Health Images builds imaging position with purchase of 15 MedAlliance centers

Deal offers advantages to win managed-care contracts

Health Images of Atlanta has acquired 15 imaging centers fromMedAlliance of Brentwood, TN, in a deal valued at about $65 million.The transaction closed Dec. 22 and is subject to approval by MedAllianceshareholders and the Securities and Exchange Commission. If finalized,the acquisition will boost HI's holdings to include 57 diagnosticimaging centers in the U.S. and U.K.

The acquisition of the centers was foreshadowed in mid-Decemberby HI's purchase of more than $11.25 million worth of MedAlliancepreferred stock (SCAN 12/28/94). In 1993, HI and MedAlliance'searlier incarnation, ImageAmerica, had held merger talks (SCAN7/13/93). Under last month's deal, MedAlliance will continue toown and operate its physician ancillary service site divisionsand its Little Rock, AR, imaging management agreement.

The agreement indicates that the stock purchase will be partof the acquisition, according to Robert D. Carl, CEO of HealthImages.

The acquisition is not a sign that the long-awaited consolidationof the medical imaging center industry is under way due to federalanti-self-referral legislation, said Carl. In fact, it is an indicationof the opposite.

"It is important to note that we did not buy physician-ownedimaging centers," Carl said. "We bought a very well-managedgroup of imaging centers from one of the leading companies inthe field. They don't have physician investors. We are scaredto buy centers from physician investors."

Carl refused to comment as to why HI is not interested in physician-ownedcenters, but conventional wisdom in the industry has been thatthese centers, once purchased, are in danger of losing a significantnumber of their referrals. Because Health Images avoided relyingon the referrals that come with physician investors, the companyis in a very good position to deal with the current health-careenvironment, Carl said.

Carl hopes to capitalize on the increased number of centersprovided by the MedAlliance acquisition to become more proactivein the development of integrated networks and to pursue opportunitieswith managed-care organizations. An example of how the MedAlliancecenters will fit in such an HI network is seen in the Denver/ColoradoSprings area, where Health Images had only one center. With theacquisition of the MedAlliance centers in the area, HI will havefour.

The acquisition also promises to provide several other advantagesto Health Images. One relates to the multimodality aspect of thesecenters, which will provide HI with greater latitude in attractingreferrals.

"In the early days of this business, we made the rightdecision to stay away from multimodality centers," he said."Today,with managed care as prominent as it is, it is more importantto have multimodality centers."

Another advantage of adding the MedAlliance centers is thatHI may be able to benefit from certain economies of scale. Onewill be in wresting bigger discounts in purchases from suppliers;another will be in spreading administrative costs over a largerrevenue base.

"I anticipate obtaining significant gains in discountsof purchases because we will be a larger purchaser of film andother types of medical supplies," Carl said. "In termsof G&A (general and administrative) overhead, we have a certainamount of expense that can now be amortized over a broader cash-flowgenerating base."