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InSight Health enjoys profit growth as MRI volume offsets price decline


New financing supports aggressive acquisition modeProspects for MRI services are sound and improving. Although average reimbursement in the U.S. continues to trend down, the drop in payment levels has moderated substantially and is more than

New financing supports aggressive acquisition mode

Prospects for MRI services are sound and improving. Although average reimbursement in the U.S. continues to trend down, the drop in payment levels has moderated substantially and is more than compensated for by growing procedure volume and improved operating efficiencies. Successful imaging services firms have learned to make a profit in this higher volume, lower reimbursement world, according to veteran industry executive Larry Atkins, president and CEO of InSight Health Services of Newport Beach, CA.

One reason for the bright outlook is that managed-care groups and other providers are using MRI earlier in the diagnostic process in some clinical cases. Radiologists using MRI, spiral CT, and other high-end modalities are becoming gatekeepers, helping healthcare providers avoid unnecessary tests and overuse of primary-care physician time. Increased use of MRI is a factor in both the lower price-technical fees have dropped from over $900 to about $500 in the last five years-and improved diagnostic performance of the modality.

"What I am seeing out there with managed care is that the approval rates for MRI are higher because they recognize the diagnostic yield and the fact that it can be the single, definitive test," Atkins said.

Increased utilization of MRI, along with improvements in InSight's market share, have helped the company raise its volume at existing centers to compensate for the decline in per-procedure price, he said. Same-center growth in procedure revenue for InSight is increasing in a range of 5% to 7%. A nearly double-digit boost in same-center volume has been only partially dampened by a 3% decline in revenue per procedure.

Improved industry performance has made imaging services more attractive to outside investors. This, in turn, is providing new and more reasonably priced capital for expansion.

InSight secured new equity and debt financing in October, with the sale of $25 million in preferred stock to the Carlyle Group, and the opening of a $125 million line of credit with NationsBank. At the same time, imaging vendor GE was issued preferred stock in a debt restructuring deal with InSight that will result in a significant drop in future interest costs, Atkins said. GE was granted a seat on InSight's board of directors as part of the debt restructuring. The seat has been filled by Michael Aspinwall of GE Capital.

InSight will make use if its new financial strength to engage in aggressive acquisitions over the next 18 months, Atkins said. The company plans to add over $50 million in revenue through acquisitions, bringing total revenue (on an annualized basis at the end of fiscal 1998) to just under $200 million from the current annualized level of $120 million. InSight currently operates 37 fixed-site centers and 35 mobile routes. About 70% of revenue comes from MRI.

The company has been upgrading its mobile MRI fleet to high-field systems since the merger of Maxum Health and American Health Services 18 months ago, and is particularly interested in new self-shielded 1.5-tesla short-bore technology, Atkins said. While InSight remains about half fixed-site and half mobile, that may change in the coming year as proportionately more centers are brought on board.

InSight recently added two additions to its menu of services, dubbed the InSight Continuum: Radiology Cosource and open MRI. Radiology Cosource involves partnerships with hospitals in limited liability corporations, which own and operate both inpatient and outpatient radiology services. The Radiology Cosource agreement would enable a hospital to shift capital expenditures off its balance sheet and onto that of the new corporation, which the hospital would jointly own with InSight. InSight is negotiating deals with several hospitals.

Prospects for the Radiology Cosource concept could be improved if clinical utility is proven for new digital-detector x-ray technology, according to Atkins. Hospitals that have been putting off upgrades may then feel obligated to purchase new radiography/fluoroscopy suites and other digital technology.

"If digital radiology makes a clinical difference, then we will have hospitals all over this country facing a major retooling of their radiology departments, which means major capital expenditure," he said. "That may be the breakthrough we need in terms of expanding (Radiology Cosource) to a huge market."

InSight moved into open MRI with its acquisition in August 1996 of an open MRI center in Hayward, CA, run by Dr. Peter Rothschild, a major advocate for this low-field technology. Rothschild now serves as medical director of InSight's Open MRI subsidiary.

InSight has five open MRI installations and may consider bringing on mobile open MRI systems in 1998, Atkins said. GE signed an agreement in December to use Open MRI's Hayward site to showcase its new Signa Profile Open MRI system.

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