CXOFiles No.2 Joseph J. McDonough Comes Full Circle, Takes Helm at Soteria

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Last month, peripatetic CEO Joseph J. McDonough returned to imaging after a 5-year hiatus, this time as CEO of Soteria Imaging Services, Louisville, Ky, with a mandate to grow. His last imaging stint was as CEO of International Radiology Group/American Imaging Management, Dallas, Texas, and since then he has served as CEO of home health care company Reliant Holdings Inc, Norcross, Ga, a custom mobility company. He next launched an internet startup that provides products and services to private schools before accepting the top job at Soteria, a privately held company owned by the Bob Jones family and Carousel Capital, Charlotte, NC. Founded in 1992, Soteria Imaging Services operates 19 imaging centers in 10 states, so far eschewing the saturated markets and first-tier cities for places like Omaha, Nebraska, Champaign, Ill, and Eau Claire, Wis. You will not find the name Soteria—Greek for salvation—anywhere in the 10 states the company operates, except, of course, at the corporate headquarters in Kentucky, a state in which Soteria operates 3 imaging centers. caught up with McDonough just three weeks after he had taken the helm of Soteria to discuss leadership challenges, objectives, and plans for the future. As the new CEO of one of the nation’s largest imaging center chains, what are the first action points on your agenda? McDONOUGH: For the next few months, we will spend our time on two primary objectives. First and foremost is making sure that the operating platform of the company is structured appropriately for future significant growth. And along with that is the IT infrastructure of the company, the operating procedures of the company. From the past three weeks of analysis, all of that appears to me to be very strong for the size that they are today. We need to make sure that the systems that are in place can support greater and significant growth, so that is the first objective. The second objective is to build or create a growth formula that will probably have several elements to it, but a formula that we can replicate consistently and quickly. So we are working on all of those elements now. Would you like to share any specifics on the growth strategy? McDONOUGH: The Soteria management team that existed before I came onto the scene really needs to be applauded for having done such a great job of anticipating the change and restructuring the company with regard to operating efficiency to be able to withstand the DRA adjustment and to position itself to be as strong as it is today. Soteria would not have anywhere near the growth potential that it does if the management team had not prepared itself the way that it did. If you look across the imaging landscape today, you are already starting to see signs of imaging companies that are feeling the negative effects and trying to react to those effects and I firmly believe that over the next 12 to 18 months you are going to see more and more imaging companies that didn’t adjust quickly enough and will have a very tough time working their way out of it. So with that, it is too early to give you any great detail about the growth of Soteria, but I will give you a couple of broad brush-strokes. First and foremost, I believe we have significant opportunity to expand the company’s presence in the markets we are already in and that has to do with increasing the relationships with the referring physicians that we work with now and enhancing some of the modalities that are already in place, that will be one of the first and key aspects of our growth plan. The second, in reference to the remarks about the DRA, we believe there will be opportunities for us in this market either in contiguous markets to where we already are or new markets that we feel strategically fit our profile, and that we will have opportunities to either replace or acquire imaging assets in the market as a result of owners and operators not appropriately adjusting to reimbursement changes. ImagingBiz.Com: What was your last position in imaging and how has imaging changed since you left? McDONOUGH: I joined International Radiology Group (IRG) as their CEO in 1999 and that was at the time a turnaround. Within 18 months, we acquired American Imaging Management (AIM) out of Chicago. IRG was headquartered in Dallas, and at the time we acquired AIM, and it was one of the three largest radiology business management companies in the country. At the time they had about 4.4 million lives under management. That was ultimately sold and that was my first foray into imaging and radiology. From what I can see so far, the most significant changes are really in the enhanced modalities, not necessarily in the operation of those facilities or the players. A lot of the same players are still around. I firmly believe that health care has about 500 people, and they just keep changing jobs. The most significant and dynamic changes really are the new applications of modalities and some of the new modalities and enhanced modalities on the horizon. For instance, when I was running IRG and AIM, PET was a cottage industry that had not been fully implemented. ImagingBiz.Com: Will your experience with AIM impact how you lead Soteria? McDONOUGH: That experience with AIM cannot help but have an impact on how we guide Soteria in the future, and the simple reason is this. Prior to being involved with AIM, all of my health care experience was on the provider side of the health care dollar. The moment that we acquired AIM, we immediately went to the other side of the table and had an opportunity to fully understand and appreciate the mindset on the payor side, and it was quite illuminating. If you only think of the health care environment from the provider side, you sometimes tend to gain a jaundiced perspective of the payor side. I was pleased to realize that on the payor side, they deal with many of the same issues and, most of the time, have the same endgame in mind, which is a service to the patient, a service to the clients, and a real desire to cooperate with the providers in the market. It was very helpful for me to witness and see the process and the policies that the payors and benefits management companies utilize to manage the market. The knowledge of that should be helpful as we construct and implement Soteria’s growth plan down the road. ImagingBiz.Com: What are the success indicators for running an imaging center chain, and what kind of tools will you employ? McDONOUGH: Any business, regardless of whether it is health care, or telecomm, can be broken down into operating metrics. And it is identifying and establishing the right operating metrics and using those not just on a monthly, but a weekly and daily basis, to understand trends, good and bad, and react to them as quickly as possible. More than anything else, over the past 10 or 15 years, I have really become a believer in a company’s ability to understand its own operating metrics and what that information tells them. In making sure and reaffirming that Soteria’s operating platform is where it needs to be in order to manage and handle significant growth, part of that is assessing the ability to analyze the effect of that growth on your company, and that all comes back to the operating metrics. I believe Soteria is 75% there. The management team has put systems in place that I was very pleased to see. We may do a little bit of tweaking in how we use those systems and the information we want to get out of them. Every company does that, refining as you go based on company issues and market issues. You are always refining the operating metrics that you want to look at, continually making sure that you are heading in the right direction. Are there any special leadership challenges in helming a geographically dispersed imaging center chain? McDONOUGH: We are in 10 states, and we have density in some areas and in others we don’t. The leadership challenges really come down to communication. All of your co-workers need a sense of confidence in who they work for and with and the mission and objective of the corporate body, and the way that you do that is through constant and consistent communication. Given the geographic challenges, most of that communication, 80% of it by necessity, is going to have to come through technology. And there again strikes to the issue of Soteria making sure that it has the right technology in place to achieve that type of communication. And then the other 20% of that communication is good old-fashioned get in the car, get on a plane, make sure that you are visible to your associates and communicating with them, and always giving them an opportunity to have input in going from point A to point B. You can never escape that. But even as much as giving the employees the comfort and confidence that someone in Minnesota is managing patient data and communicating back and forth with the corporate office the same way they are in Augusta Georgia. So that when you have a conference call within peers within a certain discipline to talk about best practices, we are all relating back to the same basic tools that everyone uses the same day. What are the most useful skills in the toolbox of an imaging center CEO in today’s reimbursement environment? McDONOUGH: The most important skill the CEO has in this reimbursement environment is making sure the right personnel and management team is in place so that the company has the ability to optimize its potential in any one market with any collection or series of pay sources. And Soteria has great people. I feel like a pretty lucky guy right now. I’ve gone into companies that were nowhere near the condition of Soteria and didn’t have near the personnel that Soteria does. So as far as I’m concerned, it is quite a benefit to have this caliber of people. It really will come down to that team of people having the operating metrics, being able to see where we are today, look at the pattern of where we’ve come over the past 12 months, and project that out into the future to say: Is this a market we want to be in? Does it have the pay sources that can give a company like ours the ability to deliver the services we need to deliver? And if not, then we’re not going to go there. What are the greatest challenges today for an entrepreneurial imaging center chain? Contracting with radiologists? Payors? McDONOUGH: I guess the greatest challenge and this is shared by just about everyone in the health care system is that there has evolved antagonistic environment, somewhat, between different factions within the provider community, and then collectively with the provider community against the payor community. It always appears that one party is at odds with the other. The toughest thing for any health care provider and certainly for an outpatient imaging provider is to enter any one market and be capable of analyzing where those factions are and how we can insert ourselves into the picture and build the best possible alliance to overcome those animosities. So that is the greatest challenge that I see. How would you describe your leadership style? McDONOUGH: My leadership style is really very basic. As the person who has the bottom line responsibility and accountability, a CEO’s responsibility is to pick the right team members, make sure that the best possible people are in each position of responsibility within the company, and work with those individuals to mutually agree on the objectives of the company and that individual’s part or role in achieving those objectives. And then, once those objectives are achieved, the CEO’s main role is to get out of those people’s way and let them do their job, be their resource to give them what they need, and equally as important, be a resource to help get obstacles out of their way. And then, at the end of the day, hold each other accountable, the CEO holding those individuals accountable for achieving their particular part of the objective, and quite frankly, those other team members holding the CEO accountable for providing them with the right resources and helping them get obstacles out of their way. It’s a partnership. Who most influenced your leadership style? McDONOUGH: I’ve worked with a number of people over the years, but I’d like to mention the gentleman that gave me my first CEO job, which was at IRG. He was the chairman of the board of IRG and his name is Jim Holland. He is the president and CEO of Hunts Capital. I learned more from him about being a CEO than I have from anyone else. Looking ahead, can you make any predictions about how outpatient imaging will be delivered in the future? McDONOUGH: One of the main reasons why I am enthusiastic about working with Soteria is getting back to imaging, it is the dynamic nature of the whole imaging field. New modalities are on the horizon and the clinical diagnostic capability that these new modalities will bring to the whole health care field is really amazing, the impact on health care will be tremendous, and we are a small piece, but a part of that industry. Along with that I can’t help but think that along with new modalities will also be the potential for the portability of those new modalities. Everything is getting smaller. And the portability factor could be 10 to 15 years away given the size of imaging devices today, but clearly we are talking over the next five to 10 years, new modalities and new uses of those modalities having an absolute impact. I think there are ebbs and flow in health care. And certainly when a new modality or a new type of outpatient or home health care delivery method comes on the scene, there is a rapid expansion of providers that get into the market to take advantage of the new sector, but after several years of that, payors catch up that explosion, they make changes, and that restructures the chairs on the deck. And you wind up having a consolidation of providers. Outpatient imaging has probably already gone through a couple of cycles of that already and will continue to do so. New modalities will come on the scene and those modalities will absolutely be adopted in the outpatient setting. There will be people who are not in outpatient imaging right now who will look at those new modalities as a good entry vehicle to start a new company, they’ll do it, and several years later, they’ll have a consolidation.