Like most industries, healthcare goes through cycles of expansion and consolidation. While demand for services continues to grow, many healthcare companies seek efficiencies and higher profitability through mergers and acquisitions. These moves have resulted in much larger systems and, in some cases, have disrupted long-standing relationships between hospitals and other medical practices, including radiology.
A primary driver of consolidation among radiology practices is hospital systems wanting a single, standardized level of service across all sites. Thus, it often makes sense for radiology practices to either merge with other practices to provide a unified service model, or cede the business to a corporate entity that promises to do so. Consolidation also can facilitate bigger investments in information technology, data analytics, and overall quality of service.
The downside to being merged or acquired, of course, is a loss of independence—including a possible obligation to change the current practice model—and in some cases, job redundancy. Thus, some practices are opting for alignment: a system by which various radiology groups can band together in loose or tight confederations to improve practices and efficiencies while maintaining their individuality.
Several alignment models have evolved over the past few years. These include the consortium model, in which each group maintains considerable independence; and health system-driven alliances in which the individual practices establish a corporation through which they bill as one entity and work out system-wide protocols. Both are seen by independence-minded practices as preferred to a full merger or an outright sale to a private equity-backed national radiology organization.
Before deciding which, if any, alignment model is best for an individual radiology practice, the company’s president and the COO will need to examine the various business models available; determine whether the alignment might simply be a path to a merger (which might or might not be a desirable outcome); understand what resources and practices are shared and which ones are not; and, of course, the costs and benefits.
Aligning critical service lines
At Advocate Health Care, in Park Ridge, Ill., John Anastos, DO, reports that the network he’s affiliated with felt that a value proposition could be developed through offering certain services through affiliation with other organizations, and integrating multiple radiology groups into a single organization. Aligning the critical service lines, he suggests, is a strategy that radiology groups should pursue proactively, rather than be overwhelmed by inevitable consolidation.
“In conversations with other radiology groups, we determined that our options were to do nothing; to create a solution; or have a solution created for us,” he says. “If you can establish a level of trust, and share clinical practices and similarities, you’ll find you have more in common than not.
“When you’re developing your alignment model, you need to establish your goals first. Once you know your goals, the model will follow. You can’t just copy what other alliances are doing, because if you’ve seen one model, you’ve seen one model.”
Single contracting, Anastos says, was the most important value proposition that his organization offered. Establishing single-line-authority contracting is critical for any integration, he says, so his alliance created a single board of managers.
“One major challenge there,” he says, “was to balance the small and the large groups. The smaller groups in our alliance feared that the large groups would have too much sway. So, we created a process by which, when making some decisions, it’s ‘one group, one vote’; in other situations, the larger groups have more say.”
“It’s like the Senate and the House of Representatives. For example, when we’re raising revenue that the corporation needs, groups are basically taxed proportionately, according to the number of relative value units that each one generates. For most operational decisions, it’s one vote per group.”
Anastos says his radiology alliance works on a single contract with a 12-hospital system. Employment security, he says, was the most important consideration in drawing up the contract, as well as giving imaging a more important seat at the broad healthcare table.
“We have a 10-member group, consisting of approximately 150 physicians,” he says. “Our alliance has resulted in huge savings with regard to expenses, especially on the billing side. The costs of malpractice insurance also are considerably mitigated with the single contract. Members had to pay for the startup costs of the alliance, knowing that those costs would be more than outweighed by the benefits of being part of a larger entity and not having to create their own metrics for each hospital.
“The trust factor looms the largest, when you’re putting together an alliance like this, and a lack of trust can create the greatest impediment, but as it has worked out, our various radiology groups have not lost their autonomy; they have better job security; the workload is shared. If one group is strong in some functions but not as strong in others, the latter functions can sometimes be offloaded to another member.”
While these alliances aren’t necessarily a stealthy path toward mergers and acquisitions, Anastos admits that some consolidation or realignment might make sense, somewhere down the line. “That could happen in two years, or 20,” he says. “We have no complaints so far.”
Strength in numbers
Jim Knauf, COO of Huron Valley Radiology, Ann Arbor, Mich., concedes that he’s seeing a lot of true mergers in the radiology industry. He says an alliance made more sense for his operation.
“By affiliating with this larger organization,” he says, “each practice operates on its own; antitrust issues still exist. The main advantage we see to our current relationship is the various opportunities for collaboration with a lot of groups. We strategize on how to compete; we share quality data. We definitely see an evolution toward a closer alignment, probably under a management services organization structure. But it’s an affiliation, not a merger.
“One of the good points of working with this alliance is that each member of the group is a stockholder. We develop standards, implement best practices, and compete with the international radiology market—which is mostly groups that are not owned and managed by radiologists. Our alliance is owned and managed by radiologists, and we see that as a huge advantage.”
Knauf admits that affiliation with a large alliance isn’t without its challenges. The main one, he suggests, is that alliances tend naturally toward uniformity among its members, which can lead to friction.
“Because there is not, in fact, some kind of merger going on, or structure that legally binds us together, there’s still a fair amount of decentralization,” he says. “If we start a quality initiative addressing best practices, for example, there’s no mandate that each member should adopt it. There’s a fair amount of compliance, but it’s still a loose affiliation.
“This larger organization has been around for six or seven years; we’ve been with them about 18 months. We chose them because they’re the largest alliance in the country, with close to 1,400 radiologists as core members, and all the member groups are fairly large. They do good work with quality and standards, and of course this gives us the advantage of group purchasing.”
The alignment model, Knauf says, is that each group is represented based on the size of its practice. Each individual radiologist becomes an owner. However, each practice within the organization is independent, with its own finances and its own budget.
“Just talking with these other member groups, and developing higher standards, puts us in a leadership position in the industry. That’s our goal; we have also heard more conversations on how the members can align more closely.”
“We haven’t had to give up any of our independence,” he continues. “We control our own destiny—but the alliance’s goal is to implement best practices across the industry.”
Knauf says that so far, he’s not seeing any group expressing discomfort with membership in the alliance; indeed, they’re mainly striving toward closer collaboration.
“The alliance is working for us,” he says. “Some people are frustrated that we’re not moving forward fast enough as a true aligned group. We need to learn to collaborate more closely and have true standards we can put our organization’s name on; give ourselves a brand. That’s where our biggest challenge lies so far.
“I don’t see this an interim step to a complete merger down the road. We’ve talked about local and regional mergers but never about doing anything nationwide. We’re trying to form a model that will be stronger than what we have today but will still offer a lot of independence.”
For now, Knauf says, the current alignment model is more efficient than an outright merger, which takes time and considerable compromise. With an alliance, now that its nature has been defined, each group can move faster.
“When you’re talking about, say, 18 large radiology groups, merging all of them would be a monumental task—not to mention complying with regulations across various state lines,” he says. “Also, lots of the mergers we’re seeing today are backed by private equity. We believe private equity has one primary objective: to make money for shareholders. If we can do this without allowing private equity to invest, i.e. by having the doctors invest themselves, that’s a great value-add.”
Evolving toward alignment
Gary Kramer, MD, president of Cambria Somerset Radiology in Johnstown, Penn., reports that his group is part of a conglomeration of several hospitals in western Pennsylvania: an alliance that is currently evolving. Its goal is alignment, Kramer says.
“Ours is a 17-member practice,” he notes. “Three or four years ago, I started looking for ways to solidify our futures in radiology, and to protect ourselves from predatory teleradiology practices. We wanted to be in a more secure position, if a hospital tried to own us or deploy us, or implemented some policy we didn’t like. The model we came up with would have to be the best possible for us to achieve certain goals.”
The alignment/collaboration model that Cambria Somerset currently belongs to provides access to big data analytics and helps the group to meet best practice standards, Kramer says.
“The reason that the model works well is that we identify independent radiology groups with whom to meet and collaborate,” he adds. “Each group maintains its independence. We gain scale, and thus purchasing power, on products and services such as malpractice insurance. Most radiologists want to be independent, and this collaboration lets them be so, predominantly, although they have to meet certain standards that the group creates, to maintain their standing in the group, because these members are now a reflection of all the members of the joint venture.”
Kramer describes the situation as “a win-win for the groups, and the hospitals we work with.” He and his fellow members are currently considering different names for their collaboration.
“Hospitals are thrilled because we’ve created this system,” he says. “The cost to the members will be about $10,000 per person for the first two years, then $1,000 after that, which is not much, and for that we get all of the resources of the group with which we’ve associated ourselves. The overarching purpose is to maintain our security and independence for years to come—insulating ourselves from competing factors through superior analytics and so on.”
In addition to this collaboration, Kramer and his group are working on an arrangement with a technology firm that might lure new members into the group. He says he’s only interested in potential members who can commit to high standards of quality, and that it’s beneficial to all parties if members can hold one another to those standards.
“We’re learning about other radiology groups across the country,” he says. “We don’t know how big our association will get; I don’t see a top end to it. It could be an organization of as few as 60 or 70 radiologists, or up to several hundred.
“The only downside I could see is if it’s a complete failure and we lose the investment of time, and money, but I don’t see how that could happen. This collaboration will ensure our futures for a very long time.”
It appears that these various alliances and alignments of radiologists have more similarities than differences. Some are more geographically diverse than others; some have more members than others. The objectives, though, seem to be much the same:
- develop fairly uniform best practices;
- increase the importance of radiology in the overall healthcare industry;
- increase buying and bargaining power;
- consolidate certain expenses;
- ensure continuing employment in the radiology marketplace; and
- ensure that all members have access to the best and latest technologies and clinical practice information.
Most of these organizations have specific partnership guidelines. Those of one of the largest of them include clinical excellence, quality focus, sub-specialization, group size, regional strength, strong physician and administrative leadership, and geographical coverage.
The member groups of this organization have a common data-sharing and analytics platform, and is initiating a system of centralized purchasing of certain supplies, medical malpractice insurance, and equipment maintenance contracting. The organization is also creating a reading network, by which imaging studies can be shared among members.
Finally, the organization offers an affiliate program for smaller practices that gives them access to many of its benefits.
Meanwhile, mergers and acquisitions (M&A) in radiology may become more common in 2017. To date, the rate of practice acquisition has been less than torrid, although one national private equity-backed radiology services provider
acquired two private practice in Ohio—Radiology Associates of Canton and Columbus Radiology. According to one observer, there were nine major acquisitions in 2015—more than twice the number seen in the previous two years combined—and more interested buyers are expected to come into the market in the coming year as the economy stabilizes.(1) At present, there appears to be a dearth of interested capital.
Compared to other areas of specialization, such as emergency medicine and anesthesiology, radiology is just getting started in the current cycle of mergers and acquisitions. No dominant players have emerged yet, and the radiology industry is so fragmented, nationwide, that the prospect of two or three strong national players emerging is doubtful.
Various loose confederations and alliances appear, for now, to be the more practicable alternative. As these alliances gain popularity, they’re likely to create higher and more uniform standards and best practices, as well as technological and non-technological efficiencies. Whether they’ll lead to job growth, or at least job stability, in radiology is still a question.
1. Swearingen J. Private equity and radiology: the bloom is on the rose. Radiology Business Journal. 2016;9(3):10-12.
2. Rich Smith, JD, based in River Pines, Calif, is a contributing writer for Radiology Business Journal, covering the fields of healthcare and law.