Smart Growth: Outpatient Imaging in the Age of Reform

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According to a 2011 report¹ developed by Radiology Business Journal with data from SDI (formerly Verispan), while imaging-center chains in the United States experienced a slower rate of growth in 2011 than in previous years, the total number of imaging centers in the country increased by 72, for a total of 6,383. At a time when radiology-group alignment with hospitals and health systems is making headlines as a trend, freestanding imaging continues to be strong in many markets.

Richard TownleyCreighton CookOn May 10 at the Health Connect Partners Radiology & Imaging Conference 2012, held in Miami, Florida, three large imaging-center companies presented their strategies for building an outpatient imaging presence amid some of the changes that have affected the radiology market in recent years in a session entitled “Freestanding or Hospital-based Imaging: Are You in the Right Game?” Among their representatives was Creighton Cook, director of business development for Outpatient Imaging Affiliates (OIA), who notes that his company is bullish about the future: “There is no reason to believe freestanding imaging centers won’t be a viable option for years to come,” he says.

This sentiment is echoed by consultant Richard Townley, who is president and CEO of AGI Healthcare Group. Townley observes that well run freestanding imaging centers are better able to capture revenue now (as compared with recent years). “Freestanding centers are increasingly well positioned to leverage their lower prices, better service and, often, superior quality, generally at the expense of local hospitals and weak operators,” he notes.

The OIA Model

Imaging-center chains operate according to strategies that vary widely. At OIA, Cook says, expansion strategy is largely based on joint-venture partnerships in different markets; of the chain’s 25 locations, 16 are hospital or radiology-group joint ventures, eight are wholly owned, and one is managed by the company. “From our standpoint and from a joint-venture standpoint, the number-one thing we bring to a relationship is focus,” he says. “Every single day, we’re working on how we can operate the center better. When we find something that works well, we can duplicate it at all of our centers.”

All of a center’s activities that don’t directly produce revenue—credentialing, billing, collections, accounting, and so on—are handled at company headquarters, so the center is free to focus on patients and referring physicians, Cook says. “Hospitals struggle with some functions we do very well,” he notes. “Their service levels are not as high. They centralize scheduling, so waiting times on the phone are longer. Parking is harder at a hospital. Just by virtue of being smaller, we are more agile; we can make business decisions on the fly, instead of going back to committees.”

These factors, combined with the continued obsolescence of less-competitive imaging-center operators, create an ideal market for the right company, Cook says. “There are imaging centers in this country going out of business every day, most of which were not developed under a strong business plan,” he says. “Ten years later, they have older equipment, and when that equipment dies, they won’t be able to reinvest. We’re undergoing a market correction, and the survivors are going to be hospitals and quality independent owners.”

Survival of the Fittest

Hospitals have the advantage of scale, in many markets, but Townley observes that radiology benefit managers (RBMs) are shifting business away from them, in light of the current reimbursement differential between hospital-based and freestanding imaging. “We see a much better future for freestanding imaging than we saw two years ago,” he notes. “RBMs are becoming much more aggressive in steering patients to lower-cost providers, and consumers are becoming much more knowledgeable, as they face higher deductibles and copayments.”

In addition, Townley says, freestanding centers are generally able to offer faster and better service than their hospital competitors, putting them in a better position to accommodate increasing volumes both from the aging population and from those who have regained health insurance as the economy recovers. “There’s more imaging being done, and it’s more likely to be done at a freestanding center,” he summarizes. “There’s increased demand, and the operators are more efficient than they were—they are able to make money at lower revenue rates. Those things are why we feel bullish about