GE goes on MRI acquisition prowl with HealthSouth, Advanced NMR buys

HealthSouth deal includes multimodality purchasing contract

GE Medical Systems is in the midst of a small-scale acquisition binge in the MRI market. In the last several months, the Milwaukee vendor has acquired the ultra-high-field MRI business of Advanced NMR, and has struck a deal with healthcare services provider HealthSouth that includes GE's acquisition of the former Health Images MRI R&D and manufacturing capacity.

The HealthSouth agreement is the weightier of the two, particularly because it is part of a larger accord between GE and HealthSouth. The two companies have formed a strategic alliance that promises millions of dollars in future medical imaging equipment sales for GE.

Health Images was the only imaging services company that manufactured its own MRI scanners, the HI Star line of 0.6-tesla magnets. HI Star's future was called into question, however, after Health Images was acquired by HealthSouth in March (SCAN 3/19/97). HealthSouth apparently decided that MRI manufacturing was not one of its core competencies, and sold the manufacturing and R&D assets of Health Images, according to Mark Reinstein, GE's Americas global sales and marketing manager. GE hired about 30 engineers, who were absorbed into various parts of the GE service organization. HealthSouth's assembly plant and product development laboratory in Windward, an Atlanta suburb, has been closed, Reinstein said.

The acquisition was part of a broader five-year agreement between HealthSouth and GE that calls for the replacement of about 40 MRI scanners operating at centers once part of the Health Images network. The new equipment will feature a mix of field strengths from GE's Horizon product line, including the 0.2-tesla open-style Profile and the 1.5-tesla Horizon. Although GE will initially concentrate on MRI placements, the agreement also addresses future purchases of CT, nuclear medicine, and other imaging equipment. GE will service HealthSouth's imaging equipment as well, Reinstein told SCAN.

Although not privy to specific financial details, Reinstein said GE's alliance with HealthSouth ranks second in revenue-generating potential only to GE's huge asset-management program with Columbia/HCA. The terms struck with HealthSouth are similar to those in place with the hospital chain.

"On a strategic basis, this is a partnership that we really, really wanted," he said.

GE Healthcare Services of Brentwood, TN, signed a five-year multivendor service and asset management agreement with Columbia/HCA in 1995 (SCAN 3/15/95). Under the terms of that contract, GE manages and services all of the imaging equipment assets operated at Columbia/HCA's 325 acute-care hospitals. The contract also reportedly gives GE an inside track on medical imaging equipment purchases at those facilities.

Russell Maddox, president of HealthSouth's diagnostic imaging group, declined to comment on the HealthSouth-GE alliance, citing unresolved details associated with the deal.

Health Images' turnkey approach to MRI services differentiated it from other providers of freestanding imaging services. The company's do-it-yourself concept began when founder Robert Carl acquired licensing rights to Technicare's Teslacon MRI product line from Johnson & Johnson. Carl hired key Technicare engineers, who updated the design of the 0.6-tesla superconducting system for installation exclusively at Health Images' imaging centers. With 55 imaging centers at its peak, Health Images was the industry's largest and consistently most profitable imaging services company until the emergence of U.S. Diagnostic and Medical Resources as major forces in industry consolidation in 1996.

Health Images was in the midst of upgrading its outdated MRI fleet when it was sold to HealthSouth. A new $4 million manufacturing complex, capable of producing two HI Star MRI systems a month, opened in October 1996, two months before the sale was announced. The 70,000-square-foot facility housed Health Images' manufacturing division, R&D lab, and corporate offices. Between 35 and 40 centers were scheduled to receive new scanners by the end of 1998, Health Images officials said. The company also planned to install spiral CT and open MRI systems purchased from outside vendors at sites in Houston, Denver, and Florida. Eight centers acquired from MedAlliance in 1995 were already equipped with GE MRI scanners.

HealthSouth has announced an ambitious plan to become a leading force in medical imaging services. A powerhouse with more than 1000 medical rehabilitation and surgery centers in 50 states, the Birmingham, AL, company intends to establish a medical imaging center in every major city where it operates a surgery center and a rehab center, according to chairman and CEO Richard Scrushy.

With 73 imaging centers, including four facilities in the U.K, HealthSouth is the nation's third-largest imaging center chain. U.S. Diagnostic in West Palm Beach, FL, is the market leader with 120 centers. Medical Resources in Hackensack, NJ, owns 89 centers.

Advanced NMR purchase. On a somewhat smaller scale is the Advanced NMR deal, in which GE acquired the company's 3-tesla and 4-tesla MRI manufacturing business for $5.1 million in Advanced NMR stock. The deal terminates a relationship dating back to 1994, when GE and Advanced NMR began collaborating on the research-oriented scanners (SCAN 6/1/94).

GE executives anticipate substantial growth in this specialized market sector, and said they made the purchase to acquire better control over ultra-high-field MR products. Two of five $3 million scanners built by the partnership were shipped to Japanese customers in 1996. The other experimental systems operate at the University of California, Los Angeles; the University of Florida in Gainesville; and Massachusetts General Hospital in Boston.

GE may also get an inside track on future opportunities thanks to its ownership position in ANMR, according to Yoshiaki Fujimori, general manager of global MRI operations at GE.

"We're now a stockholder," he said. "If ANMR grows or comes up with some attractive products, then we may have some opportunities."

Those attractive products are most likely to be in the realm of breast MRI, in which Advanced NMR participates through its Advanced Mammography Systems subsidiary. AMS has developed Aurora, a 0.5-tesla dedicated MR mammography scanner, and plans to build a network of breast imaging centers equipped with the magnet. A service at the Faulkner-Sagoff Centre for Breast Healthcare in Boston was scheduled to open late last month, while installations at the University of Arkansas in Little Rock and Englewood Hospital and Medical Center in Englewood, NJ, were announced in July and August.

In essence, the sale of its ultra-high-field MRI manufacturing capacity means that Advanced NMR is putting all its eggs in the MR mammography basket. At one time, Advanced NMR could count on revenues from its Medical Diagnostics (MDI) imaging services subsidiary, its InstaScan echo-planar imaging upgrade, and its ultra-high-field business. MDI was sold off to U.S. Diagnostic in March to solve a cash-flow crisis, InstaScan was discontinued due to slow sales, and now the ultra-high-field business has been divested. The company still operates a small rehabilitation center business.

Advanced NMR believes the GE investment will enhance the prospects of the MR mammography effort by strengthening the company's balance sheet, according to chairman and CEO Jack Nelson. The next step for Advanced NMR is the closing of its proposed merger with Advanced Mammography Systems, a deal announced in May (SCAN 6/11/97). The companies are awaiting approval by the Securities and Exchange Commission of proxy material that will be forwarded to shareholders for their review.

In other Advanced NMR news, the company last month announced financial results for its third quarter (end-June). The company had revenues of $921,000, compared with $11.9 million in the third quarter of 1996, when it still owned MDI. ANMR's net loss for the quarter was $926,000, compared with a net loss of $2.2 million in the same period a year ago. As of June 30, the company had available cash and cash equivalents of $7.6 million, which will be used for continuing development of Aurora, for a clinical research study on MR mammography, and to open new breast MRI centers.