One would think a metropolitan radiology practice that is 100% dependant on the outpatient market for all income would be at a competitive disadvantage in this post-DRA marketplace. But, if the practice in question were Nassau Radiologic Group, one would be dead wrong. The 40-person practice, founded in 1927 and based in western/northern Nassau County, is currently considering multiple acquisitions and has embarked on a new wave of investment in bolstering its infrastructure and digitizing technology. ImagingBiz.com discussed this and other topics with practice chief executive Annette Marinaccio, CPA, who has directed business operations for Nassau since 1988. Nassau County is a suburban county in the New York Metropolitan Area east of New York City on what is referred to as Long Island.

ImagingBiz.com: When and how did you land at Nassau Radiologic Group?
Marinaccio: I’m a CPA, so I was a business component during an era when it really helped for physicians to have a business component. I started with the practice in 1988. I was in public accounting before that, not even health care. It was a great mix. It was at a time when managed care was sweeping from West to East, and they were looking at capitated contracts and programs managed care was producing that were very foreign to the health care profession. I was able to help them evaluate those. So I was a bit of a pickle in a cookie jar, because they were all medical people—doctors, receptionists, technologists—there were 75 employees at the time and 12 physicians.

If I fast forward to today, we have 40 physicians and about 400 employees. Basically, my role was the central businessperson back then, and I am the central businessperson now. My role has not changed too dramatically, the scope of my role has, but my role has not. I like to say the company grew up underneath me, and I grew up with it, because obviously it is the bulk of my professional life I spent here.

What I’ve done over the course of the last 18 or so years is spearhead several financing opportunities for them, so that they could grow in an environment where doctor’s offices weren’t able to. I helped shepherd several mergers and acquisitions. In the late ‘90s there was a big Wall Street flirtation with physicians offices, so we went through a series of acquisitions at that point, and organic growth. One of the biggest, most important things was the development of a very, very formalized management infrastructure, accounting-like, very organized, which included lots of after-hours meetings with specific agendas. Our organizational chart is very specific.

ImagingBiz.com: Nassau Radiologic has been in practice since 1927, longer than any other practice in metropolitan NY. What is its niche, and what is the secret to its longevity?
Marinaccio: Back then, I don’t know that radiology was as prevalent as it is now. It was flat films and—from what they describe to me—almost torture chamber methods to get the study—spinning tables and spinning bodies. But they were basically the team of doctors that operated out of the main hospital, Nassau Hospital, at the time, and they had one small office up the block. That’s how they started in this community.

There were a couple of pivotal changes. One of them was that we entirely left the hospital setting in 1992. We are on the staff of many of the hospitals around here but we glean no income directly from hospitals. More unique than the fact that we have achieved the marriage of radiation oncology and radiation oncology all of these years is the fact that we are as successful as we are and we do not see any hospital income. Because, typically, larger practices are involved with hospital contracts, and, also typically, that is 70% of their work for 20% of their income. Yet the doctors that are inside the hospital—referrers—typically have outpatient offices of their own. And the efficiency with which we can get their patients done—a report is faxed to them within 4 hours of seeing their patients—particularly in the 80s and 90s as we were doing it then, you couldn’t match that anywhere else. That was one of the pivotal decisions made by the practice at the beginning of 92 and 93, and it was wonderful. If we wanted to get a piece of equipment, all we had to do was get the financing and negotiate. There was no administration to go through. So we were able to just grow in our marketplace.

The other big thing is that the computer industry has taken radiology and radiation oncology smack into the isocenter of medical care. For a businessperson like me, it is just overwhelming. The doctors are loving it, they’re like kids with their gadgets. It’s amazing what they can see in a noninvasive way inside of the body. They are computer-driven, medical-driven extremely intelligent physicians here. They are taking the data that they are getting off these computer consoles and they are post processing it, flipping it this way and that, just to make a diagnosis, and they love it.

One of the reasons we were able to be so successful is, unlike most other practices, we were truly able to marry the management side and the medical side. Most other medical practices around, including hospitals, have one of two models: in one model, administration and management runs everything, and the doctors are just readers, they’re dispensable. That structure does not work well for very long, at least not in this area, because in this geographic area, people aren’t sending to Nassau Radiologic, people are sending to the doctor. So the doctor is aware of that. The other model is physician-driven, where the doctor is not comfortable with hospital administration model, so they to go out on their own and do it themselves. They don’t value the management or the business side as they should, and so they try to get the cheapest person at the top. Oh, I’ll get my office manager to do that too. One model doesn’t value the medical side enough, and the other doesn’t value the management side enough.

ImagingBiz.com: Has the practice leveraged computer technology as a business tool?
Marinaccio: One of the items that has really under-delivered to health care is information technology. Because we were ahead of the curve, growing and leaving the hospital security, we needed to get the best that was out there at the time. And this was in the early 90s, mid 90s, early 2000, so what we did was have our vendors grow with us. If I took a snapshot of where we are now, I don’t know that I would choose the same vendors. Once we invest millions of dollars in PACS or RIS or hundreds of thousands of dollars, it’s more difficult to rationalize starting from scratch just to get some aspects of it that may be better. It’s not that there is any RIS or PACS that can do it all seamlessly. There are a couple out there that are getting close. Right now we are a patchwork of an RIS we put in ‘92 and PACS we put in ‘96.

ImagingBiz.com: How has the DRA impacted your approach to the market?
Marinaccio: The DRA has been devastating. First of all, we were right on top of it. The second the cuts were discussed at the beginning of last year and slipped into the DRA, we were here until all hours of the night trying to determine the effect, and as the other managed care companies jump on the bandwagon, what it would mean to this group. Within a very short span of time, we had leaned on all contacts and gotten as much information as we could, so that I felt very comfortable in my February ’06 meeting discussing with the owners of the practice what kind of hit we were going to sustain. I was also very careful to explain that like any industry in stress there are plenty of opportunities for those who can sustain the stress. The strong get stronger, the weak get weaker, that’s just the way it is.

We have something that most other doctors have not put in place, and that is a succession plan. If I viewed this as a family practice, which it’s not, I started when there were first generation doctors around the table. I am now at the tail end of the second generation and the beginning of the third generation. The grandchildren. We’ve developed a strategy to pass the practice down. The other players I mentioned typically have not developed a succession plan, and they’ve been riding high through the ‘90s and the early 2000s because of the technology boom, they’re in the center of health care just as we are. They’ve all gotten used to a certain income and now it’s not there anymore. They are going to be reaching out to figure out a succession plan for themselves, or an exit strategy. And that is a prime opportunity for a practice like ours, and that’s really what we are doing.

We are very, very carefully scrutinizing dozens of opportunities. It’s what is going to happen in the industry, there’s going to be a consolidation. And it’s going to mean two things: that is the marketplace, and the marketplace will take care of itself. We will geographically expand where we have to, and many of the players in our immediate geography will either come together with us or dissolve, maybe retire a little bit sooner than they might have. But more importantly than marketplace, because marketplace is to a large extent out of your control, is what we are doing internally, and that is bolstering our infrastructure. We are putting in fiber optic networks so that we can make the physicians more efficient in that they don’t have to physically go from office to office. We have 14 outpatient offices, and a PACS can get you that, but you need it to be very speedy, you have to be very real time. We are digitizing mammography. We are planning on digitizing general x-ray in an era when no one is spending money. We are putting in fiber optic infrastructure and the name of the game is efficiency: more volume, less money per tick, but more volume. We are creating a lot of efficiency.

ImagingBiz.com: What type of succession process have you put into place?
Marinaccio: It is set up very similar to a law firm or an accounting firm. There is the value of our practice, and I’ll backtrack here. In the early ‘90s, we were a practice like any other physician practice. Our net worth, our retained earnings was $2. We made a lot of money, but all of the money was distributed to the owners, as in any physician practice. Then in the mid-90s we had some great acquisition opportunities, and we needed money for them. So we had to go to the bank . Unlike a piece of equipment—in buying a $1 million MRI you can use that as collateral—we now needed to buy a practice. It wasn’t as easy. Professionally, it was an eye-opening growth experience for me because I now understood that the bank didn’t care that we were making money. They needed net worth. It was very tough to get financing in place. At that point, in the mid 90s, I would consider ourselves the 18-year-old who couldn’t get a credit card to save our life. We ended up getting the credit card we needed, and doing the acquisition we needed, but it was a very humbling experience.

The next partner meeting—they meet once a month—I said to them, we got what we needed, but this was really bad. You make a lot of money and no one would lend to us. So, knowing that banks only lend you money when you don’t need them, I figured we had to get ourselves into a position where we didn’t need money. Then, at least we could get financing whenever we wanted. So there was a lot of soul searching at that point among the owners, but they made a decision to keep money in the practice, to buy a certain amount on their own every year, to only take home what they felt was necessary, and keep the rest in the practice. I built up a nice financial statement.

Now we are like the 40-year-old and I’m clipping the credit card offers in the mail. It’s very different now. So they are buying in or buying out the stock, like if you own IBM. It’s stock, it’s a share, its bricks and mortar. It is unlike where you “buy into” a hospital setting,where there’s no equity. We have hard-core financial statement equity.

It’s all physician owned. At this point there are 12 owners—and it’s a fluid number, there have been as many as 19 and as few as 10—but at this point there are 12 owners. At the end of each, year they vote on a board of directors, a management committee of three, and I report directly to those three people. Those three people are involved in everything: personnel issues, strategic growth, what do you think about this, what do you think about that, there’s constant contact, so that the doctor flavor is the eminent flavor here.

ImagingBiz.com: Three of your 14 outpatient sites are radiation therapy centers. What are your plans with respect to this aspect of your practice?
Marinaccio: First of all, we are in a very saturated, dense area. People say there’s a lot of competition, and there is a lot of competition. But there’s also a lot of work, elderly patients. This area is very fertile for this, but there are other areas, surrounding areas, that are growing in their density. So our plan with radiation therapy is two-fold. Number 1, move outside our geographic area. And number 2, pick up radio-surgery, because radio-surgery is one of the very few things we’ve had to do in the hospital: you didn’t get reimbursed in the outpatient setting until November of last year. So since then, we have been working on getting equipment into one of our centrally located sites to be able to pick up this modality, which would be very helpful to us.

Typically, patients and referrers prefer to do things in a surgery center or an outpatient center if they can. It’s just easier than going into a hospital. The radiation therapy market right now is extremely dynamic. There is a model that I believe started in Texas and California that has been adopted in Florida, Atlanta, and certainly in our area. It’s a grouping of urologists—in our area I think it’s about 45—that have gotten together and developed their own radiation therapy centers. They are operating them like an ancillary service. People ask, is it legal? I say any doctor can buy a stethoscope and use it in their office. And that is what they’ve done: they bought themselves a stethoscope, assuming they are set up legally and they are operating as one entity. But that certainly is changing the dynamics in the tri-state area a lot.

The difficulty, for them, is it’s likely to be a short ride. It’s going to be a great ride while they’re taking it, but it’s going to be short. In the tri-state area, they’ve steered all of their patients toward prostate IMRT, which is a very lucrative field, as opposed to prostate seed implants. If someone comes in with prostate cancer, a urologist might say, Let’s go for seed therapy and if that’s not effective, we’ll try IMRT. With other cases, you may say, Let’s go with radiation therapy. But you take this particular urologist who is part of the 45 and he looks at this and says, if I do prostate seed implants, not only do I have to be available for this, but I don’t see any revenue from it. If I send you for IMRT, alright, you have to go for 45 treatments in a row, but someone else does it and now I see revenue from it.

So insurance carriers are paying a lot more for prostate IMRT than they were before, and they’re not paying for seeds. The seed manufacturers are going nuts, and the insurance carriers are going nuts, primarily Medicare because patients are mostly over 65. So it’s on the radar screen. It’s a matter of time before a Deficit Reduction-style, sickle to the field, occurs. But it’s a plum of an idea until that time. I’ve always told the physicians I work for and with that when doctors band together, they’re a credible force, a threat. Our marketplace is very affected right now by that, so we’ll deal with it. And the answer is really a bit of geographic growth.

ImagingBiz.com: What is your geographic market?
Marinaccio: Western, northern Nassau County. That’s where we’re located. We do about 400,000 patients a year. They are not all from that area. We get 15% from east of Hicksville in Suffolk County, 10-15% from south of Sunrise Highway. We even get people from the city and Queens, we get a lot of Queens because we’re on the border. Our facilities are located in western northern Nassau County, but we pull from all over. We have about 6,500 current referring physicians.

ImagingBiz.com: Radiology practices that include radiation oncology are very unusual today. What are the financial and cultural challenges in making this happen and how has Nassau overcome them?
Marinaccio: It’s the same financial and cultural distinctions that you have from cross-sectional to breast services. Some of them produce more than others, and some of them feel that their chosen field is different or undervalued. But I see it from radiation therapy to radiology, I see it from breast services to cross-sectional work, I see it from PET scan to the general x-ray work, everyone always seems to be positioning themselves. I don’t find those particular concerns that much more dramatic, except for the fact that the marketplace makes it more dramatic. The marketplace says, You work with radiologists? And they come back and say, Why am I working with you again?

ImagingBiz.com: What is the upside? What advantages do the dual specialties bring to Nassau?
Marinaccio: There are great synergies, patient care synergies, and that is what keeps them together. It is so seamless for a patient to come in for a PET scan and the PET scan reader is one on one in the same office with the radiation therapist. The patient care is so fluid, so that is, in the end, what keeps them together. I see it in the partner meetings. I always thought, since I didn’t come from medical, that the doctors would be, maybe, cavalier about the patients. But they are not. They are so into the patient care, grappling with cases, they come to the business meetings with film. You just know you are working for the best.

ImagingBiz.com: Does this skew your practice towards cancer care?
Marinaccio: We have a lot of philosophical discussions here all of the time and one of the things we always ask is, Are we a cancer care area? We talk about that, but we do everything here. We have 128-slice CT now doing CCTAs. We are building the coronary artery CCTA field—cancer and heart disease are at the crux of health care—but we do a huge OB-GYN practice, so we do a lot of specialty level 2s in our practice. And we do a lot of plain films, ski accidents, injuries, and orthopedic work. Many orthopedics have put in MR, and I think those will go by the wayside, too, because with the Deficit Reduction Act, these referrers are not going to be able to keep up their ones-twosy units. So, we will probably get back some of the orthopedic work we’ve lost over the years. We are very, very diversified. We do everything.

ImagingBiz.com: Looking ahead 5 or 10 years, where is Nassau headed?
Marinaccio: Nassau Rad will be geographically broader. I don’t think we will jump counties, because we did think about that. So I think the acquisitions will be where we have the ability to free up space in our existing offices. In other words, we have a new facility that is closer to your home so they can stop there instead of coming into us, so we will have the ability now where we are to do more than we can. I think it is going to be more volume and less dollars per tick, but more volume, and the doctors are always key.

The reason we have succeeded and we will always succeed, is we have a succession plan, and the practice is doctor owned. The doctors are not going anywhere. They are committed to the profession and committed to the area, so they’ve got to make it work, even if they are making less money than they made the year before. Where will we be in five years? I tell the team of people I have here—and the team is critical, actually the management team has been the consistent player throughout because the doctors change and therefore the board changes—I wish I could fast forward five years to see how we’ve fared and what we’ve done. I can’t wait to see what we’ve done in five years.