CXOFiles No.6 Alliance Imaging’s Paul S. Viviano: Master of Diversification

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When Paul S. Viviano, joined Alliance Imaging in January of 2003, the company was almost exclusively a mobile MRI vendor. Since then, the company’s chairman of the board and CEO has overseen an aggressive diversification strategy, moving the hospital-centric company into fixed-site MRI hospital partnerships, PET/CT, and most recently radiation oncology. Viviano has a 25-year history in health care administration. Prior to accepting the position with Alliance, Viviano served as president and CEO of USC University Hospital and USC/Norris Comprehensive Cancer Center, Los Angeles, and before that spent 13 years in various positions with the St Joseph Health System after serving as CEO of Long Beach Community Hospital. He holds a Master in Health Administration from UCLA. Viviano recently shared his thoughts on the leadership with ImagingBiz.com. ImagingBiz.com: Going into 2008, what are the transformative leadership issues for imaging company executives? What do these times demand of leaders? Viviano: It’s a challenging time. As we look to ‘08, we see continued challenges for the industry. A number of forces are going to continue next year: pressure on reimbursement, utilization management pressure on advanced diagnostic procedures, and an excess supply of providers in many markets. All of those translate into a lot of pressure on all of us who provide imaging services to patients. So I think these times demand clear strategy, a devotion to high quality patient care, to serving the needs of patients from a service standpoint. All of those are going to be essential to maneuver through this very difficult time that lies ahead of us. ImagingBiz.com: Is there anything particular that you think will be important in your arsenal of management strategies and skills? Viviano: For me specifically, it is a time of great discipline. There are a lot of different strategies available, there are companies for sale, there are temptations to diversify more broadly, there are all kinds of answers, or potential answers, to the difficult challenge that we face. So it is a time to be very disciplined about investing capital wisely, about making sure your clinical infrastructure stays intact, and that you are meeting the needs of your customers and your patients specifically. It’s easy to get caught up in some of the wrong things that might lead you down an undisciciplined path that could be problematic. ImagingBiz.com: How do you see leadership being different in 2008 and beyond, not only for Alliance, but other imaging companies? Viviano: This is an era when the industry is going to contract. There are going to be fewer providers next year than there are now. That means your operating expertise needs to be honed, focused on , again, investing capital wisely, making sure you are generating the kind of volumes, generating the right staffing mix, all of those operational focuses need to be intact, along with the demand to have a strategic plan that makes sense. ImagingBiz.com: Alliance has made a significant move into the radiation oncology market. Is the convergence of radiation oncology and radiology a part of the new terrain for imaging center operators? Viviano: I think, to some degree, that there is definitely a clinical linkage between PET/CT and radiation oncology in the early diagnosis of cancer that PET/CT provides for. And then, of course, the planning efforts that go into radiation treatment planning overlap, and there is no doubt that the clinical future of radiation therapy is IGRT, image guided radiation therapy. Just by its very definition, providing real-time images to make sure that in turn the radiation is applied appropriately—right dose, right time, right location—is all going to be driven by images. So there is a clinical linkage between them that is definitely more PET/CT oriented and simulation CT oriented than it is MRI oriented. I do see a convergence to some degree. We are building radiation therapy centers and all of them will have PET/CT in them. So that’s a bit unique perhaps. We have three currently and a number of them are under construction. We haven’t given guidance yet for ‘08 on how many we will open, but a handful are currently under construction. It is going to become a meaningful part of our business by 2009. ImagingBiz.com: What are the key challenges for leaders of organizations of significant size, such as yours? Viviano: For anybody that is involved in the debt markets today, which generally go along with larger players, it’s the challenge of managing your debt, managing your balance sheet really effectively. And that’s true of any business of any size, but I think the marketplace pressures and the debt market weigh a little bit heavier on some of the bigger players. So managing that proactively, we reduced our debt by about 10% last year. So making sure that you are tending to the debt part of your balance sheet and reducing your debt is probably an important thing. This year, we haven’t because we are building cash on our balance sheet, which we eventually intend to use for acquisitions. But no doubt tending to the debt part of this is really important. ImagingBiz.com: What are your respective strategies for managing your various constituencies: customers, employees, and investment bankers? Viviano: We have been very transparent about out strategy, and our strategy has been to diversify away from mobile MRI, which we have begun in earnest. We have 75 fixed sites today, yet none 4 years ago so we have diversified effectively, all in partnership with hospitals, or on a hospital campus in a meaningful relationship with a hospital. And then PET/CT was a diversification. PET/CT is a $135 million business for us effectively, and four years ago it was a $5 million business for us. So we have diversified effectively into PET/CT, and then we will do the same thing in radiation oncology. So for us, the strategy has been, how do we meet hospital’s needs more effectively, and diversify the kinds of services that we can offer in a partnership with them, away from just mobile MRI? That’s how mobile MRI, fixed site MRI, mobile PET/CT, fixed site PET/CT, and now radiation oncology—and everything we do—revolves around our hospital base. We have been very focused on our strategy of meeting our hospitals needs and then diversifying products. In terms of other constituents, we have a large team; we have about 2,500 team members that work with us throughout the country. Providing them growth opportunities and skill development for management, career ladders and promotional opportunities, paying competitive wages, and those kinds of things have been part of how we have built a culture that is based on performance and values. Our turnover rate of our team members has been reduced dramatically as a result of our focus on creating a culture driven by clinical quality. Then for our investors, investors have a focus on return on capital, and so we invest carefully in that respect. Absent the DRA, 2007 would have been a year of growth. We are hoping that 2008 will also be a year of growth, so it is positioning the investments to yield a growth trajectory, and in this business it’s really hard to do right now. So managing the expectations of investors is an important part of all of it. ImagingBiz.com: In a market everyone projects will grow at a slower pace, what is your vision for growing your organization in a more mature market? Viviano: That’s why we offer other products. I think MRI, total mobile and fixed, is going to grow at very modest rates. So we diversified into PET/CT where the growth is greater. We diversified into radiation oncology, where the growth is going to be greater. So our strategic plan is try to address the facts of the business, and the facts are that certain components aren’t going to grow very much, so invest in other areas where there are needs that are going to grow faster. It sounds really easy. ImagingBiz.com: You were fairly early to the radiation therapy game. How do you identify such opportunities? Viviano: Yes, and we were early to the PET/CT market. The key is identifying those opportunities and making those investments at the right time. We have a terrific team, and we do a lot of planning with our team to identify new opportunities throughout the organization. That doesn’t rest in my office; it resides throughout the entire organization. We have planning committees and people who help us identify new opportunities, we are always looking at new things. We are looking at breast care imaging right now. We are looking at cardiac imaging, whether are there needs out there that we can help meet. And those ideas emanate throughout the organization. We have a team that helps model things and that’s how you stay attuned to your customers needs: by listening. ImagingBiz.com: Joint ventures with hospitals are becoming a very popular strategy. Do you see this as a winning strategy that will continue long term? Viviano: That is our strategy, so we certainly hope it is going to be here for a long time. That is our chosen path. There are a lot of strategies out there and a lot of successful ones. Ours happens to be in a partnership with a hospital, that is our model and that is our strategy. Others have different strategies, some do a little of both, some do multiple different strategies. No judgment, there are good ones out there and there are bad ones out there, but we are comfortable with ours we think it is durable, we think its viable for the long term. ImagingBiz.com: You couldn’t have foreseen that the DRA was going to push reimbursement in favor of hospitals? Viviano: You could foresee price pressure, no question, its always been a part of the landscape of health care, but to see that kind of dramatic reduction overnight, I don’t think anyone had the vision for that. So that was a surprise, a tough one. It highlights the lack of lobbying advocacy presence that our industry has not had in Washington DC. The fact that we haven’t done a great job representing the great work that we do, the wonderful advantages that imaging provides patients. We’ve not done a good job of that and that’s one of the reasons the DRA happened. ImagingBiz.com: What would you suggest is necessary with respect to the leadership required in radiology to effect change on the legislative and regulatory fronts? What do you see as necessary for the industry to pull together? Viviano: We were not members of the association that used to be called NCQDIS, now called AQI, the Association for Quality Imaging. We joined after the DRA, better late than never. We personally are working to recruit new members, and we think everyone involved in imaging ought to be a member of the association, so we can be bigger, stronger, and have a louder voice. And we are spending a lot of time. I’ve been in Washington a number of times this year. I was there last week. We met with MedPAC, we met with CMS, and we met with two Senators and a Congressman about imaging, about no more cuts. I met with my local Congresswoman this morning here in Orange County. It takes a lot of hard work, you have to be proactive, and sometimes it’s not very pleasant. But we have to have a louder voice, and to the extent your readers aren’t members of our association, they should seriously become familiar with the advantages of being a member of AQI. Without lobbying, we are going to be subject to the potential of further reimbursement cuts in the future, and that’s a bad thing.