Maxum Health has funds for steady MRI growth

Maxum Health of Dallas will use $17 million raised from its initialpublic offering last month (SCAN 10/9/91) to reduce debt and supportsteady growth of its MRI equipment base.

The shared imaging services firm is positioned to raise furthercapital with a substantially deleveraged balance sheet. The needfor alternative equipment financing is growing as customers facea tightening of traditional sources of lease and equity funds,said William L. MacKnight, Maxum chairman and CEO.

The success of Maxum's IPO may bode well for other highly leveragedshared service firms looking for an infusion of equity (see story,page 6).

"The '80s were a decade of leverage. The '90s will beone of deleverage. For us to be competitive in the long term,we need to delever," MacKnight said. "The equity marketswere supportive of our offering, and I believe they would be supportiveof other (shared imaging service) offerings."

The bulk of Maxum's revenue growth derives from increases inimaging activity among its existing hospital and physician customerbase, MacKnight said.

"We have added about 10 MRI systems a year since 1986and expect to continue to grow at that rate," he said.

The number of MRI procedures in the U.S. is growing by about25% a year. Shared service firms can maintain growth equal tothe market by servicing customers so that their MRI business growsin sync with this expanding clinical activity, he said.

Maxum remains predominantly a mobile MRI provider, althoughthe Dallas firm does have a fixed-site imaging center in Maineand is developing two more centers. Maxum's objective is to havea full portfolio of imaging options to meet the growth requirementsof its customers, he said.

While the firm is prepared to develop freestanding imagingcenters or provide stationary relocatable facilities, mobile servicesshould remain the prime focus of Maxum's customers as they dealwith increasing cost constraints in U.S. health care, he said.

Maxum has some referring-physician partnerships, but believesthey do not violate Medicare fraud and abuse legislation. Thefirm does not rule out future physician partnerships, althoughthe need for physician funds to support new ventures has declinedwith its strengthened financial position, MacKnight said.

"This offering provides the funding to develop our projectsrather than having to rely on joint ventures with physicians toraise the equity," he said.

Even before Maxum's spin-off from Voluntary Hospitals of Americatwo years ago, the firm had its eye on raising public equity tohelp finance the large imaging capital acquisitions of its hospitalcustomers. Maxum's IPO was a culmination of this planning process,MacKnight said.

Maxum is also strengthened financially by having completedin July the writing off of $8.6 million in intangible assets relatedto its VHA contracts. Apart from this large write-off, Maxum operatedprofitably in 1990 and should continue to do so, he said.

Although 75% of Maxum's growth comes from cultivating existingcustomers, the firm has diversified away from its dependence onVHA hospitals. About 85% of Maxum's customers were VHA memberhospitals in July 1989. The VHA share is now less than 50% andshould decline further, MacKnight said.

BRIEFLY NOTED:

• Health Images completed its first imaging center acquisitionthis month. The imaging services firm expects more opportunitiesfor acquisition of physician-owned centers due to the safe harborregulations on physician ownership of centers to which they refer,said Robert D. Carl, chairman and CEO.

Tulsa Magnetic Imaging of Tulsa, OK, has operated a singleDiasonics 0.35-tesla MRI system for four years. Noninvestors accountfor the majority of referrals. HI is looking for dedicated MRIcenters that have kept their technology up to date, own theirown equipment, and have a majority of referrals from nonaffiliatedinvestors, Carl said.

• TME of Houston completed the largest partnership offeringin the company's history this month and will use the $22.5 milliongenerated to purchase or develop imaging centers that are in compliancewith safe harbors. TME plans to add as many as 15 new centersto its national network in the near future, said Cherrill Farnsworth,president and CEO.

"Industry experts believe that fewer than 10% of allhealth-care joint ventures will comply fully with safe harborregulations," said Ronald Pearson, general counsel.