Teleradiology leader TeleQuest files for bankruptcy protection

It was billed as America's premier radiology network, offering the services of 300 radiologists from some of the most respected medical centers in the world: Bowman Gray, Emory, Brigham and Women's, Wake Forest, and UCSF. In the end, the big names could not save this Philadelphia-based service provider. Less than five years after its founding, TeleQuest has filed for bankruptcy, the victim of a flawed business plan and a market that never met expectations.

"It was a poorly conceived venture from the beginning," said Dr. David C. Levin, radiology chair at Thomas Jefferson University, which was invited to join TeleQuest but declined the offer. "Events have borne out (the wisdom of) our decision."

TeleQuest, which has filed for Chapter 7 protection, began operations in 1995 with the ambitious goal of serving the nation's healthcare providers with a network of subspecialty reading services. Clients would include hospitals, imaging centers, and even private practices.

From the outset, TeleQuest nurtured a reputation as the "gold standard" of teleradiology, printing the "Q" in its "TQ" logo in gold and highlighting statements in printed materials against a gold background. In the end this gold plating may have done more harm than good.

"There may have been an attempt to capture value by suggesting some premium should be paid for world experts to read the scans," said Dr. Allen D. Elster, chair of the radiology department at Wake Forest. "We really didn't capitalize on that. To do that requires a lot of marketing and some brand differentiation."

Also required is strong demand, which never materialized. What meager demand did appear was attacked by competing teleradiolgy operations, whose mushrooming presence created mounting cost pressures. Declining reimbursement for radiology readings also had an adverse effect. TeleQuest income plunged from $354,000 in 1998 to $120,000 in 1999 and to $85,000 last year, according to the Philadelphia Business Journal.

When TeleQuest filed for bankruptcy this year, assets were listed at $1.1 million and liabilities at $1.6 million. Among the company's biggest creditors are radiology practices at three of the consortium's members. Radiology Associates University of Pennsylvania is owed $413,000, Brigham Radiology Foundation $224,000, and UCSF $230,000.

Contributing to TeleQuest's problems were several unfavorable equipment lease arrangements, which were negotiated when telecommunications costs were much higher than they are today. A loss of leadership added to the company's troubles when several executives, including the CEO and president, left in 1997.

Perhaps the greatest problem, however, was the overdependence of TeleQuest on a select few customers. In its waning years of operation, the company came to rely increasingly on a single large chain of imaging centers, which accounted for about 90% of its income. When that chain began to struggle last year, the financial downturn kicked the chair out from under TeleQuest.

"If you want to make something like this work, you have to have diverse sites," Elster said. "You can't just have a few imaging centers concentrated with one investor."

2/28/01, Issue # 1504, page 4.