Center companies seek growth through merger

April 24, 1991

As government efforts to restrict referring-physician ownershipof freestanding imaging centers wallow in the bureaucracy, theanticipated flood of independent centers up for sale has diminishedto a trickle. Imaging center chains are not finding

As government efforts to restrict referring-physician ownershipof freestanding imaging centers wallow in the bureaucracy, theanticipated flood of independent centers up for sale has diminishedto a trickle.

Imaging center chains are not finding expansion through acquisitionas easy and cheap as many had hoped. A number of center firmsmay have to combine operations to achieve economies of scale.The result will be further consolidation in the imaging centerbusiness, said Cherrill Farnsworth, president of TME, a Houstoncenter firm.

"Doctors realize that owning an imaging center is notillegal and that regulations (restricting ownership) have notbeen clarified. They are holding out. The ones that are sellingare selling at a very nice price," she told SCAN.

Medium-sized firms of 10 to 15 centers are considering mergersbecause of difficulties in attaining a critical mass of about25 centers through development and acquisition of individual imagingsites. NMR of America and Imaging Sciences (Merrill Lynch) areamong those firms contemplating mergers.

"We are going to see most of the midsized imaging centercompanies either merge with each other or join with a larger company,"Farnsworth said.

TME, armed with venture capital funds provided by New Yorkinvestment company Alan Patricof Associates (SCAN 5/9/90), hopesto play an active role in this merger process, she said. The imagingchain has 19 centers and three mobile magnetic resonance imagingscanners.

"We need to be close to 50 centers. Merging is the wayto go," she said.

TME has also been approached by large mobile imaging operatorsfor a potential merger, but is not interested in that option,Farnsworth said. The mobile firms, under pressure from growingacceptance of low-cost, low-field MRI, are eager to mix fixedsites with their imaging routes.

"Most of the bigger mobile operators seem to be talkingto fixed-site operators about merging their efforts. As a mobileroute becomes mature and a hospital turns to a fixed-site facility,they can then offer that service instead of losing the customer,"she said.

TME is adding on individual centers, but at a slow pace. Thefirm has switched its strategy from mid-field MRI centers to providinghigh-field scanners for large teaching hospitals and researchinstitutions, she said.

Teaching hospitals are contracting more outside imaging servicesas cuts in Medicare support for graduate medical school educationtake effect this year, she said.

GME reimbursement was cut from 7.7% to 4.9% of training programcosts, including equipment. This is a $20 million reduction formost medical schools. But the schools have to maintain MRI facilitiesin order to train their physicians and keep their staff, she said.

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