Two major imaging center organizations released their annual 10-K reports last month, providing the first official projections of the impact of the DRA on corporate imaging center companies. Not surprisingly, the DRA figured prominently in the risk factors section for both MQ Associates, Alpharetta, Ga, which owns MedQuest, and Alliance Imaging, Anaheim, Calif.
MedQuest, which owns and operates 90 imaging centers in 13 states, reported a net revenue of $273.5 million in 2006, with managed care and commercial payors representing more than 50% of revenue. Medicare and Medicaid was limited to 26.4%. MedQuest estimated that if the reimbursement reductions contained in the DRA had been in full effect during the year ended December 31, 2006, the impact on MedQuest’s financial results would have been an $11.0 million reduction in net revenue, and projected a similar impact for 2007 if payor and scan mix remain the same.
The report authors also noted that its estimated impact of the DRA does not include the impact of third party payors, other than Medicare, implementing comparable reductions in reimbursement.
“If other payors were to implement reductions, our results of operations, cash flows and overall financial condition would be further adversely affected. We are unable to anticipate or estimate the possibility or extent of potential reductions by non-Medicare payors.”
—MQ Associates 10-K Report
Alliance Imaging, Anaheim, Calif, provides more than 1,000 clients in 43 states with primarily MRI, PET, PET/CT, and CT services in mobile and fixed site operations, operating a total of 489 imaging systems. Most of its revenue (87%) is derived from billing hospitals and other providers, and the remainder is billed direct to third party payors for patients. Revenue from MRI is dropping, while revenue from PET is on the rise
The report states: “For full year 2006, we estimate that approximately 5.6% of our revenue was billed directly to the Medicare program, which has increased from approximately 4.3% of our revenue billed directly to the Medicare program in 2005. If the DRA cap had been in effect for full year 2006, we estimate the reduction in Medicare revenue due to the DRA reimbursement rate decrease would have been approximately $9.7 million. Additionally, the PET and PET/CT Medicare HOPPS reduction would have reduced revenue by approximately $2.8 million. Combined, the DRA and PET and PET/CT Medicare HOPPS rate reductions would have negatively impacted Alliance’s 2006 revenue and will negatively impact our 2007 revenue by a total of $12.5 million and $14.0 million, respectively. We expect that the entire revenue decrease would have directly affected earnings.” The report also states that the company is reviewing requests to renegotiate prices based on the specific client and relevant circumstances.
MQ Associates reported net revenue of $273.5 million for the year ended December 31, 2006, representing a decrease of $19.5 million, or 6.6%, from net revenue of $293.0 million for the year ended December 31, 2005. The company attributed the decrease in net revenue to the discontinuance of certain wholesale contracts, fewer lower modality procedures, lower scan volumes generally, and a net reduction in centers. Income from operations was $19.4 million for the year ended December 31, 2006, representing an increase of $4.9 million, or 34.0%, from income from operations of $14.5 million for the year ended December 31, 2005. Income from operations for the year ended December 31, 2006, includes a gain on the sale of three centers of $2.3 million. Adjusted EBITDA was $56.7 million for the year ended December 31, 2006, a decrease of $2.8 million, or 4.7%, compared to $59.5 million for the year ended December 31, 2005.
Alliance Imaging reported net revenue of $455.8 million in 2006 compared to $430.8 million in 2005, which the company attributed primarily to an increase in PET and PET/CT revenues and an increase in other modalities and other revenue, offset by lower MRI revenue. Net income was $19.3 million in 2006, compared to $19.8 million in 2005.