OIC Strategy: Build, Buy, or Sell
Recognizing that outpatient imaging revenue is far too important to the bottom line to forfeit the business to aggressive and nimble entrepreneurs, hospitals and health systems have moved aggressively into their communities in recent years with their own outpatient imaging center initiatives. Radiology Business Journal invited executives from several health systems to discuss their strategies in light of the recent economic downturn. 
Scott Black
Scott M. Black, CPA, is vice president of business development, Clarian Health Partners, Indianapolis, Indiana. He was formerly director of suburban facilities for Clarian Health Partners’ two suburban hospitals. He joined Clarian Health Partners in 1998 and served as director of budget and operations.
Before that, Black was with Ernst & Young LLP for 15 years, serving as a senior manager in the health care advisory and assurance practice.
In 1997, Methodist Hospital, Indiana University Hospital, and Riley Hospital for Children (all of Indianapolis) united to become Clarian Health Partners. This is a private, not-for-profit organization, active in teaching and research, that now owns or is affiliated with more than 20 Indiana hospitals and health centers. These include Clarian West Medical Center, Clarian North Medical Center, and Clarian Arnett Hospital, Lafayette. In 2008, the three core hospitals had 56,000 admissions and more than 750,000 outpatient visits.
Kevin Cook became president/COO of Mercy Health Partners–Northeast Region, Scranton, Pennsylvania, on June 15, 2009. Before that, he was COO/vice president of operations at Mercy Hospital Mt Airy, Cincinnati, Ohio, and regional sponsor for radiology services for Mercy Health Partners, Cincinnati.
Previously, Cook was associate administrator, River Region Health System, Vicksburg, Mississippi; director of operations, the Premier Innovation Institute and Texas Medical Institute of Technology, Austin; and Six Sigma™ engineer, Chip Caldwell and Associates, Saint Augustine, Florida. He rose to the rank of major in the US Marine Corps and holds a master’s degree in business from Boston University.
The Northeast Pennsylvania Region of Mercy Health Partners (of which Catholic Healthcare Partners is the parent company) has two hospitals with a total of 300 beds and has a number of outpatient sites that are operated through a series of joint ventures. 
John Couris
John Couris is COO and administrator, Morton Plant North Bay Hospital (New Port Richey, Florida), Morton Plant Mease, BayCare Health System. Before becoming administrator, he was vice president of Morton Plant Mease Health Services, the organization responsible for ambulatory care in the Morton Plant Mease division of BayCare Health System.
Prior to that, Couris was director of operational improvement and managing director of the Radiology Consulting Group, Department of Radiology, at Massachusetts General Hospital, Boston.
BayCare Health System is a not-for-profit organization with 10 hospitals and a total of 2,600 beds. It serves a population of approximately 2.6 million in three counties and operates 12 freestanding imaging centers. 
Richard Helsper, RT, MBA, CHE
Richard Helsper, RT, MBA, CHE, has been vice president of operations, Clarian Health Partners, Indianapolis, Indiana, since 2003. He became COO of the Midwest Proton Radiotherapy Institute, Bloomington, Indiana, in 2008.
Formerly, he had been director of radiology at Duke University Hospital, Durham, North Carolina, for 11 years. He began working as a radiologic technologist in 1979 and then held leadership positions in West Coast outpatient imaging centers and hospitals.
RBJ: Where does your organization stand with respect to the outpatient imaging market: buy, build, sell, or a combination of all three? Does this represent a departure from strategy in recent years?
Cook: Mercy Medical Imaging has focused on a multifaceted strategy in the marketplace. We have purchased some sites, have upgraded several sites, and are building one more site. The strategy of purchasing outpatient imaging centers is relatively new and has developed over the past two years. We have been involved in joint ventures in the past, but given declines in reimbursement for the joint-venture model, we have aggressively moved into other models of ownership structure.
Couris: Our focus has been on buying; however, we use all three strategies. What will drive this approach is your overall outlook on the market and what your strategic plans focus you on; for example, we have done a joint venture with our radiology group, and the entire facility is financed through a capital lease. In my opinion, this allows us to maintain maximum flexibility with technology. On the other hand, we are building an imaging center in a large outpatient building, and we are purchasing all of the equipment and furniture through the capital process. The reason for this is that we are going to keep this center and its equipment for an extended period of time.
Helsper: Clarian has been approached by multiple entities to determine whether we have any interest in acquiring outpatient imaging services located near existing Clarian facilities. It has been possible to be selective in this process, and we have acquired several outpatient imaging centers (while saying no to several others). We have divested ourselves of one imaging center to a strategic partner as well.
This has not changed materially in recent years, as we have always looked at each deal on its own merits. We do have a solid infrastructure in place, with five hospitals and 12 outpatient imaging centers all sharing the same PACS.
Clarian Health is planning to change our model by turning 1,500 or more physicians into employees under a new group called the Indiana Clinic. It is our intent to build a true integrated health care model by aligning physicians together from all specialties with Clarian to improve quality, reduce costs, and perhaps boost its central Indiana market share. We are projecting that over 600 physicians (including the radiology group) will be employed by Indiana Clinic by the end of 2009.
Clarian and Indiana University School of Medicine hope to build up to 1,500 physicians by the end of 2011, and eventually, to extend the Indiana Clinic statewide. By employing physicians instead of merely allowing them to use our facilities, we believe we shall be able to give our physicians incentives to communicate with one another and coordinate care for each patient, particularly those with expensive chronic diseases. This would clearly enhance the existing outpatient imaging market.
RBJ: Has the economic downturn affected your immediate or long-term outpatient imaging strategy?
Couris: Yes, we are slowing down all of our activity related to new centers and new technology. The only equipment we are replacing is equipment that relates to patient safety. We are taking this opportunity to retool our strategic plans and enhance the patients’ and referring physicians’ experiences through process redesign. Our focus is on tightening up operations and continuing to work on service enhancements so we can surge ahead of the competition when the economy begins to improve.
Helsper: We have increased focus on all ambulatory service lines, including imaging.
Cook: Our strategy has not been affected at all. In fact, we believe the downturn has created more opportunities than it has hindered.
RBJ: How important is outpatient imaging revenue to your organization? What percentage of the organization’s profits does it represent?
Black: Clarian has historically focused on inpatients service; however, in the past several years, we have changed our strategy, and we have concluded that the organization will increase its focus on outpatient services, including imaging. This change in focus is demonstrated by a new executive director being named for ambulatory services. In 2008, outpatient services represented approximately 46% of Clarian’s gross patient revenue. We have a target of increasing that amount to 50% in the next several years.
Cook: Outpatient imaging is a key component of our ongoing efforts to meet the needs of the communities we serve better.
Couris: Outpatient-radiology revenue is extremely important, and it continues to grow as we grow volumes. I’m not sure of the percentage, but it is a very large piece of the outpatient-revenue pie.
RBJ: How does outpatient imaging fit into your broader strategy for meeting the ambulatory-care needs of your market?
Cook: Patients want and need various settings for obtaining their imaging studies. We have attempted to provide our patients with convenient locations, top technology, and fantastic service.
Couris: Radiology is critical; it is the biggest piece of the ambulatory-care pie for us. Radiology is also a modality that is critical to the diagnosis and treatment of disease. As technology and the science of radiology evolve, so will their application in health care. I believe the appropriate utilization of radiology procedures can actually help drive the total cost of health care down.
Black: Clarian began to expand its business outside of downtown Indianapolis in the mid-1990s by opening outpatient facilities throughout the metropolitan area. These sites, called the Beltway Facilities, continue to serve as the cornerstone of our outpatient business. Each of these sites has imaging, laboratory, surgery, and physicians’ offices. We expect to continue operating similar sites throughout central Indiana as part of our expansion plans.
RBJ: Where you plan to add centers, are they full-service outpatient imaging centers or specialty centers (such as women’s imaging or interventional clinics)? Are they associated with physicians’ office buildings or other specialty-care sites?
Couris: Over the next several years, any new centers will be complete centers and will be part of an ambulatory care facility. Managed care companies are actually pushing folks to an environment of completeness, and are trying to avoid centers that cherry-pick the high-end procedures.
Helsper: Clarian remains dedicated to evaluating these additions individually, with a focused strategy intended to meet the needs of the physicians in each location’s immediate area. As we have opened new hospitals, we have built new medical office buildings designed to increase physician alignment.
Cook: Most of the centers added are freestanding, associated with physicians’ office buildings. There are exceptions to this, but we generally analyze each opportunity as a stand-alone venture.
RBJ: Who are the most formidable competitors in your marketplace, and how are you facing them?
Helsper: There are four major health systems in central Indiana and three major radiology groups (with two owning their own brick and mortar). In addition, the privately held imaging centers have consolidated, and a single player seems to have acquired the weaker facilities. During the past several years, Clarian has experienced growth by expansion and in overall market share.
Cook: There are large numbers of independent, joint-venture imaging centers in the greater Cincinnati market. We believe we can compete successfully with them by matching or exceeding their service, accessibility, and ease of use through a pervasive commitment to quality.
Couris: We are the market leader at the moment for imaging in the Tampa Bay market. Our closest competitors, for example, are Tower MRI and West Coast Radiology.
RBJ: What is your preferred business model for outpatient imaging: a joint venture with radiologists, a joint venture with a national company, or 100% ownership by the hospital?
Cook: As for models of ownership, we prefer 100% hospital-owned facilities. Having said that, we are open to other models if they make sense from a strategic perspective. Every opportunity is different, and our goal is to find ways of partnering with physicians and meeting the needs of communities. At the end of the day, these goals might dictate that we move away from our preference for 100% hospital ownership.
Couris: I think you have a joint venture if there is a clear strategic reason to; other than that, purchasing and running your own facilities makes the most sense. I do not think that national companies bring much to a health system or hospital chain. Usually, health systems and hospital chains possess the core competency and expertise to run these programs themselves.
Black: For imaging only, we have only had the centers owned by the hospital. We do not have any joint ventures for imaging only.
RBJ: What is your management strategy for outpatient imaging? Which managers are involved: hospital-department radiology administrator, manager of ambulatory services, or another hospital executive? Is management outsourced?
Couris: We have a very entrepreneurial organizational structure. Managers of each center are accountable for their business units and are given the tools and resources to be successful. Hospital managers are organized the same way, but report to a director responsible for hospital radiology departments.
Helsper: Radiology services today, for three hospitals and 11 imaging centers, report to me. As Clarian continues to grow and act more like an integrated health system, initiatives are being considered that would increase matrixed reporting relationships.
Cook: Management consists of a hospital site manager, a regional imaging director, and a corporate executive service-line sponsor.
RBJ: How has the tight credit market affected your ability to access capital to finance your plans? Are you looking in different places than you would have two years ago?
Black: The tight credit markets have caused us to delay a number of new facility developments and certain major capital investments. We have begun exploring developer-based financing as an alternative to using Clarian credit or cash to fund our expansion. In addition, we have sold some of our outpatient facilities to a developer to generate cash.
Cook: The percentage of leases, compared with purchases, has increased. Our goal is not to lose momentum, so we have had to get more creative financially in order to maintain the pace of technology acquisition and replacement.
Couris: We are pushing out some of our plans to adjust to the markets. Over the long term, this will not be an issue. We also have to do a very good job of prioritizing projects through a process driven by service, outcome, and cost.
RBJ: Has the shortening of credit lines had any impact on timelines or strategy?
Cook: Our strategy has not changed, but some timelines have been altered.
Couris: Yes, we are becoming more selective in where we place our money and in the timeline associated with a project. The asset-allocation process has been adjusted.
Black: Yes, but only timing is affected. Our strategy remains in place, but we need to reach certain cash targets to be able to execute the strategy fully.
Scott Black
Scott M. Black, CPA, is vice president of business development, Clarian Health Partners, Indianapolis, Indiana. He was formerly director of suburban facilities for Clarian Health Partners’ two suburban hospitals. He joined Clarian Health Partners in 1998 and served as director of budget and operations.
Before that, Black was with Ernst & Young LLP for 15 years, serving as a senior manager in the health care advisory and assurance practice.
In 1997, Methodist Hospital, Indiana University Hospital, and Riley Hospital for Children (all of Indianapolis) united to become Clarian Health Partners. This is a private, not-for-profit organization, active in teaching and research, that now owns or is affiliated with more than 20 Indiana hospitals and health centers. These include Clarian West Medical Center, Clarian North Medical Center, and Clarian Arnett Hospital, Lafayette. In 2008, the three core hospitals had 56,000 admissions and more than 750,000 outpatient visits.
Kevin Cook became president/COO of Mercy Health Partners–Northeast Region, Scranton, Pennsylvania, on June 15, 2009. Before that, he was COO/vice president of operations at Mercy Hospital Mt Airy, Cincinnati, Ohio, and regional sponsor for radiology services for Mercy Health Partners, Cincinnati.
Previously, Cook was associate administrator, River Region Health System, Vicksburg, Mississippi; director of operations, the Premier Innovation Institute and Texas Medical Institute of Technology, Austin; and Six Sigma™ engineer, Chip Caldwell and Associates, Saint Augustine, Florida. He rose to the rank of major in the US Marine Corps and holds a master’s degree in business from Boston University.
The Northeast Pennsylvania Region of Mercy Health Partners (of which Catholic Healthcare Partners is the parent company) has two hospitals with a total of 300 beds and has a number of outpatient sites that are operated through a series of joint ventures. John Couris
John Couris is COO and administrator, Morton Plant North Bay Hospital (New Port Richey, Florida), Morton Plant Mease, BayCare Health System. Before becoming administrator, he was vice president of Morton Plant Mease Health Services, the organization responsible for ambulatory care in the Morton Plant Mease division of BayCare Health System.
Prior to that, Couris was director of operational improvement and managing director of the Radiology Consulting Group, Department of Radiology, at Massachusetts General Hospital, Boston.
BayCare Health System is a not-for-profit organization with 10 hospitals and a total of 2,600 beds. It serves a population of approximately 2.6 million in three counties and operates 12 freestanding imaging centers. Richard Helsper, RT, MBA, CHE
Richard Helsper, RT, MBA, CHE, has been vice president of operations, Clarian Health Partners, Indianapolis, Indiana, since 2003. He became COO of the Midwest Proton Radiotherapy Institute, Bloomington, Indiana, in 2008.
Formerly, he had been director of radiology at Duke University Hospital, Durham, North Carolina, for 11 years. He began working as a radiologic technologist in 1979 and then held leadership positions in West Coast outpatient imaging centers and hospitals.
RBJ: Where does your organization stand with respect to the outpatient imaging market: buy, build, sell, or a combination of all three? Does this represent a departure from strategy in recent years?
Cook: Mercy Medical Imaging has focused on a multifaceted strategy in the marketplace. We have purchased some sites, have upgraded several sites, and are building one more site. The strategy of purchasing outpatient imaging centers is relatively new and has developed over the past two years. We have been involved in joint ventures in the past, but given declines in reimbursement for the joint-venture model, we have aggressively moved into other models of ownership structure.
Couris: Our focus has been on buying; however, we use all three strategies. What will drive this approach is your overall outlook on the market and what your strategic plans focus you on; for example, we have done a joint venture with our radiology group, and the entire facility is financed through a capital lease. In my opinion, this allows us to maintain maximum flexibility with technology. On the other hand, we are building an imaging center in a large outpatient building, and we are purchasing all of the equipment and furniture through the capital process. The reason for this is that we are going to keep this center and its equipment for an extended period of time.
Helsper: Clarian has been approached by multiple entities to determine whether we have any interest in acquiring outpatient imaging services located near existing Clarian facilities. It has been possible to be selective in this process, and we have acquired several outpatient imaging centers (while saying no to several others). We have divested ourselves of one imaging center to a strategic partner as well.
This has not changed materially in recent years, as we have always looked at each deal on its own merits. We do have a solid infrastructure in place, with five hospitals and 12 outpatient imaging centers all sharing the same PACS.
Clarian Health is planning to change our model by turning 1,500 or more physicians into employees under a new group called the Indiana Clinic. It is our intent to build a true integrated health care model by aligning physicians together from all specialties with Clarian to improve quality, reduce costs, and perhaps boost its central Indiana market share. We are projecting that over 600 physicians (including the radiology group) will be employed by Indiana Clinic by the end of 2009.
Clarian and Indiana University School of Medicine hope to build up to 1,500 physicians by the end of 2011, and eventually, to extend the Indiana Clinic statewide. By employing physicians instead of merely allowing them to use our facilities, we believe we shall be able to give our physicians incentives to communicate with one another and coordinate care for each patient, particularly those with expensive chronic diseases. This would clearly enhance the existing outpatient imaging market.
RBJ: Has the economic downturn affected your immediate or long-term outpatient imaging strategy?
Couris: Yes, we are slowing down all of our activity related to new centers and new technology. The only equipment we are replacing is equipment that relates to patient safety. We are taking this opportunity to retool our strategic plans and enhance the patients’ and referring physicians’ experiences through process redesign. Our focus is on tightening up operations and continuing to work on service enhancements so we can surge ahead of the competition when the economy begins to improve.
Helsper: We have increased focus on all ambulatory service lines, including imaging.
Cook: Our strategy has not been affected at all. In fact, we believe the downturn has created more opportunities than it has hindered.
RBJ: How important is outpatient imaging revenue to your organization? What percentage of the organization’s profits does it represent?
Black: Clarian has historically focused on inpatients service; however, in the past several years, we have changed our strategy, and we have concluded that the organization will increase its focus on outpatient services, including imaging. This change in focus is demonstrated by a new executive director being named for ambulatory services. In 2008, outpatient services represented approximately 46% of Clarian’s gross patient revenue. We have a target of increasing that amount to 50% in the next several years.
Cook: Outpatient imaging is a key component of our ongoing efforts to meet the needs of the communities we serve better.
Couris: Outpatient-radiology revenue is extremely important, and it continues to grow as we grow volumes. I’m not sure of the percentage, but it is a very large piece of the outpatient-revenue pie.
RBJ: How does outpatient imaging fit into your broader strategy for meeting the ambulatory-care needs of your market?
Cook: Patients want and need various settings for obtaining their imaging studies. We have attempted to provide our patients with convenient locations, top technology, and fantastic service.
Couris: Radiology is critical; it is the biggest piece of the ambulatory-care pie for us. Radiology is also a modality that is critical to the diagnosis and treatment of disease. As technology and the science of radiology evolve, so will their application in health care. I believe the appropriate utilization of radiology procedures can actually help drive the total cost of health care down.
Black: Clarian began to expand its business outside of downtown Indianapolis in the mid-1990s by opening outpatient facilities throughout the metropolitan area. These sites, called the Beltway Facilities, continue to serve as the cornerstone of our outpatient business. Each of these sites has imaging, laboratory, surgery, and physicians’ offices. We expect to continue operating similar sites throughout central Indiana as part of our expansion plans.
RBJ: Where you plan to add centers, are they full-service outpatient imaging centers or specialty centers (such as women’s imaging or interventional clinics)? Are they associated with physicians’ office buildings or other specialty-care sites?
Couris: Over the next several years, any new centers will be complete centers and will be part of an ambulatory care facility. Managed care companies are actually pushing folks to an environment of completeness, and are trying to avoid centers that cherry-pick the high-end procedures.
Helsper: Clarian remains dedicated to evaluating these additions individually, with a focused strategy intended to meet the needs of the physicians in each location’s immediate area. As we have opened new hospitals, we have built new medical office buildings designed to increase physician alignment.
Cook: Most of the centers added are freestanding, associated with physicians’ office buildings. There are exceptions to this, but we generally analyze each opportunity as a stand-alone venture.
RBJ: Who are the most formidable competitors in your marketplace, and how are you facing them?
Helsper: There are four major health systems in central Indiana and three major radiology groups (with two owning their own brick and mortar). In addition, the privately held imaging centers have consolidated, and a single player seems to have acquired the weaker facilities. During the past several years, Clarian has experienced growth by expansion and in overall market share.
Cook: There are large numbers of independent, joint-venture imaging centers in the greater Cincinnati market. We believe we can compete successfully with them by matching or exceeding their service, accessibility, and ease of use through a pervasive commitment to quality.
Couris: We are the market leader at the moment for imaging in the Tampa Bay market. Our closest competitors, for example, are Tower MRI and West Coast Radiology.
RBJ: What is your preferred business model for outpatient imaging: a joint venture with radiologists, a joint venture with a national company, or 100% ownership by the hospital?
Cook: As for models of ownership, we prefer 100% hospital-owned facilities. Having said that, we are open to other models if they make sense from a strategic perspective. Every opportunity is different, and our goal is to find ways of partnering with physicians and meeting the needs of communities. At the end of the day, these goals might dictate that we move away from our preference for 100% hospital ownership.
Couris: I think you have a joint venture if there is a clear strategic reason to; other than that, purchasing and running your own facilities makes the most sense. I do not think that national companies bring much to a health system or hospital chain. Usually, health systems and hospital chains possess the core competency and expertise to run these programs themselves.
Black: For imaging only, we have only had the centers owned by the hospital. We do not have any joint ventures for imaging only.
RBJ: What is your management strategy for outpatient imaging? Which managers are involved: hospital-department radiology administrator, manager of ambulatory services, or another hospital executive? Is management outsourced?
Couris: We have a very entrepreneurial organizational structure. Managers of each center are accountable for their business units and are given the tools and resources to be successful. Hospital managers are organized the same way, but report to a director responsible for hospital radiology departments.
Helsper: Radiology services today, for three hospitals and 11 imaging centers, report to me. As Clarian continues to grow and act more like an integrated health system, initiatives are being considered that would increase matrixed reporting relationships.
Cook: Management consists of a hospital site manager, a regional imaging director, and a corporate executive service-line sponsor.
RBJ: How has the tight credit market affected your ability to access capital to finance your plans? Are you looking in different places than you would have two years ago?
Black: The tight credit markets have caused us to delay a number of new facility developments and certain major capital investments. We have begun exploring developer-based financing as an alternative to using Clarian credit or cash to fund our expansion. In addition, we have sold some of our outpatient facilities to a developer to generate cash.
Cook: The percentage of leases, compared with purchases, has increased. Our goal is not to lose momentum, so we have had to get more creative financially in order to maintain the pace of technology acquisition and replacement.
Couris: We are pushing out some of our plans to adjust to the markets. Over the long term, this will not be an issue. We also have to do a very good job of prioritizing projects through a process driven by service, outcome, and cost.
RBJ: Has the shortening of credit lines had any impact on timelines or strategy?
Cook: Our strategy has not changed, but some timelines have been altered.
Couris: Yes, we are becoming more selective in where we place our money and in the timeline associated with a project. The asset-allocation process has been adjusted.
Black: Yes, but only timing is affected. Our strategy remains in place, but we need to reach certain cash targets to be able to execute the strategy fully.