Consolidation: What's Continuing To Push The Trend?

May 22, 2017

The move toward greater consolidation in radiology is still going strong, and several drivers are behind it.

For radiologists practicing in free-standing, independent imaging centers, your day-to-day clinical practice probably hasn't changed much in recent years. You go to work, read images, provide a diagnosis, and go home.  But, can you say you've had the same financial stability during this time? Chances are, no, and the reasons behind it are multi-factorial. If you're like a growing number of your colleagues nationwide, you could be wondering if you might have an easier time if you had a partner. It's this prevailing thought that has kept the trend toward consolidation in radiology hot with no signs of cooling. Sometimes the driver behind mergers or acquisitions is a shift in professional culture, but the greater impetus is economic concerns largely due to governmental requirements and regulations. "The trend for mergers and consolidation has existed for many years with radiology practices, but has picked up pace over the past few years due, primarily, to the evolving macro health care environment and the emergence of private equity-backed groups," said Michael Mahoney, an analyst with Provident Healthcare Partners, a health care investment banking firm. "It's been catalyzed by hospital consolidation and shifting payment systems, which have motivated independent radiology groups to seek partners." As radiology practices and groups are falling subject to a growing number of government regulations, pressure to provide an increasing level of service and more analytics and data is also growing. For many in radiology, the only way to meet the demands is to partner up. Consolidation Types According to Mahoney, radiology practices have different models to choose from when considering consolidation. Each structure offers different governance and benefits, so it's up to your radiology group to determine which model is most suitable for your specific situation.  1. Mega-group: With this model, your practice opts to join a larger, physician-led group, such as Aris Radiology, Radiology Partners, Riverside Radiology & Interventional Associates, Envision Healthcare, or MEDNAX, assimilating into a structure that offers you streamlined billing, recruiting, IT, marketing, accounting, and other administrative activities. It's also a way to be part of a group that offers a wider array of sub-specialties -- and even super-sub-specialties, which is often very well-received by hospital partners, Mahoney said. Despite the large group size, though, member practices often maintain significant local control over scheduling, workflow, and hospital relationships. In some cases, they also retain partial equity ownership so that radiologists participate financially in the growth up-side of these mega-groups.  2. Private Equity Investment: Popular among other physician specialties, this model involves a group of investors interested in acquiring equity positions in practices, Mahoney said, providing capital and foundational support to encourage growth and contract stability. Overall, investments are largely being made into a radiology group's clinical, administrative, and IT infrastructure, as well as being devoted toward acquiring other practices. Using these funds, it's possible for radiology practices to expand into multi-region or multi-state providers, and radiologists retain partial equity ownership in a private equitable transaction.  Over the past few years, Mahoney said, the private equity community has increased its interest in radiology. For example, Radiology Partners recently announced an additional $200-million investment from their private equity partner, New Enterprise Associates. Additionally, other private equity forms are also seeking new investment opportunities into the specialty, continuing the trend that first touched other hospital-based specialties, such as anesthesia and emergency medicine.  Driving Forces 1. MACRA Reporting: As of January 1 this year, the requirement for reporting on quality metrics under MACRA was effective. While you have until January 2019 to comply before the Centers for Medicare & Medicaid Services dings your reimbursement, it's clear radiology will have difficulty meeting these requirements alone because your payments are still tied to how well your referring physicians comply.  Abiding by the law does require a financial investment. So, if you're linked to a large hospital or health system, it will be easier overall for you to fulfill the quality reporting requirements and weather the financial impact, said Matt Richardson, chief operating officer for Aris Radiology, a 140-radiologist, nationwide teleradiology practice.  "Feedback from physicians is that they're looking for a large capital partner like a hospital or health system," he said. "Most providers want to practice medicine rather than worry about the business headaches." 2. Technology: Compared to other specialties, radiology is tasked to operate at a high technological level. The latest modalities, RIS, PACS, and software requirements that allow for greater interoperability and workflow carry a heavy price tag. The capital investment can be significant, and many smaller or free-standing practices are struggling to meet these professional obligations while maintaining a healthy bottom line. In some cases, these practices face the specter of lowering radiologist pay to stay afloat. If they opt to become part of a larger group or health system, shouldering the cost becomes easier, Mahoney said.  Chad Calendine, MD, Aris Radiology's chief medical officer and practicing radiologist at Nashville-based Premier Radiology, agreed. "The proper technology is very important to workflow and efficiency, and it's not cheap," he said. "Often, radiology requires IT systems beyond what we can get from hospitals alone, so we need to aggregate enough capital to support what we need." 3. Maintenance: This driving force goes hand-in-hand with the cost of technology. Whenever your equipment needs repairs or your practice needs an upgrade, the cost can be heavy. In some cases, making those changes can require more than your practice can support, forcing you to wait for needed maintenance or machines that allow you to offer the best quality services to your patients. A hospital partner can absorb the cost far easier than you can. 4. Population Health: The pivot in medicine overall toward population health rather than focusing solely on individual patients is also pushing radiology towards consolidation, according to consulting organization GE Health care Camden Group. A growing focus on treating larger groups of patients comes hand-in-hand with having a bigger cadre of providers to offer needed services.   5. Stronger Leverage: When it comes to securing appropriate reimbursement, the size of your practice matters. If your group is small, you're less likely to be able to negotiate higher reimbursement rates for your services. If you consolidate, aligning yourself with a larger practice, hospital or health system -- which already enjoys a higher reimbursement rate because of their round-the-clock services -- helps you piggy-back on their stronger leveraging position with private payers, helping to strengthen your overall financial position.  6. Retirement: Over the next decade, the industry anticipates a significant number of retirements from long-practicing radiologists. Those taking their places as specialty leaders don't often share the same work mentality. Rather than opting to own and operate a private practice, carrying the responsibility for all business decisions, the younger generation of radiologists is more attracted to being an employee of a larger health group. Doing so allows them to not only focus solely on providing patient care, but it also frees them up for a more attractive work-life balance. Disadvantages As radiology follows this trend, the potential benefits do come with risks, Mahoney said.  Employment: For many radiologists who are accustomed to running your own practice with your own policies and procedures, consolidation can be a difficult switch. Becoming a hospital employee can be a tough change. You could fear losing your autonomy, but Mahoney said that's unlikely to happen. Value: In scenarios where physician shareholders retain equity in a transaction, he said, there's no guarantee the value of the retained equity will appreciate, and your future economic value is driven by the partnership's success. Your best bet to mitigate this risk is to evaluate all available options to ensure you pick the right partner.  Culture: Changing practice structure can be hard for some radiologists to accept if they are accustomed to or prefer a smaller practice model. If you're considering consolidating with another entity, do your best to get everyone in your practice on board with your decision. It will make the transition earlier, said Aris's Richardson.  The Impact Radiology is traditionally the specialty that leads the pack when anything new emerges in medicine. This time, however, Caldenine said, radiology is lagging behind -- by nearly a decade. The initial resistance against partnerships or consolidating under a hospital umbrella have made the specialty one of the last to move in this direction.  But, that doesn't mean positive things aren't on the horizon, he said. And, the ultimate benefit will be significant.  Greater consolidation leads to standardized best practices nationwide, better benchmarking, improving branding and marketing changes, stronger IT presences, improved billing and compliance, as well as streamlined workflow. It all points to one thing -- better outcomes for patients, according to Caldenine.  "We're headed toward a greater uniformity for the patient experience," he said. "Having the ability to offer standing solutions for imaging concerns that best suit communities and patients is where we're going."