Smarter Merger/Acquisition Decisions With Revenue Forecasting: Riverside Radiology

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The growing trend of large health systems acquiring outpatient imaging centers from radiology groups can create a stressful situation for all parties involved. It can be especially difficult for a radiology group’s leadership to part with what was once a very lucrative arm of the business, but acquisition offers do not grow on trees.

Marcia FlahertyMarcia Flaherty, CEO of Riverside Radiology and Interventional Associates, Inc (Columbus, Ohio), faced just such a decision (along with the practice’s executive team) a few years ago. With its business compass always pointing toward the future, the group, which serves 45 locations, ultimately made the decision to part with Riverside Radiology’s outpatient imaging center operation, in a move that they have never regretted.

“We were forecasting that technical revenue would be affected in the future,” Flaherty says. “As we looked into the future, we felt it was an opportune time to enter into those negotiations. We’ve always had strong, mutually respectful relationships with our hospital partners, so having that high level of trust, from the start, made the entire process more manageable for all of us.”

Riverside Radiology’s decision to reduce its emphasis on gaining technical-component reimbursement ultimately paid off on January 1, 2011, when Congress changed the Multiple Procedure Payment Reduction from 25% to 50% for CT, CT angiography, MRI, MR angiography, and ultrasound exams. The numbers attest to the importance of predicting the decisions of Congress and CMS—a task that can be just as vital as predicting diagnostic trends.

Unlike CEOs in other industries, executives in the health-care world face distinct issues that undeniably complicate the prediction game. “I don’t know of very many businesses that are placed in a position where they don’t know how people are going to pay them for their services a year from now,” Flaherty notes. “It is clearly a unique challenge that keeps you on your toes.”

On the legislative front, a permanent solution for the reimbursement problem created by the Medicare sustainable growth rate each year has been delayed through the end of 2012, with Congress essentially telling CMS to rework the system completely. The move effectively punts the ball downfield during a contentious election year.

Industry advocates are still busy educating lawmakers about the benefits of radiology, while hoping to avoid additional reimbursement cuts. Thomas Lombardi, MD, secretary/treasurer at Riverside Radiology, believes that revenue prediction can only be bolstered by having a finger on the pulse of Washington, DC.

For Lombardi, who also serves as the practice’s finance chair and is a practicing radiologist, that means direct involvement in the political process. “It’s time for radiologists to step out from behind the computer monitors and become more engaged with government leaders, hospital administrators, and patient-education groups to demonstrate the value we bring to our community’s entire health-care system,” he says.

He continues, “At Riverside Radiology, we try not only to gauge what is coming down the pike, but also the likelihood that it will come to fruition. From there, we make appropriate adjustments in our business and operations to ensure we maintain our role as an integral player in our community’s health-care arena. By getting out in front of potential changes that have an impact on how we practice medicine, we are more prepared to participate in the discussion and maintain some influence over what changes ultimately occur.”

Relying on Data

Internal data might be right under your nose, but effectively mining what is relevant—while ignoring the rest—can be a difficult proposition. As a start, Flaherty recommends a serious look at RVUs, payor mix, and trends in the percentage of self-pay patients. Recent historical data, usually meaning those from the past 6 months, can provide an initial baseline forecast by location.

Long-term historical data (covering three to five years) can also be evaluated to refine the baseline forecast. Take the season into account in assessing volume declines during the months (usually January and February) when many insured patients must pay high deductibles.

Jeff Fox, COO, says, “One major winter storm is factored in, if your group is located in a cold climate. We experience 10% to 12% less volume in January and February, compared with our averages. We use this information not just for budgeting, but to