MEDIQ seeks growth amid service consolidation

June 16, 1993

While declining reimbursement in the U.S. has hit the shared MRIservice business hardest, shared service firms focusing on lowercost modalities are also susceptible to procedure price pressure.Consolidation may hit these industries as service economics

While declining reimbursement in the U.S. has hit the shared MRIservice business hardest, shared service firms focusing on lowercost modalities are also susceptible to procedure price pressure.Consolidation may hit these industries as service economics cometo favor larger scale operations, according to Stephen Doppelt,president and CEO of MEDIQ Imaging Services of North Andover,MA.

"There is no question we will have consolidation for aperiod of time," Doppelt told SCAN. "Demand on qualitywill continue to grow. It costs a lot of money to buy good equipment,train your techs and operate in an efficient manner."

Small firms dominate the shared ultrasound and nuclear medicinebusiness. Many of these operations were started by former imagingtechnologists who bought their own imaging systems, hired additionaltechnologists and offered services on a contractual basis.

In today's health-care environment, however, countervailingpressures for greater service quality and reduced fees may tightenthe profit vice on these smaller players. MEDIQ is in the marketto acquire small independents looking to exit the field.

"Most of these businesses service eight or 10 physicians.They have one or two technologists--one being the owner--and mayearn $800,000 to $1 million in revenue. That has been enough tomake a good living, but they are starting to get squeezed by lowerreimbursement and higher costs," said Donald M. Gleklen,MEDIQ senior vice president and group executive with oversightresponsibility for eight of the Pennsauken, NJ, health-care conglomerate's14 operating subsidiaries.

MEDIQ HAS TRIMMED its wide portfolio of businesses over the pasttwo years in an effort to maximize shareholder value and becomemore strategically focused (SCAN 3/27/91). That effort resultedin the spin-off of medical equipment lessor Copelco FinancialServices. While this process continues, the Diagnostic ImagingServices Group is considered an important part of MEDIQ and istargeted for growth, Gleklen said.

The Diagnostic Imaging Services Group is composed of both MEDIQImaging Services and MEDIQ Diagnostic & Treatment Centers,a freestanding MRI and multimodality center business, much ofwhich was picked up from American Medical International when thathospital company exited shared imaging services six years ago(SCAN 8/19/87). A third medical imaging group, independent serviceorganization MEDIQ Equipment & Maintenance Services, is structurallyoutside of the Diagnostic Imaging Services Group.

Five years ago, MEDIQ was the leading supplier of mobile CTand MRI services. The firm made what appears now to be a smartmove when it sold this capital-intensive business to Mobile Technologyof Los Angeles in 1988 (SCAN 4/13/88). Earnings at mobile MRIfirms have suffered over the past year.

"When we divested the mobile CT and MR business, we keptthe mobile ultrasound business, which had grown nicely. We madean acquisition in the Boston area that gave us a business in theMidwest and New England and started to grow this business,"Gleklen said.

MEDIQ Imaging Services made another smart move when it decreasedits position in the competitive southern California market threeyears ago with the sale of a Los Angles-based shared ultrasoundand nuclear medicine business to American Shared Hospital Servicesof San Francisco (SCAN 10/11/89).

APPLICATIONS ARE EXPANDING in both ultrasound and nuclear medicine,according to Doppelt. In nuclear medicine, the firm provides bothplanar and SPECT services, but is shifting its focus to SPECTas demand increases for this imaging procedure. While all of thefirm's SPECT installations are currently fixed-site, MEDIQ ImagingServices is preparing to enter the mobile SPECT side as well.

MEDIQ has felt the impact of current uncertainty in the health-caremarket. A drop in procedure rates, however, has been counteredby growth in the number of the company's clients both internallyand through service acquisitions. Over the long run, more completemedical coverage for the U.S. population should result in risingimaging procedure volume, Doppelt said.

Primary clients for MEDIQ Imaging Services are cardiologists,ob/gyns, urologists, internists and radiologists. The companyperforms about 12,000 procedures a month in all modalities offered,he said.

A concern at MEDIQ is that competitive scanner and servicemarkets may result in lower quality equipment being offered byvendors, he said.

"One of the dilemmas we have as an industry is that therewill be downward pressure to purchase cheaper equipment as reimbursementgoes down," Doppelt said. "We hope not to fall intothat trap. We would rather be more efficient and produce morewith a piece of equipment than have a lower quality piece of equipmentor lower quality technologists."

Large shared service companies like MEDIQ are able to keepequipment and accessory prices down by contracting for bulk purchases,he said. For instance, MEDIQ believes it is the largest U.S. purchaserof thalium and the largest purchaser of needles used in prostatebiopsies.

"We do a very high volume in this business and can commitfor a certain amount of equipment or radiopharmaceuticals overa period of time," Doppelt said. "For that we obtainsavings."

BRIEFLY NOTED:

  • Maxum Health of Dallas continues to suffer from a downturnin mobile MRI services (SCAN 3/24/93). Both president WilliamL. MacKnight and COO Nancy J. Corday resigned last month. An outsidemanagement firm, Alpha Partners, has been hired to take over seniormanagement functions.

  • Imaging center firm Health Images of Atlanta signed ona large HMO customer in the Dallas and Fort Worth, TX, areas thismonth. HI will provide imaging services to 99,000 members of HarrisMethodist Health Plan and, potentially, another 100,000 patientsunder an existing joint venture contract between HMHP and California-basedFoundation Health Federal Services.