Merger Mania: Radiology Seeks a Foothold in a Consolidating World

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It’s not a figment of your imagination: Radiology practices are getting larger via mergers/acquisitions. Hospitals are broadening their reach, using the same tactics, in their efforts to maintain regional influence. One example of this phenomenon, in the private-practice realm, is Charlotte Radiology in North Carolina, which has grown from having 61 FTE radiologists in 2008 to having 85 in 20121 (an increase of more than 40% in four years). Arl Van Moore Jr, MD, FACR, led the group through much of that growth as president; that role was assumed in 2012 by Robert Mittl Jr, MD, freeing Moore to focus on his role as chair and CEO of Strategic Radiology LLC, a consortium of 17 independent radiology practices. Government policy is shaping the current merger environment, Moore believes. “A lot of the government programs are not small-business oriented; they are big-business oriented,” he says. “Mandates found in the PPACA are requiring increased collaboration—not only vertically, within a single specialty, but horizontally, across multiple specialties.” The consolidation trend reshaping the provider realm also is reflected in the radiology-vendor community, according to Jeff A. Younger, past president of the Florida RBMA and CEO of a new entity, Preferred Radiology Alliance, that is trying to align private radiology practices in Florida. Peer pressure—and even fear—are fueling merger/acquisition activity because corporate entities (including some of the large teleradiology and billing companies) want assets on their books, he says. “Corporations are acquiring to hold on to market share,” Younger says. “They’re concerned that if individual practices end up working with someone else, or are acquired by someone else, they could end up losing their teleradiology business or billing business. They also see an opportunity to solidify their financial bases by picking up hospital contracts.” The rationale, he says, goes back to the nature of hospital contracts, which tend to have a long-term window. Teleradiology and billing contracts, however, can be much more fluid, with periodic turnover not being uncommon. The Reimbursement Factor Contracts always circle back to reimbursement, an element of imaging hit hard in the past seven years. Steve Duvoisin is CEO of Integra Imaging (Spokane, Washington), a Strategic Radiology member practice. Integra Imaging was founded this year through the merger of Inland Imaging (Spokane) and Seattle Radiologists to form a 97-radiologist megapractice. Duvoisin says that health systems have also felt the pinch, with regional players attempting to grow and large players getting even larger. “The health systems are getting bigger,” he says, “because they need to drive down costs to address lower reimbursement.” Consolidation has been going on for years among both health systems and payors, but Duvoisin reports that this trend has accelerated, particularly within the past year. “Health systems, specifically, are consolidating because they see the payors getting bigger and bigger, on a national basis,” he says. “I’ve heard that somewhere in the neighborhood of $20 billion in annual net revenue will be needed for a health system to compete, in the future.” Another reason for accelerated merger activity is what Duvoisin describes as the need for a critical mass of patients, as health systems and accountable-care organizations (ACOs) move toward risk assumption. “Managing the health of 20,000 people probably won’t cut it,” he says. “You need to be managing the health of hundreds of thousands, if not millions. The CEO of Ascension Health said that his company’s goal was to manage the cradle-to-grave health of 30 million people. Fragmented markets, on the other hand, are inefficient. You have a lot of small shops out there, and it’s difficult to drive efficiency. All of those factors have accelerated consolidation among health systems.” Costs for insurance, employees’ health care, and equipment have increased for health entities, big and small—just as they have for many businesses. “The formation of ACOs is causing groups to see if they need to be larger to cover a larger geographic region,” Younger says. “There’s been an increased emphasis on subspecialty interpretations. Every group cannot have every subspecialty represented 24 hours a day, unless it becomes tremendously larger.” Horizontal and Vertical Much of the recent consolidation has been horizontal (through the acquisition of similar businesses),