InSight pursues shared-risk model for providing imaging services

October 23, 1996

GE investment wasn't a rescue effort, Atkins saysWhen imaging services firm InSight Health of Newport Beach, CA,was formed earlier this year, industry tongues started waggingabout the ownership position in the new company held by scannervendor

GE investment wasn't a rescue effort, Atkins says

When imaging services firm InSight Health of Newport Beach, CA,was formed earlier this year, industry tongues started waggingabout the ownership position in the new company held by scannervendor GE Medical Systems (SCAN 3/13/96). In exchange for debtand lease restructuring, GE became a part owner of InSight, whichwas created by the merger of American Health Services and MaxumHealth. GE now owns nonvoting preferred stock of InSight Healthconvertible into 48% of InSight's common stock.

The move marked a significant transition for GEMS from a holderof stock warrants to an actual equity investor in its customer.InSight, though, refutes the talk by some in the industry characterizingGE's investment as a rescue effort aimed at patching up demandfor its imaging equipment.

"There is no way we have that kind of leverage over GE.I have heard that kind of comment too and I chuckle at it,"said Larry Atkins, InSight president and CEO. "General Electrichad a lot of alternatives. It wasn't that they had to create InSightand end up with that investment."

While GE will receive a return on its investment if InSightperforms profitably, there are other ways that the Milwaukee vendor-- and other vendors -- might benefit from closer cooperationwith imaging service firms, he said.

A structure of shared risks and rewards in meeting the needsof the healthcare customers could benefit all vendors involvedin the provision of medical imaging services, Atkins said. Creatingthis type of integrated service structure may become a major partof InSight's business plan.

"There are two parts of our strategy," he said. "Oneis to develop a multiregional delivery system not too differentfrom what Columbia/HCA is doing (in hospital services). Second,we want to be an integrator of all the components it takes todeliver diagnostic imaging information services."

InSight offers particular core competencies in delivering imagingservices to the hospital or managed-care provider, he said. Butthe center firm doesn't know how to build and service scannersas well as GE, plan film use and image handling as well as Kodak,or optimize contrast use as well as Nycomed.

According to Atkins' vision for his firm, InSight would serveas a master contractor, ensuring that fully integrated serviceis provided to particular customers. Underlying this strategywould be an alignment of financial incentives for all vendorsinvolved so that each has a stake in success, Atkins said.

Equity participation in InSight need not be a requirement topartake in such an integrated service partnership, he said. However,if a group of vendors including InSight were to engage in a capitatedcontract to provide imaging services for a certain number of managed-carelives, each vendor would be paid on the basis of those contractedlives. The dollars received for the contract would be dividedup according to an agreed-upon formula.

"We either all make money or we don't," Atkins said."We get paid according to our success in achieving qualityobjectives and lowering costs."