Imaging-center Growth Hits the Wall in 2013; Volumes Plummeted in 2011

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Persistent decreases in outpatient imaging reimbursement and a dramatic decline in volume finally took their toll on the imaging-center market, with a resulting 3.65% decline in the total number of freestanding outpatient imaging centers. This is the first contraction since the dip that followed the stock-market crash in 2009.

Over 10 years, the freestanding outpatient imaging-center market has exhibited consistent year-over-year increases (except in 2009) in the number of centers. The market benefited, in the early years, from the rapid growth of imaging utilization; growth since 2005 is likely to have been spurred by hospitals’ imaging-center acquisitions as health systems bulked up their community presences.

Until this year, the market appeared impervious to eight years of health-policy decisions aimed at curbing imaging growth by slashing reimbursement. In fact, last year’s increase in the number of centers came as a surprise to many observers, who saw many center owners looking for a way out and saw much evidence of distress. This year’s counts reveal that both the number of imaging-center chains and the overall number of imaging centers declined—a trend seen in every region of the United States.

Of greater concern is the steep 35.25% decline in the number of procedures performed per week per center, with a correlated drop in the average number of visits per center per year; there were no exceptions across regions. Both of these indicators are based on the most recent data available (from 2011).

This is the fourth annual report published by Radiology Business Journal on the freestanding outpatient imaging-center market. This overview of the nation’s outpatient imaging-center market and its 10-year trends is based on data provided by IMS Health (formerly SDI and Verispan), a health-care–research consulting company. Imaging centers located on hospital grounds are not included in the counts.

Market Contraction

At the close of the first quarter of 2013, the imaging-center market had lost 3.65% of its record 2012 size, making it smaller by 258 centers (Table 1). The number of imaging-center chains (defined as organizations owning two or more centers) also declined.

 - US imaging centers (by state and region), 2013
 
 - Table 1. Chain Affiliation.

While it is possible that a small number of these centers were purchased by hospitals and are close enough to the mother ship to qualify as hospital-based outpatient imaging centers, it is safe to assume that most of them were simply shuttered. The state-by-state counts indicate that the losses were distributed throughout the country.

Not one state added centers, inventory stayed the same in another 14, and the rest saw attrition in their imaging-center inventory (see figure). The states that lost the greatest number of imaging centers, compared with last year’s report,¹ were among the states that had the greatest number to begin with: Texas (40) and California (27). Even Florida, where Medicare is the predominant payor, saw 19 centers close. Arizona, Mississippi, and Pennsylvania appear to have lost a greater percentage of centers than most states.

With 6,816 imaging centers, the market still has its second-largest tally of centers in 10 years (Table 1)—proof that there continues to be vitality in the outpatient imaging arena. Signs of growth, however, are few and far between.

 - Table 2. Chain Size

One sign that size might confer advantages is the 2% increase in the percentage of imaging centers owned by chains, which now own 68% of all centers. Just being a chain, however, was no insurance against failure. In 2013, the number of imaging-center chains declined by 36 organizations (Table 2).

The Biggest Players

There was scant change among the top 20 imaging-center chains, with the number of centers owned inching up or down (mostly down) by one or two centers (Table 3). The total number of centers owned by the top 20 chains increased by 16 centers, but only because two of last year’s players on the entrepreneurial side—CDI and Insight Imaging—merged to create the market’s second-largest imaging-center chain, Insight Imaging/CDI (Lake Forest, California). This left room for a new organization to enter the top 20: Promedica (Toledo, Ohio), with 21 centers.

 - Table 3. Top 20 Chains

None of the imaging-center chains increased the number of centers that they owned. Most stayed the same, and three saw declines. Even the new megasized organization created by the merger of CDI and Insight Imaging reduced the 2012 sum of their two parts by one, to top out at an even 100.

RadNet, with 219 centers in 2013, handily retained its position at the top of the top 20 imaging-center chain list, despite the fact that it had one less center at the end of the first quarter of 2013 than it had in 2012. There is a wide gap of 119 centers between market leader RadNet and the second-largest chain, Insight Imaging/CDI, yet this merger provided the only upward movement on the list.

Had HCA (Nashville, Tennessee) not lost two of its 100 locations—leaving a total of 98 outpatient imaging centers in 2013—it would have shared the second berth with CDI/Insight. Novant Health (Winston-Salem, North Carolina) and MedQuest Associates (Alpharetta, Georgia)—acquired by Novant in 2007 and operated as a wholly owned subsidiary—occupied the fourth and fifth positions. Both managed to retain the same number of imaging centers that they owned last year (80 and 78, respectively): a feat in itself, in a contracting market.

table-4.png - Table 4. Procedures per Week
Table 4. Procedures per Week.

Several well-established partnerships among the hospital and entrepreneurial factions of the top 20 players appear to have served each party well: at number 10, Dignity Health (San Francisco, California) on the hospital side and at number six, SimonMed Imaging (Phoenix, Arizona) on the entrepreneurial side, as well as Novant Health (number four) on the hospital side and MedQuest Associates (number five) on the freestanding side. All four partners held onto their 2012 numbers, while every other organization on the top 20 list lost one or two centers. In fact, one of the largest entrepreneurial outpatient imaging organizations in the country, Alliance Imaging (Los Angeles, California) does not even show up on our list because its business model has been to partner with hospitals to develop hospital-based outpatient imaging centers.

It will be interesting to see whether seventh-ranking Tenet Healthcare Corp (Dallas, Texas) picks up the acquisition pace in 2014. One avowed reason for Tenet’s acquisition of Vanguard Health Systems (Nashville, Tennessee), with 28 hospitals in five states, is the opportunity to build out ambulatory care in Vanguard’s markets.

Overall Volumes and Weekly Visits Despite an increase of more than 25% in the inventory of freestanding imaging centers since 2003, historically, the average number of procedures per week has held fairly steady—even rising since 2005, the year that the DRA was passed (Table 4). Our counts of visits per week per region, however, lag behind the current imaging-center counts by more than a year, meaning that we don’t see the correlation between center numbers and volumes until two years later. We have speculated, in past reports,1-3 about whether and when declining imaging volumes would catch up with imaging-center operators.

Now, that speculation is over. This year’s counts—from 2011—display a sharp and precipitous 35.25% drop in volume. Volumes per week declined from a 10-year (and possibly all-time) high of 298 per week in 2010 to 193 per week in 2011.

 - Table 5. Average Visits per Center (by Region).

It’s not surprising that an almost equally dramatic reduction in the average number of weekly visits per center (Table 5,) was seen for 2011: just slightly less than the reduction in volumes, at 32.4%. The downward trend expressed itself across all US regions, with just one exception.

The Mid-Atlantic region, which had the second-greatest number of patient visits per center last year, experienced the greatest decline, from 17,095 visits in 2010 to 9,274 in 2011—a whopping 45.8% drop. The Mountain and North Central regions also experienced steep and abrupt drops in volumes, from 17,646 visits in 2010 to 10,604 in 2011 (39.9%) and from 13,025 visits in 2010 to 7,859 in 2011 (39.7%), respectively.

New England was the region with the smallest decline, from 13,210 visits in 2010 to 12,054 in 2011 (an 8.75% decrease). In 2010, all regions except New England and the North Central region experienced increases, and we speculated then that health-care reform in Massachusetts might have tamped down demand. The only region with a greater number of visits in 2011 than in 2010 was the Great Lakes region, which saw visits per center increase 22.7% in 2011, from 11,904 in 2010 to 15,394 in 2011.

In looking at the corresponding overall number of imaging centers for 2008–2011, the years for which we have counts for visits per center, we see the inventory increase in 2011 and visits per center decline. Knowing that the number of imaging centers increased by 131 in 2012 (not including the 560 previously uncounted sites that IMS Health discovered and added to its database last year), the outlook for volumes in 2012 and 2013 is guarded.

Hindsight Perspective

These numbers put the lack of activity among the top 20 imaging-center chains into perspective, suggesting that maintaining the status quo is something of an achievement in itself. The outpatient imaging-center market has become increasingly challenging and competitive in the past eight years, with a steady diet of reimbursement cuts and ever-greater regulatory requirements.

 - Table 6. Integrated Health Networks’ Centers

This year, the market chill extends even to the integrated health networks (IHNs), defined by IMS Health as entities that align health-care facilities in order to deliver integrated health-care services to payors. This year, the IHNs saw their share of the total freestanding imaging-center market decline slightly, from 26.2% in 2012 to 25.5% in 2013 (Table 6).

How much of the decline in volume is due to increased imaging appropriateness and how much is due to recessionary effects is hard to say, but with downward pressure on reimbursement and volumes dropping, every advantage helps—and size might be one of them. If an imaging-center chain is large enough to command volume discounts and has the market clout to negotiate favorable payor contracts, then it has a market advantage. This might account for the status quo among the leading 20 freestanding imaging-center chains.

Just across the horizon is 2014, when the Patient Protection and Affordable Care Act will kick into higher gear: If providers can hang on until 2014, they will see an estimated 32 million more patients added to the Medicaid program, as well as potentially millions more patients who will be eligible for subsidies when they purchase health insurance through the state and federal exchanges. Whether providers can maintain profitability on Medicaid reimbursement remains to be seen.