Does Size Matter?

The recent business news about Microsoft making a run at Yahoo has me ruminating about the deal-making climate in outpatient imaging and how the current trend toward strategic partnerships, mergers, and acquisitions is changing the competitive landscape in many markets around the country. RadNet’s acquisition activity alone is driving consolidation in the imaging-center marketplace to the point where one can envision a true national network large enough to rival models seen in the clinical-laboratory industry. It seems that not a week goes by without a press release coming across my desk announcing the latest RadNet acquisition. Is bigger necessarily better, though? Certainly there are synergies, economies of scale, contracting clout, group-purchasing power, and other benefits to be found in rolling up a group of independent operations into a management group that provides certain centralized back-office functions and other added-value support. These advantages, however, might be offset by the accumulation of a debt burden that the formerly independent operation may not have had to service, thereby putting a damper on its ability to compete effectively in a market that requires increased expenses in areas such as marketing and technology. Nimbleness will also be a key to future survival in a market where the supply-to-demand ratio is leaning toward imbalance, as we are seeing in some market areas. Sometimes size matters a great deal, and a case can certainly be made for a provider developing a strategic plan to increase its market footprint to the point where less effective competitors are essentially overwhelmed by the size and scope of the brand leader. That is part of the strategic business dynamic, and it is fair play in that the opportunity to grow, combine, and grow again is open to all. That is one of the great elements of our free-enterprise economic system. With this in mind, it is also important to remember that when organizations get too big, they have a tendency to become encumbered by bureaucracy, to tend toward slow reactions to market stimuli, and to lose their ability to capitalize on entrepreneurial ideas and trends—not always, certainly, but quite often. When such organizations reach this point, the opportunity emerges for niche players to compete with the behemoths by providing better service, by paying better attention to the little things that make a huge difference in the hearts and minds of the customers, and by using the ability to move more quickly to capitalize on ideas and respond to issues without requiring layers of decisions. In this scenario, the customer gets to decide where to send referrals. This is also a great element of the free-enterprise system. The point is that size does matter, but for reasons that may have nothing to do with the intended structure itself. A nationwide network of imaging centers offering predictable quality, structured clinical practices, orderly business models, and reduced prices for the payors is a proposition whose time has come. Whether or not each of these centers will be able to compete in its local market with those determined to offer a better service model through the incentive of local ownership is quite another story. The benefit of the large national network to investors and payors is clear; however, the benefit to local referring physicians and patients is less so. The market will decide who wins, based on what the unique value proposition is and how it affects access, convenience, quality, and clinical efficacy. What makes our profession intellectually stimulating is that we are seeing a marketplace change and take a new shape before our very eyes. That said, what happened in the clinical-laboratory market in previous years might prove to be the model that emerges in outpatient imaging. I am very much interested in your thoughts on this issue and encourage email responses that we can work into a discussion on where the issue of size fits into our vision of future success in outpatient imaging. Please email me directly at: ckp@imagingbiz.com