vRad Swoops, Scoops Up NightHawk
Virtual Radiologic (vRad), Eden Prairie, Minn, has entered into an agreement to acquire pioneer teleradiology provider NightHawk Radiology, Scottsdale, Ariz, for $170 million, bringing the company’s clinical firepower to 325 radiologists. The offer of $6.50 per share represents a 100% premium over NightHawk’s current street price of $3.25, and would effectively take the public company private. The announcement was preceded by the news that vRad had formed the New York Radiology Alliance with 60-person S & D Medical practice in a plan to service the Greater New York/New Jersey area. Rob Kill, vRad president and CEO, talked with imagingBiz about the company’s bullish outlook for teleradiology, finals reads, what will happen to the corporate identity that has come to describe a profession, and other topics of interest. IMAGINGBIZ: Virtual Radiology made a big investment in teleradiology this month. Why so bullish? KILL: If you go back to our earnings calls as a public company over the past two years, we consistently have said that the definition of teleradiology has evolved. In the past, it has been what I would call a very narrow definition: providing remote off-hour reads. Today, teleradiology has become a tool that is used by local radiology practices and hospitals to expand access, improve quality, and reduce cost. That evolving definition makes us very bullish on the future. The market is moving incredibly fast: These are very challenging times in health care. All radiology practices are faced with increasing demands to deliver the highest quality care in the most efficient manner possible, and for all of us, whether you are a teleradiology practice or a local radiology practice, service and quality expectations are ratcheting up at a very rapid rate. As a result, we believe the market is out there seeking new and innovative care delivery models that do what I described earlier: expand access, improve quality, reduce cost. Our belief is these recent transactions really do position us to meet those market needs, and most importantly allow us to better serve our customers. A great example of that is when you look at the combined company, we’ll have a much deeper roster of subspecialists. We will have 325 radiologists and over 75% of them will be fellowship trained. With this level of subspecialization, we can bring this, at times, scarce resource to patients who need it, which in turn improves the quality of care. And often, you can’t decouple quality from cost. For all of those reasons, we are very bullish on the future. For all of those reasons, we are very bullish on the future. IMAGINGBIZ: What are the assets you are acquiring in the NightHawk acquisition? Which ones were most attractive? KILL: We competed with Nighthawk for a long time, and we’ve always respected them as a competitor who consistently delivered high quality patient care. You can’t do that without exceptional radiologists. The heart of this combination is bringing their exceptional radiologists together with ours. NightHawk also has strong relationships with their clients, and that is very attractive to us as well. Those relationships are the result of a dedicated team.. They share a lot of the values that we do around patient care and around service. IMAGINGBIZ: What about the IT component. Isn’t there some overlap there? KILL: They have their platform, we have our platform. We signed the merger agreement earlier this week, but over the course of the next 4 to 6 months while we are in the process of regulatory and shareholder approval, we’ll begin the integration process. We’ll take a look at the two platforms and hopefully pick the best one for the business and draw the best features and functionalities from each of the platforms. At some point in time, we’ll pick the right platform for the business going forward. IMAGINGBIZ: NightHawk came out publicly with a code of conduct for acquiring final read hospital contracts. Does that mesh with how VRC does business? KILL: We have been very consistent in our approach, partnering with local radiology practices, not competing with them. So we will continue to serve our customers in a collaborative fashion and continue to focus on delivering the highest quality care possible supported by excellent service. Our philosophy has always been the same and it is consistent with NightHawk’s code of conduct published several months ago. So, no, we don’t see a change. IMAGINGBIZ: Is the preliminary reading model sustainable for teleradiology companies and their clients in this health care environment? How much of your business is currently final read? How much preliminary? KILL: Over 30% of our business is finals and this segment of our business has grown and continues to grow very rapidly. When you look at that mix of finals, it positions us very differently than most traditional teleradiology providers and it supports my earlier statements on the rapidly evolving definition of teleradiology: It has become much more than just remote off-hours reads. The preliminary business is a sustainable model. It plays a very key role for many of our customers. But over time, as practices realize that it’s inherently inefficient to read a study twice, you will most likely see finals continue to gain share of the marketplace. Whether its preliminaries or finals is probably not the core of the question. The question is this: Is the traditional teleradiology business a sustainable model? The answer is absolutely yes. IMAGINGBIZ: Do Wall Street’s requirements for growth conflict with the quality movement in health care today? KILL: The good thing is that we are a private company and we have the ability to take a much longer view on building value for our shareholders. That said, the health care market today is demanding high quality care delivered more efficiently, and that has nothing to do with Wall Street. Our belief is that the high quality/high efficiency model is what will be attractive to potential clients and growth will come from offering tremendous value to your clients. That is what we think we do. Clearly, the health care market is what is demanding where you need to be. If you can deliver that, you will grow nicely in this marketplace. IMAGINGBIZ: Do your investors share that view? KILL: We were acquired by Providence Equity (Providence, Rhode Island), and the deal closed back in July. We are now a privately held company and Providence Equity is the owner of the business. When a private equity firm comes in, they typically have a long-term view of building value in the business, and they are looking to grow: it is growth equity. With S & D and NightHawk, we are making the right investments in this business to grow it, but delivering better service to clients drove the decision. IMAGINGBIZ: What is your vision for the company moving forward? Does it include further acquisitions? KILL: I hope I don’t sound like a broken record, but our vision is fairly straightforward: We want to provide the highest quality patient care in the most efficient manner possible, which we believe is what the market and our customers are demanding. We will do it in partnership with local radiology practices, not in competition with them. Beyond that, we also license our technology, which is called VRad enterprise connect, and that helps local radiology practices and hospitals improve their efficiency. Whether through traditional teleradiology, technology, or a deeper partnership with a practice like the S & D relationship, our goal is to be there with the solutions our customers need, and they can decide how they want to partner with us. IMAGINGBIZ: One question that might be on reader’s mind is that you are acquiring an archetypal name in NightHawk. What might happen to that? KILL: We’ve got through the first quarter of 2011 before the deal closes, and between now and then, we’ve embarked on integration planning that involves team members on both sides, which will address a lot of the open questions, one of them being that NightHawk brand and that NightHawk name. We don’t have an answer yet, but obviously there is a lot of value in it. We need to respect that and we’ll make the right decisions for the combined businesses going forward, with both teams involved in those decisions.