Our company is fortunate to have the opportunity to work with a large number of single and multisite imaging centers each year. This affords us the opportunity to observe and benchmark the financial and operating trends of a statistically significant sample size of imaging centers across the nation. This benchmarking analysis includes financial and operating performance measurements for 25 freestanding imaging centers (mostly single-site centers, with a few multisite centers) located throughout the United States. It is likely to come as little surprise that the pervasive trend in recent financial performance has been negative. Reimbursement pressure and competitive forces within many markets have led to the compression of profit margins, over the past few years. Overview of 2013 Benchmarks Before analyzing performance, we felt it important to illustrate the aggregate characteristics of the imaging centers included in our benchmarking study. The mix of modalities for any given center can certainly have an impact on overall economics. In Figures 1 and 2, we provide the characteristics—in terms of volume and net revenue (by modality, as well as by overall payor mix)—of our benchmarking sample. The dominant modalities that account for the majority of overall net revenue are MRI, mammography, and CT. The top individual payors among the benchmark imaging centers are Blue Cross Blue Shield (28%), Medicare (28%), and UnitedHealth (5%).
Figure 1. Benchmark-center characteristics: modality and payor mix.
Figure 2. EBITDA margins among benchmark centers.
EBITDA margins for the benchmark centers have averaged approximately 30%, with a median of 26.2%. While there exist some clear outliers in Figure 3, overall, there is a heavy concentration of centers with EBITDA margins on and around the 25% to 30% mark.
Figure 3. EBITDA year-over-year growth.
Average year-over-year growth has been steadily declining, largely due to overall decreases in reimbursement rates; this has strained margins across the industry. Medicare accounts for approximately 28% of net revenues for the benchmark centers, and it has been well documented that reimbursement to imaging centers has come under constant pressure over the past six years (beginning in 2007, with the DRA). Figure 3 shows our observations regarding same-center EBITDA growth since 2010. The most definitive decreases in EBITDA were seen in 2009 and 2010. Since then, the decline has been gradual, but steady. Performance exhibited by large national imaging chains appears to mirror that observed in our benchmark centers. According to Mark Stolper, CFO of RadNet, “Same-center revenue declined by 3.6%, primarily the result of lower year-over-year pricing (reimbursement) as same-center volume remained flat.” We can reasonably assume that profit performance was similar, if not worse.
Figure 4. Center expenses, as a percentage of net revenues.
VMG has also benchmarked expenses, as a percentage of net revenues. Figure 4 provides the mean, median, 25th percentile, and 75th percentiles. The largest component of overall operating expenses is salaries/wages. Other prominent expense categories include professional-interpretation fees, general/administrative costs, repair/maintenance expenses, benefits, payroll taxes, and facility rent. In looking at the 25th and 75th percentiles, the greatest variability in the expense categories is observed for facility rent, employee benefits, and general/administrative costs (which include repairs and maintenance). Lower variability is seen in salaries/wages and professional-interpretation fees.
Figure 5. Net revenue per exam (across modalities).
Figure 5 compares the net revenue per exam at the mean, median, 25th percentile, and 75th percentile for eight prominent modalities. The chart illustrates the lower and upper bounds (25th and 75th percentiles) of net revenue per exam for a typical imaging center. The disparity in net revenue per exam for many modalities is significant. Not unexpectedly, the profit margins achieved by the various centers are in direct correlation to the centers’ ability to realize more favorable reimbursement. Conclusions Given the difficult reimbursement environment within which imaging centers operate, it should be no surprise that we’ve observed a huge proliferation in transactions intended to create joint ventures between independent imaging centers and larger local health systems. Recent history has proved to be extremely challenging for the imaging industry, and the future will certainly bring additional headwinds. This challenging past, however, has given rise to a resilient industry that should be well positioned to enjoy future success. Our hope is that this benchmarking study can be used by industry participants to gauge their performance better (in relation to their peers). We expect to continue to expand this study to include additional centers and financial/operational measurements. Kevin McDonough, CFA, is a partner with VMG Health, a national health-care transaction advisory and valuation company. Bobby Katoli is a financial analyst with the company.