Florida physician services firm Mednax made waves earlier this month, when it announced that it was exiting radiology after roughly five years in the specialty. However, leaders insist that they’re still “bullish” on imaging and see plenty of possible future deals in the pipeline to grow Radiology Solutions under new ownership.
Radiology Business recently spent a few minutes with Matt Devine, president of the company’s imaging division. He discussed COVID’s influence on the decision to sell, whether Radiology Solutions will be a hot commodity in the marketplace, and what he’d like to see in a potential suitor. What follows is an edited transcript of our conversation.
Radiology Business: I just wanted to start by getting your initial reaction to news that Mednax is exiting radiology.
Matt Devine: Mednax had already been undergoing an internal review related to our strategies going forward. This has been an ongoing process and something that's received a lot of consideration. They’ve had a lot of success and a proven track record in Pediatrix for over 40 years now. Their remaining revenue is now $1.8 billion in the pediatrics division and roughly $500 million in radiology. To me, it’s just a movement back to something they’ve had a tremendous amount of success at, and they believe that there are tremendous growth opportunities. A lot of factors went into this decision, but for us in the radiology division, it’s a great opportunity to continue our growth.
RB: Was the coronavirus crisis a factor at all in the considerations?
MD: This had nothing to do with COVID. This was a strategic decision that was months in the making and made independent of the pandemic. It was conceived well before COVID hit. Financially, Mednax is in a good position. The company doesn’t have to sell Radiology Solutions. This is more of a move to build a very focused strategy around pediatrics, but they don’t have enough capital to grow. So that’s why Mednax wants to pay down debt. We have been extremely pleased with the radiology business itself, in terms of physician engagement, the level of commitment at practices, our hospital partners, and our financial results.
RB: Could you talk about the market for this division and whether this will be a hot commodity?
MD: The physician services market is hot. There’s a multitude of physician subspecialties in which private equity is currently moving into. In radiology, they’ve obviously made a big move, too, and Mednax radiology has performed exceedingly well. We’ve been able to show very good top-line revenue growth, from an organic standpoint. Our Jefferson Radiology practice in Connecticut has grown into Massachusetts. Our Radiology Alliance practice in Tennessee has grown into Kentucky. Our Miami practice has been able to expand out beyond the city. We have a proven track record of successfully growing organically, which is important, and we’re poised to continue that success. VRad has given us an edge, as well, because it has a significant sales team and proprietary technology platform.
We understand opportunities in the market may present themselves and the hospital systems with which we are associated are some of the leading institutions in the country. Again, this is a strategic move by Mednax to really focus on the women’s and children’s division. I expect there to be tremendous interest in the marketplace. This is a marquee asset. The practices that we own have all had great success before Mednax and continued to have success after the acquisition.
RB: So, certainly this news is not an indictment of radiology?
MD: To the contrary, our CEO, Dr. Roger Medel, has been tremendously happy with our investments in radiology to date. Overall, our practices have done exceedingly well. Mednax radiology acquired vRad in 2015, and then four more practices in 2017, and subsequent to that we’ve acquired some smaller practices here and there—tuck-in acquisitions and things of that nature. We still have a pipeline of deals that we want to do, but for us, the future is bright. We’re very bullish on the specialty’s future and Mednax is too, but you have certain restraints from a capital standpoint. Focusing on the pediatrics division will allow them to grow more.
RB: How far along has the company gotten in finding a suitor?
MD: We had talked to another party prior to COVID, but that was it. We’re in the early stages of the process, right now. We were further along, but then COVID hit and banks and debt financing got shut down at that point.
RB: What traits are you seeking in a potential buyer?
MD: My sense is that we run our practices pretty efficiently. So, the best suitor is going to be able to come in and help us fund further growth into the radiology space. Our suitor would have access to capital to continue the growth that we’ve already experienced. That’s ideally what we’d want. This is more of a growth play than a take-out-costs play. If there were costs to take out, I would have actively looked to do so already.
RB: Are you starting to see a post-COVID rebound in your imaging volumes?
MD: Oh yeah, definitely. We’ve seen a big pickup early in June, and volume was already coming back pretty strong in May. For most radiology groups, their outpatient services are all opened up now. Their hospital partners are coming back online and elective surgeries are returning. My sense is we’re at a stage where we’re having some days that are as good as or better than we had pre-COVID. We’re not quite where we’d like to be, but we are coming back. I’m pleased with the trends. We never really reached a point where things flattened out at the bottom. They went down fairly quick and now they are starting to come back in the same way.
RB: Anything else you’d like to add that we’ haven’t talked about?
MD: I’m very optimistic about the future. I want to reiterate that this, in my mind, is just a focus on Pediatrix and the strategy around this specialty that they’ve built. There’s an opportunity to invest more in radiology and I’m looking forward to continuing our growth. The radiology space is highly attractive out there in the private equity world, and I think it will continue to draw a lot of attention.