Prognostications on the Future of the Business of Radiology

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The aftershocks of the reimbursement decreases from the Deficit Reduction Act of 2005 are beginning to be seen. Combined with other marketplace events, this is leading to interesting times in the radiology business. Some of the forces of change that are creating the tremors are well known: reimbursement cuts, the publishing of imaging prices, the impact of self-referral and preauthorization on volumes, and consolidation.

Beyond the consolidation seen in the imaging center market, consolidation of physician groups has accelerated in many parts of the United States, and many of the larger primary-care–based multispecialty groups (especially those with 50 or more members) are being acquired by hospitals and integrated health systems in metropolitan areas. Questions that are currently being asked are: What will happen to the singlespecialty groups? Have they lost some of their leverage with third-party payors and the larger systems? Will they be next to join the larger systems?

“Radiology Associates of Milwaukee Has Decided to Join Aurora Health System” was the headline in the Business Journal of Milwaukee on February 29, 2008, referring to a 28-person group. Why would a group of 28 join a multispecialty group? What were their options?

Rural primary-care groups also have moved to the safety of the hospitals. Many rural hospitals are finding financial success, helped by Critical Access Hospital status and the cost-based reimbursement that goes along with it. In addition, associated physician services may qualify for reimbursement at higher provider-based billing rates from Medicare.

This creates the opportunity for the hospitals to add more physicians and services. These developments create the need for more radiology services and, often, a demand for subspecialty interpretations.

The small, local radiology group often has to reach out to a larger group in order to meet these subspecialty requirements. Larger groups are either collaborating with the rural group or, in some cases, they are replacing the radiologists, at the hospital’s request.

The combination of rising interest rates and a probable recession makes me wonder whether we will see a round of consolidations/ mergers of hospitals and integrated health systems. Many of these systems have been helped by the stock market’s success in the past through portfolio returns. That help does not look like it will be there in 2008.

I see the megasystems such as the Mayo Clinic, Kaiser, and the Cleveland Clinic—with net assets totaling billions of dollars, charitable contributions in the hundreds of millions, and government grants also reaching nine digits—and I am in awe of the potential impact that they could have on the marketplace. Will they be the angels that bail out the hospitals and health care systems if they run into financial trouble? These megasystems’ strategies are generally based on employed models for radiology, so if this does occur, independent radiology groups may not fare well.

Now is the time to focus on productivity increases made by radiologists. If you are having price decreases of 5%, it is necessary to make up for them through productivity increases of 5%.

It appears that this is possible in most groups (or, some would say, in all groups) through working smarter. In addition to using technologies such as radiology information systems and PACS, groups can move reading sites out the hospital for as much work as possible. This also leads to the opportunity to subspecialize, which should allow greater productivity.

Compensation methods are being examined at many practices. Is it time to move from the equal-split method to some mechanism that rewards those who are more efficient and can read more quickly without a decrease in quality? Should two radiologists who read the same modality mix be compensated equally if one does 10,000 RVUs and one does 15,000? The goal should be to get the lower producer to a higher, more acceptable level, but if that is not possible, it may be time for the compensation to differ between the two.

Is now the time to grow the group through mergers, or through the acquisition of other radiology groups? If you do not, will it be another practice? Even if you do increase productivity, how are you going to find the volume increases?

There is a lot of interest in mergers right now. They are seen as an opportunity to gain market share, diversify hospital relationships, and gain size in order to subspecialize. They should