Imaging’s pit and pendulum

December 20, 2007

As a consultant, I have the opportunity to speak with many operators, vendors, payers, analysts, and banks about the future of outpatient imaging. In our conversations, I share trends, numbers, and perceived areas of growth. What they want to talk about most is financials, particularly what 2008 will bring. It’s a curiosity that these folks, no doubt, share with vendors.

As a consultant, I have the opportunity to speak with many operators, vendors, payers, analysts, and banks about the future of outpatient imaging. In our conversations, I share trends, numbers, and perceived areas of growth. What they want to talk about most is financials, particularly what 2008 will bring. It's a curiosity that these folks, no doubt, share with vendors.

Imaging centers and vendors have shared much over the past year. Little of it has been good.

Of the 6037 free-standing outpatient facilities operating at the start of 2007, 10% have closed, consolidated, or fallen into default. The Deficit Reduction Act did much of the damage, as reimbursements from 2006 withered and imaging centers felt the pinch. The number of centers may shrink another 10% in the year ahead, even though procedures are expected to grow, paradoxically, in the double digits. This continues a trend that has gone on since at least 1999.

Despite the shrinking provider base and increased demand for services, the opportunity of centers to invest in their future has all but vanished. Revolving credit lines are tapped dry. Investors aren't seeing the returns they were promised, so they're hesitant to put in more capital. And operating capital is being squeezed not only by the DRA but by utilization management companies (also known as radiology benefit management companies, or RBCs). These RBCs are clamping down on "overutilization" and privileging requirements.

In the year ahead, the influence of the RBCs is expected to grow. Already many, including MedSolutions, AIM, and NIA, manage the imaging expenditures covering more than 38 million lives. What else will centers soon face? Key trends are unmistakable. Some will make life harder for centers, some easier.

Others could have either effect, depending on how they play out:

  • o Payers, both government and commercial, will be more organized and aggressive in their management of imaging costs.

  • o Price transparencies will develop in the freestanding market.

  • o Emerging federal and state regulations and oversight will alter how and where outpatient imaging is delivered, pushing volume back into radiology practices and hospitals.

  • o Imaging demand and volumes will continue to increase by 8% to 10%.

  • o Imaging providers will need to demonstrate and deliver quality, cost, and service levels to payers, providers, and consumers.

  • o Large multispecialty group practices will become significant imaging providers in many markets.

  • o Consumer and physician expectations regarding patient experiences will continue to rise.

o Hospitals will become savvier and better able to compete vigorously in the freestanding space.

Amid all these developments, there is an underlying reason for hope that the future will brighten, for both centers and equipment vendors. The combination of center closures, consolidations, and stagnated growth by entrepreneurs will begin to create enough volume for those remaining centers to become profitable. Possibly in the latter half of 2008, these volumes will justify new big-ticket purchase prices. In essence, the pendulum that has wreaked havoc in the imaging centers community will swing the other way, bringing along a period of rebuilding and growth.

Steven R. Renard is a diagnostic imaging and radiology industry consultant who has nearly 15 years of related experience, primarily in imaging center operations.