately demonstrate the

absence of unreasonable risk of illness or injury associated with the use of the device for

its intended uses and conditions of use (21

CFR 860.7).

2. There is reasonable assurance that a device

is effective when it can be determined, based

on valid scientific evidence, that in a significant portion of the target population, the

use of the device for its intended uses and

conditions of use, when accompanied by

adequate directions for use and warnings

against unsafe use, will provide clinically significant results (21 CFR 860.7).

The safety and effectiveness of a device must

thus be considered in conjunction with one

another, since assurance of safety depends on an

evaluation of effectiveness.

FDA issued formal premarket approval for

NMR imaging devices manufactured by Diasonics

and Technicare on March 30, 1984, and for head

and neck imaging devices by Picker on May 10,

1984.

CONCLUSIONS: THE PMA PROCESS AS A WHOLE

The application of the PMA process to NMR

imaging devices raises several issues. First is

whether there should be a PMA process at all,

and, if so, what benefits derive from it. Congress

established the PMA process in 1976 in response

to a perceived need for greater protection from

unsafe, unproven, ineffective, and experimental

medical devices. At least with regard to NMR imagers, the PMA process seems to have successfully

addressed that perceived need. Although disagreements may exist over how much data should be

required before PMA is granted, there seems to

be a general consensus that the PMA process

serves a useful function in assuring the safety and

effectiveness of marketed devices. As one manufacturer stated, “The PMA process provides the

discipline required to force manufacturers to develop information they ought to have. ”

The second general PMA issue relates to

whether a separate PMA should be required for

each clinical application of NMR or whether PMA

should be granted for the technology as a whole.

No clear consensus emerges on this issue. On the

one hand, it seems possible that an imaging technology such as NMR may well prove to be effective in some but not all potential applications, suggesting that it would be reasonable for FDA to

grant PMA on a clinical application, by clinical

application basis, much as it does with drugs. On

the other hand, it can be argued that as long as

there is reasonable assurance that NMR imaging

is safe and that NMR is effective, in the sense that

it gives a fairly accurate representation of internal anatomy, pathology, or function, it should

be up to physicians, rather than FDA, to decide

which NMR applications are appropriate. Given

some threshold level of demonstrated effectiveness, it would seem that the latter viewpoint is

not only reasonable, but also may be the only feasible one for FDA to adopt, since FDA cannot

control each application once NMR devices are

installed. b How FDA resolves this issue may depend on the breadth of the claims made by manufacturers in their proposed labels,

bAlthough i t would not be feasible for FDA itself to enforce a restriction on the use of NMR to certain clinical applications, the

absence of third-party coverage for uses not approved by FDA might

effectively curtail such uses.
94 Ž Health Technology Case Study 27: Nuclear Magnetic Resonance Imaging Technology: A Clinical, Industrial, and Policy Analysis

——.

A third general issue relates to the manufacturers’ costs for data collection and PMAA preparation and FDA’s costs for reviewing the applications. The central question regarding the cost of

the PMA process for the manufacturer relates to

the amount of money that would not otherwise

have been spent on the assessment of safety and

effectiveness if the PMA process did not exist.

Most manufacturers said the difference was “a

negligible amount, ” with most of it associated

with employment of study design consultants and

clerical preparation of the PMAA itself. FDA estimated that by July 1983 it had expended about

800 person-hours of effort on reviewing the first

three NMR PMAs submitted to it (163). These

estimates do not suggest that FDA regulation of

NMR devices has entailed high direct costs. To

the extent that these assessments are accurate,

there seems to be little at issue other than the possibility of streamlining the PMAA itself. To the

extent that pertinent, well-designed clinical studies

are performed that would not otherwise be funded

by manufacturers in the absence of the PMA process, it would seem that the PMA process is serving a useful function.

Fourth, the question arises as to how much the

PMA process has constrained development and

early placement of NMR imagers. There is no indication that the PMA process has restrained development of the prototypes themselves. In addition, the great majority of NMR manufacturers

that we surveyed in the summer of 1983, stated

that if the PMA process had not existed, they

would have placed few, if any more NMR imaging systems in hospitals than they had already because many manufacturers were still developing

and refining prototype systems and had not yet

begun full “assembly-line” production capable of

meeting existing demand. FDA thus does not appear to be significantly delaying the introduction

of experimental model NMR imaging devices into

hospitals. In addition, it should be realized that

manufacturers use the experience they gain during the IDE period to refine system designs before

embarking on full-scale production.

The actual and potential impact of the PMA

process may well change in the near future, however, as manufacturers emerge from the prototype

development stage. Manufacturers have stated,

for example, that many existing “orders” are contingent on the manufacturers’ receiving PMA. If

PMA is not granted in a timely fashion, these

manufacturers may begin to experience delays in

receiving revenues to cover their development

costs.

Perhaps the greatest potential impact of the

PMA process—stemming from its ability to confer a competitive advantage on manufacturers

who have received PMA first—is yet to be seen.

How much of a financial benefit, in both the short

and long run, will accrue to NMR manufacturers

who are first to obtain PMA may well help determine not only the future of the NMR manufacturing industry, but also the speed with which

manufacturers pursue development of other new

technologies that emerge in the future.
8.

Third-Party Payment Policies

9
8

Third-Party Payment Policies

INTRODUCTION

As one of several important economic and

social forces influencing the adoption and use of

medical technologies in recent years, third-party

payment policies have increasingly become a major focus of attention (12,100,157,200). Of great

concern to many policy makers have been the incentives engendered by payment based on costs

that have already been incurred. The general failure of such payment mechanisms to distinguish

between cost-saving and cost-raising technologies

has offered little incentive for hospitals to include

efficiency among their capital investment objectives (100,200). Consequently, hospitals’ decisions

to acquire new technology have placed little emphasis on the comparative cost effectiveness of

technology use in clinical practice,

The cost-based system of payment has also

tended to reward institutions that increase their

definable costs without necessarily improving

quality of care, while simultaneously penalizing

those that improve care with a concomitant reducTHIRD-PARTY PAYER DECISIONS

In setting policies for the payment of hospital

and medical services involving the use of new

medical technologies, third-party payers must

wrestle with three questions:

1. Should they pay for such services?

2. If so, under what conditions or circumstances should they pay for them?

3. How much should they pay under specified

conditions?

The first and second questions relate to policy

decisions regarding coverage of new services and

the specific conditions that may apply, The third

question pertains to policy decisions involving the

reimbursement or payment level permissible

under specified conditions of service coverage. Together, these three questions represent a sequence

tion in operating expense (151,198). In view of

these concerns, the Medicare program is beginning to pay hospitals according to a prospective

payment system, with rates set in advance of the

period during which they apply. This change has

new implications for technology adoption and

use.

This chapter addresses third-party payment policies and how they apply to NMR imaging devices. The first section addresses the types of policy decisions made by the major third-party

payers and the processes by which they determine

coverage and payment levels for new technologies. The second section discusses the history and

current status of third-party payer decisions regarding NMR imaging. Readers familiar with the

operations and policymaking processes of the major third-party payers may wish to read only the

second section. Otherwise, the first section provides a foundation for understanding how policy decisions are made.

through which all third-party payers must pass

when formulating comprehensive policies toward

medical technologies. Payers tend to differ, however, in their general procedures, methods of assessment, and decision criteria. Nevertheless, the

end product in each case is a determination or policy statement intended to guide policymaking

within the program or within member plans or

companies.

Coverage Policies

When a new medical technology moves from

the laboratory into the hospital, third-party payers must decide whether or not to pay for its use.

For a device such as NMR that requires the Food
and Drug Administration’s (FDA) approval before nology assessments may also originate from outmarketing, the coverage question often arises side groups, such as medical specialty societies and

before or concurrently with FDA review, as man- manufacturers (192).

ufacturers or providers contact insurers about

coverage policy before reimbursement claims are

submitted. In the period prior to FDA premarket

approval, the technology or device is considered

“investigational,” and third-party payers tend not

to reimburse for clinical services performed with

it. The critical decisionmaking period, therefore,

is the time just after FDA premarket approval has

been granted, when hospitals and other providers

anxiously await third-party payers’ decisions on

both coverage and reimbursement level.

Within HCFA, a coverage question is directed

first to the Bureau of Eligibility, Reimbursement,

and Coverage and its Office of Coverage Policy.

HCFA may in turn seek the advice of the Public

Health Service. This advisory role rests with the

Office of Health Technology Assessment (OHTA)

in the National Center for Health Services Research. The full assessment process generally requires 8 to 18 months to complete (106,107). The

assessment process frequently coincides with the

FDA premarket approval process and the two

Medicare agencies often share available data and information. In making its coverage policy decision,

The Medicare program may reimburse for only HCFA is not bound by the Public Health Service

those devices, services, or procedures that are recommendations.

determined to be both “reasonable and necessary.”

In making this determination, the Health Care

Financing Administration (HCFA), which administers Medicare, first considers whether FDA has

found the device “safe and effective. ” In practice,

HCFA generally does not approve coverage of a

new device unless FDA has already approved it.

HCFA considers it to be a necessary but not sufficient condition that a technology be “safe and

effective” in order for it to be “reasonable and necessary.” HCFA, however, will not necessarily approve coverage for all devices that FDA has approved, largely because the two agencies differ

in their respective definitions of “effectiveness. ”

FDA deems a technology “effective” if it does what

the manufacturer claims it will do, whereas HCFA

considers the effectiveness of the technology with

respect to health outcome. Another important consideration in HCFA’s decision is the stage or level

HCFA does not give consideration to the cost

effectiveness of a technology when formulating

its coverage policy decision, but may do so later

when making policy decisions regarding reimbursement or payment levels. ’ At its discretion,

HCFA may place restrictions on the coverage of

a technology rather than grant “blanket approval”

for the technology as a whole. In the past, restrictions have sometimes been application-specific—

i.e., reimbursement is provided only when the

technology is used for specific clinical applications

or diseases. In other instances, coverage restrictions have centered on specific service settings

(e.g., only inpatient) or providers or practitioners

(e.g., physicians only), or even manufacturers and

their devices. For example, coverage of CT scanners was, at first, limited to only specific models

produced by certain manufacturers (106,107).

of acceptance of the innovation by the medical Medicaid community—i.e., the extent to which the technology has become an accepted part of clinical The HCFA decisionmaking process, as described

practice. above for Medicare coverage policy, generally

In the absence of a centrally established HCFA does not apply to the Medicaid program. Responcoverage policy for a particular medical technol- sibility for making Medicaid coverage policy deciogy, the fiscal contractors for the Medicare pro- sions rests with the individual States, which, at

their own discretion, may choose to cover cer- gram may make their own coverage policy decisions. When questions regarding the safety and

clinical effectiveness of a technology arise in the

field, however, fiscal contractors may request that

HCFA perform an assessment. Requests for tech-

‘HCFA sometimes sets charges or allowable rates for a new technology based on previous charge experience with technologies that

are clinical alternatives to the innovation in question (see discussion on reimbursement level decisions).
tain technologies or services not covered by Medicare. States may also devise their own coverage

restrictions on technology use. In cases where a

State program extends Medicaid coverage to technologies not covered by Medicare, the program

may initiate its own internal technology assessment, utilizing its own staff and possibly a panel

of outside experts. Alternatively, States may opt

to refer technology-related inquiries directly to

HCFA for potential assessment.

As with current Medicare policies, Medicaid

will pay only for services and technologies judged

“reasonable and necessary. ” Noncovered technologies receive no reimbursement under Medicaid.

Blue Cross and Blue Shield Plans

Although the national Blue Cross and Blue

Shield (BC/BS) Association plays an important

role in assessing new technologies on behalf of its

member plans, each plan reserves the right to

make its own coverage policy decisions regarding

specific medical technologies or services. In making such determinations, individual plans generally require that a technology receive FDA

premarket approval before considering reimbursement coverage for its use (47). FDA approval, on

the other hand, does not automatically ensure

BC/BS coverage; nor does HCFA approval of the

technology a s “reasonable and necessary” for

Medicare beneficiaries. HCFA decisions, nevertheless, are scrutinized carefully b y the plans.

When questions arise regarding coverage of a

new technology ( i .e., an individual BC/BS plan

receives an inquiry, claim, or letter of intent from

a participating hospital or physician), the plan will

often contact the national Association and request

assistance. An internal technology assessment

process then begins to develop recommended coverage policy for plans to consider when making

their respective policy decisions. The assessment

process generally requires 4 months to 1 year to

complete (47).

Unlike the policy decisions of HCFA regarding

Medicare coverage, the policy statements issued

by the national BC/BS Association are strictly recommendations or guidelines. The thrust of the

BC/BS assessment process, therefore, is not to formulate policy with carefully delineated conditions

of coverage, but rather to identify the important

issues that plans must address and to present

useful information that will aid local decisionmaking. An important aspect of this “information

clearinghouse” function is the clarification of technical and clinical details relating to a specific technology’s safety, effectiveness, clinical status, and

appropriate use.

BC/BS employs a three-level scale of clinical

status: 1) experimental—the technology has been

used only in animal studies, 2) investigational—

the technology has entered preliminary clinical

use, and 3) accepted medical practice—the technology has gained general use in medical practice. Some BC/BS plans write broad exclusionary

clauses in their contracts for “experimental/investigational” devices. Others prefer to deal with

emerging medical technologies on a case-by-case

basis, making it possible, but not likely, that some

investigational devices may receive coverage,

albeit for specific clinical applications or uses.

When formulating policy recommendations on

coverage of new technologies, the internal review

committees of the BC/BS Association take costeffectiveness information into account. The information does not affect the recommendations

directly, but rather is transmitted along with the

policy statement to member plans. Plans are then

free to weigh the information accordingly in their

respective coverage policy decisions. Some plans

engage in sophisticated assessment activities of

their own. BC/BS of Massachusetts, for example,

convenes an Interdisciplinary Medical Advisory

Committee to assist it in making coverage decisions for new technologies (47). Other plans may

instead conduct their own assessments or surveys

of available information on new technologies. In

addition, since many plans serve as Medicare

fiscal contractors (i. e., administer Medicare claims

for HCFA), they may either closely observe or

participate in the HCFA assessment process.

Commercial Insurance Companies

Commercial insurance companies operate independently of one another and, therefore, make

independent decisions regarding coverage of new

or emerging medical technologies. When a question arises concerning payment for a technology
100 Health Technology Case Study 27: Nuclear Magnetic Resonance imaging Technology: A Clinical, industrial, and Policy Analysis

whose safety and effectiveness may not be known,

individual companies contact the Health Insurance Association of America (HIAA), a private

organization that represents and serves the commercial insurance industry. HIAA membership

includes 338 companies, which collectively provide approximately 85 percent of all non-Blue

Cross, private health insurance coverage in the

Nation (112).

The HIAA inquiry and assessment process is

frequently conducted concurrently with the FDA

premarket approval process, as well as with the

technology assessment activities of other thirdparty payers, most notably HCFA and the BC/BS

Association. Individual commercial insurance

companies may, of course, supplement the information obtained from the HIAA process by

undertaking their own assessment activities. Such

independent efforts tend to be of a limited nature,

often involving direct solicitation of expert opinion from the most relevant medical specialty

groups.

In making coverage policy decisions, companies

face the same choices encountered by other thirdparty payers—i.e., coverage without restrictions,

coverage with restrictions, or no coverage at all.

As with HCFA and BC/BS, commercial insurers

view FDA premarket approval as a necessary but

not sufficient condition for coverage of a new

technology. Companies examine closely the policy decisions rendered by HCFA and by various

BC/BS plans, but will not necessarily adopt them.

Reimbursement or Payment

Level Policies

Once the question of coverage policy has been

decided by a third-party payer, attention is focused next on the issue of appropriate or “reasonable” payment for provision of covered services.

Although “reasonableness” is a concept with intrinsic meaning to all third-party payers, its operating definition in practice will vary among payers. Complicating the picture is the need for each

payer 2 to set separate reimbursement or payment

‘Medicare does not set technology-specific payment rates for prospectively paid inpatient hospital services under Part A, but does

set rates for physician services under Part B.

rates for the hospital or facility in which the technology will be employed and for the professional

service fee of the physician. Both rates can vary

by geographic area, by service setting (e.g., hospital versus physician’s office), by physician specialty, by clinical application of the technology,

and by the past experience and fee history of the

individual practitioner.

Medicare

HCFA sets reimbursement rates for covered

physician services based on what it considers to

be “customary, prevailing, and reasonable”

charges. In making these determinations, HCFA

staff in the Office of Reimbursement Policy consider such factors as:

ŽWhere the technology will be used—in the

hospital, in the physician’s office, or in some

other setting?

•How the technology will be used—for what

clinical applications or disease conditions?

ŽBy whom the technology will be used—by

physicians with what type or level of specialty training and/or experience?

“Customary and prevailing” charges imply that

consideration is also given to: 1) the customary

or usual fees charged by a given practitioner for

similar or related services in the past, and 2) the

prevailing fee (or market price) charged by physicians in the same geographic area and with similar training/experience for similar or related

services. In the case of many new or emerging

technologies, customary and prevailing charges

are impossible to document since little clinical experience, if any, has been gained in the general

medical community by the time an HCFA policy

decision is made. In such instances, HCFA staff

or individual Medicare contractors look to similar technologies and base their reimbursement or

payment rates, at least in part, on past experience

with established services. For example, assuming

Medicare coverage is granted for NMR imaging,

policy decisions on reimbursement level will likely

be based, in part, on the previous history of

charges for X-ray CT scanning.

Since October 1, 1983, HCFA has begun to pay

hospitals prospectively for inpatient services on

the basis of diagnosis related groups (DRGs).
.—

Ch. 8— Third-Party Payment Policies 101

— . —.—— —

The payment for utilizing a given technology for

a specific DRG is thus embedded within the established DRG cost per case. For the time being,

Medicare is continuing to pay for the capital costs

(e.g., acquisition expense, interest, rent, land

costs, and other expenses) incurred for major

equipment. The capital allowance will be based

on the proportion of total hospital charges in some

base year that is attributable to Medicare patients.

Capital expenses will be treated in this “passthrough” manner for the next 3 years, or until capital costs are brought into the DRG payment rates.

For uncovered services, HCFA would refuse to

pay such pass-through capital costs.

Thus, a hospital that chooses to invest in new

technology under the prospective payment system is at risk that the added patient-management

costs induced by the new technology will result

in financial losses. More specifically, if use of a

new technology (either as a substitute for, or as

an add-on to, some other modality) increases the

average operating cost of a given DRG (or DRGs)

to a level above the prospective payment rate

established for that DRG (or those DRGs), the

hospital will not recover its costs.3 In addition,

hospitals adopting and using an uncovered technology would not be reimbursed for associated

capital costs, and would also stand to lose should

their average operating costs in the DRGs that use

the new technology exceed the approved DRG

payment rates.4 A decision to acquire and to use

new technology under the Medicare prospective

payment systems, therefore, may have serious implications for the financial well-being of a hospital.

Although HCFA will not need to establish a

reimbursement rate for use of a new technology

in the inpatient setting, it will need to establish

payment rates for outpatient usage and for the

professional fee associated with both inpatient and

outpatient usage. The level(s) at which these

payments are established could have a tremendous

impact on the rate at which new technology is

adopted in both inpatient and outpatient settings.

3Conversely, adoption of cost-saving technology that decreases

the average operating cost of a given DRG (or DRGs) relative to

the prospective payment rate would benefit the hospital, which is

entitled to keep the savings that would be generated,

‘Costs could potentially be recovered if payments exceeded costs

for other DRGs or if costs were shifted to non-Medicare payers,

Medicaid

Medicaid reimbursement policy for new technologies generally is not tied to that of the Medicare program (107). Although Medicaid rates for

both hospital care and physicians’ services are set

using many of the same criteria described above

for Medicare, the relative weights of such factors

will differ by State program, resulting in considerable variation in payment levels across the

Nation.

Blue Cross and Blue Shield Plans

Once coverage for a new technology has been

approved by a BC/BS plan, the criteria of “usual,

customary, and reasonable” (UCR) fees are employed to set physician charges for services. Under

this approach, considerable weight is given to past

history and to the plan’s experience with particular

physicians (47), Individual plans differ, however,

in their approach to payment for hospital services; some plans reimburse hospital charges;

others pay only for costs. With emerging technologies, the lack of relevant technology-specific

data or past experience often requires the plan to

examine charges or costs for related technologies

or services from which they can impute likely

costs and set “reasonable” charges for the new

service.

Commercial Insurance Companies

The general procedures and criteria used by independent commercial insurance companies in

establishing allowable hospital rates and physician fee schedules are essentially similar to those

described above for Blue Cross and Blue Shield

Plans. Commercial insurers, however, tend to

deal directly with the insured rather than with

providers. ’ Within a given company, therefore,

the reimbursement for a specific service is more

likely to be standardized than it is within a BC/BS

plan (112).

General Observations

These cost-based reimbursement policies for

hospitals and fee-for-service payments to physi5

This may be changing, as more commercial insurers begin to participate in the development of preferred provider arrangements with

hospitals and physician groups.
cians have been criticized for their retrospective

nature and for their inherent biases toward increased technology adoption (198,200). Because

physician fees for new technologies cannot easily

be tied to historic or prevailing charges, and because UCR fee schedules are not likely to be established until after such technologies have been introduced, payment for new procedures is often

set high and rewards technology adoption. Retrospective cost- or charge-based reimbursement

systems also give providers little incentive to distinguish between cost-saving and cost-raising technologies and may influence private physician

groups to acquire new technologies without regard to their cost effectiveness. The widespread

acquisition of X-ray CT scanners by private radiology groups, for example, may find its parallel

in large-scale purchases of NMR imaging devices

by such groups. In addition, the continuation of

historical reimbursement policies for physician

fees may provide physicians with incentives to

overutilize technology even in the hospital setting.

HISTORY AND STATUS OF COVERAGE

POLICY DECISIONS FOR NMR IMAGING DEVICES

During early 1984, increasing numbers of third

parties began paying for NMR. By June 1984, at

least 10 commercial insurers were paying for NMR

as part of “generally accepted practice, ” and at

least three Blue Cross plans had accepted NMR

for payment.’ Assessments of NMR imaging are

being undertaken by HCFA/OHTA and by the

BC/BS Association. The status of each payer’s

policy regarding NMR imaging is summarized

below.

Medicare

HCFA became involved in the assessment of

NMR imaging as early as January 1982, when the

agency received literature pertaining to NMR

from the General Electric Co., together with a request for comments, but no request for an assessment (17). In May 1982, HCFA received a formal

query regarding Medicare coverage policy for

NMR imaging from a Blue Cross plan in California, which had itself received an inquiry from a

neurosurgeon (17). Acting on this inquiry, staff

from the Office of Coverage Policy performed a

literature review, contacted other Federal agencies (including FDA), surveyed NMR imaging

manufacturers for information, and prepared a

presentation to the HCFA Physician Panel in

August 1982 (17). Later that month, the Physician Panel requested that OHTA perform a full

“Nfoblle Techni.~l[>gy~ [nc , unpublished data, Lo\ ingeles, CA,

ILlnt’ 10! 1Q84.

assessment of NMR imaging. In September 1982,

OHTA began to look at NMR but delayed a complete assessment pending FDA premarket approval. Recently, following FDA approval of the

first manufacturers’ applications, OHTA initiated

efforts to assess NMR imaging. A decision by

HCFA on Medicare coverage of NMR imaging is

not expected during 1984.

Medicaid

Presently, it is not known whether State Medicaid agencies have conducted their own assessments of NMR imaging. It is possible that the

current HCFA/OHTA assessment process may

satisfy the information needs of the individual

State Medicaid programs.

Blue Cross and Blue Shield Plans

In October 1982, national Association staff formally requested an assessment of NMR imaging.

Later that month, the Medical Advisory Subcommittee reviewed the request and decided to initiate

an assessment. At that time, the Subcommittee

also designated NMR imaging as an “investigational device” for which no reimbursement should

be provided. The staff then performed an assessment and reported its findings to the Subcommittee in March 1983. The Subcommittee reviewed

the report and approved its submission to member plans as a “Medical Policy Newsletter. ” The

newsletter provides information on the current
.—. — —

status of NMR imaging as an investigational device, with a view toward clinical applications,

technical considerations, and charges (18). The

newsletter also offers advice to plans based on current evidence from the literature, from the FDA,

and from the American College of Radiology. It

is not intended, however, as a uniform medical

policy statement, since the issue of NMR imaging is still under consideration by the Association.

Commercial Insurance Companies

Through December 1983, the HIAA had not received any inquiries from member organizations

regarding NMR imaging (112). HIAA staff were

also not aware of any claims for NMR services

that might have been received by member companies. Therefore, the staff had not solicited an

CONCLUSIONS

Since FDA has granted premarket approval to

an NMR device, third-party payers now have major influence over the rate at which NMR imagers

are acquired by hospitals. This influence derives

not only from their decisions regarding whether

to cover use of NMR, but also from their decisions regarding the circumstances in which use will

be covered. Third-party payers such as HCFA,

for example, will first need to decide whether they

will reimburse for use of only those manufacturers' NMR devices that have gained PMA, or

whether they will reimburse for use of any manufacturer’s NMR device. Such a decision could

have a major impact on the market share achieved

by manufacturers in the short run.

Third-party payers will also have to decide

whether to make a broad or narrow coverage decision. In the case of NMR, at least in the short

run, this will come down to deciding whether to

approve reimbursement for some applications of

NMR imaging of the head only (the applications

in which NMR has so far proved most efficacious ), or whether to approve reimbursement for

all uses of NMR, regardless of their stage of development. To the extent that the narrow strategy is followed, hospitals may be restrained in the

speed with which they acquire NMR devices. To

opinion on NMR imaging from the Council on

Medical Specialty Societies.

According to a survey of 30 commercial companies that provide health insurance, by February

1984, five had determined that NMR was part of

“generally accepted practice” and were paying for

its use. In February, six other companies had acknowledged the clinical usefulness of NMR, but

were reviewing each case before payment. By midJune 1984, 10 of the 30 companies deemed NMR

generally accepted and were paying for procedures, and 11 other companies had provisionally

accepted NMR and were paying after review of

each case. 7

“H?ld.

the extent that the latter strategy is followed,

HCFA and other third-party payers will likely be

subsidizing research on NMR applications that are

less well developed.

The third major decision to be made by HCFA

and other third-party payers is the monetary level

at which outpatient use of the NMR imager will

be reimbursed. How much of a difference in reimbursement is established for outpatient use of

NMR as compared to outpatient use of X-ray CT

will have a major impact on the rate at which

NMR imaging systems diffuse into the outpatient

setting. HCFA is beginning to pay hospitals prospectively on the basis of inpatient diagnosis, but

will need to set an inpatient fee for physicians.

Other third-party payers, such as Blue Cross and

commercial insurers, may set inpatient rates,

depending on their payment methods. Because it

is likely that the outpatient rates set by HCFA will

influence the inpatient rates established by Blue

Cross and commercial insurers, HCFA’s outpatient rate takes on even greater importance.

Another important decision to be made by

third-party payers is the level at which professional fees for NMR imaging are set. At least in

the near future, it can be expected that more pro-
104 Ž Health Technology Case Study 27: Nuclear Magnetic Resonance Imaging Technology: A Clinical, Industrial, and Policy Analysis ———.

fessional time will be required for NMR scans than

for X-ray CT scans. The level at which professional fees are established, therefore, may well

have a significant impact on the level of interest

that radiologists and other potential users manifest with regard to acquisition of NMR imaging

devices.

Prospective systems of payment may have a

major influence on the rate at which NMR diffuses throughout the medical system. With the introduction of DRG-based prospective payment

under Medicare, hospitals will have to respond

to different incentives from those to which they

have been accustomed. Technology acquisition

is one area of hospital operations in which change

is likely to result. Hospitals, in theory, will have

to weigh financial considerations against patientcare benefits more carefully when acquiring technologies. The constraints imposed by prospective

payment on hospital budgets will likely deter

some institutions from acquiring medical technologies that raise operating costs. In such instances,

prospective payment may supersede State certificate-of-need regulation as a constraining influence

on hospital investment decisions. In addition, hospitals may need to become more discriminating

about deciding how acquired technology is used.

Whether and how such rationing decisions will

be made remain uncertain.

One potential concern about the advent of prospective systems of payment is whether some hospitals will be so financially constrained that they

—

will be unable to acquire valuable new technology. If or when capital costs become included in

the Medicare DRG payment rates, hospitals may

be further constrained in their technology acquisition decisions. It is also important to realize that

Medicare’s DRG payment may vary among hospitals in its effect on their financial condition and

their ability to acquire and use new technology.

For some institutions, such as municipal hospitals serving large Medicare and Medicaid populations, the DRG payment system may exacerbate

an already financially troubled state, impeding

hospital capital formation necessary for the acquisition of high-cost but beneficial new technologies. The net effect may be to weaken further

those institutions that are the primary sources of

care for disadvantaged populations.

How much of an impact the prospective payment system will have on technology acquisition

is likely to depend on HCFA decisions regarding

updating and recalibration of DRG payment rates

when new technologies become available (186).

New technologies such as NMR are likely to be

used across multiple DRGs. If NMR proves to be

beneficial but not cost-saving in certain DRG applications, hospitals will be confronted by conflicting patient care and financial considerations.

Periodic recalibration of DRG payment rates may

thus be required as technological change in medicine occurs, In the absence of such recalibration,

patients may be restricted from access to potentially beneficial new technologies.
9.

State Certificate-of-Need Programs
.

9

State Certificate-of-Need Programs

INTRODUCTION

A major public policy response to the perceived

problem of technology-induced cost inflation has

been to attempt restraint of technology diffusion

to hospitals (36). The prime policy instruments

have been State certificate-of-need (CON) programs. CON programs vary considerably by

State, but all essentially review and either approve

or reject hospital equipment purchases involving

technologies whose capital costs exceed some

specified threshold or whose introduction to the

hospital represents a significant change in service (36). NMR imaging devices, with anticipated

sales prices of $800,000 to $2 million (see table

15 in ch. 5), are likely to come under the scrutiny

of CON review in virtually every State. The potential impact of these programs and their polCERTIFICATE-OF= NEED POLICIES

Although CON programs were not originally

intended to constrain the diffusion of medical

technology (36), they have been used for that purpose. ’ To the extent that individual devices had

price tags exceeding the established dollar threshold for CON review, new medical technologies

became subject to CON regulation. As questions

arose regarding the safety, efficacy, and costs

associated with new technologies, a few CON

programs set out to develop technology-specific

2Cc’rt itlcatc’-{~l-neect prclgrams are State programs established h}

State lcgl+latlon and governed by State rules and regulations. To

be ellg]blc to rew]ve Federal tuncis for var]ous health programs, each

State CON pr~)gram must meet Federal requirements, as prescribed

In n~tlonal health plan n]ng legi+l~t ]t)n ( Publlc La;i’ ~~-b~ 1, 1974 ;

I)ubllc l~]w %7Q, 1Q79), but effe( tive control of the regulatory process reslde~ with the indi~ridual State. The “section 1122 programs, ”

ndmed alter a wctlon of the S(lclal Securitj’ Amencimertts of 1972

( Publlc ~.aw” ~~-bos 1, are al~(} cap]ta] expenditure review programs

sanctioned by the Federal [;over-n ment, These program$ are admlnlstcred under c (~nt r-act h}’ Stdte g(~~’ernments, anci are empowered

to withhold portions of Nledi( are ancl Meclic-aicl reimbursement tor

capital from ]nsti t ut ion~ th~t Incur lar~e capi t~l expenditures (inCl LICiI n~ t how t [w ma]or mcdlcal cqulpment ) w-ithout obtain]ng prior

a ppro~al from a des igna t cd State hea 1 th plan n] ng agenc>r.

icies on

fore, of

the adoption of NMR imagers is, theregreat interest.

This chapter is organized into four sections. The

first section offers an overview of CON policies

and strategies regarding the review of technology

acquisition by hospitals and other providers. The

second section describes the relationship of CON

review to the FDA premarket approval process.

Several important policy lessons drawn from the

CON experience with CT scanning in the 1970s

are discussed in the third section. The final section reviews the current status of CON activities

that relate to NMR imaging devices. 1

‘Readers interested soleiy In COIN p~)i]cie+ regdrctln~ .YJi’vIR Im

ager~ ma}’ w l~h t C) read onl}’ the last wc t l~ln of th I+ ch dpter

resource and utilization standards for guiding the

CON review process. The development of these

standards and the evolution of CON policy toward

medical technology proceeded, however, at a slow

and nonuniform pace in most States (33). Complicating the problem was the fact that CON programs were being asked to control two interrelated, but distinct, aspects of technology diffusion

(36): the introduction of new or innovative technology to the health care field, and the distribution of technology among individual health

care institutions. Introduction, in this case, refers

to the acceptance and adoption of innovation into

clinical practice, whereas distribution implies the

physical allocation of equipment among institutions (36).

Since the advent in 1976 of FDA regulation over

market entry of new medical devices, the role of

CON programs in controlling the “introduction”

aspects of technology diffusion has diminished in

importance, whereas its “distributive” role generally has been—and continues to be—its most
108 Health Technology Case Study 27: Nuclear Magnetic Resonance Imaging Technology: A Clinical, Industrial, and Policy Analysis

important quality. CON agencies frequently play

pivotal roles in determining which institutions

may acquire new technologies. Determinations

based on broad concepts of “need,” including the

relative need demonstrated by competing CON

applicants, are intended to ensure equitable allocation of new technology among hospitals. CON

efforts to achieve distributional planning goals,

however, have sometimes conflicted with program objectives involving cost containment. For

example, as some observers (11) suggest, the

misdirection of cost containment goals in the early

years of X-ray CT scanner diffusion produced a

maldistribution among hospitals that disenfranchised whole segments of the hospital industry—

e.g., the municipal hospitals serving disadvantaged populations. Avoidance of this “franchising effect” is important if CON regulation is to

have an even-handed impact on future diffusion

of new technologies, such as NMR imaging devices.

In the past, CON programs have employed different policy orientations to address the issues

associated with technology adoption and distribution (35,135). At various times, health planners

have used strategies such as:

Pro forma denial—denial of all CON applications for an indefinite period of time as a

means of strict cost control; usually stems

from serious concerns over the safety, efficacy, and cost of a technology.

Formalized strategy of delay—temporary

limitation of all CON applications, pending

future availability of better data for CON review; often achieved through moratoria and

application review deferrals.

Predetermined limits on diffusion—limitation

of CON approvals to specific sites or providers; often conditional on the provision of

clinical data that can aid future evaluation

of the technology.

Uncontested approval–approval of CON

applications for- new technology in the absence of data on which to base sound CON

decisions or in the face of statutory requirements that dictate approval unless need can

be shown not to exist.

Of these four strategies, only the second and

third have been used to advantage by CON agencies. All, however, suffer from their reliance on

the high capital-cost “trigger” that is the hallmark

of CON programs, and from their inability to review technologies in the premarket stages of development (36). For these reasons, CON programs

have not been successful in either controlling the

introduction of new technology or assuring equitable distribution of equipment among hospitals

(135). A further problem is that CON review of

innovative change places health planners on less

familiar ground where they lack the requisite technical, medical, and analytic skills needed to answer important questions about safety and effectiveness in the absence of FDA findings (36).

Newly emerging technologies are especially difficult to review since the information required for

assessment is usually unavailable.

At present, State CON laws generally apply to

the acquisition by hospitals of medical equipment

and devices that exceed specified Federal dollar

thresholds: 3 $400,000 for major medical equipment and $250,000 for new institutional services

(Public Law 97-35, 1981). In order to receive Federal funds for various health programs, States

must comply with Federal law that requires their

CON statutes to contain provisions for review of

acquisitions, by anyone, of major medical equipment that will be used to provide services to hospital inpatients (182). This requirement is intended

to prevent circumvention of State CON laws

either by hospitals that have been denied planning agency approval for a specific technology or

by physician groups seeking to acquire and install major medical equipment in a facility outside the hospital (such as a medical arts building)

where technology acquisitions may otherwise

escape CON review. The precise coverage policies

governing CON review vary by State program,

but most do not cover equipment acquisition in

physicians’ offices. Only eight States (Colorado,

Connecticut, Hawaii, Iowa, New Hampshire,

Rhode Island, Virginia, and Wisconsin) plus the

District of Columbia currently have CON laws

that provide more stringent coverage of equipment acquisitions, such as in physicians’ offices,

than the minimum Federal requirements (182).

3States must use these thresholds in order to comply with Federal lan”; they may, however, use more stringent thresholds, at their

discretion.
Ch. 9—State Certificate-of-Need Programs • 109

RELATIONSHIP OF CON REVIEW TO THE

FDA PREMARKET APPROVAL PROCESS

In theory, the FDA premarket approval process should precede the CON review process, but

in practice, the two often coincide. In most States,

“investigational devices” are exempt from full

CON review, but a notice of intent to acquire such

a device for research or experimental purposes

must nevertheless be filed by the hospital with the

appropriate health planning agency or agencies.

Thus, a hospital may acquire an investigational

device without passing through formal CON review while the device is undergoing FDA review

for possible premarket approval. Once FDA approval is granted to a medical device, all subsequent acquisitions by other providers must undergo CON scrutiny, provided that the acquisition

involves a setting (e. g., hospital, ambulatory care

center, etc. ) that is specifically covered by applicable State law. FDA premarket approval, therefore, is generally a prerequisite for widespread diffusion of a new technology but it does not

necessarily guarantee broad adoption, since CON

review is based on criteria that differ from those

used by the FDA.

Whereas FDA review examines the safety and

effectiveness of a medical device, CON review is

concerned with demonstration of “need.” The definition of “need” varies greatly by State CON program and may involve such diverse factors or criteria as: consistency of the proposed project with

State health plans, consistency of the project with

the institutional applicant’s long-range plan, systemwide effects, financial feasibility of the project, access to care, quality of care, availability of

services and personnel, construction and architectural considerations, effects on competition,

competence and character of institutional management, and selection of the best alternative means

of providing the proposed service (143). FDA

assurance that a device is safe and effective is not

sufficient to demonstrate need for the device.

The ability of some hospitals to acquire devices

in the “investigational” stage of their development

without having to undergo full CON review contains potential for abuse. As was the case with

CT scanners—and as we are now seeing with

NMR imagers—some hospitals tend to engage in

“anticipatory behavior, “ i.e., they file applications

for CON exemption early in the diffusion process in the hope of securing the technology before

competition for the device leads to limited CON

approvals. Once obtained, CON exemption bestows coveted status on a hospital relative to that

of its competitors and establishes a “franchise”

which, in practical terms, is not likely to be

revoked by the CON program once FDA status

of the device changes following premarket approval. Thus, the hospital that acquires NMR imaging as an investigational device is likely to keep

the technology later when competing CON applications may be filed with the review agency.

This “franchising effect” could, in the case of NMR

imaging, work to the detriment of some segments

of the hospital industry.

LESSONS FROM THE EXPERIENCE WITH X-RAY CT SCANNING

Several important lessons have emerged from

the CON experience with X-ray CT scanning during the 1970s, the most important of which was

that slowed technological diffusion has its advantages and disadvantages. In the case of X-ray CT

scanning, early CON moratoria in some areas enabled health planners and hospitals to delay critical decisions pending further information. This

delay tactic allowed society to “buy time” until

better decisions regarding technology acquisition

and “need” could be made. On the other hand,

the inability of planners to evaluate the technology constrained its diffusion into medical practice more severely than may have been wise. The

lack of available evaluative mechanisms and criteria for review made it difficult for planners to

dispel the uncertainty surrounding X-ray CT scanning, thereby leading to many controversial and,
110 Health Technology Case Study 27: Nuclear Magnetic Resonance Imaging Technology A Clinical Industrial, and Policy Analysis

at times, seemingly arbitrary decisions on individual CON applications. The net effect was a loss

of credibility by the planners, as evidence of the

truly revolutionary nature of X-ray CT scanning

accumulated over time. The approach of selectively controlled diffusion now being used in some

States (e.g., New York, Illinois, New Jersey) with

regard to NMR imaging devices is more rational,

by comparison (see next section).

A second and equally important lesson was that

shared CT services among hospitals proved unsatisfactory for many institutions. Practical considerations, such as access and service volume

needs, worked against the basic principles of sharing, causing many hospitals to abandon their

shared-service arrangements and to acquire their

own X-ray CT scanners. Moreover, some hospitals found that multiple X-ray CT units were required to meet service demand, making shared

services even less enticing. The same potential

problem exists for the shared-service arrangements

now being proposed for NMR imaging in some

areas of the country.

A third lesson involved the unusual behavior

exhibited by hospitals in response to the incentives created by the CON process. Anticipatory

behavior of the type described earlier was by no

means unexpected. In some States, hospitals were

able to acquire CT scanners before CON laws

took effect. In other States, problems arose when

CON programs failed to recognize the inherent

inequities that were created by the nature of the

process itself, i.e. hospitals that obtained investigational devices became “grandfathered” once

diffusion of the technology accelerated and institutions that “played by the rules” were effectively

penalized for not having taken action sooner. In

addition, circumvention of CON authority occurred

in many States where physicians’ offices were not

covered by State law. The ability of private radiology groups to make large capital purchases

enabled these circumventions around the CON

laws to succeed.

In the case of NMR imaging, it will be difficult

to control these observed behaviors. A number

of hospitals have already acquired NMR imagers

at significant cost, including siting and construction costs for placement of the equipment. In practical terms, it will be extremely difficult for a

health planning agency to dislodge an NMR unit

from an existing site. Therefore, “franchising” has

already begun and is likely to continue in some

areas, at least in the near term. Without CON

coverage of physicians’ offices and other nonhospital settings, it will be virtually impossible to control the diffusion of NMR imagers to private

groups who can raise the necessary capital. Thus,

continued circumvention of CON regulation is

equally likely to occur.

Finally, there is the lesson regarding the clinical utilization of X-ray CT scanning. Since its

early diffusion, the clinical use of X-ray CT scanning has evolved and matured. Over the years,

physicians have experimented with the technology, compared it with alternative modalities, and

only now are beginning to understand its optimal

application— i.e., when and how to use it as a

diagnostic tool. NMR imaging is more complex

and requires considerable expertise and skill on

the part of the physician. It will be some time

before the technology’s optimal clinical application will be understood even among the experts.

The next few years will be a period of clinical experimentation and learning, as physicians familiarize themselves with the technology and compare it to other diagnostic imaging modalities,

including X-ray CT scanning. The potential impact of NMR imaging on the future practice of

medicine may prove to be as far-reaching as was

the case with X-ray CT scanning in the past decade. It may, thus, be appropriate to limit diffusion of the technology to selected sites—e.g.,

clinical research or teaching centers or a limited

number of community hospitals, where evaluation of its proper place in clinical medicine may

be conducted.
.—

Ch. 9--State Certificate-of-Need Programs 111

CON ACTIVITIES RELATED TO NMR IMAGING DEVICES

NMR imaging is emerging as an issue of great

interest and concern to many Health Systems

Agencies (HSAs) and State Health Planning and

Development Agencies (SHPDAs). There are indications that these agencies, which hold responsibility for local and State CON review, respectively, are beginning to see increasing CON

activity related to NMR imaging. Consequently,

individual agencies in several States are taking aggressive action toward convening expert task

forces, developing criteria and standards for CON

review, and conducting reviews of CON applications already submitted by hospitals.

As a means of gathering information on CON

activities involving NMR imaging, the National

Health Planning Information Center (NHPIC) sent

out “Program Information Letter 83-15” on July

8, 1983, to all health planning agencies requesting

that they provide information on the number of

actual proposals already reviewed, the number

of anticipated reviews, criteria or guidelines for

review of NMR imagers, and enacted or pending

State legislation governing the placement of NMR

units (194).

By mid-September 1983, 27 SHPDAs and 30

HSAs had responded to the NHPIC Program Information Letter, yielding a cross-sectional view

of CON activities currently under way in many

States (195). Program activities relating to NMR

imaging fall into three main categories: applications review, criteria or standards development,

and legislation or regulations adoption.

CON Reviews

As of September 12, 1983, 12 SHPDAs and 5

HSAs in the sample had conducted a total of 33

CON reviews for NMR imaging devices (195).

SHPDAs reported review of 28 proposals with 16

approvals and HSAs reported 5 reviews with 3

approvals. The total of 19 approvals excludes

waivers and exemptions for research applications.

In addition, the agencies reported the receipt of

43 letters of intent or new proposals: 18 b y

SHPDAs and 25 by HSAs (195). Capsule summaries of selected CON reviews appear below.

Missouri

Missouri became the first State to approve

NMR imaging in a nonresearch, nonuniversity -

affiliated hospital setting when its CON agency,

the Health Facilities Review Board, approved the

applications of two community hospitals located

in Columbia (64). The review board made these

controversial decisions despite SHPDA recommendations to the contrary (64). The review

board also rejected SHPDA recommendations for

limited diffusion of NMR imaging to only university hospital settings and for the formation of a

task force to develop criteria and standards for

CON review of the technology (99).

The two hospitals receiving CON approval are

Columbia Regional Hospital, a 301-bed facility

that is part of the Lifemark investor-owned hospital chain, and Boone Hospital Center, a countyowned, nonprofit facility with 344 beds (64).

Illinois

In the absence of NMR criteria for CON review, the Illinois CON agency (the Health Facilities Planning Board) has invoked the technologically innovative equipment clause of the State

CON law to limit the diffusion of NMR imaging

to medical school affiliated hospitals (see later discussion under legislation or regulations). As of

August 1983, two hospitals affiliated with medical schools (Rush-Presbyterian-St. Luke’s Medical Center in Chicago, and St. Francis’ Hospital

in Peoria) had applied for and received CON approval for NMR imaging devices (72).

Nebraska

Beginning in late 1982 and early 1983, the State

CON agency received multiple applications for

NMR from individual hospitals in Omaha. In an

effort to encourage cooperative planning, the

State agency announced in the spring of 1983 that

it would “batch” NMR applications for simultaneous review (205). Three private, nonprofit hospitals (Nebraska Methodist, Archbishop Bergan

Mercy, and Children’s Hospitals) responded by

forming a private corporation, NMR Inc., which
112 Health Technology Case Study 27: Nuclear Magnetic Resonance Imaging Technology: A Clinical, industrial, and Policy Analysis

submitted a single CON application to place an

NMR imager in a freestanding facility where all

three hospitals would share access. In July 1983,

NMR Inc. received CON approval for the acquisition of a superconducting NMR system. Also

receiving CON approval in July for NMR imaging was the University of Nebraska Hospital,

which has referral agreements with two other facilities, Omaha Veterans’ Hospital and Bishop

Clarkson Hospital (205). One other CON application for NMR was reviewed and recommended

for denial; the hospital subsequently withdrew the

application and is now seeking a cooperative arrangement with a second hospital (205).

Kentucky

Albert B. Chandler Hospital, a teaching affiliate

of the University of Kentucky, currently has an

NMR imaging unit, which was granted exemption from CON review as a research/experimental

device (62). In May 1983, the State CON agency

reviewed and disapproved an application for

NMR from Audubon Hospital, a Louisville facility that is part of the Humana investor-owned

hospital chain. In making its decision, the SHPDA

invoked the Kentucky State Health Plan, signed

by the Governor, which states that NMR technology “. . . shall be considered a tertiary level

service and approval of one unit will be considered for each of the two designated tertiary

centers” 4 in the State (195). The CON decision was

appealed by the hospital and granted reconsideration by the SHPDA (62). Since Humana leases and

manages the tertiary center in Louisville (Humana

Hospital-University), the corporation argued that

placement of an NMR imager at Audubon Hospital (a Humana-owned facility) would still permit patients from the university hospital to have

access to the technology. Following a public hearing, Audubon Hospital’s application was approved by the SHPDA.

The University of Kentucky’s Albert B. Chandler Hospital has applied for CON approval to use

its previously installed NMR unit for clinical, as

well as research, purposes.

“’Centers” refers to the two university hospitals in the state: Albert

B. Chandler Hospital in Lexington and Humana Hospital-University

in Louisville (62).

Other jurisdictions in which CON applications

for NMR have been reviewed include: SHPDAs

in Georgia, Tennessee, Texas, Ohio, Iowa, Arizona, Kansas, and California; and HSAs in Middle Tennessee, New York City, North Central

Georgia, Chicago, and Southeast Kansas.

CON Criteria or Standards Development

As of September 12, 1983, 10 health planning

agencies (HSAs and SHPDAs) had reported to the

National Health Planning Information Center that

they had established NMR-specific review criteria

or guidelines. An additional 15 agencies are in the

process of developing review criteria (195). Two

of these reported that they were using CON review criteria or standards for CT scanners as the

basis for their efforts in NMR imaging (158). Several agencies have also formed or are beginning

to form expert task forces or advisory panels. A

brief summary of current State and local efforts

in this regard appears below.

Nebraska

The Statewide Health Coordinating Council

(SHCC) in April 1983 authorized the formation

of a 12-member Task Force on New Developments in Diagnostic Radiology to develop NMR

guidelines. The Task Force consists of seven

radiologists, one internist, one neurosurgeon, and

one consumer member of the SHCC (205). In September 1983, the Task Force submitted for review

a set of draft guidelines for NMR scanners. The

SHCC also created a separate Task Force on New

Technological Developments, which prepared and

submitted in September 1983 draft guidelines for

review of emerging technologies.

Massachusetts

The SHPDA in Massachusetts is working with

the State CON agency (the Determination of Need

program) to develop criteria and guidelines for

CON review of NMR (28). An Advisory Committee on NMR is being formed, with representatives

drawn from the State Rate Setting Commission,

the hospital industry, the professional medical

societies, and consumers. It is anticipated that the

State may move toward limited diffusion of NMR

imaging during an initial research/experimentation phase (28).
—

Ch. 9—State Certificate-of-Need Programs 113

In an apparently independent effort, the Health

Planning Council for Greater Boston (the State’s

largest HSA) developed proposed guidelines for

NMR, which were expected to be adopted in final

form in December 1983 (79). The proposed guidelines would allow NMR units to be placed in clinical, nonteaching settings under certain conditions

(79).

Georgia

The Georgia SHPDA, with the aid of medical

specialty societies and other professional groups,

has convened a “blue ribbon committee” of experts to develop NMR-specific criteria and guidelines for review (75). The committee, which is

composed of radiologists, nuclear medicine specialists, internists, and hospital administrators,

was expected to release a draft final report in the

fall of 1983. The anticipated recommendations are

likely to urge caution, with NMR diffusion temporarily restricted to two medical schools pending

FDA approval and the articulation of reimbursement policies for NMR (75).

Oklahoma

The State CON agency in Oklahoma is now

in the process of assembling a Select Committee

on Technology to recommend criteria and standards for NMR (25). Two avenues that will likely

be explored are the limited diffusion strategy of

the Illinois CON program and the group application/shared-service model encouraged by the

Nebraska CON program (see the earlier discussions of both States’ experiences with CON

reviews).

In addition to these CON programs, other

agencies involved in either task force development

or criteria/standards development include SHPDAs

in the District of Columbia, New Jersey, North

Carolina, Illinois, Ohio, Maryland, Hawaii, Florida,

and Pennsylvania, and HSAs in Southeastern

Massachusetts, Central New Jersey, Eastern

Virginia, North Central Georgia, Western Michigan, Central Arizona, and Northwest Oregon

(69,134,172,195). Several other agencies have developed either NMR plans (Newark HSA, Southeast Kansas HSA) or position papers (Southeastern

Pennsylvania HSA, Southwestern Pennsylvania

HSA). Developmental activities of this nature are

expected to continue and expand in other areas

of the Nation (13).

The American College of Radiology (ACR), a

medical specialty society, has been contacted by

many State CON agencies requesting information

on NMR imaging. In response to these requests,

the ACR (through its Commission on NMR, Subcommittee on Government Relations) prepared a

document, “Guidelines for Preparation of CON

Applications, “ intended to assist State CON agencies in performing reviews of NMR-related CON

applications.

State CON Legislation/Regulations

During 1983, significant developments occurred

in several States regarding CON legislation or regulations that affect the review of NMR imaging devices. A sampling of major developments

follows.

New York

The New York State Hospital Review and Planning Council, the CON body in the State, drafted

regulations that call for a 2-year demonstration

period in which NMR imaging will be restricted

to a select number of hospitals (127). During this

period, data on the technology’s safety, efficacy,

and cost effectiveness will be gathered and analyzed. Upon completion of the demonstration,

a determination of need will be made and, provided that neither cost effectiveness nor quality

of care is at issue, all participants in the demonstration as well as any other hospitals in the State

may then apply for CON approval. The proposed

regulations were expected to be reviewed and approved by the council in the fall of 1983. The

council made the decision in April 1984 to permit placement of NMR imagers in no more than

13 teaching hospitals during the demonstration

period (19).

The application for NMR submitted by New

York Hospital is generally credited with having

precipitated this regulatory process (127). The

hospital’s application was approved with the understanding that it could not receive reimbursement for NMR unless it was selected to partici-
114 Health Technology Case Study 27: Nuclear Magnetic Resonance imaging Technology: A Clinical, Industrial, and Policy Analysis

—

pate in the planned demonstration. The Major

Medical Equipment Committee of the Council will

commence development of NMR review criteria

or standards once the demonstration gets under

way and preliminary data are produced.

Illinois

As alluded to earlier in the discussion of CON

reviews, the Illinois Department of Public Health

and the Illinois Health Facilities Planning Board

adopted regulations on March 1, 1983, that set

forth specific “Standards and Criteria for Review

of Applications for Permit for Technologically Innovative Equipment or Innovative Programs”

(195). These regulations stipulate that any such

equipment or programs must be restricted to only

medical school settings until FDA premarket approval for the technology is granted and CON

guidelines or criteria for review have been established. This effectively limits NMR diffusion to

only 11 hospitals in the State (one hospital per

medical school). NMR imaging is among the first

technologies to be regulated under these rules (72).

District of Columbia

In September 1982, the CON law in the District

of Columbia was amended to permit the designated

CON agency the right to declare a 180-day “holding period” on the review of any new technology

whose safety, efficacy, and clinical use are not

clearly understood or are in question (134). The

CON agency has, since that time, drafted general

criteria and standards for CON review. Two

clauses specifically relate to new technology. One

requires that applicants demonstrate to the SHPDA

director’s satisfaction that the technology is

beneficial in controlled trials. The second clause

requires applicants to demonstrate need for technology acquisition relative to actual or potential

need for such technology at other institutions in

the District. The agency received a CON application for NMR imaging from an area hospital in

February 1984 and immediately invoked the 180-

day moratorium provision pending development

of review criteria (203). The agency has convened

a technical advisory panel and expected to develop

criteria and standards for review of NMR imagers

by August 1984.

New Jersey

In November 1983, the New Jersey SHCC approved a proposal that would restrict CON approval of NMR imagers to no more than four sites

over an evaluation period of 2 years (69). In selecting the four sites, preference will be given to

the State’s 16 major teaching hospitals. Data

gathered from the four installations would be used

to guide decisionmaking on future NMR diffusion

in New Jersey. In an unprecedented move, the

State Commissioner of Health asserted that these

new NMR regulations would apply to physicians’

offices as well as other health care facilities (69).

Under present New Jersey law, physicians in private practice are exempt from CON review (195).

However, the State Department of Health views

the purchase of NMR by physicians’ groups as going “far beyond the private practice of medicine”

(69).

Utah

The CON law in Utah was amended in May

1983 to exempt all medical equipment from CON

review (74). NMR imaging devices, therefore, will

not be subject to CON review in Utah, as the State

appears to be pursuing a strategy of uncontested

approval for all medical equipment purchases.

California

The State of California has also passed legislation that eliminates the dollar thresholds for CON

review of major medical equipment purchases

(201). As in Utah, NMR imaging devices will not

be subject to CON review in California.

Future Prospects

The general consensus among health planners

and CON agency staff members who were contacted for this study was that the level of CON

activity related to NMR imaging is likely to increase dramatically over the next year, Once

HCFA renders a policy decision regarding Medicare coverage, planners expect to see a rapid increase in the number of CON applications filed

by hospitals around the Nation. s In anticipation

‘Several proposals are now before the Congress that would raise

the CON thresholds for equipment review to $1 million or higher.

If such legislation was enacted in the next few months, some States

might follow suit and amend their statutes, effectively exempting

the less expensive NMR systems from CON review.
Ch. 9—State C’ert~ficate-of-Need Programs • 115

—

of this onslaught of paperwork, CON agencies at

both State and local levels in the national health

planning structure are continuing to push forward

in the creation of special task forces and in the

development of criteria and standards for CON

review.

Of the four strategies previously described for

CON treatment of medical technologies, at least

three appear to be operating with respect to NMR

imaging. The New York, Illinois, Ohio, Kentucky,

and New Jersey SHPDAs; and the Eastern Virginia HSA all appear to be employing predetermined limits on diffusion, whereas the Southeast

Kansas HSA and the District of Columbia SHPDA

have adopted moratoria on NMR pending further

study and planning (38,69,117,195). Nebraska, by

contrast, is encouraging shared-service arrangements. Both Utah and California, at this time, appear to be using a strategy of uncontested approval. No CON program, on the other hand, has

adopted a policy of pro forma denial.

are the site considerations that are unique to NMR

imaging. Unlike the placement of CT scanners,

NMR installation is costly and is likely to have

considerable impact both on hospital plant configuration and on the organization of staff. NMR

placement can be disruptive to the hospital, making internal management of the technology and

its use far more difficult than was (or is) the case

with CT. Shared service arrangements among

hospitals may prove fragile, owing to the fact that

host institutions may experience difficulty in rationing the use of NMR imaging among participants. Utilization of NMR units may increase tremendously as physicians discover new clinical

applications and perform “sequential scanning. ”

Should NMR imaging come to be used in this

way, hospital administrators will find it difficult

to ration NMR use among medical staff members,

let alone among other hospitals. Interspecialty

disputes over the use of NMR imaging may further cloud the issues of appropriate utilization and

rationing.

NMR imaging is likely to differ from the CT

experience in several ways. First, and foremost,
Appendixes
Appendix A.— NMR: Technical Background

NMR Spectroscopy—Technical

Background

Ordinarily the magnetic moments of hydrogen atoms

(the vector representations of the net magnetic properties of hydrogen atoms) will point in random directions. 1 When exposed to an externally applied magnetic field, however, these magnetic moments tend to

align themselves either parallel to or antiparallel to the

magnetic field.2 Because the energy state of a hydrogen nucleus is lower when its magnetic moment is

pointing in the direction of the applied magnetic field

than when it is pointing in the opposite direction, more

of the magnetic moments will point in the direction

of the applied field than in the opposite direction. In

quantum mechanical terms, hydrogen nuclei exposed

to an externally applied magnetic field, B, will reside

in one of two possible magnetic energy levels (see fig.

A-l). For hydrogen nuclei to go from the lower energy

level, E1

, to the higher energy level, E2, an E2 – E1

amount of energy needs to be added to the system.

When hydrogen nuclei go from the higher energy level

to the lower energy level, in contrast, E2 – E1 energy

is emitted from the system.

) For slmpl]c it y, the remainder of this d]scuss]t]n WIII perta]n to hydrogen,

which has a spin of one-half ( a quant urn nuclear spin number ot one-half

to describe the rotation of the hydrogen nucleus I

‘Other forces, such as thermal agltatlon, will Influence the ortentat ion of

these magnetic moments. but cons] c!erat]on of such forces IS beyond the scope

of th]~ case study

Figure A-1 .—Energy Levels of Hydrogen Atoms in

Applied Magnetic Fields

BI

According to quantum theory, hydrogen nuclei will

move from El to E2 only when exactly the right amount

of energy (namely E2 — E1

) is applied to the system.

In NMR experiments, excitational energy is provided

in the form of radiofrequency (RF) waves. In order for

hydrogen nuclei residing in energy level E1 to be excited into level E2 by such radiofrequency energy, the

RF waves must be applied at exactly the same rotational frequency as that at which the magnetic nuclei

in El are processing.3

This frequency is known as the

Larmor frequency.

When an NMR system is appropriately constructed

(see fig. A-2), the energy emitted by excited hydrogen

nuclei during the process of relaxation can be detected

as an NMR signal. The intensity of the signal will be

proportional to the number of hydrogen nuclei in the

sample being studied.

Variations in the local magnetic field give rise to

variations in the frequency at which nuclei spin. These

spin differences depend on the exact molecular environment in which each nucleus exists. This observed

“shift” in nuclear precessional frequency, and therefore the radiofrequency at which NMR signals are detected, has been termed “chemical shift. ” These slight

variations in NMR signals induced by variations in

molecular environment provide the basis for NMR

spectroscopy and its use in acquisition of information

about molecular structure and conformation.

Application of NMR Principles to

Imaging—Technical Background

A decade ago, scientists realized that exciting possibilities emerged if, instead of applying a uniform

magnetic field across an experimental sample, they

established a magnetic field gradient across it (see fig.

A-3). In so doing, the strength of the magnetic field,

B, varies from one line (L1

) to another (L2). Because

of the one-to-one relationship between the magnetic

field strength in which magnetic nuclei exist and the

frequency of radiofrequency energy that will excite

them, a pulse of radiofrequency energy applied to the

system depicted in figure A-3 will be absorbed (and

subsequently re-emitted) only by nuclei that are located in the vertical line LX of magnetic field strength

Bx that corresponds to the Larmor frequency of the

energy being applied. By sequentially varying the frequency of the energy being supplied, one can thus

selectively excite nuclei, line by line. The establishment

of a magnetic field gradient across a sample thus “spa-

‘[’recessIon IS a term descrlbln~ the mot](ln of a proton ]n an external

SOURCE E P Steinberg, Johns Hopkins Medical Instltutlons, Baltlmore. MD,

1983

magnet]c t leld or of a top In the Earth s gra~’]tat Ional t]eld

119

25-341 0 - 84 - 9 : QL 3
120 • Health Technology Case Study 27: Nuclear Magnetic Resonance Imaging Technology: A Clinical, Industrial, and Policy Analysis

Figure A-2.—Schematic Diagram of NMR System

The radiotransmitter provides radiowaves at the appropriate

rotational frequency to excite the proton. When the

radiowaves are turned off, the excited protons precess in

phase, thereby producing radiowaves that are detected with

a radio receiver and then displayed.

SOURCE E. P Steinberg, Johns Hopkins Medical Institutions, Baltimore. MD, 1983

tially encodes” the NMR information inherent in a system. This type of spatial encoding of the origin of a

NMR signal forms the basis of NMR imaging.

Radiofrequency Pulse Sequences

As explained earlier, NMR signals are obtained

through the excitation of magnetic nuclei with RF

waves. In a typical NMR experiment, the nuclei to be

excited (and imaged) are repeatedly exposed to RF

waves in a pulsed fashion. Specific “pulse sequences”

are characterized by the duration and intensity of each

pulse used, as well as by the interval between repeated

pulses.

Several different types of pulse sequences can be utilized to produce NMR images. Probably the three most

common types of sequences currently employed in

NMR imaging are Saturation Recovery, Inversion

Recovery, and Spin-Echo sequences (27,55,77). Although the exact technical details of how these sequences are produced are beyond the scope of this report, it should be mentioned that Saturation Recovery

and Inversion Recovery sequences result in NMR

signals (and therefore images) that tend to reflect
— .

App. A–NMR: Technical Background 121

—

Figure A-3.— Experimental Sample in Magnetic Field Gradient

Experimental

sample /

Bo B1 B2

Magnetic field strength (B)

(Magnetic field strength in line LO is Bo; in line L1 is B1

; and

in line L2 is B2

.)

SOURCE E P Steinberg, Johns Hopkins Medical Instltutlons, Baltlmore, MD, 1983

predominantly the T1 character of tissues (i. e., they

are T1 weighted), whereas Spin-Echo sequences tend

to reflect more T2 information (i.e., they are T2 weighted).

NMR images will thus vary depending upon the particular pulse sequences used to produce them. Considerable effort is being expended on trying to define

pulse sequences that optimally demonstrate different

types of morphologic and pathologic abnormalities.

This task is formidable, given the infinite number of

pulse sequences that can be used.

Techniques for Spatial Encoding

and Image Acquisition

Several different techniques have been developed

through which NMR information can be spatially encoded, acquired, and transformed into an image. The

first such technique, adapted from use in X-ray computed tomography (CT) reconstructions, was the projection-reconstruction method of NMR imaging used

by Lauterbur (115). In this technique, magnetic gradients are electronically rotated to produce multiple

projections of the sample being imaged. These projections are then “pieced together” with the help of a computer to construct an NMR image. Imaging methods

developed subsequently employ a variety of techniques

to “selectively excite” nuclei. These techniques have

acquired names based on whether they excite nuclei

on a point-by-point (sequential point methods), lineby-line (sequential line methods), plane-by-plane

(planar imaging) or whole-volume (three-dimensional

imaging) basis (8). The latter techniques require less

time to form images (8). The recently developed echoplanar method of imaging permits scans to be obtained

in milliseconds, raising the possibility of dynamic, or

real-time, NMR imaging (133).
Appendix B. —Survey of Manufacturers: Methods

To gather the information required for this report,

a survey of NMR-imaging-device manufacturers was

conducted involving the following steps:

1.

2.

3.

With the assistance of the National Electrical

Manufacturer’s Association (NEMA), appropriate contacts (either the director of marketing or

the technical director for NMR imaging) were

identified in each of the firms represented by

NEMA. Potential contact persons in non-NEMA

companies were identified through other sources.

A total of 20 companies were targeted for survey.

Letters of introduction describing the study and

its purpose were mailed to all identified manufacturers in June 1983. Manufacturers were notified

of our intent to contact them by telephone to arrange a mutually convenient time for a telephone

interview.

Between June and August, 15 manufacturers were

interviewed. Interviews varied in length, but the

average discussion lasted approximately 1 to 11⁄2

hours. In each case, the discussion was structured

around the following key issues:

History of the firm’s program in NMR imaging—its genesis and development to the present day

Current status of the manufacturer’s NMR

imaging systems—including magnet type,

magnet field strength, and imaging capabilities

Clinical placements of NMR imaging

systems—by site, system capabilities, and

date of installation

4.

5.

Collaborative relationships with universities

and/or medical schools for NMR-imaging

R&D

Company characteristics—size, ownership,

staff composition, and product lines

The future market for NMR imaging systems—projected growth, competitive technologies (e.g., CT, ultrasound, etc.), and key

factors influencing NMR diffusion

Costs of NMR-imaging devices—likely capital acquisition costs, annual operating expenses once installed

FDA policies—premarket approval for Class

III devices

Third party payment policies—HCFA/Medicare coverage decisions, Blue Cross/Blue

Shield decisions, commercial insurers’ decisions, prospective payment systems

State certificate-of-need policies

Federal role in funding applied R&D

Patents

Future plans for NMR-imaging development

Follow-up telephone calls were made for clarification of responses, as necessary.

Upon submission of the draft final report to OTA

in early September, each of the 15 participating

manufacturers was invited by OTA to review and

comment on its respective company description

contained in appendix C to this report. In addition, representatives of NEMA were invited by

OTA to review the full draft report.

122
Appendix C.— Manufacturers of NMR Imaging Devices

The following company descriptions of NMR-imaging-device manufacturers are based on interviews with

representatives from each firm. The initial interviews took place in 1983 and information was updated in August

1984. Magnet field strength is stated in kilogauss (kG). Conversion of kilogauss to Tesla units is as follows: 10kG

= 1.0T.

ADAC LABORATORIES

4747 Hellyer Avenue

San Jose, CA 95138

Background: ADAC Laboratories is an independent publicly owned company. The company decided to invest

in R&D efforts for NMR in 1982. ADAC is in the early stages of NMR-imaging-system development. It expects

to have an engineering model available in early 1986 and a commercial prototype system in the second half of 1986.

Current NMR-imaging models: None (permanent magnet prototype is in development)

Collaborative arrangements with universities or medical centers: Negotiated, yet to be announced.

Clinical placement sites: None

Number of employees engaged in NMR imaging: 40 (including magnet developers)

Other diagnostic imaging products: Nuclear medicine, digital radiography; conventional X-ray; and fluoroscope

Other medical products: Radiation-therapy planning; special procedures room; clinical information systems;

medical linear accelerators

Non-health-care-related products: Instruments for nondestructive testing

BRUKER MEDICAL INSTRUMENTS, INC.

Manning Park

Billerica, MA 01821

(Head Office: West Germany)

Background: Bruker Instruments is a privately owned subsidiary of Bruker A.M. of West Germany. The company began work on NMR spectroscopy in 1961 and developed extensive magnet technology and experience

with pulse and spectroscopy techniques. Bruker made its first commitment to NMR imaging in 1977, and by

1979, had completed its first experimental prototypes. In 1982, Bruker placed its first NMR-imaging unit in an

outside clinical setting. In 1983, the company acquired Oxford Research Systems, which specializes in animal

research systems, from Oxford Instruments and plans to build superconducting magnets with its new subsidiary.

Bruker had its first marketing prototype available for placement in 1983.

Current NMR-imaging models:

Year first

Magnet type Field strength Bore size available

Resistive 1.3 kG Whole body 1979

Superconducting 47 kG Animal 1979

Superconducting 19 kG Animal or head only 1982

Resistive (self-shielded) 2.4 kG Whole body 1984

Collaborative arrangements with universities or medical centers: 2

1. Baylor College of Medicine, Houston, TX

2. Yale University, New Haven, CT

Clinical placement sites:

Date of installation

Hospital or clinic NMR imaging system (E = expected)

1. Baylor College of Medicine, Resistive, 1.3 kG, whole body 1982

Houston, TX

2. Baylor College of Medicine, Superconducting, 47 kG, animal 1982

Houston, TX

3. Japan Resistive, 1.3 kG, whole body 1982

123
124 Health Technology Case Study 27: Nuclear Magnetic Resonance imaging Technology: A Clinical, Industrial, and Policy Analysis

— ———

4, Brigham & Women’s Hospital, Resistive, 1.3 kG, whole body 1983

Boston

5. Brigham & Women’s Hospital, Superconducting, 19 kG, animal 1983

Boston

6. D.K.D. Hospital, Wiesbaden, Resistive, 1.3 kG, whole body 1983

West Germany

7. Yale University, New Haven, CT Superconducting, 15 kG, whole 1985E

body

Number of employees engaged in NMR imaging: 50

Other diagnostic imaging products: None

Other medical products: Parent firm makes ECG monitors, mobile defibrillator, and patient monitoring systems

Non-health-care-related products: NMR spectrometers

CGR MEDICAL CORP.

2519 Wilkins Avenue

Baltimore, MD 21203

(Head office: Paris, France)

Background: CGR Medical Corp. is a private, wholly owned subsidiary of Thompson-Brandt of France. The

company was created in 1971 by the acquisition of Westinghouse Medical X-Ray Division by CGR of France,

which merged in 1979 with Thompson-CSF to form Thompson-Brandt. CGR Medical Corp. decided to invest

in R&D efforts for NMR imaging in 1979. Its first engineering models were available in 1982. The company expects to place its first NMR imaging unit in a clinical setting and to have available for placement its first commercial system in 1984.

Current NMR-imaging models:

Year first

Magnet type Field strength Bore size available

Resistive 1.5 kG Whole body 1982

Superconducting 3,5 kG Whole body 1983

Superconducting 5 kG Whole body 1983

Collaborative arrangements with universities or medical centers: None in USA (number in Europe not available)

Clinical placement sites: None

Number of employees engaged in NMR imaging: approximately 150

Other diagnostic imaging products: Computed tomography; ultrasonography; nuclear medicine; digital

radiography; conventional X-ray and fluoroscope

Other medical products: None

Non-health-care-related products: Parent firm makes assorted electrical appliances and equipment

DIASONICS INC.

NMR Division

533 Cabot Road

South San Francisco, CA 94080

Background: Diasonics is an independent, publicly owned company. Initial R&D on NMR imaging began in

1975 as a University of California, San Francisco (UCSF) project with outside funding. In 1976 Pfizer Corp. began

funding the work. In 1981, Diasonics purchased the rights to all patentable NMR technology developed under

the UCSF-Pfizer agreement. Diasonics had its engineering model available in 1981, and the company made its

first clinical placement of an NMR imaging unit the same year. Its first commercial prototype system became

available for placement in 1983.
App. C—Manufacturers of NMR Imaging Devices 125

Current NMR-imaging models:

Year first

Magnet type Field strength Bore size available

Superconducting 5 kGa Whole body 1981

a

System Operating at 3.5 kilogauss; probable commercial prototype system; commitment to upgrade to higher fields if Diasonics believes

clinical relevance demonstrated.

Collaborative arrangements with universities or medical centers: 3

1. University of California, San Francisco

2. University of Texas, Dallas

3. University of Michigan, Ann Arbor

Clinical placement sites:

Date of installation

Hospital or clinic NMR imaging system (E = expected)

1.

2.

3.

4.

5.

6.

7.

8.

9.

10.

11.

12.

13.

14.

15.

16.

17.

18.

19.

20.

University of California, San

Francisco

Huntington Medical Research

Institutes, Pasadena, CA

University of Texas Health Science

Center, Dallas

Private radiology clinic, NJ

University of Michigan, Ann Arbor

St. Anthony’s Professional Building

St. Petersburg, FL

UCSF-Radiation Instrumentation

Laboratory, San Francisco, CA

Montclair Radiological Association,

PA, Montclair, NJ

University of Texas Health Science

Center, Dallas

NMR Associates, Houston, TX

Private clinic, Wuppertal, West

Germany

Institute of Radiology, Geneva,

Switzerland

Roentgen Institut, Dusseldorf, West

Germany

NMR Imaging, Torrance, CA

Long Island MRI, New Hyde Park,

NY

Northeast Medical Center, Ft.

Lauderdale, FL

Magnetic Resonance Images, Inc., St.

Petersburg, FL

Diagnostic Imaging Center,

Lausanne, Switzerland

Heart to Heart, Phoenix, AZ

San Jose MRI, San Jose, CA

Superconducting, 5 kG, whole

body

Superconducting, 5 kG, whole

body

Superconducting, 5 kG, whole

body

Superconducting, 5 kG, whole

body

Superconducting, 5 kG, whole

body

Superconducting, 5 kG, whole

body

Superconducting, 20 kG, whole

body

Superconducting, 5 kG, whole

body

Superconducting, 20 kG, whole

body

Superconducting, 5 kG, whole

body

Superconducting, 5 kG, whole

body

Superconducting, 5 kG, whole

body

Superconducting, 5 kG, whole

body

Superconducting, 5 kG, whole

body

Superconducting, 5 kG, whole

body

Superconducting, 5 kG, whole

body

Superconducting, 5 kG, whole

body

Superconducting, 5 kG, whole

body

Superconducting, 5 kG, whole

body

Superconducting, 5 kG, whole

body

1981

April 1983

September 1983

1983

1983

1984

1984

1983

1984

1984

1984

1984

1984

1984

1984

1984

1984

1984

1984

1984
126 Health Technology Case Study 27: Nuclear Magnetic Resonance Imaging Technology: A Clinical, Industrial, and Policy Analysis

21. NMR Scan Center, Ft. Lauderdale, Superconducting, 5 kG, whole 1984

FL body

22. NMR Imaging, Santa Ana, CA Superconducting, 5 kG, 1984

whole body

23. Magnetic Resonance Center of San Superconducting, 5 kG, whole 1984

Diego, San Diego, CA body

Number of employees engaged in NMR imaging: 152

Other diagnostic imaging products: Ultrasonography and surgical C-arm imaging equipment

Other medical products: None

Non-health-care-related products: None

ELSCINT LTD.

Head Office: Haifa, Israel

U.S. Subsidiary: Elscint Inc.

930 Commonwealth Avenue

Boston, MA 02215

Background: Elscint is an independent, publicly owned company in Israel. The company decided to invest in

R&D efforts for NMR imaging in 1981, and by 1982, had developed its first engineering model. Elscint produced

its first prototype NMR imaging system in 1983 and expects to have a second prototype in late 1984. The company made its first clinical placement outside the company’s plant in November 1983.

Current NMR-imaging models:

Year first

Magnet type Field strength Bore size available

Superconducting 5 kG

Collaborative arrangements with universities or

1. Hebrew University, Jerusalem, Israel

2. Weitzman Institute, Rehovoth, Israel

Clinical placement sites:

Hospital or clinic

Whole body 1982

medical centers: 2

Date of installation

NMR Imaging system (E = expected)

1. Skokie Valley Imaging, Skokie, IL Superconducting, 5 kG, whole 1983

body

2. Fondren Imaging, Houston, TX Superconducting, 5 kG, whole 1984

body

3. Private clinic, Freiburg, West Superconducting, 5 kG, whole 1984

Germany body

4, Herzlyia MRI Clinic, Herzlyia, Israel Superconducting, 5 kG, whole 1983

body

Number of employees engaged in NMR imaging: Not available

Other diagnostic imaging products: Computed tomography; ultrasonography; nuclear medicine; digital

radiography; conventional X-ray; and fluoroscope

Other medical products: None

Non-health-care-related products: None
FONAR

App. C—Manufacturers of NMR imaging Devices 127

CORP.

110 Marcus Drive

Melville, NY 11747

Background: Fonar has been an independent, publicly owned corporation since 1981. Founded originally as the

RAANEX Corp., it has invested in R&D efforts for NMR imaging since 1978. In 1980, Fonar completed its first

experimental prototype and made its first clinical placement of a unit outside the plant. The firm’s first commercial prototype system became available for placement in 1983.

Current NMR-imaging models:

Year first

Magnet type Field strength Bore size available

Permanent 0.4 kG Whole body 1980

Permanent 3 kGa Whole body 1983

Permanent 3 kGa Whole body (mobile) 1983

aProbable Commercial prototype system(s).

Collaborative arrangements with universities or medical centers: 1

1. University of California at Los Angeles (UCLA)

Clinical placement sites:

Date of installation

Hospital or clinic NMR imaging system (E = expected)

1.

2 .

3.

4.

5.

6.

7.

8.

9.

10.

11.

12.

13.

14.

15.

16.

17.

Diagnostic Imaging Associates,

Cleveland, OH

Hospital Universitario, Monterey,

Nuevo Leon, Mexico

San Raffaele Hospital, Milan, Italy

Nakatsugawa Hospital, Nagoya,

Japan

Brunswick Memorial Hospital,

Amityville, NY

Universal NMR, Inc. (mobile

scanner )

UCLA

Montvale Diagnostic Imaging Center,

Montvale, NJ

Neurodiagnostic Center, New York,

NY

Chicago Medical School, Chicago, IL

NMR Centers, Inc., Los Angeles, CA

Parkview Hospital, Nashville, TN

(Hospital Corporation of America)

Loyola University, Chicago, IL

Mercy Hospital, Altoona, PA

AMD (Advanced Medical

Diagnostics), Melbourne, FL

NMR Investors, Inc., Santa Monica,

CA

Odessa Diagnostic Imaging Center,

Permanent, 0.4 kG, whole body

Permanent, 0.4 kG, whole body

Permanent, 0.4 kG, whole body

Permanent, 0.4 kG, whole body

Permanent, 3 kG, whole body

Permanent, 3 kG, whole body

Permanent, 3 kG, whole body

Permanent, 3 kG, whole body

Permanent, 3 kG, whole body

Permanent, 3 kG, whole body

Permanent, 3 kG, whole body

Permanent, 3 kG, whole body

Not available

Permanent, 3 kG, whole body

Permanent, 3 kG, whole body

Permanent, 3 kG, whole body

Permanent, 3 kG, whole body

Odessa, TX

Number of employees engaged in NMR imaging: 100

December 1980 (This

unit is no longer in

place)

April 1981

March 1982

July 1982

October 1983

October 1983

1984

1984

1984E

1984

1984E

1984E

Not available

1984E

1984E

1984E

1984E

Other diagnostic imaging products: None

Other medical products: None

Non-health-care-related products: None

25-341 0 - 84 - 10 : QI, 3
128 Health Technology Case Study 27: Nuclear Magnetic Resonance Imaging Technology: A Clinical, Industrial, and Policy Analysis

GENERAL ELECTRIC CO.

Medical Systems Business Group

P. O. Box 414

3000 Grandview Avenue

Milwaukee, WI 53201

Background: General Electric is a publicly owned, multiproduct company. The Medical Systems Business Group

is responsible for NMR imaging R&D. Early R&D work in phosphorus spectroscopy began in 1978, but firm

corporate commitment to NMR imaging was not made until 1980. In 1982, General Electric completed its first

engineering model and made its first clinical placement of an NMR imaging unit outside the company’s plant.

General Electric expects to have its first commercial prototype available for placement in late 1984.

Current NMR-imaging models:

Year first available

Magnet type Field strength Bore size (E = expected)

Superconducting 15 kGa Whole body 1984E

a

Probable commercial prototype.

Collaborative arrangements with universities or medical centers: 4

1. University of Pennsylvania, Philadelphia, PA

2. Medical College of Wisconsin, Milwaukee, WI

3. Yale University, New Haven, CT

4. Duke University, Durham, NC

Clinical placement sites:

Date of installation

Hospital or clinic NMR imaging system (E = expected)

1.

2.

3.

4.

5.

6.

7.

8.

9.

10.

11.

12.

13.

University of Pennsylvania Hospital,

Philadelphia, PA

Yale University School of Medicine,

New Haven, CT

Duke University, Durham, NC

Memorial Sloan Kettering Cancer

Center, New York, NY

Medical College of Wisconsin,

Milwaukee, WI

Pittsburgh NMR Institute, Pittsburgh,

PA

University of Illinois, Chicago, IL

University of Nebraska, Omaha, NE

Henry Ford Hospital, Detroit, MI

Ohio State University, Columbus,

OH

Michigan State University, Ann Arbor, MI

New York Hospital—Cornell University, New York, NY

Rochester Consortium, Rochester,

NY

Resistive, 1.2 kG, whole body

Resistive, 1.5 kG, whole body

Superconducting, 15 kG, whole

body

Superconducting, 15 kG, whole

body

Superconducting, 15 kG, whole

body

Superconducting, 15 kG, whole

body

Superconducting, 15 kG, whole

body

Superconducting, 15 kG, whole

body

Superconducting, 15 kG, whole

body

Superconducting, 15 kG, whole

body

Superconducting, 15 kG, whole

body

Superconducting, 15 kG, whole

body

Superconducting, 15 kG, whole

body

October 1982

August 1983

February 1984

August 1985E

October 1984E

November 1984E

February 1984E

April 1985E

January 1985E

November 1984E

February 1985E

December 1984E

November 1984E
App. C—Manufacturers of NMR Imaging Devices 129

.

14.

15.

16.

1 7 .

18.

19.

20.

State University of New York at

Albany Medical School, Albany, NY

University of Texas Health Science

Center, San Antonio, TX

University of Texas/Herman

Hospital, Houston, TX

Driscoll Children’s Hospital, Corpus

Christi, TX

University of Washington, Seattle,

WA

Stanford University, Palo Alto, CA

University of Western Ontario, London, Ontario, Canada

Superconducting, 15 kG, whole March 1985E

body

Superconducting, 15 kG, whole March 1985E

body

Superconducting, 15 kG, whole March 1985E

body

Superconducting, 15 kG, whole March 1985E

body

Superconducting, 15 kG, whole December 1984E

body

Superconducting, 15 kG, whole December 1984E

body

Superconducting, 15 kG, whole February 1985E

body

Number of employees engaged in NMR imaging: in excess of 500

Other diagnostic imaging products: Computed tomography, ultrasonography, nuclear medicine, digital

radiography, conventional X-ray, and fluoroscope

Other medical products: Assorted electromedical equipment

Non-health-care-related products: Assorted electrical appliances and equipment

JEOL USA, INC.

235 Birchwood Avenue

Cranford, NJ 07016

(Head office: Japan)

Background: JEOL USA is a publicly owned subsidiary of JEOL of Japan. JEOL has been manufacturing NMR

spectrometers since 1960. In 1973, the parent firm was acquired by Mitsubishi. In 1982, the firm began investing

in NMR imaging and spectrometry R&D. JEOL has decided not to pursue the clinical NMR market, and will

instead focus on the research and experimentation market. The firm expects to have its first engineering model

available in 1984.

Current NMR-imaging models: None

Collaborative arrangements with universities or medical centers: None

Clinical placement sites: None

Number of employees engaged in NMR imaging: 5

Other diagnostic imaging products: None

Other medical products: Radioimmunoassay equipment, blood gas analyzers; fluid analyzers

Non-health-care-related products: NMR spectrometers, Parent firm also makes electron microscopes.

M&D TECHNOLOGY LTD. *

Unit 1, Whitemyres Avenue

Aberdeen, Scotland, U.S. AB2-6HQ

Background: M&D Technology is an independent, private company in Scotland. M&D was formed in 1982 to

commercially develop the NMR imaging system that had evolved from the work of Professor Mallard at Aberdeen, Scotland since 1974. M&D’s first engineering model became available in 1982. In 1983 the company made

its first clinical placement of a NMR imaging unit. Also, for a short time during 1983, M&D had entered into

a marketing agreement with Fischer Imaging corporation. M&D expected to have a marketing prototype system

available in 1984.
130 • Health Technology Case Study 27: Nuclear Magnetic Resonance Imaging Technology: A Clinical, Industrial, and Policy Analysis

Current NMR-imaging models:

Year first

Magnet type Field strength Bore size available

Resistive 0.4 kG Whole body 197?

Resistive 0.8 kG Whole body 1982

Collaborative arrangements with universities or medical centers: 1

1. University of Aberdeen, Scotland, U.K.

Clinical placement sites:

Date of installation

Hospital or clinic NMR imaging system (E = expected)

1. Edinburgh Royal Infirmary, Resistive, 0.8 kG, whole body 1983

Edinburgh, U.K.

2. Private Clinic, Geneva Resistive, 0.8 kG, whole body 1983

3. Two additional sites End of 1983E

Number of employees engaged in NMR imaging: Not available

Other diagnostic imaging products: None

Other medical products: None

Non-health-care-related products: None

*Information on M&D Technology Ltd. is as of October 1983.

NALORAC CRYOGENICS CORP.

1717 Solano Way, Suite #37

Concord, CA 94520

Background: Nalorac Cryogenics is an independent, privately owned company, which was founded in 1975 by

Dr. James Carolan to develop and manufacture superconducting magnets, cryogenic devices, and NMR systems.

In 1977, the company was acquired by Nicolet Instrument Corp. In 1981, Dr. Carolan purchased the company

back from Nicolet and reaffirmed its commitment to developing NMR-imaging magnets and systems. The company currently manufactures superconducting high resolution NMR magnet systems with bore diameters from

50 to 320 mm. and field strengths from 20 kG to 70 kG. The company is presently developing a complete imaging spectrometer system which is scheduled for introduction in early 1985,

Projected NMR-imaging models (spectrometer systems):

Year first

Magnet type Field strength Bore size available

Superconducting 20-40 kG

Superconducting 20 kG

Superconducting 10 kG

Collaborative arrangements with universities or medical

prior to late 1984.

Clinical placement sites:

Animal (330 mm) 1985E

Pediatric (450 mm) 1986E

Head/appendage (600 mm) 1987E

centers: No formal arrangements will be announced

Date of installation

Hospital or clinic NMR imaging system (E = expected)

1. University of California, San Superconducting, 60 kG, 100 January 1984

Francisco mm bore

2. University of Texas Health Science Superconducting, 20 kG, 320 June 1984

Center, Houston, TX mm bore

Number of employees engaged in NMR imaging: 10

Other diagnostic imaging products: None

Other medical products: None

Non-health-care-related products: Superconducting high resolution analytical NMR magnets, gradient coils, power

supplies, dewars, NMR probeheads
— . . . . .

App. C—Manufacturers of NMR Imaging Devices 131

PHILIPS MEDICAL SYSTEMS, INC.

710 Bridgeport Avenue

Shelton, CT 06484

(Head Office: The Netherlands)

Background: Philips Medical Systems is a subsidiary of North American Philips. Approximately 61 percent of

the common stock of North American Philips is owned by Connecticut National Bank as trustee of the United

States Philips Trust. Through the trust, North American Philips has strong relationships with N.V. Philips and

their Medical Systems Division in Eindhoven, the Netherlands. In 1977, the company made a firm commitment

to invest in NMR-imaging research. In 1981, their first engineering model was completed and used to image patients in the Netherlands. In 1983, Philips installed a 15 kG whole-body system in a U.S. medical center; the

system is being used to image hydrogen and sodium. Philips is presently manufacturing three NMR models for

worldwide distribution. Philips has been working with both Oxford and IGC (Intermagnetics General Corp. )

to obtain superconducting magnets. The company had commercial prototype systems available for placement

in 1983.

Current NMR-imaging models:

Year first

Magnet type Field strength Bore size available

Resistive 1.5 kGa Whole body 1982

Superconducting 30 kG Animal 1982

Superconducting 15 kGa b Whole body 1983

Superconducting 5 kGa b Whole body 1983

aFor ~a]e as a product ]n the rest of the world.

bInvestigatlonal status in the United States only.

Collaborative arrangements with universities or medical centers: 2

1. Neurological Institute, Columbia-Presbyterian Hospital, New York, NY

2. University of Leiden, Leiden, The Netherlands

Clinical placement sites:

Date of installation

Hospital or clinic NMR imaging system (E = expected)

1.

2 <

3.

4.

5.

6.

7.

8.

9.

10.

11.

Neurological Institute ColumbiaPresbyterian Hospital, New York, NY

Neurological Institute ColumbiaPresbyterian Hospital, New York, NY

University of Leiden, The

Netherlands

Columbia-Presbyterian Hospital, New

York, NY

Emory University, Atlanta, GA

New York University/Bellevue

Hospital, New York, NY

Northwestern University Hospital,

Chicago, IL

Akademisch Ziekenhuis Leiden,

Leiden, The Netherlands

Casa di cura “Pio X,” Milano, Italy

Instituto Neurotraumatologico

Italiano, Rome, Italy

Universitá di Firenze, Florence, Italy

Superconducting, 30 kG, animal

Superconducting, 15 kG, whole

body

Resistive, 1.5 kG, whole body

Superconducting, 5 kG, whole

body

Superconducting, 15 kG, whole

body

Superconducting, 5 kG, whole

body

Superconducting, 15 kG, whole

body

Resistive, 1.5 kG, whole body

Resistive, 1.5 kG, whole body

Resistive, 1.5 kG, whole body

Superconducting, 5 kG, whole

body

1982

1983

1983

1985E

1984E

1984E

1984E

August 1983

September 1983

April 1984

September 1984E
132 Health Technology Case Study 27: Nuclear Magnetic Resonance Imaging Technology: A Clinical, industrial, and Policy Analysis

12.

13.

14.

15.

16.

17.

18.

Casa di cura “Pio X,” Milano, Italy

Erasmus Ziekenhuis/Free University,

Brussels, Belgium

Universitaetsklinik Koeln Cologne,

West Germany

Akademisch Ziekenhuis Leiden,

Leiden, The Netherlands

Neuro Besta, Milano, Italy

Montreal Neurological Institute,

Montreal, Canada

Centro Diagnostic Immagini ComSuperconducting, 5 kG, whole

body

Superconducting, 15 kG, whole

body

Superconducting, 5 kG, whole

body

Superconducting, 5 kG, whole

body

Resistive, 1.5 kG, whole body

Superconducting, 15 kG, whole

body

Superconducting, 5 kG, whole

puterizzate, Catania, Italy body

Number of employees engaged in NMR imaging: 30–North American Philips (U.S.);

Netherlands)

September 1984E

October 1984E

October 1984E

November 1984E

November 1984E

December 1984E

December 1984E

80—N.V. Philips (The

Other diagnostic imaging products: Computed tomography; ultrasonography; digital radiography; conventional

X-ray and fluoroscope; nuclear medicinec

Other medical products: Assorted electromedical equipment. Parent firm also produces surgical supplies and

dental equipment

Non-health-care-related products: NMR spectrometers. Parent company produces assorted electrical appliances

and equipment

cNuclear medicine imaging products distributed by ADAC in the United States and by N.V. Philips in the rest of the world.

PICKER INTERNATIONAL, INC.

595 Miner Road

Highland Heights, OH 44143

(Head office: United Kingdom)

(Corporate headquarters: Ohio)

Background: Picker International is a U.S. corporation operating as an 80-percent-owned subsidiary of the General

Electric Company (P. L.C.) of England (GEC). The company was formed in April 1981 through the acquisition

of Picker from RCA in combination with GEC Medical and Cambridge Medical Instruments. GEC had earlier

acquired the NMR technology of EMI of England and, by the end of 1981, the first Picker International NMR

unit was clinically operating. In 1983, the first commercial units were shipped.

Current NMR-imaging models:

Year first

Magnet type Field Strength Bore size available

Resistive 1.5 k G

a Whole body 1978

Superconducting 3 k G Whole body 1981

Superconducting 5 k G

a Whole body 1983

a

Probable commercial prototype.

Collaborative arrangements with universities or medical centers: 11

1.

2.

3.

4.

5.

6.

7.

8.

9.

10.

11.

University of Nottingham, Nottingham, U.K.

Royal Postgraduate Medical School and Hammersmith Hospital, London, U.K.

Mount Sinai Hospital, Cleveland, OH

Mayo Clinic, Rochester, MN

Bowman Gray Medical School, Winston-Salem, NC

University of British Columbia, Vancouver, Canada

City of Faith Medical and Research Center, Tulsa, OK

National Institutes of Health, Bethesda, MD

University of Iowa, Iowa City, IA

Queens Square Hospital, London, U.K.

National Heart Institute, London, U.K.
App. C–Manufacturers of NMR Imaging Devices 133

—

Clinical placement sites:

Date of installation

Hospital or clinic NMR imaging system (E = expected)

1.

2.

3.

4.

5.

6.

7.

8.

9.

10.

11.

12.

13.

14.

15.

16.

17.

18.

19.

20.

21.

22.

23.

24.

25.

26.

27.

University of Nottingham Hospital,

Nottingham, U.K.

HIRST Research Center, London,

U.K.

Queens Medical Center, Nottingham,

U.K.

Hammersmith Hospital, London,

U.K.

Mount Sinai Hospital, Cleveland, OH

Mayo Clinic, Rochester, MN

University of British Columbia, Vancouver, British Columbia, Canada

University of Manchester,

Manchester, U.K.

Bowman Gray Medical School,

Winston-Salem, NC

Dr. Wallnhofer, Private Clinic, 6500

Mainz 1, Munich, West Germany

Dr. Assheuer, Private Clinic, 500

Koln 80, Cologne, West Germany

City of Faith Medical and Research

Center, Tulsa, OK

National Institutes of Health (NIH),

Bethesda, MD

University of Alabama, Birmingham,

AL

Duarte CT, Duarte, CA

Neurology Center, Washington, DC

University of Iowa, Iowa City, IA

Queens Square Hospital, London,

U.K.

National Heart Institute, London,

U.K.

Private clinic, Cologne, West

Germany

Private clinic, Frankfurt, West

Germany

Chiba University, Chiba City, Japan

First Hill Diagnostic, Seattle, WA

Glasgow Hospital, Glasgow, Scotland

Shinsuma University, Cobe, Japan

Picker Clinical Research Center,

Cleveland, Ohio

Picker Clinical Research Center,

Cleveland, OH

Resistive, 1.5 kG, whole body

Resistive, 1.5 kG, whole body

Resistive, 1.5 kG, whole body

Superconducting, 3.5 kG, whole

body (operating at 1.5 kG)

Resistive, 1.5 kG, whole body

Resistive, 1.5 kG, whole body

Superconducting, 3 kG, whole

body

Superconducting, 3 kG, whole

body

Resistive, 1.5 kG, whole body

Superconducting, 3 kG, whole

body

Superconducting, 3 kG, whole

body

Superconducting, 5 kG, whole

body

Superconducting, 5 kG, whole

body

Superconducting, 5 kG, whole

body

Superconducting, 5 kG, whole

body

Superconducting, 5 kG, whole

body

Superconducting, 5 kG, whole

body

Superconducting, 5 kG, whole

body

Superconducting, 5 kG, whole

body

Superconducting, 5 kG, whole

body

Superconducting, 5 kG, whole

body

Superconducting, 5 kG, whole

body

Resistive, 1.5 kG, whole body

Resistive, 1.5 kG, whole body

Resistive, 1.5 kG, whole body

Resistive, 1.5 kG, whole body

Superconducting, 5 kG, whole

body

1978

November 1978

February 1981

March 1981

October 1982

December 1982

March 1983

March 1983

June 1983

July 1983

October 1983

1983

1983

1984E

1984

1984

1984

1984

1984

1984

1984

1984

1984

1984

1984

1984

1984
134 Health Technology Case Study 27: Nuclear Magnetic Resonance Imaging Technology: A Clinical, Industrial, and Policy Analysis

28. Picker Clinical Research Center, Superconducting, 15 kG, whole 1984

Cleveland, OH body

29. HIRST Research Center, London, Superconducting, 20 kG, whole 1984

U.K. body

Number of employees engaged in NMR imaging: 410

Other diagnostic imaging products: Computed tomography; ultrasonography; nuclear medicine; digital

radiography; conventional X-ray; and fluoroscope

Other medical products: Electrocardiogram equipment. Parent company makes other electromedical equipment

Non-health-care-related products: None

SIEMENS MEDICAL SYSTEMS, INC.

186 Wood Avenue South

Iselin, NJ 08830

(Head office: West Germany)

Background: Siemens Medical Systems is a publicly owned subsidiary of Siemens A.G. of West Germany. As

early as 1965, Siemens had a research group in NMR working on blood flow and blood viscosity. In 1978, the

company made a commitment to develop NMR-imaging systems. The first engineering model was put into operation in 1980. A year later, Siemens made its first clinical placement of an NMR-imaging unit outside the company’s plant. The company had a commercial prototype system available for placement in 1983.

Current NMR-imaging models:

Year first

Magnet type Field strength Bore size available

Resistive 1.2 kG Whole body 1980

Resistive 2 kG Whole body 1981

Superconducting 5 kGa Whole body 1983

Superconducting 15 kGa Whole body 1983

a

Probable commercial prototypes.

Collaborative arrangements with universities or medical centers: 6

1. Washington University, St. Louis, MO

2. University of Hanover Medical Center, Hanover, West Germany

3. Radiological Institute, Frankfurt, West Germany

4. Radiological Institute, Munich, West Germany

5. Mount Sinai Medical Center, Miami, FL

6. Allegheny General Hospital, Pittsburgh, PA

Clinical placement sites:

Date of installation

Hospital or clinic NMR imaging system (E = expected)

1.

2.

3.

4.

5.

University of Hanover Medical

Center, Hanover, West Germany

Radiological Institute, Munich, West

Germany (Dr. Heller)

Mallinckrodt Institute, Washington

University, St. Louis, MO

Radiological Institute, Frankfurt,

West Germany (Dr. Kuehnert)

Allegheny General Hospital,

Pittsburgh, PA

Resistive, 2 kG, whole body 1982

Superconducting, 5 kG, whole June 1983

body

Superconducting, 5 kG, whole July 1983

body

Superconducting, 5 kG, whole September 1983

body

Superconducting, 5 kG, whole October 1983

body
App. C—Manufacturers of NMR Imaging Devices 135

6.

7.

8.

9.

10.

11.

12.

13.

14.

15.

16.

17.

18.

19.

20.

21.

22.

23.

24.

25.

26.

27.

28.

29.

30.

31.

Mount Sinai Medical Center, Miami

FL

Mallinckrodt Institute, Washington

University, St. Louis, MO

St. Vincent Medical Center, Los

Angeles, CA

Pomona Valley Community Hospital,

Pomona, CA

Loma Linda University Medical

Center, Loma Linda, CA

Memorial Hospital Medical Center of

Long Beach, Long Beach, CA

Hershey Medical Center, Hershey,

PA

Boone County Medical Center, Columbia, MO

Radiology Associates, Little Rock,

AR

St. Francis Medical Center, Peoria,

IL

Digital Diagnostics, Baton Rouge, LA

Magnetic Resonance Imaging, Inc.,

Brooklyn, NY

Wendover Park Associates,

Greensboro, NC

University of Minnesota, Minneapolis, MN

Ochsner Foundation, New Orleans,

LA

University of Virginia, Charlottesville, VA

American Shared Hospital Services,

San Francisco, CA

Pacific Medical Center, San Francisco, CA

Siemens Headquarters, Iselin, NJ

Flower Hospital, Toledo, OH

Magnetic Imaging Associates, Los

Angeles, CA

Southwest Texas Methodist Hospital,

San Antonio, TX

University Diagnostic Institute of

Tampa, Tampa, FL

American Shared Services, San

Francisco, CA

Florida Medical Association, Tampa,

FL

Medical College of Virginia, Richmond, VA

Superconducting, 5 kG, whole

body

Superconducting, 20 kG, whole

body

Superconducting, 5 kG, whole

body

Superconducting, 15 kg, whole

body

Superconducting, 15 kG, whole

body

Superconducting, 15 kG, whole

body

Superconducting, 15 kG, whole

body

Superconducting, 5 kG, whole

body

Superconducting, 10 kG, whole

body

Superconducting, 5 kG, whole

body

Superconducting, 15 kG, whole

body

Superconducting, 15 kG, whole

body

Superconducting, 10 kG, whole

body

Superconducting, 10 kG, whole

body

Superconducting, 20 kG, whole

body

Superconducting, 10 kG, whole

body

Superconducting, 15 kG, whole

body

Superconducting, 10 kG, whole

body

Superconducting, 20 kG, whole

body

Superconducting, 10 kG, whole

body

Superconducting, 15 kG, whole

body

Superconducting, 15 kG, whole

body

Superconducting, 10 kG, whole

body

Superconducting, 10 kG, whole

body

Superconducting, 10 kG, whole

body

Superconducting, 10 kG, whole

body

November 1983

May 1984

April 1984

1984E

1984E

April 1984

NA

April 1984

May 1984

1984E

1984E

1984E

1984E

1984E

1984E

1984E

April 1984

1984E

March 1984

1984E

1984E

1984E

1984E

five systems expected

in 1984-85

1984E

1984E
136 . Health Technology Case Study 27: Nuclear Magnetic Resonance imaging Technology: A Clinical, industrial, and Policy Analysis

32.

33,

34.

35.

36.

37.

38.

39.

40.

41,

42.

43.

44.

45.

46.

47.

48.

49.

50.

51.

Magnetic Resonance, Inc., Rockville,

MD

Magnetic Resonance of Williamsport,

Williamsport, VA

Mid Miami Assets MRI, Miami, FL

Harper Hospital, Detroit, MI

Faculty Medical Practice, Memphis,

TN

New England Medical Center,

Boston, MA

Long Island Jewish Hospital, New

Hyde Park, NY

Methodist Hospital, Houston, TX

Nebraska Methodist Hospital,

Omaha, NE

Mount Sinai Medical Center, Miami,

FL

Methodist Hospital, Houston, TX

Fox Chase Medical Center,

Philadelphia, PA

Private clinic, New York, NY

New Rochelle Radiology, New

Rochelle, NY

Private clinic, Munich, West

Germany

University of Berlin, Berlin, West

Germany

University of Hiedelberg, Heidelberg,

West Germany

University of Hiedelberg, Heidelberg,

West Germany

University of Upsala, Upsala, Sweden

University of Tokyo, Tokyo, Japan

Superconducting, 10 kG, whole

body

Superconducting, 15 kG, whole

body

Superconducting, 15 kG, whole

body

Superconducting, 15 kG, whole

body

Superconducting, 20 kG, whole

body

Superconducting, 10 kG, whole

body

Superconducting, 20 kG, whole

body

Superconducting, 5 kG, whole

body

Superconducting, 15 kG, whole

body

Superconducting, 15 kG, whole

body

Superconducting, 20 kG, whole

body

Superconducting, 20 kG, whole

body

Superconducting, 10 kG, whole

body

Superconducting, 5 kG, whole

body

Superconducting, 5 kG, whole

body

Superconducting, 5 kG, whole

body

Superconducting, 5 kG, whole

body

Superconducting, 15 kG, whole

body

Superconducting, 5 kG, whole

body

Superconducting, 5 kG, whole

1984E

1984E

1984E

1984E

1984E

1984E

1984E

1984E

1984E

1984E

1984E

1984E

1984E

1984E

1984

1984

1984

1984

1984

1984

body

Number of employees engaged in NMR imaging: 100

Other diagnostic imaging products: Computed tomography; ultrasonography; nuclear medicine; digital

radiography; conventional X-ray; and fluoroscope

Other medical products: Assorted electromedical equipment

Non-health-care-related products: Parent company produces assorted electrical appliances and equipment
App. C—Manufacturers of NMR Imaging Devices 137

TECHNICARE CORP.

29100 Aurora Road

Solon, OH 44139

Background: Technicare is a publicly owned subsidiary of Johnson & Johnson. Johnson & Johnson made an initial commitment to NMR imaging as early as 1977, but major R&D effort did not begin until the acquisition

of Technicare in 1979 from Ohio Nuclear. In 1980, the company completed its first engineering model. The following year Technicare made its first clinical placement of an NMR-imaging system. In 1982, the Magnet Corporation of America was acquired to build superconducting magnets for Technicare’s NMR-imaging systems. That

same year, Technicare had its first commercial prototype available for placement.

Current NMR-imaging models:

Year first

Magnet type Field strength Bore size available

Superconducting 15 kGa Animal 1980

Resistive 1.5 kGa Head only 1981

Superconducting 3 kGb Whole body 1982

Superconducting 5 k G

a Whole body 1983

Superconducting 6 kG Whole body 1983

Superconducting 15 kG Whole body 1983

aprobab]e commercla] prototype system(s).

bNo ]Onger available.

Collaborative arrangements with universities or medical centers: 17

1 .

2.

3.

4.

5.

6.

7.

8.

9.

10.

11.

12.

13.

14.

15.

16.

17.

Massachusetts General Hospital, Boston, MA

University Hospital, Cleveland, OH

Cleveland Clinic Foundation, Cleveland, OH

University of Kentucky, Lexington, KY

Indiana University, Indianapolis, IN

Hershey Medical Center, Hershey, PA

Millard Fillmore Hospital, Buffalo, NY

St. Joseph’s Hospital, London, Ontario, Canada

Johns Hopkins University, Baltimore, MD

Ontario Cancer Institute, Toronto, Canada

Charlotte Memorial Hospital, Charlotte, NC

New York Hospital, New York, NY

Vanderbilt University, Nashville, TN

Defalquu Clinic, Charleroi, Belgium

University of Florida, Gainesville, FL

Baylor University Medical Center, Dallas, TX

Rush Presbyterian-St. Luke’s Medical Center, Chicago, IL

Clinical placement sites:

Date of installation

Hospital or clinic NMR imaging system (E = expected)

1. Massachusetts General Hospital, Superconducting, 15 kG, animal 1981

Boston, MA

2. Massachusetts General Hospital, Resistive, 1.5 kG, head only 1981

Boston, M A

3. University Hospital, Cleveland, O H Superconducting, 3.0 kG, whol e October 1982

body

4. Cleveland Clinic Foundation, Resistive, 1.5 kG, whole body November 1982

Cleveland, OH

5. University of Kentucky, Lexington, Resistive, 1.5 kG, whole body December 1982

KY
138 Health Technology Case Study 27: Nuclear Magnetic Resonance Imaging Technology: A Clinical, Industrial, and Policy Analysis

6.

7.

8.

9.

10.

11.

12.

13.

14.

15.

16.

17.

18.

19.

20.

21.

22.

23.

24.

25.

26.

27.

28.

29.

30.

31.

32.

33.

34.

Indiana University, Indianapolis, IN

Hershey Medical Center, Hershey,

PA

Millard Fillmore Hospital, Buffalo,

NY

St. Joseph’s Hospital, London,

Ontario, Canada

Ontario Cancer Institute, Toronto,

Canada

New York Hospital, New York, NY

Charlotte Memorial Hospital,

Charlotte, NC

Defalque Clinic, Charleroi, Belgium

Vanderbilt University, Nashville, TN

Shands Teaching Hospital, University

of Florida, Gainesville, FL

Houston Imaging Center, Houston,

TX

Cleveland Clinic Foundation,

Cleveland, OH

Cleveland Clinic Foundation,

Cleveland, OH

Massachusetts General Hospital,

Boston, MA

Scottsdale Memorial Hospital, Scottsdale, AZ

AMC Cancer Research Center and

Hospital, Lakewood, CO

St. Luke’s Hospital, Jacksonville, FL

Rush Presbyterian-St. Luke’s Medical

Center, Chicago, IL

Greenberg Radiology Clinic,

Highland Park, IL

North Shore University Hospital,

Manhasset, NY

University Park Imaging, Urbana, IL

Veterans Administration Medical

Center, St. Louis, MO

NMR SA, Barcelona, Spain

ML and Associates, New York, NY

University Hospitals of Cleveland/

Case Western Reserve University,

Cleveland, OH

Baylor University Medical Center,

Dallas, TX

Temple Radiology, New Haven, CT

Albert Einstein Medical Center,

Philadelphia, PA

Nuclear Facilities, Brooklyn, NY

Resistive, 1.5 kG, whole body

Resistive, 1.5 kG, whole body

Resistive, 1.5 kG, whole body

Resistive, 1.5 kG, whole body

Resistive, 1.5 kG, whole body

Superconducting, 5 kG, whole

body

Resistive, 1.5 kG, whole body

Resistive, 1.5 kG, whole body

Superconducting, 5 kG, whole

body

Resistive, 1.5 kG, whole body

Superconducting, 3 kG, whole

body

Superconducting, 6 kG, whole

body

Superconducting, 15 kG, whole

body

Superconducting, 6 kG, whole

body

Superconducting, 6 kG, whole

body

Resistive, 1.5 kG, whole body

Resistive, 1.5 kG, whole body

Superconducting, 5 kG, whole

body

Resistive, 1.5 kG, whole body

Superconducting, 6 kG, whole

body

Superconducting, 6 kG, whole

body

Resistive, 1.5 kG, whole body

Resistive, 1.5 kG, whole body

Resistive, 1.5 kG, whole body

Superconducting, 15 kG, whole

body

Superconducting, 6 kG, whole

body

Resistive, 1.5 kG, whole body

Resistive, 1.5 kG, whole body

Superconducting, 5 kG, whole

body

February 1983

February 1983

March 1983

March 1983

March 1983

June 1983

February 1983

April 1983

July 1983

October 1983

July 1983

August 1983

May 1984

February 1984

September 1983

June 1983

December 1983

November 1983

June 1983

December 1983

June 1984

February 1984

January 1984

October 1983

July 1984

January 1984

February 1984

March 1984

May 1984
.—

App. C—Manufacturers of NMR imaging Devices 139

35.

36.

37.

38.

39.

40.

41.

42.

43.

44.

NMR Diagnostic Center, Sun City,

AZ

Garden State Medical Center,

Marlton, NJ

Magnetic Imaging of Bellville,

Bellville, IL

Private clinic, Union, NJ

Ft. Worth Magnetic Imaging Institute, Ft. Worth, TX

Broward NMR, Ft. Lauderdale, FL

Clairval Hospital, Marseille, France

Private clinic, Hanover, West

Germany

Clinique du Park, Paris, France

Private clinic, Antwerp, Belgium

Resistive, 1.5 kG, whole body

Superconducting, 6 kG, whole

body

Superconducting, 6 kG, whole

body

Superconducting, 6 kG, whole

body

Superconducting, 5 kG, whole

body

Superconducting, 5 kG, whole

body

Resistive, 1.5 kG, whole body

Superconducting, 5 kG, whole

body

Resistive, 1.5 kG, whole body

Resistive, 1.5 kG, whole body

Number of employees engaged in NMR imaging: 100

January 1984

June 1984

March 1984

August 1984

August 1984

January 1984

December 1983

November 1983

April 1984

April 1984

Other diagnostic imaging products: Computed tomography; ultrasonography; nuclear medicine;

radiography

Other medical products: Parent firm makes surgical instruments and supplies; dental equipment

Non-health-care-related products: None

digital
Appendix D.—Glossary of Terms and Acronyms

Glossary of Terms

Field strength: The strength of the magnetic field of

a magnet.

Inhomogeneities in magnetic field: Lack of uniformity in magnetic field strength.

Ionizing radiation: A form of radiant energy within

the electromagnetic spectrum that has the capability of penetrating solid objects and altering the electrical charge of their atoms. High-energy radiation,

such as X-rays and gamma rays, is ionizing radiation.

Kilogauss: A unit of measurement of the magnetic

force per unit area that can be generated within a

defined region. (See tesla. )

Magnetic field gradient: A magnetic field that increases

or decreases in strength in a given direction along

a sample.

Magnetic moments: The vector representations of the

net magnetic properties of hydrogen atoms.

Medical technology: The drugs, devices, medical and

surgical procedures used in medical care, and the

organizational and supportive systems within which

such care is provided.

Nuclear: Pertaining to the nucleus, the positively

charged central portion of an atom that consists of

protons and neutrons, except in hydrogen, which

has only one proton.

Paramagnetic: A substance with a small but positive

magnetic susceptibility (magnetizability) that may

increase the contrast between tissues and NMR images (4).

Prospective payment: Payment for medical care according to rates set in advance of the period during which they apply.

Pulse sequence: The pattern of radiofrequency energy

used to excite protons.

Radiation: Emission of or exposure to radiant energy,

which travels as a wave motion. Radiant energy

ranges from low-frequency, nonionizing radiofrequency waves used in NMR to high-frequency,

ionizing waves used in X-rays.

Radiofrequency waves: Low-energy, electromagnetic

waves that do not emit ionizing radiation and that

are used in NMR imaging.

Rate of loss of coherence: The rate at which protons

stop rotating in phase with each other.

Relaxation time characteristics: The rate at which

tissue hydrogen atoms that have been excited by

radiofrequency energy return to their equilibrium

states.

Resonance: The oscillation of nuclei between higher

and lower energy levels as radiofrequency energy

is applied and withdrawn.

140

Shimming: Adjustments, such as addition of special

coils, made to eliminate inhomogeneities in the

magnetic field.

Spatial resolution: The extent to which two adjacent

structures can be distinguished.

Spectrogram: Graphic depiction of the individual components of NMR signals from phosphorus-containing compounds arranged according to frequency.

Spectroscopy: A technique in which the individual

components of the NMR signals from compounds,

such as phosphorus-containing compounds, are

analyzed according to frequency.

T1

: “Spin-lattice” relaxation time. A time constant that

reflects the rate at which excited protons exchange

energy with the surrounding environment.

T2

: “Spin-spin” relaxation time. A time constant that

reflects the rate at which protons stop rotating in

phase with each other because of the local magnetic

fields of adjacent nuclei.

Tesla: A unit of measurement of the magnetic force

per unit area that can be generated within a defined

region; 1 tesla = 10,000 gauss (10 kilogauss), For

perspective, the magnetic field strength of the Earth

is approximately half a gauss.

Tomographic scan: The image of an individual slice

or plane.

Glossary of Acronyms

ACR –

AMI –

ATP

BC/BS --

CON –

CT

DHHS - -

DHSS –

DRG –

ECG –

EMI –

FDA –

FDCA –

FONAR –

GE –

GEC –

HCA –

HCFA –

HIAA –

HMO –

American College of Radiology

American Medical International

adenosine triphosphate

Blue Cross and Blue Shield Association

certificate of need

computed tomography

Department of Health and Human Services (United States)

Department of Health and Social Security

(United Kingdom)

diagnostic related group

electrocardiogram

English Music Industry

Food and Drug Administration, DHHS

Food, Drug, and Cosmetic Act

field focusing nuclear magnetic resonance

General Electric Co. (United States)

General Electric Co. (United Kingdom)

Hospital Corporation of America

Health Care Financing Administration,

DHHS

Health Insurance Association of America

health maintenance organization
App. D—Glossary of Terms and Acronyms Ž 141

HSA –

IDE –

IGC –

IRB –

NCI –

NEMA –

NHLBI –

NHPIC –

NIH –

NME –

NMR –

NRPB –

NSF –

OHTA –

PDP –

Health Systems Agency

investigational device exemption

Intermagnetics General Corp.

Institutional Review Board

National Cancer Institute, NIH

National Electrical Manufacturers Association

National Heart, Lung, and Blood Institute, NIH

National Health Planning Information

Center

National Institutes of Health, DHHS

National Medical Enterprises, Inc.

nuclear magnetic resonance

National Radiological Protection Board

(United Kingdom)

National Science Foundation

Office of Health Technology Assessment,

DHHS

Product Development Protocol

PET –

PMA –

PMAA –

Pro –

RCHSA –

R&D –

RF –

SBIR –

SHCC –

SHPDA –

SPECT –

SUNY –

UCR –

UCSF –

VA –

YAG –

positron emission tomography

premarket approval

premarket approval application

Preferred Provider Organization

Radiation Control for Health and Safety

Act

research and development

radiofrequency waves

Small Business Innovation Research

program

Statewide Health Coordinating Council

State Health Planning and Development

Agency

single photon emission computed tomography

State University of New York

usual, customary, and reasonable charges

University of California, San Francisco

Veterans Administration

yttrium aluminum garnet laser
Appendix E. —Acknowledgments and

Health Program Advisory Committee

The authors are grateful to Mark Farfel at the Johns Hopkins School of Hygiene and Public Health for his

contributions as a research assistant and are indebted to Charlotte Chalmers, Connie Pollack, and Amy Bohn

for their expert assistance in manuscript preparation.

In addition, we wish to thank the many physician experts, scientists, hospital administrators, government officials, health planners, industry trade association officials and company representatives for the help and information they provided to us.

The following people, in addition to the advisory panel, provided valuable guidance.

Herbert Abrams

Brigham & Women’s Hospital

J. Alwen

Medical Research Council, United Kingdom

Prem K. Anand

Picker International

Mary P. Anderson

National Center for Devices and Radiological Health,

U.S. Food and Drug Administration

Raymond Andrew

University of Florida

David Armour

Siemens Medical Systems, Inc.

Larry Atkins

AMI Diagnostic Services, Inc.

G. Barenz

U.S. Department of Health and Human Services

I. M. Bar-Nir

Elscint Ltd.

James Benson

National Center for Devices and Radiological Health

U.S. Food and Drug Administration

Howard Berke

ADAC Laboratories

Katherine L. Bick

National Institute of Neurological and

Communicative Disorders and Stroke

National Institutes of Health

Robert Bird

Hospital Corp. of America

Joel L. Blank

Diasonics, Inc.

M. Blank

Health Care Financing Administration

Merry Blumenfeld

General Electric Co.

Robert M. Braden

American College of Radiology

Thomas Brady

Massachusetts General Hospital

Robert J. Britain

U.S. Food and Drug Administration

Paul C. Brown

Oklahoma Health Planning Commission

R. Burns

Massachusetts State Health Planning and

Development Agency

James Carolan

Nalorac Cryogenics Corp.

John Cassese

Fonar Corp.

J. S. Cohen

National Institute of Child Health and Human

Development

National Institutes of Health

Donald R. Cohodes

Blue Cross and Blue Shield Association

Morris Cohen

Kaiser-Permanente Medical Care Program

John P. Conomy

Cleveland Clinic Foundation

Dennis Cotter

Institute for Health Policy Analysis

Georgetown University Medical Center

D. DeCorioles

Blue Cross and Blue Shield Association

Gilbert B. Devey

Technology consultant

Richard diMonda

American Hospital Association

Richard B. Emmitt

F. Eberstadt & Co., Inc.

142
App. E—Acknowledgments and Health Program Advisory Committee 143

J. Fairchild

Kentucky Department for Health Services

James W. Fletcher

U.S. Veterans Administration Medical Center,

St. Louis

P. Garner

Illinois Certificate-of-Need Program,

Health Facilities Planning Board

B. Goff

Utah Department of Health

A. Goldman

Georgia State Health Planning and Development

Agency

Samuel C. Goldman

Elscint Inc.

Richard J. Greene

U.S. Veterans Administration

Friedrich Gudden

Siemens AG, Federal Republic of Germany

Ralph Halpern,

Health Planning Council for Greater Boston, Inc.

Timothy Hansen

Picker International

Keith Harville

Lifemark Corp.

John D. Haytaian

Fonar Corp.

Mel Hellstrom

CGR Medical Corp.

David Helms

Alpha Center for Health Planning

Waldo S. Hinshaw

Technicare Corp.

Dick Hullihen

Picker International

R. Hutcherson

State Health Planning and Development Agency

State of Missouri

Cynthia Hutchins

JEOL USA, Inc.

John Hutton

Institute for Research in the Social Sciences

University of York, United Kingdom

Herbert Jacobs

Health Care Financing Administration

John Jacoby

General Electric Company

A. Everette James, Jr.

Vanderbilt University

S. Katz

Health Care Financing Administration

Michael Kelly

JEOL USA, Inc.

A, J. Korsak

Health Insurance Association of America

Michael Landa

U.S. Food and Drug Administration

Paul C. Lauterbur

State University of New York at Stony Brook

I. Lee

State Health Planning and Development Agency

Government of the District of Columbia

Otha W. Linton

American College of Radiology

John Mallard

University of Aberdeen

Peter Mansfield

University of Nottingham, United Kingdom

Alexander Margulis

University of California School of Medicine, San

Francisco

Robert C. McCune

National Electrical Manufacturers Association

Thomas F. Meaney

Cleveland Clinic Foundation

Edward Miller

National Center for Devices and Radiological Health

U.S. Food and Drug Administration

Glenn Miller

Diasonics NMR

J. Milliren

State of New York

Department of Health

S.N. Mohapatra

Picker International

W. Gorden Monahan

American Medical International, Inc.

Laura Lee Murphy

National Electrical Manufacturers Association

R. Oshel

State Health Planning and Development Agency

Government of the District of Columbia

Anthony M. Pace

National Medical Enterprises, Inc.

25-341 0 - f34 - 11 : QL 3
144 • Health Technology Case Study 27: Nuclear Magnetic Resonance Technology: A Clinical, Industrial, and Policy Analysis

.—

C. Leon Partain

Vanderbilt University

Robert Phillips

National Center for Devices and Radiological Health

U.S. Food and Drug Administration

Gerald Pohost

University of Alabama Medical Center

Roger Powell

National Cancer Institute

National Institutes of Health

Stanley Reiser

University of Texas Health Science Center

Daryl Reynolds

National Medical Enterprises, Inc.

F. David Rollo

Humana, Inc.

M. J. Ross

Intermagnetics General Corp.

Richard Russell

National Health Planning Information Center

Janet Samuel

Philips Medical Systems, Inc.

Richard Sano

Philips Medical Systems, Inc.

Sheldon Schaffer

Technicare Corporation

Roger Schneider

National Center for Devices and Radiological Health

U.S. Food and Drug Administration

Aldona A. Siczek

Fischer Imaging Corp.

Norman Slark

THD Department of Health and

Social Security, United Kingdom

James S. Smith

U.S. Veterans Administration

E. Stamm

Florida State Health Planning and Development

Agency

Robert E. Steiner

Hammersmith Hospital, United Kingdom

S. Stiles

Alpha Center for Health Planning

Robert A. Streimer

Health Care Financing Administration

Christian Tanzer

Bruker Instruments, Inc.

J. M. Taveras

Massachusetts General Hospital

Peter Taylor

Technicare Corp.

Guenter Westerman

Siemens Medical Systems, Inc.

C. Wilson

State Health Planning and Development Agency

Government of the District of Columbia

Gabriel H. Wilson

University of California at Los Angeles

Medical Center

Robert Woodward

CGR Medical Corp.

HEALTH PROGRAM ADVISORY COMMITTEE

Stuart H. Altman*

Dean

Florence Heller School

Brandeis University

Waltham, MA

H. David Banta

Deputy Director

Pan American Health Organization

Washington, DC

Sidney S. Lee, Committee Chair

President, Michael Reese Hospital and Medical Center

Chicago, IL

Carroll L. Estes**

Chair

Department of Social and Behavioral Sciences

School of Nursing

University of California, San Francisco

San Francisco, CA
App. E—Acknowledgments and Health Program Advisory Committee 145

—

Robert Evans

Professor

Department of Economics

University of British Columbia

Vancouver, BC

Rashi Fein

Professor

Department of Social Medicine and Health Policy

Harvard Medical School

Boston, MA

Harvey V. Fineberg

Dean

School of Public Health

Harvard University

Boston, MA

Melvin A. Glasser* * *

Director

Health Security Action CouncilCommittee for National Health Insurance

Washington, DC

Patricia King

Professor

Georgetown Law Center

Washington, DC

Joyce C. Lashof

Dean

School of Public Health

University of California, Berkeley

Berkeley, CA

Alexander Leaf

Professor of Medicine

Harvard Medical School

Massachusetts General Hospital

Boston, MA

Margaret Mahoney* * * *

President

The Commonwealth Fund

New York, NY

Frederick Mosteller

Professor and Chair

Department of Health Policy and Management

School of Public Health

Harvard University

Boston, MA

Norton Nelson

Professor

Department of Environmental Medicine

New York University

Medical School

New York, NY

Robert Oseasohn

Associate Dean

University of Texas, San Antonio

San Antonio, TX

Nora Piore

Senior Advisor

The Commonwealth Fund

New York, NY

Mitchell Rabkin*

President

Beth Israel Hospital

Boston, MA

Dorothy P. Rice

Regents Lecturer

Department of Social and Behavioral Sciences

School of Nursing

University of California, San Francisco

San Francisco, CA

Richard K. Riegelman

Associate Professor

George Washington University

School of Medicine

Washington, DC

Walter L. Robb

Vice President and General Manager

Medical Systems Operations

General Electric

Milwaukee, WI

Frederick C. Robbins

President

Institute of Medicine

Washington, DC

Rosemary Stevens

Professor

Department of History and Sociology of Science

University of Pennsylvania

Philadelphia, PA

“Unt]l April 1983

* “Until March 1984

* “Until October 1983

‘Until August 1~83.

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