Radiology is entering arid terrain, and its many factions at odds leave the specialty vulnerable.

As T.E. Lawrence crossed the seemingly impassable Nafud Desert with a band of Bedouins in the film Lawrence of Arabia, we witnessed the permutable landscape and the unpredictable shifts of weather. In this scenario, we also can see the shifting sands of the outpatient imaging world, most assuredly in the arid reimbursement environment, the centers changing hands, and the signs of distress.

In the past few months:

  • The Gores Group of Los Angeles purchased 50 HealthSouth diagnostic imaging centers for less than $1 million each, at $47.5 million.
  • Medical Resources Inc, based in Bloomfield, NJ, completed acquisition of Nashville, Tenn-based Med-Tel International Corp, bringing its imaging center total to 69 locations.
  • RadNet, of Los Angeles, announced a deal to acquire Rochester, NY-based Borg Imaging, a six-site chain, for $11.7 million in cash.
  • InSight Health Services Holding Co, of Lake Forest, Calif, filed petitions for Chapter 11 bankruptcy, the latest step in its campaign to restructure $194.5 million in senior debt.

Other deals are reportedly in the works. Clearly, the Deficit Reduction Act is having its effect. With outpatient MR revenues down 35% and CT down another estimated 25%, the outpatient imaging market is ripe for change, and opportunistic suitors, both new and established, are on the hunt. The opportunities for consolidation in outpatient imaging certainly do not guarantee success for either new or established players, who will contend with the same preponderance of competition and the ratcheting down of reimbursement faced by other imaging center operators. Add to that the extra weight of a heavy debt load for some.

Yet these conditions make the market ripe for change, and a rapidly changing environment typically rewards innovators. Howard Berger, MD, CEO, RadNet, predicted the current market consolidation when he bought Radiologix in the summer of 2006, touting an in-house, homegrown utilization management system, clearly a value-added service in this time of rapidly increasing imaging costs. Wall Street has rewarded Berger with the imaging world’s fastest and steepest rise in stock since last July: 120% as of mid June.

The nation’s former health care technology czar, David Brailer, MD, announced that he is starting a $700 million private equity fund called Health Evolution Partners that will invest only in enterprises with products or services that will reduce the cost of health care. In an interview with The New York Times, Brailer said he would look at companies with new ideas in the remote monitoring of patients, management of chronic diseases, telemedicine, predictive genomics, and eBay-style Internet marketplaces for services like reading chest x-rays. Brailer’s sole initial investor is CalPERS, the California Public Employees’ Retirement System, which forms the basis for pension and health benefits of 1.5 million workers and retirees and has a serious stake in the fund’s mission.

The Tribe Mentality

Nowhere does radiology resemble more the scenario of Lawrence of Arabia than in the uneasy alliances and skirmishes between the many desert tribes. The factions at odds in radiology include private radiology practices, some with considerable outpatient imaging holdings; entrepreneurs, representing chains and single-site holdings; multispecialty groups; and self-referring physicians. Then there are the hospital-based radiologists, the interventional radiologists, and the hospitals themselves.

All of these factions have different interests, different cultures, and different agendas and, on the subject of outpatient imaging, rarely intersect, except in joint ventures.

Setting aside the assault on technical income, radiologists will experience an approximate 8% reduction in professional income based on adjustments to relative value units contained in the 2007 Medicare Physician Fee Schedule this year. Many leaders in radiology are warning of further cuts to the specialty. Although the outpatient-imaging segment is feeling the greatest pain at the moment, there is no reason to believe that these arbitrarily levied cuts will not be extended in time to hospital-based outpatient radiology and into the inpatient realm. As Congress and Medicare tighten their grip on radiology, no corner of the specialty will remain untouched.

Therefore, the smug pleasure taken by those without technical holdings in the troubles of the outpatient-imaging world is misplaced. It is time to pull together and defend the cost of this capitalintensive specialty as well as its ability to reduce spending overall and to improve health care. Otherwise, technical innovation will slow. The promises of molecular imaging will remain unfulfilled. And both radiology and patients will suffer.

It is far easier to subdue and exploit a divided people, than a united front. As you enter the desert, wherever you stand, consider that.

Cheryl Proval is the business editor of  Axis Imaging News and can be reached at .