HealthSouth and USDL extend lead in U.S. imaging services consolidation

USDL keeps active despite recent legal problems

Despite a bump or two on the consolidation highway, U.S. imagingcenter acquisitions continue apace. Previously announced purchasesinvolving the two largest center firms were finalized in the lasttwo weeks. One boosts a diversified contender to the top of thefield and another shows that the fastest growing imaging servicesfirm still has what it takes to keep closing deals.

HealthSouth of Birmingham, AL, although a giant provider of therapeuticmedical services, has held a relatively small position in themedical imaging industry. But after closing its acquisition ofHealth Images this month, the healthcare provider now owns andoperates 73 imaging centers, six of which are in the U.K.

That gives HealthSouth a center chain second in size only to U.S.Diagnostic (USDL) of West Palm Beach, FL. USDL, meanwhile, addedtwo more centers and eight mobile units to its imaging businesswith the purchase of Medical Diagnostics (MDI) from Advanced NMRSystems. The agreement was finalized in late February.

Following an executive shakeup and legal difficulties relatedto USDL's former acquisitions consultant Keith Greenberg (SCAN2/19/97), the absorption of MDI signals that the company can continuebusiness as usual despite its internal turmoil. For USDL, businessas usual means growth through acquisition.

"Keith Greenberg did a good job building the company. Heis a good acquisitions guy," said Randy Sklar, USDL vicepresident of business development. "With that said, I don'tthink we will miss a beat doing transactions. We have access toall of the deals going on and a lot of good people to help putthem together."

USDL is negotiating several center purchase transactions and hassigned letters of intent, he said, although no announcements canbe made yet, he said. Adding the MDI facilities raises the firm'stotal chain to 120 imaging centers, all in the U.S.

Different strategies. HealthSouth and USDL agree on the advantagesof large center networks in this era of managed care, but theyare following two markedly different growth strategies. USDL remainsa pure imaging play, while HealthSouth has already establisheditself in all 50 states with rehabilitation and surgery businessesand will grow by combining imaging with these existing medicalservices.

"If possible, we will have a diagnostic center in every majorcity where we operate a surgery center and a rehab center,"Richard Scrushy, HealthSouth chairman and CEO, told SCAN. "Thereis a real opportunity to take these diagnostic centers, networkthem into our facilities, and pick up the referrals."

When USDL bought MDI, on the other hand, it didn't take MDI'srehabilitation business along with imaging services. That sideremained with Advanced NMR. Primarily a developer and manufacturerof MRI technology, Advanced NMR of Wilmington, MA, exited imagingservices with the sale of MDI (SCAN 2/5/97). Along with retainingMDI's rehabilitation business, however, the firm has a positionin a women's health facility scheduled to open soon.

MDI, while not a large chain, is still a strong addition to USDL,mostly because it provides the company with an entre into relativelyclosed certificate-of-need states, Sklar said. MDI operates inMassachusetts—which labels its certification to operate a scanner"determination of need" (DON)—and Virginia, bothwith stringent CON laws.

All four MDI mobile routes running in Massachusetts use state-of-the-artPhilips 1.5-tesla MRI systems, Sklar said. They service high-volumehospitals, performing 300 to 400 scans a month, which is equivalentin volume to a fixed site.

Meanwhile, HealthSouth believes it will have a strong competitiveadvantage in providing nationwide imaging services as it buildsthe business to the scale of its existing rehab and surgery sides.The company already has managed-care capitated contracts for 100million lives in the U.S. and covers 30 million more lives throughprograms with large self-insured companies, Scrushy said.

"Certainly we can add the diagnostic component in many ofthose contracts so that we have a built-in patient flow,"he said. "Many other imaging center (companies) will be challengedto start out with those types of relationships. If you don't havethe geographic presence, it's hard to sign a national contract."

While HealthSouth will maintain much of Health Images' operationsand personnel, the business will be folded into its existing diagnosticdivision and centers will use the HealthSouth name. HealthSouthis still evaluating Health Images' MRI manufacturing program,according to a HealthSouth spokesperson. No decision has beenmade yet whether to continue HI's strategy of using its own MRIequipment to keep down center costs.