Editor’s Note: This story has been updated to include additional quotes and context.
Florida-based physician firm Mednax announced Friday that it intends to sell its Radiology Solutions business line and change its name back to Pediatrix Medical Group. The move is a hark back to its roots, starting as a single neonatology group under that same title in 1979.
Company leaders said they had already been in advanced discussions to divest the radiology division before COVID’s arrival in the U.S. But they were forced to put those conversations on hold and will now wait until market conditions improve to execute a deal. Future proceeds will go toward paying down the company’s more than $1 billion in outstanding debt.
A shutdown in nonurgent care across the country has hampered Mednax’s imaging business in recent months, but leadership said current events did not influence their choice to seek a sale.
“This has nothing to do with COVID. This was a strategic decision that was made independent of the pandemic,” Matt Devine, president of Mednax Radiology Solutions, said in an interview Friday.
Prior to the public health crisis, MRS—which employs about 825 rads in hospitals and telemedicine—was expected to generate about $550 million in revenue and $90 million in adjusted earnings before interest, taxes, depreciation and amortization. However, its study volume plummeted roughly 50% in April due to COVID-19 and roughly 25% by the end of May, officials said.
To counter this slide, Mednax in April said it was cutting top executives’ pay, furloughing nonclinical employees and forgoing cash payments to its board of directors. Mednax also announced that it was selling its troubled anesthesiology line last month amid a similar slowdown in that specialty.
The company first made its move into the radiology in 2015, creating a splash with the $500 million purchase of Minnesota-based vRad. Since then, it has grown over the years by acquiring several practices across the country, culminating with the 10th such deal in January.
Last month, Mednax paid off any remaining debt on its revolving credit line, leaving the firm with about $1.75 billion in outstanding senior notes as of May 31. With roughly $90 million cash on hand, it now owes about $1.66 billion in net unpaid debt.
W. Kenneth Davis Jr., an industry watcher and partner in the law firm Katten Muchin Rosenman, expressed “surprise” Friday when hearing of Mednax’s decision to shop Radiology Solutions. The company had acquired a series of “prominent” imaging practices in recent years and conveyed excitement about the specialty as recently as February. Davis believes Friday’s news may give pause to those who look to enter and expand in radiology via borrowing.
“One of the questions that I and others have asked about these businesses during the pandemic has been their ability to weather these kinds of problems, given the heavy debt loads they typically have,” said Davis, who previously advised a private practice on its sale to Mednax. “Certainly, if you ask the industry players, they’ll tell you there’s no problem. But on the other hand, it’s common sense when you see the kinds of downturns in revenue that all radiology practices and imaging centers have seen. If you’re a Mednax or any of these other companies, you saw a profound level of reduction in your radiology-line business, and yet, you did not suddenly see a reduction in your debt.”
Radiology Solutions President Matt Devine said the division has performed “exceedingly well” in recent years, demonstrating top-line revenue growth, with practices such as Jefferson Radiology in Connecticut and Radiology Alliance in Tennessee expanding into new states. Mednax recorded $500 million in revenue from the specialty in 2019, a 9% uptick from the prior year, and half of that growth occurred organically. Mednax also boasts relationships with some of the top hospital systems in the country, he added.
The market for all types of physician services has been “hot” recently, Devine said, and he believes Radiology Solutions will turn potential buyers’ heads.
“I expect there to be tremendous interest in the marketplace,” he told Radiology Business. “This is a marquee asset. The practices that we own have all had great success before Mednax and have continued to have success after the acquisition.”
Meanwhile, the larger company said it plans to focus on its pediatrics medical line and as such, is changing its name back to Pediatrix Medical Group. The new firm’s medical groups altogether represent a network of 2,200 physicians, caring for more than 1 million babies annually in 40 states. Pediatrix and Obsetrix generated roughly $1.8 billion in revenue in 2019 alone, according to a June 5 announcement.
Paring the company down to its core practice areas will allow Pediatrix to focus on growth and profitability, officials said Friday. American Anesthesiology had become a drain for Mednax in recent years, weighing it down with inflated labor costs, a difficult reimbursement environment, and other payer-mix challenges.
“It’s a very different thing when you’re running four or five different businesses than when you’re running one,” Stephen Farber, executive VP and chief financial officer, told investors on Friday morning.