With this, hospitals can finance the PACS out of their operating budgets, not their capital budgets, and they're saved the lump sum upfront fees. PACS can cost anywhere from $300,000 for a simple radiology PACS to several million dollars for an enterprise-wide vendor neutral archive, Tolle said.

Also, the pay-as-you-go model gives them a predictable cost curve for health systems deciding on buying an imaging center or another hospital: they can easily gauge what the additional studies are going to cost them over the next year, Tolle said.


As for Merge, Tolle said with the subscription model "in-quarter revenue hurts, but it lowers the bar for clients" to sign up for a PACS. Also, in the licensing model, although the vendor is getting a fat wad of cash when the contract's signed, they also typically have to discount the product, as the buyer is shopping around with other vendors. In fact, the total cost of ownership, after 5 or 10 years, will be higher for a subscription-basis schedule, he said.

Gradual transition

In Merge's first quarter filing, the company reported that about $2 million in PACS revenue had come from subscriptions that would previously have come from licensing fees. However, subscription-based sales represented a small fraction of total revenues, which were around $61 million for the quarter.

"But we didn't make the change because of Q1," Tolle said. "We see the pipeline growing Q2, Q3, Q4."

Merge plans a gradual roll-out of the subscription model to much, but not all, of the product line. A new OrthoPACS, for orthopedic surgeons, a refresh of a system Merge acquired from Stryker, is coming out this summer, and Tolle said it was a "natural" fit for this market, as are its ophthalmology products. But he said Merge Cardio, an information management system, and Merge Hemo, cath lab software, for instance, would probably not be sold on the subscription model.

Moving to the cloud

In broader terms, the move to the subscription is part of Merge's movement towards a "software as a service," or SaaS, model for its PACS products. This means not only is software not sold on a licensing model, but generally it's provided over the Internet, or the "cloud." After the company bought Amicas, a PACS business, in 2010, Tolle said a key factor when deciding on "go-forward" products was ones made with Web technologies.

Over the next 18 months, he said he envisions a complete roll-out of a cloud-based PACS. The company has already released some imaging SaaS products under its Honeycomb brand. In November, Merge launched Honeycomb Image Sharing, a Web-accessible image-sharing tool, and at the beginning of this month it released an image archiving tool, Honeycomb Archive.

More Industry Headlines