Acuson Restakes its Claim in Ultrasound

After nine years and $350 million spent on R&D, Acuson launched two new products it believes will reestablish it as the company that sets the gold standard for ultrasound.

Acuson is betting that a high-price for high-tech strategy will work for it once again. But competition will soon be scorching.

by Deborah Erickson

• After nine years and $350 million spent on R&D, Acuson has launched two new products it believes will reestablish it as the company that sets the gold standard for ultrasound.

• Clinicians are especially enthusiastic about the top-of-the line Sequoia, which many are calling "revolutionary" yet undeniably expensive.

• Acuson faces new competition for market share from big players that will base their fights squarely on business issues of concern to managed care, rather than technological superiority.

• The varying strategies are causing customers to reconsider the value of high-performance ultrasound technology.

Dr. Nelson Schiller, a cardiologist who heads the echocardiography lab at the University of California San Francisco, considers himself privileged to have seen Acuson Corp. 's new top-of-the-line Sequoiaultrasound imaging system while it was still in development. Launched in April of 1996, the Sequoia sells for $250,000 to $350,000, depending on the combination of features a customer chooses. That price range exceeds other competing high-end systems by about $100,000. But the technology behind Sequoia, Schiller observes, is "an impressive improvement that brings advantages to the adult ultrasound patient that have long been enjoyed by the pediatric patient." He explains that sound waves directed into the bodies of grown-ups must travel relatively far before reaching and bouncing off the target, such as a heart or an abdomen, that a clinician wants to image. Echoing back across that distance, the sound waves become weak, and conventional ultrasound systems do not fully capture the information they carry.

"It seems Acuson has figured out a way to capture more of the information that echoes back from the target—and that should make it easier to image adults," Schiller says. How much the new technology improves image quality, or how much better results are for an average adult patient, is harder to say. "From what I've seen preliminarily, it looks good," he says, adding, "The word of mouth on this is positive—not just for cardiac imaging but for other indications—and I haven't heard any negatives. Two big clinics I know are very enthusiastic about it."

But Schiller hasn't had much direct contact with the Sequoiasystem lately because his lab can't afford to buy one. "Because of the incredible problems with reimbursement from Medicare and the fact that we're competing with HMOs, we have cash flow problems in the extreme. We haven't really had a capital budget in three years. When I put in to purchase that, the administrators just laughed. They won't give me a dime." Getting the kind of hands-on experience Schiller believes he needs to assess the merits of this or any new system seems unlikely now. The days when company sales people would leave machines behind, hoping to inspire a purchase, are long gone, and he misses the chance to get acquainted: "I need to see 100 patients before I really know what a machine can do—I need to twiddle every control, see every disease I'm familiar with."

Across the country, Acuson must now wrestle with the reality of cost-constrained customers who say outright that they can no longer afford innovation for its own sake—but this is far from Acuson's only difficulty going forward. "The competition is good too," Schiller says, adding that "We've always been a three-machine lab—we like HP (Hewlett-Packard Co. ) and ATL (Advanced Technology Laboratories Inc.) too. ATL has some exciting technology that also really improves image quality, though I can't say what percentage they achieve relative to Sequoia. HP has always had a good image. So it will be interesting to see what these companies do. I like a good cockfight."

Now these companies and others that in the past have been content to sell only lower-tier ultrasound instruments are approaching customers with new high-performance machines—and sales pitches quite different from Acuson's. The strategies reflect different views of what ultrasound buyers want and need as they head into the 21st century.

Even if Acuson does win the technology battle, overall victory in the ultrasound marketplace could go to a company that fights the war on another front. Buyers may for instance be attracted to companies that bundle ultrasound with other imaging modalities, or that make purchasing easier in other ways. Both General Electric Co. and Siemens Corp. have recently announced new machines and intentions to sell this way. Lower-priced instruments could also lure customers away from Acuson, if a manufacturer can make the case that its machines are more cost-effective than Acuson's but just as good. HP is taking this approach as it seeks to expand beyond its specialty in cardiovascular ultrasound into the general imaging market. One thing is sure: Acuson's plan to sell the highest technology at unquestionably high prices will be challenged in a managed-care marketplace, by customers and competitors alike.

The prospect of a fierce marketing battle can hardly be encouraging to Acuson, which once topped nearly every analyst's hot-stock picklist but has for the last several years been down on its financial luck. In 1995 alone, Acuson's net income plummeted 61% to $7.1 million on sales of $329 million. The firm does not expect much higher numbers for 1996, because it anticipates sales of its new products will follow a classic new-technology adoption curve—slow start followed by rapid growth. Still, Acuson is betting that it can revitalize its fortunes by selling advanced ultrasound technology like that in Sequoiaat a premium price—in spite of and even because of managed care's influence on the health care industry.

Betting on Technology, Again

A high-tech, high-price strategy is what put Acuson on the map in the first place. The company was founded in 1979 by Samuel Maslak, PhD, who had until then been working for HP as a product manager. HP had supported some of Maslak's ultrasound product ideas, but was uninterested in pursuing one he had to dramatically improve image quality. The technology in use at the time relied on single sound beams, sent and recorded mechanically. The images produced this way looked like the snowy reception on an old black and white television set. Maslak believed it would instead be possible to send out numerous signals through an electronic transducer, then computerize their echoes to render more distinct images. Intent on realizing his vision, Maslak left HP and took a second mortgage on his home to found Acuson.

In 1983, Acuson introduced an indisputably ground-breaking product—the 128/XP. As Maslak had anticipated, the computerized echoes of multiple sound-waves created images of far better resolution than anything seen before. It took a while for the marketplace to realize how significant the 128was, executives of the firm recall. At first, customers balked at the price—about $50,000 more than other companies' devices. But once the 128/XP caught on, the firm's revenues grew quickly and its valuation reflected the market's approval for a long while.

As novel as the 128/XPwas at its launch, the excellent image resolution achieved by the device and its subsequent iterations has since been matched and, some say, superseded by other companies' products. "As people's experience with the 128 grew, it became the gold standard. I can think of all these people who came in through the years, saying ‘my machine is just like an Acuson,'" recalls Dr. Donald Emerson, professor of radiology at the University of Tennessee at Memphis (UTM). "Over the years," he goes on, "we've seen the difference between what competitors were delivering and what Acuson had become really narrow. In some areas, others have overtaken them."

Yet competitors' ability to achieve technological parity is not the only reason that the pioneer's growth remained utterly flat from 1991 through 1995. Managed care's spread across the country was and remains an even bigger factor in the standstill—not just for Acuson, but for nearly all ultrasound equipment manufacturers. Capital budgets that froze as physician groups and hospitals began consolidating to cut costs and reduce debt have only just begun thawing. Even clinicians with budgets for new imaging equipment now generally make their decisions with administrators empowered to give the thumbs up or down. These days, radiologists and the institutions that employ them are carefully comparing the price and performance of the various generations of devices and upgrades. Many are deciding to hold off a year or two longer than they used to—effectively extending the product life of ultrasound devices from less than five years to seven, eight, or longer.

Quality as Driver

Acuson believes, as do some industry observers, that the cost-consciousness imposed and inspired by managed care is raising buyers' expectations of capital equipment. When providers finally do decide to make a purchase, this argument goes, they want the best and are willing to pay more for it. Like good shoes or fine clothing, customers are coming to value top-of-the-line medical devices as investments that can bring them distinction and perform well for a long time. Whether wishful thinking or reality, this quality-as-a-driver phenomenon is precisely what Acuson intends to exploit with the Sequoia. The quality will speed diagnosis, the company says, and so contribute to the efficiencies valued by managed care.

Just as the 128took ultrasound to a new level and earned a premium for that ability, Acuson expects that the Sequoia will once again elevate the clinical performance of ultrasound technology and in turn earn a high price. Prices dropped as sales leveled off, because none of the ultrasound companies had anything truly new to offer, says Rick Smith, VP of Acuson's general imaging business unit. "When you have technical parity in a market, everybody turns to price depreciation," he says. "But we're getting $250,000 to $350,000 for Sequoia. And we're seeing a broad range of buyers from 50-bed hospitals in rural Kentucky to the most advanced teaching institutions. It's being accepted in every niche."

As part of its selling approach for Sequoia, the company reminds customers that 13 years after the 128's debut, the device is still not obsolete. Those who step up to purchase Sequoiacan expect a similar experience, Acuson executives say. "Even serial number one of the 128 is operating at the same level of technology that's leaving the factory today," boasts Tom "TJ" Jedrzejewicz, Acuson's director of technical programs. "Until we came along, ultrasound was not upgradable—it was frozen in time. We are entitled to say, ‘Please, judge us on our track record. Your investment will be protected,'" he declares.

Acuson's introduction of the Sequoiahas ruffled some feathers, precisely because of its advantages over the 128/XP. Some clinicians were dismayed that devices they'd considered top-notch were so suddenly reclassified as low-tier options. But they say they're getting over it, as they see what the new machines can do. The question customers are putting to Acuson is: is Sequoia really as much of a technological breakthrough as company executives insist? And even if it is, is it worth the price? Clinicians from a range of medical specialties seem to think so.

Dr. Alfred Abuhamad, a high-risk obstetrician and director of ultrasound at Eastern Virginia Medical School, says, "this certainly allows us to see much better, clearer pictures of fetal anatomy and the female pelvis, which lets us arrive at a diagnosis quicker than we otherwise would." Abuhamad participated in the Sequoia's development and has since purchased one. In addition to reassuring mothers that their babies are okay, the device greatly enables his research into fetal vasculature, he finds. The device reveals tiny but telling details more clearly, and earlier, than any other ultrasound system.

"The price tag is on the high side, but what you get out justifies the price," Abuhamad declares. "Say the price difference between this Sequoiaand a competing machine is $100,000 and that a procedure costs about $150 per patient. Because you can diagnose faster, you image two extra patients a day. That brings in $300 more a day, so in a year you make up the price difference," he figures. Abuhamad adds, "I know this machine will be here for ten years. Acuson's previous machine was here on the floor the longest of any. It was always upgraded and always competitive. I know Sequoia will fulfill my needs for years to come." By contrast, he says, machines he purchased from other companies are "now useless," because the outfits introduced new platforms and stopped upgrading their earlier models.

"The Sequoiareally is different. It provides information I haven't been able to see anywhere else," says Dr. Beverly Hashimoto, section head of ultrasound and deputy chief of radiology at Virginia Mason Medical Center in Seattle, WA. She points out that "the pictures are not pretty—they are not classic ultrasound images and that's okay for me. It's the information that counts." Because of the way Sequoia processes data, the person operating the system can manipulate the image in a way that makes it look unusual but which delivers more information. She compares the capability to a kind of study possible with MRI, in which fat turns white while the rest of the picture is black. Under certain circumstances, that kind of manipulability can help a clinician identify and understand a pathology.

Utility, Not Just Appeal

But does the Sequoiamake a difference in diagnosis, or is it just more fun for the clinician to use? Acuson will absolutely need to prove to potential buyers the utility, not just the appeal, of its exotic new device. The company's executives say they know they must base their case on something more practical than intellectual fascination, but doing so may be hard for the firm, given its previous success as a pure-tech player. The new task will be especially important in selling to organizations where clinicians, trained to understand the information ultrasound images convey, have to explain the need for the new, expensive equipment to administrators who may not perceive much difference between these or those pictures. Clearly, the value and perception of technological offerings is changing in a managed care marketplace, and this may catch Acuson short.

"Sequoiahas made a difference for me," says Dr. Hashimoto, adding, "I don't know if that's going to be a generalized experience." As an example, she explains that in a conventional ultrasound image, one of the signs of an abnormal fetus is when its bowel is the same brightness as the bone. With the Sequoia, "you can make the bowel as bright as bone at any time—but on the other hand, you can see detail you were never able to see before. We can actually see the lumen of the bowel when the fetus is 12 to 15 weeks old, and we can see the kidney and the liver, which we never saw at all. So Sequoia gives us the ability to make certain diagnoses very early, which we had no chance to do before. I think there are a lot of areas where that will be happening, and where we'll see changing standards," she says.

"We're seeing more of the details better, and that lets us integrate them in our heads into some kind of diagnosis faster and with a higher degree of confidence," UTM's Emerson says. The Sequoiais useful everywhere ultrasound has been deployed before—in obstetrics and gynecology, for looking at the breast, the abdomen, and the biliary tree, for doing scrotal ultrasound and venous ultrasound in the legs. In all of these areas, he sees the potential for improvement in clinicians' ability to diagnose. New indications could be just around the corner—all it takes is one lab to come up with something, publish it, and then everyone starts doing it," he notes. If their machines are up to the task, that is.

Competitors are already questioning just how much different Sequoiais, and hitting hard on the issue of price as well. "Sequoia is Acuson's first all-digital product," observes Jacques Souquet, ATL's SVP, product generation. "When we introduced our first all-digital device in 1984, we too were expensive. But we've worked with it a decade now and have learned how to reduce the costs of the technology," he says. ATL began developing that product in 1979, he explains, at a time when the back ends (signal processing and display) of other ultrasound devices were digitized, but the beam formers were not. The company thought this was a weakness it could exploit and decided to invest in commercializing digital-beam techniques then used only in the military. ATL's all-digital technology is now embodied in a fourth generation device trade-named the HDI 3000, which sells for about $160,000 to $200,000 in a typical configuration.

Other all-digital machines like GE's Logiq 700, which began shipping in 1994, Siemens' SonolineElegra, which began shipping in March of 1996 and Toshiba's PowerVision for general imaging, introduced at the Radiological Society of North America(RSNA) meeting this year— all sell for $250,000 to $300,000, Souquet points out. The high price reflects the fact that manufacturers are making their first forays into digital technologies—and that inexperience will be detrimental to them, he declares. "We think there is a magical ceiling of $200,000 and that people will have a hard time paying that much unless a company can prove its image quality is way beyond what others are doing," he says. Since ATL introduced the HDI 3000 in October of 1994, the company has released six new upgrades, he points out: "We call this a super-premium product and it is positioned to compete with all the other machines in that category."

Cass Diaz, ATL's SVP, worldwide marketing and sales, says, "We believe there are not going to be many people in the United States spending $250,000 or more for ultrasound systems unless they can see definitive improvements in clinical outcomes—which certainly have not been demonstrated by any of these other systems." He believes ATL is outselling its competitors in the super-premium market by a wide margin—but like the other companies in the field, ATL declines to disclose actual numbers. Diaz explains that an important part of the selling process for general imaging ultrasound systems is doing demos in hospitals with the hospital's own patients. ATL is challenging all companies to do side-by-side demonstrations, he says. The practice is common in Europe, but most firms have refused to do this in the US.

Acuson Hedges Its Bet

Every physician wants to practice with the best tools available, Acuson's Tom Jedrzejewicz argues. "We don't hear people saying, ‘what we have is good enough,' yet we do hear clinicians saying about Sequoia, ‘I see the difference and I think it's better, but I can't afford it," he says. Acuson realized years ago that this would probably be so. "We knew it would be expensive and we knew that the clinical environment was changing across the whole world. The amount of money available for health care certainly is not growing," he goes on: "We decided we'd need a companion product in between the Sequoiaand the 128." More to the point, ATL realized that if it didn't fill that gap, its competitors would.

Aspenis the end result of Acuson's decision to hedge its bet on Sequoia. The system, which sells for about $190,000 to $250,000, was launched at the end of November, just before the RSNA meeting held in Chicago during the first week of December. "We think Aspen is the second-best system in the marketplace," says Acuson's Rick Smith. Aspen contains some technology originally developed for Sequoia, as well as other features unique to it such as convergent color Doppler—a signal-processing method that simultaneously shows the direction and velocity of blood flow. The new technique is sensitive enough to let doctors observe perfusion of tiny blood vessels as well as the larger veins leading to organs. Clinicians say Aspen definitely gives sharper, clearer pictures than the 128, but point out that it is hardly revolutionary. "It's a machine that could serve any radiology department doing a reasonable volume. It's similar to what other companies have done with their current equipment," one observes.

Aspenis more than a follow-on product to Sequoia; it is a conscious move by Acuson to position itself as a multi-tier player in a marketplace where budgets constrain many buyers. It is also an opportunity to leverage, now and through a parade of upgrades, the $350 million the firm spent on research from 1987 through 1995. What Acuson calls its Delta technology is one of the discoveries already in the process of "migrating" to the Aspen. This technology expands the difference between similar yet different tissues, to help the human eye distinguish between them. Jedrzejewicz explains that different tissue types have distinct echogenicities; Acuson has patented its approach to making that inherent information visible so it can be used for diagnostic purposes. The technology might, for example, enable a doctor to find early signs of an infiltrative disease process in the adult liver. In one such disease, most of the tissues that make up the liver are normal, but others begin to be abnormal.

ATL executives say the technology they introduced to the marketplace a year ago in the HDI 3000is equal to Acuson's Sequoia. They furthermore contend that ATL does a better job of developing technology not for its own sake, but in response to customer needs. To illustrate the point, Souquet notes that ATL's upgrades are all accomplished by simply inserting a new software disk, instead of requiring a change of hardware or computer board. But this may not always proceed as smoothly as planned.

In June 1996, ATL became the first company to introduce a three-dimensional imaging feature called 3D-CPA. In less than 45 seconds, it can produce a 3D rendition of a vascular structure such as a carotid or hepatic vein, the company boasts. But at least one clinician who saw the upgrade at RSNA found the package unsuitable, because as yet the images are not accurate in terms of size or actual measurements. So an image of a baby's face in uteromight correctly reveal a nose upturned like mom's, but the doctor still cannot tell if it is in proportion to the rest of the face. "If you need to see things where measurement is important, as in the relative mass and position of a tumor, you need a different kind of software," one radiologist says.

Souquet acknowledges that 3D ultrasound is still a work in progress at ATL; it is not the only firm working to develop this technology. At least two recent start-ups have made this their focus, including the aptly named Three D Ultrasound Inc.in Durham, NC and Life Imaging Systems Inc. in Ontario, Canada. Acuson says it intends to make 3D capability available to Sequoia buyers as an upgrade, when the technology is ripe. The process of rendering 3D images has been expensive and slow to date, but clinicians say it could overcome one of the biggest drawbacks to ultrasound today—that is, dependence on the people who operate the systems, known as stenographers. As it is now, the doctor takes it on faith that the operator has taken a picture of what he or she needs to see. There would be less risk of missing something important with a 3D image, which would also allow give perspective on pathologies that ultrasound currently shows as close-up pieces.

"All these ultrasound companies think the answer is better ultrasound," asserts Doug Orr, a medical devices consultant in Ridgefield, CT. "I don't think they realize the bigger burden they're going to be carrying into the end of the century. They will not only have to sell their equipment against each other, but they'll have to clearly stake out the role of ultrasound, as compared to other competing imaging modalities," such as nuclear medicine. He points out that under managed care, it's not necessarily the cheapest study that wins. So although ultrasound is the cheapest diagnostic around, that does not assure its place in treatment. For instance, the historic protocol when a patient presented with a supposedly sprained ankle was a stop at the x-ray machine, to rule out a break, then ultrasound to rule out damaged tendons, then finally MRI to make a definitive diagnosis. "Today they might take you straight to the MRI. They're looking for the most appropriate technology, to avoid the others altogether," he explains.

"What the medical community does with ultrasound is up to them," declares William Varley, Acuson's VP, cardiovascular business operations. Rather than attempt to conduct research that might establish new indications, "We basically work with clinicians on what theyare interested in doing," he says. Harvey Klein repeats the question, "Should ultrasound companies go up against other modalities?" and answers, "Sure. But will they? No. That costs money. These are not pharmaceutical margins. Acuson was the only company that ever had margins anything like that, and it has not had them for several years." ATL did fund a major clinical study of ultrasound, approved by the FDA and released in April 1996, which showed that high-frequency ultrasound performed after mammography could spare patients unnecessary biopsies. But industry observers say the firm spent poorly on the expensive trial, because physicians could extrapolate the results to any competitor's device.

Competitors' New Strategies

ATL and Acuson have historically mirrored each other as high-technology ultrasound developers; together they now dominate most of the general-imaging marketplace with what some analysts estimate is about a 40-40 split in the US. But now other firms are shining a spotlight on their technology-centric messages, and coming in with offers deliberately crafted to catch the attention of buyers more attuned to the bottom line.

As the current market leaders, ATL and Acuson enjoy the key advantage of an installed base, points out Patricia Landers Gee, market manager for Siemen's SonolineElegra ultrasound system, which started shipping in March of 1996. "It's been tough trying to come into the market when so much depends on who has share, and an installed base, and who takes care of their customers," she says. But the company has sold over 240 Elegras worldwide, she says, and that's a lucrative little cap to Siemens' own installed base of over 35,000 low-end systems. Siemens decided to compete for a share of the super-premium general-imaging market, Landers Gee says, because "ultrasound is the fastest growing imaging modality today—perhaps the only growing image modality. New applications are opening up all the time, and it's a worldwide phenomenon, even in countries that can't afford MRI or CT scans."

To show buyers that Siemens can develop advanced ultrasound technologies, not just low-end instruments, the company made sure that an upgrade it calls SieScapehad a very flashy debut. The $50,000 add-on to the Elegra assembles on-screen separate images collected by a transducer, so that clinicians can have a panoramic view of an area. At the RSNA conference, Siemens showed the upgrade off to good effect with images of tropical fish swimming in schools along the Great Barrier Reef. But doctors will use SieScape to look at entire organs, or to check fetal position, for example. Ultrasound machines in the 1970s provided similarly broad views, but through the years perspective was traded away in favor of tighter focus and finer resolution. Siemens' back-to-the-future feature fits well into a managed-care marketplace, Landers Gee points out: "Even the lowest person on the referral chain can understand the images. People in community hospitals can show the pictures to surgeons and physicians. It makes it easy to communicate about and to a patient."

GE introduced a super-premium ultrasound device, theLogiq 700, at the end of 1993, followed by two mid-range instruments, the Logiq 500 in 1994 and Logiq 400 in February of 1996. The high-then-low pattern parallels Acuson's introduction of Sequoia and Aspen. Yet several clinicians who attended the RSNA conference say that GE seemed to be talking mainly about the quality of the images its super-premium device can produce—at a time when aesthetics are considered less important than the information a picture conveys. Even the upper-echelon GE people on the floor had little else to say when asked about the company's vision or mission in ultrasound, these sources report. "GE has exciting plans," one industry observer believes, but the firm did not return repeated phone calls.

GE and Siemens each have an important advantage going forward against the pure-play ultrasound companies Acuson and ATL—namely, the ability to bundle their new equipment with the other imaging devices such as MRI, CT scan and x-ray. Customers for the devices, particularly large integrated systems, are increasingly choosing to deal with single vendors that can supply all their needs. And they want relationships with salespeople who understand how their institutions operate. Until now, multi-modality companies have not offered a package that included decent ultrasound, Landers Gee says. "But now they will. And we can offer financing, risk-sharing and asset-management assistance that the single-technology companies can't begin to approach," she notes.

Big companies could become quite creative about their bundling, muses Beverly Hashimoto, the radiologist from Virginia Mason. "If they bundled their technologies, rather than their boxes [that is, the diagnostic information the machines gather rather than the products as they now exist] they could come out with some very interesting products," she observes. After all, the pictures produced by any imaging device all begin as data signals converted by computers inside those machines. Because the devices capture different kinds of information about the body, but consider it all bits and bytes, those data signals could be combined in new ways likely to be clinically valuable. Hashimoto says, "You'd think the R&D centers of these companies would start cross-fertilizing these things, but they just say, ‘Oh, we're new to the market.' If you're new, why are you following? What kind of strategy is that?"

Hit ‘Em Where They Ain't

The strategy that Hewlett-Packard is following as it too seeks to gain a larger share of the ultrasound market can be summarized by baseball player Wee Willie Keeler's advice to "Hit ‘em where they ain't." So says Paul Magnin, general manager of HP's imaging systems division, who explains that his firm perceives no clear leader in the middle price range of the general imaging market. "It's a multi-specialty market," he says, adding that within this diverse segment, customer needs are converging to create an opportunity that HP is now moving to address. "Customers in the US and elsewhere are becoming more cost-sensitive, but they are not willing to compromise on performance," he says. "Yet they do seem willing to do without research applications," he goes on.

So this year at RSNA, HP introduced the ImagePointwith a price tag of about $100,000 depending on which transducers the customer selects. "A lot of people would expect us to come in at the high end—that's the old joke, that HP stands for high price—but we decided to go for high performance at a reasonable price," Magnin says. "The system is not intended to compete on research applications [as Acuson's Sequoia is]," he says. It is not for physicians trying to push the state of the art forward. "It's a workhorse," he declares. Despite the low price, Magnin insists it is positioned to compete with high-end products.

The ultrasound market has traditionally been segmented into tiers defined by price, but HP is now seeking to redefine the segments by groupings of customer needs instead. So Magnin says the company will position its ImagePointdevice, which by standard pricing patterns would be considered a "mid-range" product, so that it competes up—that is to say, against "high-performance" machines like Acuson's Aspen. "As a high-performance product priced at $100,000, we think we'll hit the sweet spot of the market," he says.

At the moment, however, clinicians point out that no one really thinks of HP at all when it comes to general imaging. Magnin says that's no problem. "A lot of ultrasound companies, and certainly HP on the cardiovascular side, seem to need to be seen as the technology leader," Magnin asserts. "But now they're all pushing on the super-premium segment, and they're also trying to make offerings down the range," he points out. But HP management thinks none of the companies now preparing to compete for top-tier sales can design products for the lower price range. "They can discount, but as for actually designing, I think it will take them a while to respond," Magnin says.

"HP's sales force got good at selling premium products at a premium price and the company would always reluctantly lower its prices. But since getting into the personal computer and printer business, we've learned to lower prices very aggressively and we've gotten more market share by doing so. This is that all over again," Magnin declares.

It's Easy for No One

He explains that HP is taking a different tack in general imaging. "We want to be seen as the company with the best performance-to-price ratio. The leading competitors in general imaging don't play this way." In fact, Magnin suggests that simultaneously offering high, middle and lower-priced products is a dangerous game for Acuson or anyone. But because HP has no super-premium products in the general imaging market, it can sell high-performance, lower-price machines there with aplomb.

"The state of competition now is really tough. 1997 is probably going to be focusing on the general imaging market—and it's not going to be easy for any company, including Acuson or ATL, who now dominate there," says Harvey Klein of Klein Biomedical Consultants Inc. in New York City. He has watched the ultrasound industry for 23 years, and publishes a widely-read analysis of it each year. "With GE coming on very strong and Siemens making a lot of noise, the market next year will be even more competitive than ever before. It will be a real battle—and there's going to be a lot of hype," Klein says. He adds, "Every company will claim that it is the technology leader. Right now, it's hard to say which is. A year or two down the road, we'll see. But you can be sure of one thing—Acuson and the other companies will continue to improve the performance of their systems."

Klein argues that high technology has always been rewarded with a high price in health care. "A lot of people who follow the industry think the market will shift down in performance, that people will have to have ultrasound but won't spend big bucks for it," he says. "I think just the opposite. If a physician's group or hospital wants a managed-care contract, they'll have to show they have the best equipment. The idea of keeping up with technology generally helps in keeping up with competition," he asserts. When a market stratifies into price-performance segments, Klein says, "the shift [in buying patterns] is always up. That's what I've seen happen historically, and I'm sticking with it."

Despite Klein's faith in technology, the companies that in the past excelled by pursuing their passions for solving technical problems now seem hesitant, even a bit embarrassed to admit that technology still drives them. They would rather not be thought of as exuberant technology developers, although that is what earned the market's esteem in the first place. So the executives appear to catch themselves as they speak, rein themselves in so as not to rave on about the amazing things their technologies can do, and what promise lies ahead. Enthusiasm for the science rises in fits and starts, but the conversation quickly returns to cost-effectiveness, competitiveness, speed, productivity, bottom line—the new medical vocabulary. Is the change lip service to managed care, or an indication that creativity is indeed being harnessed for practical purposes?

"Perhaps in a certain sense, what we are seeing is that people now look at the technology as a secondary issue," suggests Acuson's Tom Jedrzejewicz. "If people can see a difference in the amount of information a device provides, then they ask, ‘What is the technology behind that?'" So, he says, if the information the Sequoiagathers was not different from other ultrasound systems, if it did not raise the prospect of earlier diagnoses, or give a glimpse of processes never seen before, no one would really care that Acuson had found a new way to record sound waves—and no one would pay a premium for the device that does that. By contrast, he observes, the primary driver behind high-technology purchases a decade ago seems often to have been the fact that "nobody really wants to buy yesterday's technology."

A Different Way of Selling

"It's a very different way of selling now. We need to find out what problems a customer wants to solve," Jedrzejewicz says. Of course, there are clinical issues, which fall along a continuum from examinations to research to development of new applications, he says. But customers are dealing with other issues beyond the clinical ones, such as competition between imaging centers, need to obtain more patients, and desire to become a center of excellence. Any of these factors may sway a customer to buy Acuson's new flagship Sequoia, he notes. But budget constraints are just as real as competition or the desire for prestige, Jedrzejewicz acknowledges.

"There are just so many hospitals struggling with money, yet they do need equipment," he declares—and because of this, Tom Jedrzejewicz foresees that Aspenmay one day outsell Sequoia. Is that disappointing? "No. That's life. I've always wanted a Ferrari but I still don't have one and I live with that. Sequoia is a better product than anything else, but the dynamics of the marketplace won't allow everyone to get it." Sequoia probably is not the best alternative for groups that do absolutely no research, or are not concerned about their competitive situation, he says. But Acuson customers can continue upgrading in whatever line they buy, and although neither the Aspen or 128 is upgradable to Sequoia's level, the firm will do swap-outs on its own but not competitors' devices, to help buyers step up when they're ready.

Acuson has historically counted on an "if you build it, they will come" strategy. Traces of this tendency are still evident in the way the company's executives envision their future success. But customers' needs and budgets have changed under managed care. Buyers are more skeptical about claims of new and improved technology, and they are more constrained by budgets and institutional purchasing protocols. Competitors' perceptions of the opportunities in high-performance ultrasound have changed also. The perspectives these multi-modality players bring are sure to shake up the marketplace Acuson and ATL have come to dominate largely on the basis of technical excellence.

Now that powerhouses like GE, Siemens, HP and Toshiba have identified general-imaging ultrasound as an opportunity they cannot afford to miss, the framework of this formerly cozy niche has shifted for good. The new strategies these competitors are introducing are already sparking debate about where the technology's value lies. Will the market pay the highest prices ever for the most advanced technology ever, as embodied by Acuson's Sequoiaand Aspen systems? Or will customers accept ATL's argument that its technology is equivalent to Acuson's even if comes at a lesser, but still hefty, sum? Will HP's price-performance play convince a key cluster of customers that its $100,000 machine is all they need? Will GE or will Siemens assemble the most appealing packages, linking ultrasound to other modalities such as MRI and CT scans?

Left to its own devices, or if ATL were still its only main competitor, Acuson might have defined value in ultrasound in purely technological terms, as it relates to image quality. Now Acuson is defining value more specifically in terms of the medically important diagnostic information its machine can derive from human tissue. Clinicians seem to be responding to that message—and the company hopes managed care organizations will too. Doctors say the ability to see things they have not seen before helps them feel more confident about their diagnoses, and therefore helps them work faster, thereby enabling efficiencies. But the other companies now vying for control of the general imaging ultrasound market are introducing customers to still other perspectives on value. They are making more overtly economic pitches, based on multi-modality linkages, upgrades and more cost-efficient testing. Sooner or later, those messages are bound to influence buyers' expectations of Acuson.

GE and Siemens seem to be suggesting that an ultrasound instrument's value lies in its ability to link up with other modalities, to be part of a total imaging solution. HP says that price-performance ratio is what's most important, and cautions customers not to pay for capacity they are not going to use. All the companies are now emphasizing the value of upgradable systems, although Acuson was the firm that pioneered that concept in this industry. The value of upgrades, the manufacturers point out, is that customers can keep in step with technological advances without having to jettison earlier purchases. Customers accept that upgrades can help them leverage their investments over time. Now with multi-tiered selling, the issue is which platform customers want and can afford to get on, based on which they believe will prove the best investment over time.