Lynn Elliot: Moving RATC Beyond the Field of Dreams

In 1998, Lynn Elliott, MBA, CPA, accepted a position as CEO of the thriving, hospital-based practice of Radiology Associates of Tarrant County (RATC), Fort Worth, Tex. With nine hospital clients but just one full-service imaging center, RATC charged Elliott with the task of growing the practice’s outpatient imaging center business. Fresh from a stint with a nephrology practice during which he built 10 dialysis centers in 18 months, Elliott had extensive experience in developing outpatient medical facilities.
Lynn Elliott, MBA, CPA Ten years later, RATC has two new hospital clients, but a quite a few more imaging centers—a total of 13, plus three more that it manages. With 61 radiologists and more than 350 employees, RATC now looks to Elliott to lead the practice out of what he refers to as the field-of-dreams era and into a new, post-DRA period characterized by declining reimbursement, utilization controls, and, most of all, rapid change. Elliott also serves as CEO of an associated consulting company, ASI, Fort Worth, Tex. He agreed to share with the readers of ImagingBiz.com his strategy for RATC and his thoughts on what it will take to thrive in the coming years.

“Simply responding to the changes is not going to be enough. To be successful, leaders are going to have to anticipate change. They are going to have to develop strategies in advance so that they can not only survive, but also take advantage of the opportunities that are there.” —Lynn Elliott, MBA, CPA CEO, Radiology Associates of Tarrant County

ImagingBiz: After years of growth, RATC has developed a robust infrastructure. How are you leveraging that capacity to fuel growth? Elliott: Over the past 10 years, the existing management team at RATC has been involved in the development and management of 16 imaging centers, 13 that are owned and three that are managed. One of the byproducts of that expansion is the development of a strong management infrastructure with a lot of experience and expertise. About three years ago, we were contacted almost simultaneously by a couple of hospital-based radiology groups, outside of Texas, who were aware of what we had done. They wanted to do the same thing with their practices, so we invited them to come and visit RATC. Once they saw what we had done, they were wanted to do the same thing themselves. As they looked at our operations, they understood that because they were hospital based and virtually the only employees they had were billing employees, they didn’t have expertise even to design an imaging center, much less to build and manage it going forward. In talking with them about that, we suggested that perhaps we could help them. As we talked further, the idea of being partners with them in the development of the center and helping them build and manage it going forward emerged pretty quickly. At that point, we had not considered getting into management and consulting as a separate line of business, but almost immediately after we started working with these groups, the word spread, and we began to get other inquiries. After some deliberation, we formed ASI to be an affiliate of RATC, with the idea that we would market this expertise and experience we had developed in our own centers across the country. ImagingBiz: What were the historic pathways to growth, and why are those options less viable in the current market? Elliott: If you look at the past 20 years, utilization of imaging, primarily outpatient, has skyrocketed. Utilization was up double digits nearly every year until recently, and much of that growth came in the outpatient market. There were a number of things driving that: technological advances, population growth, consumer awareness, and the intensity of defensive medicine. For those involved in the industry at that time, the primary challenge was planning to accommodate the growth. MRI centers were cropping up everywhere across the country, and as soon as they were built, their schedules would be full. I like to refer to that period as the field-of-dreams era, in which if you built it, they would come. The dynamics of the industry made those kinds of growth rates unsustainable. I think what you’ve seen in the last few years are some regulatory and market forces that are really focused on reducing the rate of growth in outpatient imaging. I don’t think anyone believes they’ll ever stop the rate of growth in the industry, but something had to be done, and it was done. You are seeing pressure on pricing both at the Medicare level and the managed care level. That has reduced margins and has served as a barrier to entry for a lot of firms looking to get into the industry. I think it also will probably force out some of the marginal players. On top of that, we have stricter quality and credentialing standards, and these will probably push some of the marginal players out of the market as well. One thing we are beginning to see in our markets and around the country is a much more widespread use of radiology benefit management companies. I think the build-it-and-they-will-come days are probably over in outpatient imaging. ImagingBiz.com: How important are partnerships in this new market, and who are RATC’s strategic partners? Elliott: I believe partnerships are going to be very important in the post-DRA world. Those that thrive in the market in the future are going to have to be well funded, they are going to have to be very efficient, and they are also going to have to offer a higher quality of service. Clearly, to achieve those things, you will need higher volumes. To the extent that you can affiliate with others—and the ones I think are the most likely candidates are large physician groups, hospitals, and other health care systems that control a large amount of patients—it’s going to give you access to a much larger group of patients than if you just drop a de novo center into an existing market. ImagingBiz.com: Would you tell us about RATC’s joint venture with a primary care group? How is it structured, and how did it come about? Were there any additional resources required to manage the center? Elliott: That type of venture is exactly what I referred to in answering the previous question, and we’ve had some of those discussions with other primary groups as well, but we haven’t been limited to that. We’ve talked to hospitals and other health care systems, but this particular venture was one that I think probably best illustrates how partnerships can work. I think it illustrates the types of things that imaging center providers are going to have to consider in order to take advantage of opportunities. Early in 2007, we were approached by a physician who headed up an eight-physician family-practice group in a nearby community. He had brought together a loose coalition of physicians: most of them were primary care physicians, but there was a sprinkling of specialists, too. Their idea was to come together as a physician coalition and build a professional building, much like those you see everywhere. The difference with this project was that they were locating what they called a medical mall on one floor of the professional development. In that medical mall, they wanted to have an imaging center, a pain-management center, a sleep clinic, a cosmetic-surgery center, a physical-therapy center, and a lab. Their idea was that the members of this coalition of referring physicians—and possibly others who would come into the building later—would each own some percentage of each of these ancillary services in the building and be able to derive some ancillary income. The demographics of this community worked for this type of project because it had a very low penetration of Medicare and Medicaid patients. Stark really was not an issue. They don’t refer the 4% or so of patients who are Medicare or Medicaid enrollees, but more than 95% are non-Medicare, and they were eligible for referral to this medical mall. They approached us to be a partner with them in the imaging center and to manage the imaging center as well. We entered that arrangement, and it’s been very successful. We now have two other similar projects on the drawing board for other parts of our market. It didn’t require the commitment of any additional resources. The management team that manages all of RATC’s operations also oversees the centers that we manage. This center did not require the addition of any management or corporate staff. ImagingBiz.com: What are you observing in the market right now with respect to practice and outpatient imaging center trends? Elliott: In our own markets, there are fewer outpatient imaging centers in the first quarter of 2008 than there were in the first quarter a year ago. I’ve read that that is the case in other markets as well. Since this information has been tracked, that has never occurred before. There always have been very steep increases in the number of outpatient imaging centers in the market. For the first time, all of the efforts that have been geared to restraining utilization are having an impact, and I believe they will influence what has to be done to succeed in outpatient imaging. Despite that, I still believe that there are opportunities in outpatient imaging, but you are going to have to take more care. Imaging center leaders are going to have to explore ideas like this medical mall we are part of, think out of the box, and find new ways to partner to make sure the volume is there to make the center successful. The financial dynamics are simply going to require that. ImagingBiz.com: How do you maintain a balance between serving your clients and running the practice? Elliott: Surprisingly, it’s not been that difficult. Three years ago, when we made the decision to form ASI and leverage our infrastructure, we committed to viewing every managed center that we were involved with as being an RATC center. There would be no distinction, no difference, in the way resources were allocated. That was the philosophy we pushed down to the lower level: A center in another state was still an RATC center, so there was never a question of whether we would devote the resources or not. Because that has been the philosophy, it’s never been a problem. Even though we did not have to add any top management resources to be able to do this, we have had to broaden and deepen our middle management talent because we have more ground to cover. We had to beef up our infrastructure in the middle. Because, philosophically, we have viewed our managed centers as our own, we really haven’t had any conflicts of interests there. ImagingBiz: What are the greatest challenges in this market for a CEO? Elliott: Well, there are many to choose from; I think the single biggest challenge for a CEO is dealing with what I call the revolutionary changes to the industry. Change is a constant for business leaders. That’s nothing new, but I think everyone will agree that the changes we have seen in the past few years and the ones we see on the horizon are not normal, evolutionary changes. They are going to be transformative. That’s going to be the biggest challenge. Simply responding to the changes is not going to be enough. To be successful, leaders are going to have to anticipate change. They are going to have to develop strategies in advance so that they can not only survive, but also take advantage of the opportunities that are there. Changes are going to continue to be forced by federal and state governments; there’s going to be that continued downward pressure on reimbursements. There are more restrictions in terms of utilization management, quality assurance, and utilization control. All of those things are aimed at reducing utilization. Of course, managed care companies piggyback on what the government does, and those changes are going to continue. Another relatively new trend that’s pushing change is the informed consumer. Employers are looking to shifting the cost of health care a little bit more to employees through higher deductibles and copays, and that’s moving the consumers to become more educated about their health care. They are going to be a much bigger part of the health care decision in the future. On top of all that, the CEO still has to meet the demands of shareholders and the human-resource requirements of employees. These changes are really going to keep a CEO’s plate full. ImagingBiz.com: Uncertainty is prevalent not just in diagnostic imaging, but in all of health care. How does a practice leader avert paralysis and create an environment in which it’s possible to recognize and act on opportunities? Elliott: First, if you are going to maximize opportunities, you have to be proactive. The organization has to be active in governmental affairs because of how pervasively legislation affects us. We can’t just stand around and wait to be pounded by the next round of legislation. Because of the financial dynamics, providers are going to have to seek new alliances and strategic partnerships. If you are not proactive in that area—if you stand on the sidelines and wait for someone to come to you—you are going to be disappointed. Renewed attention to cost controls and operating efficiencies is a must. If an organization is not positioned, from a financial and operational standpoint, to accept new opportunities, then even if you find them, you are not going to be able to take advantage of them. I think this concept of proactivity has to be part of the organization’s mission statement. It has to be something that is at the core of your activity. The second thing you have to do is push that mission down to all levels of the organization. It’s top management’s job to develop a mission, but when it comes to executing that mission, that’s not going to occur in the offices of the organization. It’s going to occur where the patient contacts that staff, where the referring physician contacts that staff, and where the billing department interfaces with payors. That’s where the execution of the mission occurs, and if that isn’t understood by the folks out there, the organization might very well be paralyzed. At the very least, it’s not going to be able to capitalize on opportunities.