Alliance feels heat of MRI service slump

A continuing downturn in MRI services caused Alliance Imagingof Orange, CA, to implement restructuring of its equipment portfolioand write off receivables last month. Alliance took a $15.1 millioncharge against earnings in its third quarter (end-September),accounting for the cost of either selling, trading in, or shiftingolder machines to overseas markets or less profitable specialtyimaging applications.

The imaging service vendor also took a $2.2 million chargein the third quarter, writing down receivables and adding to areserve for doubtful accounts. Both charges will result in anestimated loss for Alliance of $1.75/share in the quarter aftertaking into account related non-cash tax credits of $4.85 million.

"The diagnostic imaging industry has been operating inan extremely difficult environment for nearly a year and has seena deterioration of scan volumes and yields, particularly on olderequipment, over the past several months," according to chairmanRichard N. Zehner.

Despite its recognition of industry hard times, Alliance continuesto generate positive cash flow and has cash holdings exceeding$5 million, Zehner said. The firm also recently secured a $6 millionrevolving bank line of credit.

MRI vendors have overproduced new equipment, creating a situationof oversupply in the industry, he said. This oversupply, combinedwith technical obsolescence, has made it hard to re-market oldersystems when service contracts expire.

Alliance is negotiating with vendors to trade in its olderunits for state-of-the-art scanners that can be more easily placedunder long-term contracts. The firm operates 73 MRI systems andeight CT units across the U.S., mostly in mobile routes.

Alliance's receivable collection problems relate primarilyto its retail business, in which the firm directly bills patientsand payers. This business is being reformed, following severanceof Alliance's relationship with an outside billing service earlierthis year.

BRIEFLY NOTED:

• Medical Diagnostics (MDI) signed a letter of intent lastmonth to acquire select assets and rights to provide MRI servicesfrom Braff Associates of Clifton Springs, NY. Braff Associatesprovides MRI services to a network of hospitals and a clinic inthe Finger Lakes region of New York.

The New York expansion should boost procedure volume for MDIof Burlington, MA, by about 5000 additional scans, according tochairman and CEO John A. Lynch.

MDI also reported authorization last month by its board ofdirectors to repurchase 250,000 shares of common stock. A weakmarket for health-care stocks has kept down the price of betterpositioned companies in the field, Lynch said. MDI plans to usethe repurchased shares for future expansion of its business.

• Diagnostic Health Services of Dallas has initiated ultrasoundservices in Mexico, according to a report last month in the MexicoBusiness Monthly. The U.S. company is working in cooperation withHomeCare International de Mexico.

DHS started operations in Mexico City in July, according tothe Mexican publication. The firm provides mobile abdominal andob/gyn testing. It plans to expand Mexican medical services toa full range of vascular and cardiac ultrasound procedures aswell as nuclear medicine.