Consolidation and Change in Radiology: Where’s This Train Headed?

Nov. 22, 2022
A wide range of market forces are shifting the landscape around radiology practice: how will hospital and health system leaders respond?

The world of radiology practice is more complex than ever these days, with the ongoing consolidation of some extremely large nationwide radiology practices proceeding apace, even as hospital and health system leaders struggle with shortages of available radiologists. Diagnostic radiology is almost unique among the medical specialties in that it can be performed totally remotely (of course, interventional radiology is different in that respect). And with ongoing shortages of the availability of diagnostic radiology services, the leaders of both hospitals and health systems on the one hand, and of large, multispecialty medical groups, on the other hand, continue to have to strategize forward in order to ensure that they have adequate diagnostic radiologic coverage at all times, even as private equity is in certain ways distorting the market, from a hospital and health system standpoint. Where is all this headed?

As Emily Hayes, a contributing writer for the radiology-focused publication AuntMinnie, wrote on Dec. 14, 2021, “Private equity money has been flowing readily into healthcare in recent years, and radiology is no exception. But what will be the long-term impact of this investment, and how will it change the specialty? Evidence indicates major changes are already underway.” And she quoted Professor Richard M. Scheffler, Ph.D., who along with his colleagues Laura M. Alexander and James R. Godwin, in their paper published on May 18, 2021, entitled “Soaring Private Equity Investment in the Healthcare Sector: Consolidation Accelerated, Competition Undermined, and Patients At Risk,” argued that “The private equity business model is fundamentally incompatible with sound healthcare that serves patients, “as “Private equity funds, by design, are focused on short-term revenue generation and consolidation and not on the care and long-term wellbeing of patients.” In any case, what’s clear is that consolidation has dramatically changed the landscape around radiology as a field.

And if there’s a single company that has become a focus of attention in that regard, it might be Radiology Partners. As Marty Stempniak wrote in Radiology Business on March 17, “Radiology Partners saw its revenues climb to more than $2 billion last year, a 13-fold increase over the tally recorded five years ago. That’s according to an update from S&P Global Ratings agency, shared on Wednesday. Back in 2016, the El Segundo, California-based organization collected $176 million in revenue. Since then, it has executed multiple debt-fueled acquisitions, including paying $885 million to acquire Mednax Radiology Solutions and $300 million more to obtain three unnamed imaging groups. Rad Partners experienced volume declines in 2020’s second quarter stemming from COVID-19. But its numbers have rebounded to pre-pandemic levels, and S&P expects the provider group to benefit from size.” That said, at the end of last year, S&P estimated the company’s debt at 10 to 11 times its adjusted earnings, and calculated that that situation would remain unchanged through this year (2022).

Of course, there are countless situations involving organizations smaller than Radiology Partners, but in which consolidation is moving ahead. As Stempniak also wrote in Radiology Business, this time in a report published on April 4 of this year, “Private equity-backed Rayus Radiology revealed its latest expansion plans on Friday in concert with a Midwest hospital system. Alongside Froedtert & the Medical College of Wisconsin, the Minneapolis-based imaging group is opening a new outpatient location in the Milwaukee suburb of West Bend. This marks the seventh such center launched by the regional hospital system and managed by Rayus Radiology.” As Stempniak noted, “Nine-hospital Froedtert & MCW said the new location, which officially opened April 1, will aim to increase access for referring physicians seeking high-end MRI services. The move is the latest in a string of recent imaging center launches, with locations in geographies including Utah, Minnesota and Maine.”

Getting the bigger picture: a landscape that continues shifting forward

How do industry observers see this situation, in which national radiology firms are acquiring the practices of more and more radiologists? “There’s certainly been a lot of consolidation activity, with a lot of private equity groups driving consolidation,” says Daniel Levin, a partner in the Boca Raton, Fla.-based HealthCare Appraisers healthcare valuation services company. “An example of how that trend has played out is [the Sunrise, Fla.-based] MedNax [as mentioned in the paragraph above], a publicly traded group that had historically been focused on hospital-based services, and then added anesthesiology and radiology, and later sold those businesses to private equity groups. There are a lot of large platforms out there,” he says. “That said, it’s still a relatively fragmented space compared to dermatology and ophthalmology, and we’re still seeing a lot of interest on the hospital side in terms of partnering, as well as hospital interest in direct acquisition of radiology practices and of diagnostic imaging centers. There’s still room to run in terms of consolidation, but there is that push and pull” in terms of tension between consolidation and maintaining smaller size,” he adds. “And yes, there’s a lot of private equity money wishing to invest.”

Arthur Wong, a senior director and sector specialist in healthcare at the New York-based S&P Global Ratings (formerly Standard & Poor’s), agrees. “The private equity dollars are helping to fuel the consolidation,” Wong says. “Parts of healthcare are already well-consolidated, and other parts—radiology, home health, physical therapy, dentistry—those practices are now consolidating for efficiencies. And part of it also is to get better negotiating rates with payers, who have already been consolidated. It makes sense to push back on the players. Without even mentioning the overall growth and demand for healthcare. And the technology component adds further fuel to the trend, because it can address some labor shortage issues. There’s a nursing shortage but also a physician shortage. And also the march towards value-based care. Not only do you see consolidation within certain markets in healthcare; you’re also going to see cross-sector consolidation. That’s also where technology has matured to the point where it’s allowing these connections.”

Wong’s colleague Richa Deval, an associate in the healthcare section at S&P Global, says that “The radiology market is pretty fragmented, but we’ve seen significant growth” among the large companies acquiring practices “over the last five or six years.” For example, she says, “Radiology Partners is more than a $2.5-billion company with 3,600 physicians. And one reason for the consolidation was to negotiate better rates with payers. They were facing pressure from payers to lower the rates. And UnitedHealthcare pushed them out of network in a lot of states, and that actually hurt them. But in terms of consolidation, the market is pretty fragmented, and these companies found that consolidation was one way to better negotiate with payers and capture greater market share.”

Changing practice conditions seen rearranging all the variables

One industry expert who has a handle on the larger picture is Keith Chew, principal with the Springfield, Ill.-based Consulting With Integrity, a consulting firm that he leads. “Radiology finds itself in a unique position, in that radiologists are an extremely important component of the care continuum,” says Chew, who has spent over three decades in radiology group management. “There are two schools of thought out there” with regard to where things are headed, Chew says. “There are people who believe the corporate practice of radiology will create efficiencies; others believe radiology is best performed by independent radiologists. From my perspective, both schools have been successful and unsuccessful. I don’t have a crystal ball that tells me that one will necessarily triumph over the other. I believe it depends on the circumstances of the individual situation.”

Indeed, Chew says, “If you’re in a location where you cannot recruit radiologists, sustaining independent practices is just about impossible; so even independent practices in that kind of situation are looking to bring people on remotely.” As for size, he says that “The issues you’ll find in large corporate medical practices, are the same issues you’ll find within any large, nationally distributed company. When we made the transition to a distributed workforce in COVID, all sorts of issues developed. Productivity went up in some areas and down in others; teamwork worked better in some cases and less well in others.”

Is there some upper limit to practicable practice size?

“In any business,” Chew continues, “you get to the point where you start to see diminishing returns based on growth in size, unless you can find better ways to create efficiencies. And part of the promise of the corporate practices was that they were going to start to bring technology to bear, but they’re not really doing that or doing it well; nobody is. That’s part of the promise of AI [artificial intelligence], to start to understand how we can improve the quality of service, in a manner that actually decreases the cost of delivery. And we’re probably in the worst recruitment market for radiology than ever. Six or seven years ago,” he notes, something happened whose impact is echoing now: the emergence of AI convinced some medical students and residents that AI implementation might actually replace some radiologists with technology. That prediction turned out to be totally false; but it led to a shortage of new radiology residents several years ago, that is leading to a shortage of practicing radiologists now.

And, Chew notes, federal healthcare officials’ focus on bending the cost curve involving specialist physicians, is leading to perverse incentives, in his view. “Radiology has had an effective 41-percent reimbursement cut in Medicare reimbursement over the past ten years”—and yet the complex incentives involved might actually show pay cuts to be penny-wise and pound-foolish over the long run, he contends. “Take low-dose lung cancer screening,” Chew says, to cite one example. “That’s a preventive service that can be offered by radiology that saves money. If you find a stage 1 lung cancer, cost of treatment is $80,000-$100,000, for treatment, and survivability is 67-68 percent at five years.”

But, Chew says, “If you get to Stage 3 or 4 of lung cancer, the cost of treatment is $300,000-$400,000, and survivability at five years is 6-7 percent. And lose-dose lung cancer costs $300-400 at even the higher-end places. If you can bend your cost curve by providing that service today, that’s massive. But the Medicare Administrative Contractors contracting with CMS [the Centers for Medicare & Medicaid Services]—all of them have refused to pay for it within independent diagnostic testing services, because they say that giving a person a pamphlet on quitting smoking, is a therapeutic activity. CMS has finally put its foot down and required payment for the service, but that was short-term thinking, and it took five years.” In other words, he says, “There are a vast number of services done within radiology that, if performed, can lead to early treatment and save costs. So if you truly want to do population health, you need to be rewarding radiologists for providing low-cost services,” and to focus on the long-term benefit of And we’re looking at the fact that for the most part, the government is most concerned about the short-term cost, over the long-term benefit.” And that’s where the effective 11-13-percent decrease in radiologist reimbursement under Medicare” that’s been reported, is counter-productive to the idea of bringing radiology costs under control, he believes.

Amid this swirl of complexity, the fact that federal healthcare authorities are moving forward to constrain costs in the radiology area through a variety of strategies, is leading some radiologists to try to rethink things a bit. In an article entitled “Thinking Beyond FFS” and posted to the website of the American College of Radiology (ACR), Ryan K. Lee, M.D., co-chair of the ACR’s Commission on Patient- and Family-Centered Care’s Population Health Committee, and who is chair of the Department of Radiology at the Einstein Health Network in Philadelphia, writes that, “With this clear movement away from a traditional FFS [fee-for-service] environment, many specialties have progressively increased their involvement with these quality-based models. Radiologists, however, are for the most part still working in a predominantly FFS environment. It is true these newer value-based models are inherently designed more for patient-facing physicians, and this is one reason radiologists have been slower to adopt value-based models. However, as value-based models continue to grow in prominence, it is essential that radiologists engage more in these models—particularly as disincentives for operating in a purely FFS environment continue to grow.”

What can hospital and health system leaders can do

In the face of all this complexity, there are things that hospital and health system leaders can do, Keith Chew says. “Hospitals can’t survive without radiologists, and many radiologists can’t survive without hospitals, though some radiologists have opened up outpatient centers,” he says. “But both sides have to stop looking at each other as adversaries and instead work together as partners to accomplish the goals that both groups need to accomplish in this tight recruiting market.”

Chew says that hospital and health system leaders will have to take a hard look at contracts in place in many hospital-based organizations requiring radiologists to participate in every contract that a hospital has with all payers; that aspect of contracting leads to health insurers intentionally negotiating under-market contracts; if hospital leaders can rework just that feature of contracting alone, they can make radiologists happier and open up new partnership possibilities, he says. And, he says, it will be important for health IT leaders, especially CIOs, to really listen to radiologists in terms of their needs and wants around the PACS (picture archiving and communication systems) systems that they implement in their organizations. Hospitals need “a visionary, someone who’s not stuck in doing things the way they do them today,” in order to satisfy radiologists and win goodwill, as they strategize forward to create partnerships that will work in the future.

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