Facing the Revolution
Lynn Elliott, MBAIt can certainly be said that the past four years have not been the best of times for radiology practice managers. Since the enactment of the DRA, practices with significant imaging-center investments have seen margins slashed, year after year, with no end in sight. Hospital-based practices have watched as a number of practices around the country have experienced the sudden loss of long-standing, exclusive hospital-coverage relationships. Now, with the Patient Protection and Affordable Care Act posing a number of known and unknown threats, it is imperative for radiology managers to understand that our industry is confronting not merely routine evolutionary changes, but truly revolutionary changes. Exactly what does this mean for radiology practice executives? We must understand that the ordinary measures that we have used, throughout our careers, to deal with ordinary challenges are not sufficient to get us through the extraordinary circumstances we now face. The simple, common-sense solutions that have served us well in our careers might be perfectly suitable for the evolutionary times, but they will be woefully inadequate in dealing with the tectonic shifts underway in health care. In the past, for example, outpatient imaging center operators faced occasional reimbursement cuts or had margins squeezed by the costs of keeping pace with expensive new technologies. Management would respond by instituting cost cuts and/or efficiency measures; developing new, effective marketing initiatives; or working with advisors to find creative, lower-cost financing vehicles. These actions, along with double-digit volume growth, were usually adequate to keep the bottom line healthy. As many operators are unfortunately discovering, however, these steps are no longer enough. The survival of outpatient imaging operations will depend upon whether management can find solutions to the challenges of revolutionary change. Increased procedural volume is, of course, an answer—but finding that volume is not going to be easy. Utilization-control programs and radiology benefits managers have finally been effective in controlling the growth in radiology utilization. Appropriateness-criteria systems currently finding their way into the industry are likely to provide additional assistance in controlling utilization. Operators will have to find a way to increase volume in existing centers in ways that might not be appealing, such as closing marginal centers and consolidating volume in more efficient centers. Such options could present problems of their own, as referring physicians might be unhappy with the loss of a local presence; competitors might take advantage of the situation and take away market share. Hospital Relationships Hospital systems, with their reimbursement advantages, might be another avenue for radiology operators seeking relief from dwindling margins. While hospitals have generally been reluctant to enter joint ventures with physicians for services already provided by the hospital, there seems to be some movement toward a more cooperative environment in some parts of the country. Radiology practices can bring to the table existing centers, along with the expertise needed to manage them effectively. Hospital systems offer higher reimbursement levels and the ability to raise capital. With these synergies in play, radiology managers should seriously consider seeking joint-venture opportunities with hospitals. For hospital-based practices, the sudden, unexpected loss of a long-standing hospital-coverage relationship imposes a dire financial impact upon the practice. The very existence of the radiology group might be threatened, as a number of recent high-profile cases have shown. An encouraging aspect of this new threat, however, is that the group has some measure of control over its hospital relationships—and, therefore, the opportunity to avoid the threat entirely. It is important for every radiology group to understand that advances in PACS technology, which have so radically improved the efficiency of the radiologist, have also shifted the balance of power in the hospital–radiologist relationship. Hospitals have more options for acquiring professional radiology services, and they are becoming increasingly willing to turn to those options when they feel that their existing radiology provider is not meeting their needs. Radiology managers should honestly assess the status of the relationships with their hospitals. Strategies should be devised and steps should be taken to ensure that the group is perceived by the hospital as a value-added provider within the system. Failing to nurture the hospital relationship (or putting off conciliatory negotiations until the last minute) can be disastrous. Once hospitals have begun to look seriously at alternatives, it might be too late to salvage the relationship. Rebuilding troubled hospital relationships and shoring up good ones will almost certainly involve some elements of compromise on the part of the radiology practice—compromise that wasn’t necessary, in the past. Revolutions all have one thing in common: They always leave winners and losers in their wake. It is the role of radiology business managers to step up and lead their practices in taking extraordinary measures to ensure that their practices will be among the winners. Lynn Elliot, MBA, is CEO of Radiology Associates of Tarrant County (RATC), a 72-member practice, and is CEO of ASI, a consulting and management affiliate of RATC that provides management and consulting services to outpatient imaging centers. Both companies are based in Fort Worth, Texas.