Subspecialty radiology appeals to managed-care imaging service buyers

August 15, 1994

Center firm builds teaching hospital alliancesWhile many radiologists anticipate increased competitive threatsfrom health-care changes under way in the U.S., subspecialty radiologycould benefit from greater imaging competition and managed

Center firm builds teaching hospital alliances

While many radiologists anticipate increased competitive threatsfrom health-care changes under way in the U.S., subspecialty radiologycould benefit from greater imaging competition and managed health-carepurchasing. However, rewards in the changing system will flowto those teaching hospitals and subspecialty groups that maketheir services accessible to the general community through outpatientoutreach.

Subspecialists, such as neuroradiologists, body MR imagersand pediatric radiologists, offer differentiated services thatappeal to managed-care groups and other health-care providers.These services are most appealing when offered at a price comparableto general radiology, according to Reg Stark, director of corporatedevelopment for imaging center firm TME of Houston.

TME has entered into several marketing partnerships with teachinghospitals and subspecialty radiology groups. Last month, the firmsigned on the radiology department of Northwestern Medical FacultyFoundation in Chicago. TME also announced plans for a second centerin the Philadelphia area as part of a three-year-old alliancewith Thomas Jefferson University Hospital and its radiology department.

Other TME teaching hospital affiliations include the Universityof South Florida in Tampa and Loma Linda University Medical Centerin Loma Linda, CA, Stark said. TME operates a total of 17 imagingcenters in 12 states. All centers are 100% owned by the firm.

Although much of medical imaging in the U.S. has been outpatient-basedsince the onset of MRI and Medicare's diagnosis-related group(DRG) reimbursement system a decade ago, radiology departmentsat prestigious teaching hospitals have generally continued tofocus on their own educational, research and in-hospital duties.That is changing now, though, as managed-care providers add tothe demand for less expensive and more accessible outpatient alternatives.

"Many fellows and students training at the medical schoolsare at downtown campuses and never get exposure to the outpatientmarket (in the suburbs)," Stark told SCAN. "Now thatmost everything is going to outpatient, they need the experience.This (type of agreement) opens the door for them to get exposureto managed care as well as the outpatient market and outpatientbusiness."

Developing partnerships with third-party imaging center firmsis a relatively painless way for teaching hospitals to increasetheir radiology revenues and gain experience with outpatient managementand practice issues, he said.

TME's teaching hospital partnerships usually involve two contracts:

** A joint marketing agreement with the hospital; and

** A professional services agreement -- or service contract-- with the radiology department.

TME requires no investment and charges nothing to the hospitalfor its affiliation, he said. The university -- not TME -- putsits name on centers involved with a joint marketing agreement.

The Northwestern partnership strayed somewhat from that patternbecause NMFF is actually a multispecialty physician group connectedto Northwestern University. An affiliation with the foundationwas required before a service contract could be agreed to withmember radiologists. The partnership, therefore, is technicallyan affiliation with physicians rather than a hospital.

TME will build a new center, Northwest Diagnostic Imaging,in the Chicago suburb of Naperville. A new center, Jefferson MRIin Bala Cynwyd, PA, will also be developed as part of the ThomasJefferson alliance.

However, TME uses both acquisition and ground-up developmentin providing centers for its teaching hospital partners. The companyis studying the possible purchase of a third center in the Philadelphiametropolitan area. The center, which has no current affiliation,would automatically become affiliated with Thomas Jefferson, onceacquired.

TME has raised $175 million in equity and debt capital to expandits imaging center network. However, the firm is not jumping atall potential center sales offered in often oversaturated servicemarkets, Stark said. The number of imaging centers seeking buyersthis year appears to have dropped slightly from 1993, as haveprices.

"Last year, I may have looked at 80 possible acquisitions,"he said. "It has slowed down a bit this year, but so farI have looked at 30 or 40. If we took all these centers, it wouldcertainly divert us from our business plan."

TME seeks to have at least two centers in individual metropolitanareas in order to appeal to managed-care purchasers, he said.This means more is in store for the Chicago area and NMFF partnership.