Ann Arbor Company Can Sell its Products Everywhere but Michigan

By: Nathan Bomey
November 30 – December 6, 2006

Perched on a wall inside the Xoran Technologies Inc. building on North First Street in Ann Arbor is a map of the United States. Tacks dot the printed landscape, visually mapping the locations where Xoran has sold its products, including the groundbreaking MiniCAT, an upright CT scanner developed for use in doctor’s

offices.

There are no tacks in Michigan. That’s because Xoran Technologies, despite being located in Ann Arbor and undergoing a full-scale expansion initiative here, cannot sell its products in Michigan. The state’s Certificate of Need requirement stipulates that users of CT scanners like the MiniCAT must demonstrate they will use

the equipment for at least 7,500 scans a year.

Xoran’s problem is most doctors don’t use the device for more than 300 scans a year, said Jacqueline Vestevich, Xoran’s vice president and chief operating officer.

“We would have a lot of people, customers in Michigan, who would love to have our MiniCAT and xCAT scanners that would not be able to justify it under the current law,” she said.

Since hospitals mostly use traditional CT scanners, Xoran’s products – although drawing interest throughout the country – can’t currently be found in any Michigan doctor’s office.

Vestevich hopes to change that. She recently discussed some of the issues challenging her company with Ann Arbor Business Review reporter Nathan Bomey.

There’s obviously a gaping hole in Michigan. So why is that the case and do you ever see the problem becoming better on behalf of Xoran?

Vestevich: Well right now Michigan has a Certificate of Need regulation that governs the purchase of CT scanners. The regulation was designed to keep the cost of health care down and it was designed without the huge expense of CT scanners that are used in hospitals. So basically, the regulation is designed to prevent the proliferation of those huge, expensive full-body CT scanners all over the state, so they prevent people from buying too many of them and charging people for over-scanning, basically. What the regulation does not do, however, is distinguish specialty scanners – which is new technology that exists like in our xCAT and MiniCAT scanners. So basically, the threshold in the existing regulation is you have to do 7,500 scans a year to justify buying a new scanner or replacing a new scanner. And private doctors and most facilities other than hospitals cannot meet that threshold.

Why does the state have a problem with having an abundance of CAT scanners? I mean, why is that an issue?

Because the theory is that if you have any kind of doctor or medical practice having the ability to buy expensive $2 million CAT scanners and then offering those CT services to the public, that they would have to justify the expense by passing along the cost to the public, to the patients.

As a result, what kind of impact do you think the fact that that requirement is in place in Michigan has on your sales here? And, could Xoran really make huge strides if that was taken away in Michigan, or is that only a small part of your potential market?

Xoran was born and bred in Michigan. We have had a lot of potential customers show interest in our scanners in Michigan and we certainly would be selling here and we’d love to sell here.

We cannot do so – effectively we cannot do so – because most facilities do not want to use up their 7,500 scan chips basically for a specialty scanner when they can use that same credit for a full body scanner, if that makes sense.

Do you think the requirement for the Certificate of Need is totally unnecessary or do you see any legitimacy in it at all?

I don’t think it’s necessary for this type of new technology. It’s relatively inexpensive. It’s basically the next generation of X-ray machines, which are not regulated by Certificate of Need. This is just three-dimensional X-ray and we’re preventing the citizens of Michigan from being treated with the best technology because of this regulation.

Is there any hope in Lansing, from your perspective, of getting the politicians there to take away the requirement? And do you do any sort of lobbying?

The short answer to that is we do our own speaking, we do not hire lobbyists. The Certificate of Need law in Michigan is a hotbed of politics that’s been going on for more than, I don’t know, 20 years or so. And our goal is to focus on our business and provide high quality products and services to our customers and not to become sidelined with legal fighting. And we can sell almost everywhere in the rest of the United States, and that’s what our focus is.

To what extent are the requirements of the Certificate of Need in Michigan holding Xoran back?

It’s more than an annoyance. We have, right now, three scanner services – an i-Cat dental scanner, a MiniCAT office-based scanner and an xCAT scanner to be used in a hospital or ICU. Until today, dental specialists were never governed by the Certificate of Need law. Never in history. It is only because of our i-Cat scanner that suddenly the regulation has now been expanded to include dental scanning, so now dentists have to be regulated by this. That is, I think, a step backwards. No. 2 – we have a brand new xCAT scanner that is going to be used at the patient’s point of care in the middle of operations and in ICU units, giving the doctors information– real-time information – when they need it. We could not test that scanner in our own backyard at the University of Michigan because of the Certificate of Need law. There was no money that was being transferred, there was no purchase. We couldn’t even test our beta scanner here because of that law, so I think it is impeding us. It’s more than an annoyance. And yes, we would have a lot of people, customers in Michigan, who would love to have our MiniCAT and xCAT scanners that would not be able to justify it under the current law.

Businesses are becoming increasingly more mobile. Is it possible that Xoran could ever see a time where Michigan is not the best place for you?

We have committed to stay in Michigan and we all love it here. I’m hoping that Michigan’s law will catch up with us as opposed to us having to leave because they don’t.

I know we’ve written a little bit about the tax credit and the MEDC, but obviously you are working with the state on a number of things... so the state has been a benefit to the company as well?

Yes. I think that people have good intentions for the most part. Everybody wants the same thing for all of us. We all live in Michigan, we want to improve our economy, we want to improve access to the best quality healthcare. We don’t want our health care costs to go up, for goodness sakes. The intentions are good. We just need to work on the implementation so that it evolves at the same pace as the technology evolves.

Is there anything else you think is important about this issue?

Yes. We have scanners that are low-radiation dose specialty scanners. You can get a scan of your sinuses, your ears and, soon, your brain, at 10 times lower radiation dose than you would if you went to a hospital. We are not allowing the citizens of the state of Michigan to have the best health care available and the safest

at this low radiation dose, because of this regulation.

Nathan Bomey can be reached at (734) 302-1725.

Jacqueline Vestevich
Vice president, COO, Xoran Technologies Inc.

Background: Founder, ex-president, CEO of “A Sign From Above Inc.,” a specialty advertising company; former shareholder at the law firm Howard & Howard Attorneys, P.C.; specialty in products liability law.

Education: Bachelor’s degree, University of Michigan; law degree, Wayne State University

Certificate of Need:

Applications from health care companies and nonprofits in Michigan through October:

Value of CON applications: $2.2 billion

Number of CON applications: 485

Source: State Certificate of Need Commission