Joseph P. White, CPA, MBA

How big can a radiology group become before it becomes unmanageable? Are there continued benefits to grow beyond 20 radiologists? Is it possible for a privately owned radiology group to grow into a national or multiregional radiology group using the democratic governance style in which many radiology groups are organized today?

I believe that most people in the radiology world would answer these questions stating that it is difficult if not impossible for a privately held radiology group to grow much beyond 100 radiologists. The structure becomes unmanageable, and the benefits are unclear and difficult to quantify. I would like to challenge the readers to question their beliefs and take a minute to examine the concept and benefits of a national, privately held radiology group.

If there are national and international law firms and accounting firms, why not national single specialty radiology groups? These professions saw the benefits of becoming national and international years ago. For law firms and accounting firms, these benefits have included:

  • The ability to recruit the best graduates from the best schools. The recruitment advantage is provided because of the ability to offer greater career opportunities and compensation.
  • The ability to recruit the best clients—often related to the fact that the organization has recruited the best talent.
  • Nationally located clients required nationally located law and accounting firms.
  • Subspecialization of the disciplines into such areas as health care, international accounting and law, employee benefits, and estate planning required a greater mass of clients and internal referral sources to funnel enough work to individuals who have the subspecialization needed.
  • Economies of scale in technology, government regulation compliance, marketing, branding, and other areas.
  • Diversification of risk related to regional economic swings.
  • Business complexity creating the need for specialized full-time leadership and management skills.

Similar opportunities exist or are beginning to appear in the radiology marketplace.

Group Size No of Rads % of Rads No of Groups % of Groups
Solo 1,600 6% 1,600 36%
2-4 4,800 18% 1,300 29%
5-14 11,000 41% 1,200 27%
15-29 6,500 24% 290 7%
30+ 2,800 10% 60 1%
Total 26,700 99% 4,450 100%

Table 1. Estimated distribution of independent single specialty radiology groups by size as of 2003.


There are market and economic forces supporting the drive to larger private groups.

  • Radiology groups have one of the largest appetites for information technology. The need to constantly reinvest in information technology including PACS will be required to control their own long-term destiny.
  • An imaging center strategy is an integral piece of a successful radiology practice.This requires a commitment to significant capital investments. The capital requirements of the imaging center business are large, and there is a probability that the profits will not continue at current levels in the future due to increased competition and decreasing reimbursement.
  • Technology creates the ability to have greater subspecialization within a group and the ability to read from anywhere in the world. Radiologists generally do not need to be located at the site where the imaging studies are performed. Instead, efficiently scheduling radiologists at central read sites and sending subspecialty examinations from multiple sites into these read sites is the optimal model.
  • Increasingly, subspecialization in radiology is a requirement for competitive reasons.
  • New radiologists are disproportionately choosing to work for larger groups because of subspecialization opportunities (77% of new graduates are fellowship trained), no night call, less call in general, and, in general, a more desirable income/lifestyle tradeoff.
  • The larger radiology groups that exist now will find that the opportunity to grow their business in their current and adjacent markets is more difficult than in underserved parts or less competitive parts of the country.


There is a precedent for multiregional or national radiology groups, currently including Radiologix and the Center for Diagnostic Imaging. They are not, however, privately owned by radiologists.

Radiologix, the publicly traded radiology and imaging center management company, has more than 100 radiologists in its network. In November 1997, seven geographically diverse, physician-owned radiology practices joined together to form Radiologix. Each of these entities contributed their imaging center and administrative assets in exchange for ownership in the company, but the stock of the company has not fared well over the years. Going public in 1998 at about $10.5 per share, it is currently trading at about $3.5 per share.

Not only does Radiologix have the additional challenge of being required to provide a return to shareholders through retention of profits that would be distributed to radiologists in a privately held radiology group, it has incurred all of the additional costs of being a publicly held company.

The Center for Diagnostic Imaging (CDI) labeled itself a physician-led national radiology group and recently sold to Onex (ONX) Corporation. Did the need for additional capital drive it to capital markets as it expanded nationally? Will ONX be able to find the opportunities to be able to pay market compensation to radiologists and satisfy Wall Street’s need for ever increasing earnings per share? Both CDI and Radiologix are great organizations and have strong management teams that will focus on increasing their market share. This creates situations where one radiology group will “cross the line” into another radiology group’s market.

Publicly owned radiology groups may have a distinct growth advantage because the organizational structure is more traditional and in line with other businesses as opposed to the committee style of most privately owned radiology groups. This allows for a more nimble organization that can react to the marketplace quicker and focus on long-term strategies. The consensus style of decision-making of committees will make it difficult to expand on a national basis.

As Table 1 above reflects, 8% of the groups employed 34% of the radiologists in 2003. I would venture to guess that by 2006 the percentage will have grown measurably. Will any of these larger groups overcome the barriers that they face to become a privately held national radiology group?


The challenges of a national privately held radiology group are many. Some of them are as follows:

  • Leadership, management, and governance. Larger radiology groups operate under a board and committee structure. This works well for a group model method, but in order to become a national group, it may not work. The national group will have to allow the board/management more authority to make decisions than under the committee structure. I believe it will take a traditional business of board, CEO, CFO, and so on, in order to be nimble enough to operate on a national level. It will take strong leadership and management to make the tough decisions including the move to subspecialization.
  • Compensation. A national radiology group will need to be a market leader in compensation for radiologists in order to compete. Smaller groups will be able to offer an atmosphere of entrepreneurism that is appealing to many. The smaller groups may be able to offer leadership opportunities immediately for those who are interested. Higher compensation is one way to counter the benefits of a smaller group.
  • Employee attitude. Larger groups are going to have to work hard on engaging the radiologists to maintain an entrepreneurial and “owner” attitude. It is difficult to feel like your contribution and extra effort make a difference in a large group. Leadership and management must create and maintain an emotional sense of ownership with the masses.
Valuation Formula 2004
Total compensation and fringe benefits for shareholders 2004 $30,000,000
Multiple by 2 according to agreement X2
Total value of organization for year ended 2004 60,000,000
Divided by 60 shareholders $1,000,000
Valuation Formula 2005 – 2 New Shareholders Admitted
Total compensation and fringe benefits for shareholders 2005 $32,000,000
Multiple by 2 according to agreement X2
Total value of organization for year ended 2004 $4,000,000
Value assigned to 60 original shareholders $60,000,000
Value assigned to 60 original shareholders plus 2 new sharholders $4,000,000
Increase in value per shareholder $4,516
Original sharholders $1,064,516
2 new shareholders $64,516

Table 2. Practice valuation model based on “freeze” approach.


Why would an organization want to try to overcome the challenges and become a national group?

Some organizations may not have a choice if they desire to continue to exist. “If you do not grow, you will die” is a quote that is often applied to business. An organization reaches a certain size and the need to grow occurs. Much of the infrastructure that has been built is a fixed cost, and if the growth starts to decrease in size, then the overhead percentage can increase to a point where compensation for a radiologist is not competitive in the marketplace. If this occurs, radiologists will leave the group, compounding the problem. The larger groups have little choice: they must get bigger. As these radiology groups grow and try to increase market share, it could force other groups to consolidate or partner with the publicly traded radiology groups and compete on the same level.

The benefits of becoming a national (or multiregional) radiology group are similar to those cited above for the national accounting and law firms. They include the recruitment opportunities, subspecialization, and the economies of scale. Others include:

  • National contracting. Medicare is embarking upon regional contracting. Tim Hill, director, Office of Financial Management, CMS, testified that “the Agency is developing a comprehensive strategy that will strengthen Federal oversight of state financial practices.”1 The Medicare Modernization Act (MMA) has created Medicare Advantage regional plans where PPOs will “bid to serve an entire region and maybe state or multi-state area.”

As the health insurance industry consolidates, will it look to national contracting for radiology services?

Regional hospital chains will be looking for groups that can read for all their hospitals and provide quality, subspecialization, consistency, and a single contract.

  • Professional management. Radiology is a complex business and the problems faced by management are numerous. The body of knowledge that an individual is required to have is enormous. A strong working level of understanding is required in many technical areas, including many different modalities, finance, information technology, contracting, tax issues, and retirement plans. An individual with a strong working knowledge in these areas who knows the radiology business is a valuable asset. The ability of the larger systems to hold on to top management by providing higher compensation and greater professional challenges is there. Groups will struggle with the challenge of keeping their talent.


A critical factor that a group is going to have to answer is what is in it for the radiologists? Why would two or more geographically diverse radiology groups combine to form a larger regional or national group? If groups A, B, and C combine, will the individual radiologists make any more money? The economies of scale referenced above will provide some benefit, but it is likely the initial costs will be greater than the savings.

Will the call schedule be less burdensome? It is unlikely under the way most groups are organized that the individual radiologists will benefit. Thus, the group will need to change if it is going to be successful in developing a model for a national privately held radiology group.

The international accounting firms (the Big Four) and laws firms tend to be the most profitable. It is achieved in a variety of ways, including higher billing rates, more leverage (higher partner/owner to staff ratio), and more productive staff and owners in regard to billable activity.

A national radiology group must take advantage of these opportunities but must also find other ways to increase profitability so that new radiologists see the benefit to joining the larger groups. A better lifestyle (less call, fewer weekends) will be one advantage a larger group can offer; however, both short-term and long-term compensation needs to be at the high end of the market.

Larger groups should be able to be more productive because of faster and better technology and subspecialization, increasing the efficiency in reading. This should translate into higher productivity and incomes.


In January 2005, Onex completed the acquisition of the Center for Diagnostic Imaging in a transaction valued at $225 million in Canadian dollars. It operates 32 outpatient imaging centers in nine major markets. It has annualized revenues of US $105 million and annualized profits of US $12 million based on the first quarter of 2005. The total value of the outstanding stock of Radiologix is valued at $84 million and an enterprise value (stock plus corporate debt) of $225 million. As of December 31, 2004, the company owned and operated 76 imaging centers in the United States. It had revenue of about $250 million in 2004 and had net losses of $18 million

Private groups also need to recognize that there is a value to their business (both the imaging centers and the professional practice) and consider how the buy-in and the buy-out work for these businesses. Many larger groups lowered their buy-in for new radiologists to aid in recruitment. The buy-outs tended to mirror the reduced buy-in. These buy-in/buy-out models provide very little incentive for a radiology group to grow and become national. What happens when all the Baby Boomer radiologists reach retirement age? Is there an incentive to sell to a publicly held or venture capital firm at that time? Yes, and private groups need to counter that fact by providing a fair value to those retiring radiologists who took the risk to build a successful private group practice.

The buy-in and buy-out need to more closely reflect fair market value, but yet they cannot be a recruitment determent. A solution to this is to establish a valuation model and then “freeze” the value as radiologists join the group (see Table 2). The value is allocated among the current shareholders. New shareholders share in the increase in value. They are not required to buy into the current value. This creates an incentive for all shareholders to be interested (hopefully, passionate) about growth of the business and thus the value.


There are several market forces and activity that suggest that there may be a trend toward large regional, multiregional, or national radiology practices that are still privately owned by practicing radiologists. Those groups that embrace this model and have strong leadership and management will have a competitive advantage. Those that do not may find themselves slowly losing market share and eventually may have financial difficulties.

Joseph P. White, CPA, MBA, is a principal with LarsonAllen Health Care and participating faculty at the University of St Thomas teaching Health Care Finance in the MBA in Medical Group Management and the Physician Leadership College. He works with radiology groups throughout the United States. Mark Kleinschmidt is CEO of St Paul Radiology, PA, who is acknowledged for contributing to this article with thoughts and figures.


  1. Hill T. Testimony before the Senate Homeland Security and Governmental Affairs Subcommittee on Federal Financial Management, Government Information and International Security Hearing on Medicare and Medicaid Improper Payments. July 12, 2005. Available at: http://www.cms. Accessed October 25, 2005.