It’s All About Scale

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Curtis PickelleAn October 26 commentary in the Wall Street Journal entitled “Big Insurance, Big Medicine” was prescient in its evaluation of the impact on the health-care profession—the business of medicine—of the Patient Protection and Affordable Care Act. I say prescient because the predicted impact happens to parallel the transformation of the business side of medicine in ways that I have discussed in this column for the past few years; for example, consolidation has been an economic reality in the imaging segment, but is now likely to be catalyzed by the new health-care structure.

As the article notes, “Size is important in low-margin businesses . . . scale is far more central now [to insurance companies] . . . they will essentially be selling commodities, and survival will depend on enrollment volume and market share.” The article goes on to state that nearly a third of US hospitals are currently operating in the red, and many of them will be consolidated into national chains and larger local systems; likewise for physician practices. Special mention was made of recent data from the American College of Cardiology indicating that nearly 40% of private cardiology groups are currently integrating with hospitals or merging with other practices.

In a significant quote from the article, Nancy-Ann DeParle, JD, director of the White House Office of Health Reform, says, “The economic forces put in motion by the act are likely to lead to vertical organization of providers and accelerate physician employment by hospitals and aggregation into larger physician groups.” This is clearly an endorsement and anticipation of further consolidation.

As I have discussed previously, there are certain characteristics of a maturing business marketplace: integration, consolidation, smaller margins, commoditization, search for market share, and increased competition. All of these have been developing in medical imaging these past few years, and to a greater or lesser degree, each has accelerated in the past 18 months or so. Imaging has clearly moved, in its place on the life-cycle curve, from growth to maturity—which brings the field an entirely new set of business fundamentals to focus on in the search for success.

Among these are a renewed emphasis on differentiation through customer service, a reliance on marketing professionals to capture market share from weaker competitors, and the necessity of articulating your brand message in a way that will resonate with a variety of customer segments. Until recently, these fundamentals were seen as something of a luxury for practices, centers, and even some hospitals. Now, they are essential.

I used to say that the radiology landscape is changing. No longer: The message, now, is that the radiology landscape has changed, never to return to the days characterized by double-digit annual growth, perfunctory customer service, and invisible providers. This change is now being played out, on a grand scale, in the larger health-care arena. This is a tectonic shift—one that will result in changing relationships, new types of alliances, and a rule book that is rewritten as the metamorphosis unfolds.

This shift will require radiologists to be very nimble indeed, and it will signal a new era in hospital–physician relationships based on mutually beneficial expectations and levels of accountability. Although there is a great deal of uncertainty about how all of this will play out in real time, one thing is becoming increasingly apparent: size and scale matter as never before.

Curtis Kauffman-Pickelle is publisher of ImagingBiz.com and Radiology Business Journal, and is a 30-year veteran of the medical-imaging industry. He welcomes your comments at ckp@imagingbiz.com.