Health Images cultivates existing center activity

February 16, 1994

Imaging center firm Health Images of Atlanta has combined a nationalmanaged-care orientation with local, individualized center plansin an effort to boost income, according to W.A. Wilson, presidentand CEO. HI will hold off expansion of its large center

Imaging center firm Health Images of Atlanta has combined a nationalmanaged-care orientation with local, individualized center plansin an effort to boost income, according to W.A. Wilson, presidentand CEO. HI will hold off expansion of its large center networkin a market characterized by declining MRI service volume.

"We're trying to hit home runs with the big contracts.At the center level, we want to hit a lot of singles. Ultimately,they will mount up," Wilson said.

HI, which builds and services its own MRI scanners, operates44 centers, including four in the U.K. The company posted a $1million profit in the third quarter of 1993 (end-September), althoughthis was a 44% drop from $1.79 million during the same periodin 1992.

"Our profitability relative to the industry is good,"Wilson said. "But you're never satisfied with a down quarter."

Nationally, HI seeks to maximize the number of exclusive orsemi-exclusive contracts it can secure from HMOs and other largepayors. This focus on managed care will allow the firm to offeran attractive price in return for the anticipated patient volume,Wilson said.

Locally, HI has developed specific operating plans for eachcenter that will help them respond better to local requirements.A major goal is to network and work more closely with local hospitalsand referring physicians, Wilson said.

HI has trimmed its operating costs substantially, aided byprice concessions from most of their principal vendors, includingtheir suppliers of film and medical supplies. The company's MRImanufacturing facility in Chardon, OH, was closed last summer,with all manufacturing consolidated into company headquartersin Atlanta. In addition, 30 employees were laid off in the firstquarter, Wilson said.

"We think we have a good handle on our cost," hesaid.

Company efforts will now focus on HI's current stable of centers,Wilson said.

"Because of the changed market, we are no longer buildingnew centers nor are we actively seeking acquisitions," Wilsonsaid.

The company also reported a 2.1% drop in same-center MRI studiesand a 3.3% decrease in same-center net revenues for the thirdquarter. Wilson attributes these results to market overcapacityand intense competition in the imaging business, specificallyfor MRI.

"There are more machines out there now relative to thenumber of scans than there were a few years ago," he said."Everyone in the imaging business is looking for more revenueand additional scans."

HI announced a $15 million capital expenditure program in Julythat will upgrade its HI Standard MRI scanner to be fully stateof the art, Wilson said. The upgrade will be funded out of operatingcash flow with no need for debt, he said.

Called HI-Star, the upgrade will offer increased power, versatility,quicker scanning and MR angiography, Wilson said. The companyhopes to finish developing the upgrade by the end of this yearand to begin implementation in the field during 1995 and 1996.

"It will give us the system architecture we think willcarry us well into the year 2000," Wilson said.

HI expects to spend $5 million developing the upgrade and $10million implementing it, Wilson said.

In addition to the $15 million upgrade, HI is developing additionalcoils and improving existing ones for its MRI system, in orderto keep its equipment up to date and increase the range of servicesoffered, Wilson said.

"We're trying to work with our existing system to continuallyimprove it," he said.

Despite the current market conditions, the MRI business remainsa good one over the long term, Wilson said.

"There are new applications being developed fairly regularlyfor MRI," he said. "The number of MRI scans will increaseover time."

Although consolidation within the imaging center industry haslong been expected, it has yet to take place. It was reportedlast year that HI was discussing a possible merger with Nashville-basedImage America (SCAN 7/14/93). However, only cursory discussionswere undertaken, Wilson said.

"We did talk to them but there's nothing substantive goingon. I would say that issue at this point is closed," he said.

While still amenable to the possibility of a merger, HI isnot currently involved in any discussions, Wilson said.

"We would be open to any type of suggestion, as wouldany responsible board (of directors)," Wilson said. "(But)I don't think it's going to happen over a very short period oftime."

Wilson replaced Robert D. Carl as president and CEO on July1 (SCAN 6/2/93). Carl, whose previous title was chairman, presidentand CEO, continues as chairman, focusing on long-term strategicplanning, Wilson said.