Preparing for tomorrow’s financing labyrinth

July 14, 2006
Steven R. Renard

By now, most everyone involved with outpatient imaging of Medicare patients has lost sleep worrying about how the Deficit Reduction Act will affect the bottom-line performance of their businesses. Sustaining profitability will depend on a center’s ability to increase its efficiencies. In some cases, this translates into making capital expenditures and investing in new technology.

By now, most everyone involved with outpatient imaging of Medicare patients has lost sleep worrying about how the Deficit Reduction Act will affect the bottom-line performance of their businesses. Sustaining profitability will depend on a center's ability to increase its efficiencies. In some cases, this translates into making capital expenditures and investing in new technology.

Tomorrow's radiology centers will require equipment with greater throughput capability, more efficient front-end systems, and electronic billing and record storage to assure clean claims and the capture of additional revenue. Additionally, PACS will become a must in every center to increase productivity of the radiology staff.

The quandary lies in how to fund new equipment and technology when finance companies are tightening the reins through lending restriction. Often, these lenders decide to completely eliminate medical financing. Much of the equipment required to operate successfully in today's changing imaging arena costs hundreds of thousands - or millions - of dollars, so paying cash typically isn't an option. Liberty Pacific Medical Management, an imaging management consultancy, sees a rising trend in clientele who are experiencing difficulty with financing options. This tends to stem from lenders' nervousness over their existing portfolios and the risk of payment restrictions in the DRA.

Hence, this conservative approach has forced many finance companies to review deals with a magnifying glass. These lenders are presenting higher-than-usual interest rates and requiring that personal guarantees be attached. They have become very particular, frequently choosing outpatient center deals that include joint ventures with hospital systems or those with large, established radiology groups over smaller centers with a single radiologist or start-ups.

It wasn't long ago that all one needed to launch a new center was start-up capital and a good business plan coupled with verified and confirmed referral sources. For vendors, this usually meant they could secure financing on the equipment they sold and the deals wouldn't be left alone to die in the finance department. Today, this is no longer the case, as vendors and customers alike are seeing a sea change in the lending environment.

There are many ways to make the financing process easier for all parties, including center operators, vendors, and lenders. Consider this:

  • Imaging centers have to play the field, seeking multiple finance proposals - and vendors with financing arms have to be prepared take riskier positions.

  • Vendors should review packages and offer additional demographic or utilization data that may bolster the effectiveness of the center's business plan when the center goes looking for financing.

  • In the past, business plans needed little more than analyses based on demographics and competition. Today, they require much more, including, among other things, detailed financials, lists of referral sources, and various ownership structuring options. Vendors can help in the generation of these plans.

Steven R. Renard is president and chief operating officer of Encino, CA-based Liberty Pacific Medical Imaging, which provides third-party management, consulting, and medical development services. Liberty Pacific owns and operates medical diagnostic imaging centers, primarily in California.