RMI networks to secure managed-care contracts

August 11, 1993

Tough times in the imaging center industry demand innovative solutions.While managed care has been portrayed as imaging's b¬etenoire, it presents an opportunity to increase patient referralsfor those willing to adapt, according to Swapan Sen, vice

Tough times in the imaging center industry demand innovative solutions.While managed care has been portrayed as imaging's b¬etenoire, it presents an opportunity to increase patient referralsfor those willing to adapt, according to Swapan Sen, vice presidentand general manager for Bloomfield, CT-based Raytel Medical Imaging.

"Although managed care does not provide you with highfee schedules, it does provide high volume," Sen said. "Afterthe break-even point, every patient contributes a substantialamount to the bottom line."

RMI is a wholly owned subsidiary of Raytel Medical of San Mateo,CA. RMI manages six centers and maintains a financial interestin eight others.

As part of a company focus on managed care, RMI has formeda preferred provider organization on the East Coast by contractingwith other centers. The PPO comprises over 45 centers in Delaware,Pennsylvania, New Jersey, New York City and Long Island, fiveof which are Raytel centers. The network has been operating sinceFebruary and has added about three scans per day to the volumeof member centers.

The PPO is working primarily with private insurance companiesand union funds and offers discounts to insurers for referrals,Sen said.

"There are companies on the West Coast that work onlythrough the workers' comp system, and they're kind of workers'comp mills," he said. "We do not want to be that kindof company."

RMI is planning to keep the network regional for the time beingto allow for greater marketability and responsiveness, Sen said.

"We believe a regional network has much better leveragethan a national network," Sen said. "If it works, we'lllook to do it elsewhere."

RMI is also seeking acquisitions. The company is being selective,however. Potential acquisitions must be located in markets withroom to grow, have high-quality equipment, and have a good companyhistory and reputation among referring physicians, Sen said.

"If (the center) had a lousy reputation, the perception(by physicians) is difficult to deal with," he said. "Weare in acquisition mode, but we don't want to rush in and buycenters that will get us in trouble."

Center prices remain high, sometimes three to four times thecenter's cash flow, Sen said.

"A lot of centers are for sale but are not moving becausethey are still asking for a lot of money," he said. "Idon't think they're going to (sell) that way."

RMI is avoiding physician-owned centers, and the company istrying to divest its one physician-owned center, Sen said.

"We want people to come to us because we offer good medicine,as opposed to physician ownership," Sen said.

Physician owners have not been selling out as rapidly as anticipated.However, government regulation will eventually force them out,Sen said.

"Everyone is sitting on the sidelines watching what'shappening," he said. "Nobody wants to get out. I believeby next year, however, something has to happen."

About half of RMI's centers are dedicated MRI facilities,while the remainder are multimodality operations, Sen said. RaytelMedical's other subsidiary provides cardiac pacemaker and arrhythmiamonitoring services.

Most of RMI's centers use GE Signa 1.5-tesla magnets. But thecompany is not wedded to the vendor, Sen said.

"We haven't purchased anything but GE over the last sixor seven years," he said. "But we're also keeping oureyes and ears open for developments with other companies."

A $60-million, privately held company, Raytel plans to becomepublic this year or early next year, Sen said.

"We are waiting for both the financial and imaging marketsto get better," he said. "We won't wait too long, though."

Some of the cash raised from the initial public offering couldbe used to purchase additional centers in either the radiologyor cardiology side of the business, Sen said.

"In order to become bigger than we are, we have to gopublic," he said. "It will require more cash."