Should Your Radiology Group Consider a Joint Venture with Its Hospital?

World handshake

In the era of the Deficit Reduction Act (DRA) and decreasing revenue from Medicare and other payors, does it make sense for a radiology group to consider an imaging center joint venture with its hospital?

There are several positive factors for radiology groups in such joint venture arrangements that are not affected or significantly affected by the recent DRA legislation or by decreasing payment trends in general in the radiology community. Groups that are solely hospital based, with no other income-generating ventures, should consider such a joint venture as an opportunity to diversify revenue sources. This revenue diversification can consist of the technical component revenue from the services provided at the imaging center and can also consist of management fees if the radiology group manages the center for the joint venture.

Management fees can include the provision of the employees, billing service, financial and administrative support, and clinical oversight. Even though the technical component revenue may decrease due to payor trends in the marketplace, management fees often are isolated from decreases because these agreements frequently are signed for longer terms such as 3 to 5 years, and are often set amounts as these services have to be provided at market rates.

Another positive result of participating in a radiology group/hospital imaging center joint venture is that this participation can provide the radiology group with a stronger relationship with the hospital. This can be extremely important today because hospitals are terminating their exclusive arrangements with radiology groups for reasons often not related to quality issues.

In a sense, the joint venture imaging center can be considered a stronger bond than an exclusive contractual relationship, particularly if the joint venture has been up and running for several years and is profitable. These types of arrangements will often be win/win and will not only solidify the hospital/radiology group relationship, but will also eliminate the potential need for either party to compete with the other in the outpatient imaging center services arena.

If the radiology group elects to participate in a joint venture with its hospital, there are several issues that, if not addressed up front, could lead to long-term problems for the radiology group. These issues can be addressed in a proactive manner with little conflict as long as they are identified and dealt with during the negotiation, contracting, and/or valuation stage and not treated as after-the-fact operational details.

If the radiology group intends to bill the professional component separately for the radiology services provided at the imaging center, then the group will need to determine if this decision will impact its contracts with payors in the community. It will be extremely awkward both operationally and from a marketing perspective if the imaging center participates with payors that the radiology group does not. This factor should be taken into consideration in the early planning stages of the joint venture as the decisions made regarding payor participation may affect the radiology group’s ability to negotiate effectively with payors and/or the ability to attract patients to the imaging center.

There can also be issues depending on the decisions made for the joint venture as to what systems will be used and whether the imaging center will be treated as a true stand-alone facility. Although it is often considered a positive to market the imaging center as a hospital outpatient facility to payors, sometimes it is better to market the imaging center as a separate, stand-alone facility to the referring physicians and the patients as stand-alone centers are generally expected to have better access, easier mechanisms for scheduling, and quicker turnaround of results. If the radiology group can manage the imaging center in addition to becoming an investor, then the center will generally be considered stand-alone and have the high-quality features described above.

On the other hand, if the imaging center is managed by the hospital using existing hospital departments and systems for support, then it can be difficult to market the center effectively in highly competitive health care communities. For this reason, these details should all be considered as a core part of the negotiation process and be taken into account as the radiology group determines the value of this joint venture to its practice.

Even with the potential issues described above, investing in a joint venture imaging center with a hospital partner may actually be the best decision a radiology group can make. It is a business model that has been proven to make sense for both parties when it is well planned, well managed, and well executed.

Nicole L. Palmer, CPA, is vice president of business development for Management Services Network, LLC in Charlotte, NC.