MDI runs mobile with a difference

April 21, 1993

Demand for MRI services has softened with the uncertainty overimminent changes in the U.S. health-care system. A question forproviders is whether this slowdown in growth of MRI proceduresis a temporary blip on a steady upward-trend line or a preludeto

Demand for MRI services has softened with the uncertainty overimminent changes in the U.S. health-care system. A question forproviders is whether this slowdown in growth of MRI proceduresis a temporary blip on a steady upward-trend line or a preludeto slower times. If Washington attempts to wring excess MRI utilizationout of the system, service providers could be squeezed in theprocess.

Signs of MRI sluggishness have surfaced in the sagging resultsof public imaging service companies. Most recently, Medical Diagnosticsof Burlington, MA, said MRI scans grew 5%--one-fourth the projectedgrowth rate--during its second quarter (end-March).

"MDI experienced lower than anticipated physician demandfor MRI services during its second quarter. (This is) attributable,we believe, to the medical community beginning to adjust to changesimplicit in health-care reform," said John A. Lynch, chairmanand CEO.

But the concept of shared imaging services could be set fora renaissance under health-care reform. Shared service firms fitto compete in a more rigorous medical environment should not onlysurvive but flourish under the new order, Lynch told SCAN.

"Health-care reform is only going to save money if thereis a consolidation of resources. That means some people are goingto be out of business. Some will be hospitals, some will be freestandingproviders," he said.

A serious obstacle lies ahead for many physician-owned imagingcenters, apart from the fact that their ownership structure isquickly being legislated out of existence through self-referralbans, Lynch said. That obstacle is the lack of integration ofmany freestanding providers, including some corporate-owned centers,into the health-care delivery system.

"What health-care reform is going to dictate is regionalnetworking of providers. That is what all hospitals are fixatedon now," he said. "The question this leads to is wherethis (trend) leaves freestanding providers of all types."

MDI believes that it is well positioned to weather the changesin health-care delivery. For one, the firm has built up its sharedMRI business slowly through the navigation of already regulatedcertificate-of-need states in the northeast. This means thereis less excess imaging capacity to shake out in the areas thefirm serves.

A more basic strength of MDI is found in its strategy of combiningfixed-site operating control with mobile flexibility in the deliveryof MRI services. Although MDI does run a standard mobile servicein New Hampshire, its sites in Massachusetts and Maine are licensedhealth-care providers, renting space in hospitals and sharingthe services of MDI's fleet of eight low- and mid-field scanners.

By sharing the MRI systems among sites, the firm keeps itscapital costs down. Equipment that would otherwise be a high fixedcost is made a variable cost, and the firm can allocate the MRIsystems where they are most needed within its own site network.

When volume increases to the point where a fixed installationis justified, the site will be converted. MDI converted its firstmobile-served site to a fixed installation earlier this year,Lynch said.

"The way we operate is opposite (that of a traditionalmobile vendor)," he said. "Instead of a hospital leasingequipment from us, we lease space from the hospital. We operateat the hospital but independent of the hospital."

In this shared-service model, the service company bears thefinancial risk rather than the hospital. In return, the firm receivesa longer term contract and retains operating control. Hospitalsmay be even less inclined to take on financial risks under a reformedhealth-care system, he said.

As a health-care provider, MDI will benefit from low equipmentprices when it converts to fixed site, Lynch noted. Most mobilevendors are feeling competitive heat as more hospitals opt tobuy their own scanners because of the attractive packages offeredby equipment vendors.

MDI has no physician partners, although some of its sites arejoint ventures with the landlord hospitals. While the bulk ofreferrals tend to come from physicians related to the hospitalin which the equipment is located, MDI generates about 25% to30% of its scan volume from physicians who are not on the hospitalstaff, he said.

MDI also differs from many mobile companies in that it is nothighly leveraged. The firm has no significant corporate debt,Lynch said. An initial public stock offering last year nettedthe firm about $11 million in equity, $10 million of which isstill available to build the business.

The MRI service firm was created in 1984, but took three yearsto obtain its first CONs and initiate operation in 1987. MDI hastaken a look at physician-owned centers for sale under pressureof federal and state legislation, but doesn't view their futureprospects optimistically.

"We have not found any physician-owned (centers) thatwe felt were either viable in the long term or were priced properly,"Lynch said.

Geographic expansion is under consideration by MDI, but thefirm expects to build on its base first, growing business at existingsites and opening new sites in the northeast region. One mistakemobile providers make is to treat health care as a national businesswhen it is really local or regional, he said.

MDI has also begun upgrading its equipment. One out of thefour Diasonics 0.35-tesla systems in its fleet is currently beingreplaced with a Philips 0.5-tesla T5 scanner. Equipment trendsare allowing service providers to take advantage of many high-fieldapplications, such as functional imaging, which are migratingto mid-field systems, Lynch said.