The 20 Largest Outpatient-imaging Center Chains: Consolidation Continues, Hospital Alignment Takes Root

The freestanding imaging center market continued to consolidate in 2015, fueled by a hostile reimbursement climate and growing interest on the part of health systems in establishing off-campus outpatient-imaging center footprints.

For all of the buying, selling and shuttering of centers in recent years, the approximately $17 billion outpatient imaging-center market remains highly fragmented, with just two entities claiming 100 or more imaging centers: Los Angeles-based RadNet and Minneapolis-based CDI.

Most of the imaging-center chains that appear on Radiology Business Journal’s list of The 20 Largest Imaging Center Chains, however, added centers during the past year, and those interviewed anticipate further growth by the end of the year. Increasingly, these operators of freestanding outpatient imaging centers billing under the Medicare Physician Fee Schedule (MPFS) are partnering with hospitals.

Radiology Business Journal developed its list of the largest freestanding imaging center chains by reaching out directly through email and telephone calls to representatives of each organization. Only those imaging centers billing under the MPFS were counted. In instances in which more than one center had the same number of centers, we ranked the centers with the greatest number of wholly owned imaging centers highest.

Some of the chains on the list also operate on-campus imaging centers in joint ventures (JVs) with hospital partners that bill under the Hospital Outpatient Prospective Payment System (HOPPS). Likewise, the hospital systems on this list also operate hospital outpatient imaging services. Every attempt was made to report accurate counts, but the numbers for chains that did not self-report their data (distinguished by listings in blue type) may in fact be inflated by HOPPS-billing centers.

[[{"fid":"21046","view_mode":"media_original","type":"media","attributes":{"height":1000,"width":400,"style":"width: 200px; height: 500px; border-width: 0px; border-style: solid; float: right; margin-left: 15px;","alt":" - No. U.S. Outpatient Diagnostic-imaging Centers, 2000-2013","class":"media-element file-media-original"}}]]How many total IDTFs are there? According to U.S. Census Data, there were 6,740 diagnostic imaging centers in 2013, the most recent year for which data is available, down from 6,868 in 2012 (Table 1). That includes all businesses with the primary purpose of providing medical imaging, including dental radiographs, and those that rent or lease medical imaging equipment. According to census data, that number of diagnostic imaging centers peaked in 2008 at 7,080.

CMS reported that 2,421 independent diagnostic testing facilities (IDTFs) billed Medicare for imaging services in 2013, a number that does not include physician-owned centers that may bill as office-based imaging providers.

As a result, we suspect that the U.S. Census data includes all outpatient imaging centers, including those billing under HOPPS.

The top five

RadNet, Los Angeles, CA, continues to dominate the imaging center market, not just in number of centers, but in the number of centers acquired. The market leader reported a total of 289 centers, an increase of 38 imaging centers since this time last year (Table 2).

One key acquisition was announced in April, when RadNet proved adept at the game of Monopoly and acquired  New York Radiology Partner’s eight prime Manhattan locations. At the time of the acquisition, Howard Berger, MD, president and CEO, professed his belief that the densely populated island of 1.7 million inhabitants holds the potential for future growth. Regional growth is a strategy the organization has worked in its California, Florida, Maryland, Delaware, New Jersey, and Rhode Island markets.

CDI, Minneapolis, Minn., second on the list, weighed in at 100 centers, trimmed down by 11 from last year’s total of 111. Some attrition would be expected following the organization’s merger with Insight Imaging in 2012, which created a combined company of 116 centers.

The third-ranking company was MedQuest Associates/Novant Health, Alpharetta, Ga., a joint venture between the entrepreneur-owned MedQuest and health system Novant Health. Most of its centers are clustered in the primary markets of Florida, North Carolina, and South Carolina.

A total of 74 imaging centers were counted on the MedQuest web site, an increase of 13 centers over the 61 reported in 2014. A call to MedQuest to confirm that all 74 centers billed under MPFS was not returned.

SimonMed/Dignity Health, Phoenix, Ariz., ranked fourth with a total of 63 outpatient-imaging centers. Last year, the two companies were listed separately, but all 48 of Dignity Health’s freestanding imaging centers were contributed to a joint venture with the health system in 2012, so a joint listing is more appropriate. However, the JV includes just 48 of SimonMed’s 63 centers. Calls to verify center billing status were not returned.

John Simon, MD, radiologist, CEO and founder of SimonMed, announced earlier this year that the company would develop a $30 million outpatient health campus adjacent to St. Joseph’s Westgate Medical Center, Glendale, Ariz. The target tenants are independent physicians with privileges at the surrounding hospitals, including those owned by Banner Health and Tenet Healthcare, according to a report in a local business journal.

The new frontier

The fifth largest imaging center chain, Touchstone Imaging, Mesquite, Tex., first appeared on the list in 2014 after acquiring 13 centers for a total of 36. The chain added one center since then for a total of 37 this year, leapfrogging over last year’s fifth-ranking chain Tri State Imaging Group, which sold its Florida holdings.

Last year, the imaging center chain reported that 24 of its centers were held in joint ventures. In 2015, the organization reported that 33 of its centers were held jointly, all with hospitals. Two years ago, Touchstone formed a JV with Baylor Scott & White, and earlier this year it formed another in Denver with Sisters of Charity of Leavenworth.

“In both cases, the venture partner contributed some centers and we contributed our centers,” Madden says. “We have the full management and operations from A to Z, and we get the benefit of their managed care contracting, which helps to keep our equipment up to speed and RIS/PACS current. It’s a good combination, a model that we like and has worked well.”

Outpatient Imaging Affiliates (OIA), Nashville, Tenn., ranked at sixth and an early practitioner of the JV model with hospitals and health systems, has 34 centers, 25 of which are JVs with hospitals. “Hospital joint venture partnerships were the model on which OIA was formed fifteen years ago and that remains our primary model today as much as ever,” reports Creighton Cook, OIA senior director of business development.  “We have had more hospitals reach out to us over the past twelve months than ever before to learn about our JV model and the need to get off campus at a value price point.”

Cook reports that a growing number of hospitals are reaching out for help in developing a multi-imaging center strategy. “We’ve seen a lot of hospitals building these big box outpatient destinations, with 50,000-, 75,000-, 150,000-sq-ft buildings with imaging, flex offices for physicians and swimming pools,” he reports. “They are going into these new communities and putting up these big boxes, and we are talking to a couple of hospitals about putting imaging into these centers on their behalf.”

Hospitals, nonetheless, remain fearful of cannibalizing their on-campus outpatient business. “As such, even though we often recommend to hospitals that they need a near campus location to combat leakage, they (perhaps rightfully) want imaging as far away from campus as possible,” he says. “They often want to use imaging to stake claim to emerging growth areas, which is a more risky strategy.”

Is the end near?

Hospitals will continue to protect their hospital-based business as long as the HOPPS rates exceed MPFS rates, which is in danger of vanishing. The HOPPS premium is under attack from the Medicare Payment Advisory Commission, which has urged CMS to adopt a site-neutral payment policy.

“In my opinion, the writing is on the wall for the HOPPS rate to be reduced probably quite significantly over the next couple of years,” says Dale Skrnich, VP Imaging, outpatient services division, Tenet Healthcare Corp, Dallas, Tex.

Working with healthcare private equity firm Welsh, Carson, Anderson & Stowe, Tenet recently completed a merger with United Surgical Partners International, Dallas, blending its 24 imaging centers and 49 ambulatory surgical centers, with USPI’s 200 ASCs and 19 short-stay hospitals in 29 states. Although it involved relatively few imaging centers, the deal has the potential to make a significant impact on the market.

“Folding what has been the Tenet outpatient services division for the past eight years into USPI, to go forward with this partnership as an ambulatory services company, just made perfect sense,” Skrnich says. Most USPI outpatient surgical assets are held in three-way joint ventures with large integrated delivery networks (IDNs) and physician practices, and these IDNs are seeking guidance in developing other outpatient service lines, such as emergency care, urgent care and diagnostic imaging, in which Tenet has expertise.

“Whether or not they are looking at [freestanding outpatient imaging] today, we think they will be relatively soon,” Skrnich says, citing the high cost of operating a hospital radiology imaging department and or hospital-based outpatient imaging center. “We typically bring to the table a streamlined cost structure with freestanding imaging.”

Tenet, which owns a 50.1% share, and USPI, with a 49.9% share, will market their outpatient services not just to Tenet hospitals but also other providers, including IDNs, hospitals, independent physician associations, foundations and other large physician groups. “I think it does lend a certain amount of leverage to create an offering that is all inclusive versus one individual service line, as we have approached it in the past,” he says.

While not exactly a stampede, the migration of hospitals into the freestanding outpatient imaging market is clearly underway. In California’s San Diego and Orange Counties, Scripps Health acquired the eight-center radiologist owned and operated chain Imaging Healthcare Specialists in the first quarter of 2015; and Memorial Care Health System acquired a nine-center chain owned by Strategic Medical in 2014.

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Alternative business models

Not all imaging center ownership models entail JVs with hospitals, but it is definitely the dominant model, both among the entrepreneur-owned chains and the radiologist-owned chains. Just four of the chains on our list reported that all centers were wholly owned.

While imaging center ownership is not as common among private radiology practices as it was in the past, a number of practices continue to be significant forces in their respective markets, including Tristate Imaging Group, Rockledge, Penn. (No. 9); Southwest Diagnostic Imaging, Scottsdale, Ariz. (No. 12); Charlotte Radiology, Charlotte, N.C. (No. 15); Wake Radiology, Raleigh, N.C. (No. 16); Progressive Radiology, Falls Church, Va. (No. 17); Doshi Diagnostics, Hicksville, N.Y. (No. 18); and Austin Radiological Associates, Austin, Tex. (No. 20). Two other practices, both with 17 imaging centers, each narrowly missed being included on the list: South Texas Radiology Group and Fairfax Radiological Associates, Fairfax, Va.

Nearly half of the 20 top chains—eight to be precise—is owned by radiologists. Three of the corporate chains were started by radiologists—RadNet, CDI and SimonMed Imaging—and two of them continue to be run by radiologists: Howard Berger, MD, CEO, RadNet, and Simon, CEO, SimonMed Imaging.

Wholly owned imaging center chains are increasingly rare, with just four on our list. Three of the wholly owned companies are radiologist-owned chains and one is a single-modality chain.

Once a mainstay of the outpatient imaging market, single modality chains, typically MRI, are even more rare in 2015. Our list includes just one single-modality chain, A1 Medical Imaging Diagnostic Centers, Sarasota, Fla., a chain of 18 MRI centers, down from 27 in 2014.

While Progressive Radiology’s primary model is MRI centers, the group also operates a handful of full-service centers. “There is a lot of appetite for smaller imaging-center groups, onesies and twosies,” Starr says. “The downside is that we are seeing a lot of older equipment. We’ve been buying older opens and installing newer, state-of-the-art technology.”

In addition to upgrading its MRI centers to 3T MRI and 1.2T open, Progressive is upgrading one center to breast tomosynthesis and looking at acquiring several new centers, including one full-service imaging center.

“Low-end imaging operators are almost all dried up,” OIA’s Cook reports. “The few that remain are surviving on aged equipment that they will never be able to replace at bottom-dweller rates.  Those independent imaging operators that remain are generally pretty top-quality operators.”

Touchstone’s Madden agreed that industry consolidation is a recurring theme. “Some of the lesser performing operators are dropping out, they are not recapitalizing,” he reports. “What’s interesting is a lot of the doctors—orthopedists and neurologists—are looking at deals to add imaging. I always know when the economy is getting better, because I start to get calls two or three times a month from a physician or a group wanting to do some kind of an imaging deal.”

Dark clouds

Looming over the industry is an abiding concern about continued reimbursement pressure. While CMS did not hand down any major cuts for 2016, outpatient-imaging operators are now fending off cuts from private payors.

“Right now, we’ve been pretty beat up by Medicare,” says Michael Clair, MD, CEO,Tristate Imaging Group, which shed 18 Florida imaging centers it acquired in 2013. “The Blues and other private payors have jumped on the wagon and tried to decrease payments.”

Clair reports that Tristate has had some success in educating a local Blues carrier about the importance of keeping independent networks intact as a lower-cost alternative to hospital-based outpatient imaging. “Believe it or not, they said they weren’t aware of the pricing differential,” he notes. “It’s incumbent upon the people in business—those of us with five to 30 sites—to continue to aggressively educate their insurers about the value they bring to the table.”

Tristate continues to look for new opportunities, but intends to stay within the tri-state area. “We added a new center, took one away and enlarged another into a full-modality center,” Clair reports. “We also had the failed Florida attempt. I think it is in our best interest to stay within the three states we are locked into.”

Across-the-board reimbursement cuts of the ilk that CMS has dished out over the past 10 years are what keep Tenet’s Skrnich up at night. “From year to year, the industry has proven to MedPAC that the utilization rates that they report have been driven by physician self referral and not the [imaging center] industry,” he says. “That’s the one concern I have: That they continue to impose these blanket reductions and don’t address the real issue.”

OIA recently received a letter notifying it of a reimbursement reduction that wiped out $300,000 in revenue from one of its centers. “Do payors not understand that we are the best friends they have right now in imaging?” OIA’s Cook asks. “ If they push us (and others like us) out of the marketplace, every scan goes back to the hospital at a 200% or more increase in expense to them, yet they continue to hammer us. Every year, we think it can’t get any worse and it does.”

“It’s not like a negotiation,” says David Dierolf, MSCS, VP, performance improvement, OIA. “They just say, ‘Here’s your new rates.’ I don’t know whether they think we won’t go away, that there is room for us to continue to get squeezed. There is a point where we will, because it just doesn’t make sense to operate in that model. They’ll be the ones paying the hospitals the extra dollars.”

Silver linings

The major players in the outpatient imaging center market operators are not ready to throw in the towel yet. They understand that they add value in a value-based payment world—even if payors are slow on the uptake—and everyone interviewed has their sites on growth.

“[The margins] are thinner, it’s challenging,” Progressive’s Starr acknowledges, “but we are a radiology practice, and they are in this to practice medicine for the long haul. If they are going to do it for the next 40 years, they might as well do it right. We’ve been fortunate to see the business come with the [equipment] upgrades.”

Operators also understand that in a patient-centered health system, freestanding outpatient imaging providers have long held the advantage. Envision Radiology, Colorado Springs, Colo., ranking No. 7 on the Top 20 list, will hold two Innovation Summits this year for referring physicians and patients, events that previously were internal activities.

“We’re looking at new ways to bring innovation into our industry as a whole,” says Linda Szymczak, chief administrative officer, Envision Radiology. “We are looking for those Blue Ocean-type individuals to think about what we can do differently to improve the patient experience. We’ve all been through this: You get the imaging study, and then you worry about it until you get the results. We want to shorten that time between image acquisition and the start of care delivery.”

Envision’s primary markets are Colorado and Dallas/Houston, with one center each in Louisiana and Oklahoma. “We don’t just seek to get bigger, but we are growing by acquisition and de novo growth,” she reports. “It has to make sense, we are being careful.”

The growing influence of consumerism is another cause for optimism among outpatient imaging center operators. Higher deductibles are making patients more sensitive to the price of their healthcare, something referring physicians can no longer ignore.

OIA’s Dierolf recently conducted a market survey for which he talked with physicians, some of whom were hospital employees. “Their comments were: ‘In good faith, we can’t send our patients somewhere it is going to cost them twice or three times as much.’”