A report on the first annual list of the 20 largest radiology-services companies
Buffeted by many of the same high winds whipping health care at large, the radiology segment known as teleradiology is undergoing significant change, according to research conducted for Radiology Business Journal’s first annual report on the 20 largest radiology-services companies. In response to downward pressure on price, to regulatory change, and to market opportunity, many of the largest providers of remote radiology interpretations are working to reformulate themselves as full-service providers of professional radiology services.
Smaller companies, instead, are targeting specific regions, subspecialties, and delivery sites. Companies on both the upper and lower ends of the size range are providing a significant number of final interpretations, compared with the number of preliminary interpretations on which teleradiologists cut their teeth.
Initially, Radiology Business Journal intended to rank the companies by number of FTEs. Because we encountered a good deal of reluctance from the companies that we sought as participants (and only half of the companies on our list self-reported their data), we decided to present the list in alphabetical order. We also observed widespread sensitivity to the term teleradiology; therefore, we opted to use the broader term, radiology-services companies, which better reflects the breadth of this segment as providers of professional services evolve.
In fact, this evolution is so marked that the term teleradiology might be facing extinction. “That might be nomenclature that is no longer applicable,” according to Nick McClure, a health-care consultant recruited by Alliance Imaging (Newport Beach, California) to oversee the divestiture of a teleradiology company that it purchased in 2010 (Radiology 24/7).
The Web-based survey was made available to readers of Radiology Business Journal and ImagingBiz.com. It also was promoted to an internal list of teleradiology and radiology-services companies gathered through Internet and telephone research. We defined radiology-services companies as providers of remote and on-site interpretations, excluding private practices (which are included in our annual ranking of the 100 largest private radiology practices).
Our intention, with the first annual list, is to initiate an annual report on this segment of the radiology marketplace; therefore, we chose to include each company that reported its data and met the definition of a radiology-services company. We did not include several large companies with websites that report neither the number of their professional staff members nor their names. Many private (and several academic) practices submitted data, but were not included in this report because they did not fit the definition of a radiology-services company.
The Patient Protection and Affordable Care Act, reimbursement cuts, and new place-of-service regulations from CMS are all causing hospitals, radiology private practices, IDTFs, and other customer groups to reassess how they are accessing professional radiology services, according to two observers of the teleradiology marketplace. “It’s not clear whether radiology will continue to be a revenue center or will become a cost center, depending on what happens to the health-care system,” McClure says. If accountable-care organizations proliferate and choose to bid out services, then radiology could be considered a cost center—which would favor low-priced providers, McClure observes.
In the hospital setting, radiology services fall somewhere between a cost center and a revenue center. While hospitals see the technical portion of radiology as a revenue center, there is a growing sentiment that professional services are a cost center.
“Hospitals have increasingly tried to get out of the professional side,” he reports, “separating out the billing and sometimes billing globally, but wanting to push that off to someone else. There’s a squeeze there as to who is going to take the haircut, I think.”
Increasingly, hospital executives are unwilling to pay the subsidies that radiology practices have earned to cover preliminary night interpretations by teleradiology companies, the trade’s traditional business. As a result, practices are rethinking how they are handling night interpretations.
“Hospitals are decreasing or eliminating the subsidies they were giving to radiology groups for night services,” according to Cheryl Sivan, a consultant with Navistree Consulting LLC. “A medium-sized group might have been getting half a million dollars. That’s driven the thinking about different options: bringing it in-house or having the teleradiology groups do final interpretations.”
Our survey responses reflect that shift from preliminary to final interpretation: All of the companies that completed the survey reported doing final interpretations, but only half reported doing preliminary interpretations (see table). For 2013, respondents reported a split of 247,082 preliminary interpretations versus 1,077,822 final interpretations.
Nonetheless, there are some factors limiting the final-interpretation market, including private-practice staffing levels and the limitations of IT. Sivan says that some practices are waiting to move to final interpretations because no longer having to overread 30 to 50 studies in the morning would put them into an overstaffed position. “They are waiting for partners to retire,” she notes.
Other deterrents to the market’s move to 100% final interpretations are the need for more historical data and the inability of many IT solutions to accommodate bidirectional information exchange. “You really need to pull and push the data back and forth easily and quickly,” Sivan says. “Those integrations have not gone so well; there are very few people in the market who are doing that well.”
The Medicare place-of-service requirements that went into effect in April 2013 also are presenting providers of remote interpretations with new staffing challenges, McClure says. “That is making it a little more challenging for teleradiology companies because you have to have a greater local presence,” he explains. A large national company might have clients in 38 states, but if it doesn’t have specific coverage that matches those payor jurisdictions, it will be forced to add physicians based in those locations or give up that business to a local competitor, he says.
In fact, this development could reverse the decline in the preliminary-interpretation market as teleradiology providers elect to offer preliminary interpretations only. “If you provide preliminary interpretations, you can be truly national, but someone else is going to have to do the final interpretations for them,” he says. These factors are driving two seemingly contradictory market trends, McClure adds: Consolidation is occurring at the top of the market, and there is a splintering at the bottom of the market (with more new, small, local entrants).
Our survey results reflect this breakdown, to some degree: Roughly half of the companies on the list have networks of 25 or more radiologists (with five having 50 or more); the other companies have networks of 20 or fewer radiologists. Just three of the survey respondents said that they don’t have on-site radiologists, indicating that even the smaller companies are putting radiologists on-site. Although some of the larger radiology-services companies position themselves as national practices, McClure believes that any company with a national presence will require a sublayer of regional pods in order to meet the needs of local payor jurisdictions.
Sivan also believes that regional services trump national presence, in the current market. “I think, strategywise, that it is not wise to spread yourself so far,” she says. “From a cost perspective, you are spending a lot more money to serve those clients because you are going to have to go see them.”
Licensing and credentialing teleradiologists in all 50 states is expensive and logistically challenging. “Credentialing all radiologists—in all hospitals—in all states is a nightmare that you’d want to avoid at all costs,” she says.
Eight years of sustained reimbursement cuts have driven prices so low that some teleradiology companies are walking away from business. “In the early days of teleradiology, the market was good for them,” Sivan says. “I’m not sure the price can go much lower for preliminary interpretations.” She says that the percentage saved when doing final versus preliminary/final interpretations (for night interpretations) can be approximately 30%, depending on the number of preliminary interpretations sent out at night; this is another factor driving the interest in providing final interpretations.
McClure agrees that price pressure and commoditization are rampant in the radiology-services market, and he shares that Radiology 24/7 began to prune away customers that were extremely price sensitive deliberately. “We would certainly have customers who would want to push prices down, and some of them went away,” he says. “At least one out of four would come back, however, because they started to appreciate that it wasn’t truly a commodity: There were other things we were providing.”
Value-added services, in this market, include medical-director assistance and medical supervision. Companies that made this list offer multiple value-added services: marketing consultation, technologist consultation, accreditation assistance, protocol assistance, and even a year’s worth of free data archiving. Every organization that submitted data for this survey reported using peer review and critical-results communications, and half of them are accredited by the Joint Commission.
Radiology-services companies are dealing with the same challenge facing private practices as they try to differentiate themselves and demonstrate quality. For success, those efforts require, McClure suggest, “an education of the customer, and I don’t know that this education has permeated the entire industry yet.”
Sivan believes that pricing has hit bottom in the preliminary-interpretation market, and she is uncertain about pricing for final interpretations. “I think the pricing is going to continue to be very competitive,” she says.
A 2011 survey1 of 363 radiology practices suggests that the market is somewhat fluid, and that decisions to make a change in providers can happen relatively quickly. More than 30% of surveyed teleradiology users planned to reevaluate teleradiology services within 18 months. A quarter of those planned to do so in less than 6 months. Better price was the number-one reason for reevaluating teleradiology providers, followed by better quality/service.
One response to the price pressure has been consolidation, and an example is the recent purchase of Radiology 24/7 by ONRAD (Riverside, California). McClure, however, sees another simultaneous trend. “Two things are going on at the same time,” he observes. “On one hand, you are getting consolidation, but as more pressure is put on reimbursement, you have more radiologists saying that they want to go into this business.”
On our list, Direct Radiology (Kirkland, Washington) is an example of a young company emerging relatively quickly to claim a sizable piece of the market. In 2012, Direct Radiology did 60,371 final interpretations and no preliminary interpretations. Last year, the company did 202,680 final interpretations and 16,223 preliminary interpretations.
“Web-based PACS removed a barrier to entry, and I think we are just seeing the beginning of it,” McClure adds. “In fact, I am seeing clouds actually being used: I know people who are beginning to use cloud-based PACS and RIS.”
Sivan also sees an industry in flux. “Some teleradiology companies have gone out of business, some have merged, and some have been bought,” she notes. “The money is not there as it used to be in a pure teleradiology practice, which is why some of them are moving to take over hospital contracts.”
McClure had to give the teleradiology business a good deal of thought. He was contracted by Alliance Imaging to assess whether professional services meshed with its technical radiology services, increasingly tied to the hospital setting. He ultimately confirmed that professional and technical radiology services were different enough that the teleradiology business was a distraction, and he set in motion the divestiture of Alliance Imaging’s teleradiology business.
The market can be broken down in multiple ways, McClure says, based on price levels, government versus nongovernment business, night versus day coverage, care setting, preliminary versus final interpretation, direct versus client billing, serving or competing with private radiology practices, and size. Most of the radiology-services companies that responded to the survey provide the complete range of subspecialty coverage, including musculoskeletal, neurological, breast-MRI, chest, and emergency radiology. Just three of the companies offer pediatric radiology, and only four offer mammography.
Sivan breaks down radiology-services companies into four market segments, with a fifth one emerging: companies performing mostly preliminary interpretations; companies providing only final and subspecialty interpretations; companies owning the hospital contract and managing the practice; teleradiology companies contracted to other companies (such as EmCare or Blue Cross); and the recently developed consortia—either of hospitals within a large health-care system or of private practices—that have come together to provide teleradiology services to consortium members, with Strategic Radiology as an example.
The third group (companies willing to own the contract and manage the practice) has created considerable concern among radiology private practices, some of which have lost contracts to these organizations, typically with access to private equity. For instance, Imaging Advantage (Santa Monica, California) has equity investment from the Blackstone Group.
Radiology Partners (Manhattan Beach, California) has attracted a $55 million equity investment from New Enterprise Associates. Neither of these organizations participated in the survey, nor do their websites provide the number of (or names of) their contracted radiologists. The larger groups on the list that completed the survey—Aris, Foundation, ONRAD, Rays, and Radisphere—all reported having hospital contracts that included on-site radiologists.
A comment from Paul R. Johnson, vice president of sales and marketing for Aris, alludes to the opportunities and challenges facing this segment of radiology-services companies: “Critics claim that teleradiology can never achieve the same quality standards as a local group,” he writes. “If an off-site professional is provided the same access to referring physicians, patient records, and relevant [prior studies], the highest-quality interpretations will result. In reality, almost all radiology today is remote, and the challenge is to maintain quality standards.”
Teleradiology emerged from a Southern California radiology practice that provided nighttime coverage for sleep-deprived radiologists, and early in the game, it was easy to recognize a pure teleradiology company. “That line is blurring now, and people are in the imaging professional services business,” McClure observes. “In many cases, if you want to be a teleradiology company, you would be foolish not to put people on-site—because you may have to do that to protect the teleradiology side of the business.”
- 2011 U.S. Teleradiology Study. Williston, VT: CapSite For Healthcare; 2011.