The Big Get Bigger, Primarily at the Summit

Welcome to the results of the sixth annual radiology-group survey. Recently, I had lunch (at a conference on health care’s future) with the former CEO of a large teleradiology company, and he asked how radiology groups were responding to changes in the marketplace. Over the years, we had discussed that we both felt that radiology groups would get larger and that we would see national radiology groups, in the future. The question was never whether this would happen—but rather, when. I think that the answer is either soon or now.

Many leaders of great companies feel that one of the key reasons that they were successful is that they were in the right place at the right time. Now appears to be that right time, for radiology groups. You can see, in the survey’s results, that many groups are greatly increasing in size. How are they doing this? Mergers are the main method, because many groups are not replacing radiologists as partners retire. Productivity increases are allowing the same groups to read more exams with fewer radiologists. The number of radiologists might not be the best measurement for the size of a practice, but it is a starting point.

In 2012, the 100 largest groups represented 4,602 radiologists, and the 20 largest groups represented 1,504 radiologists. In 2013, the 101 largest groups represent more than 5,000 radiologists (a 9% increase), and the 20 largest groups represent more than 1,700 radiologists (a 13% increase). The average group in the top 20 has more than 85 radiologists.

It appears that the drive for size is real. We hear groups talk about the need to reach a size of about 250 radiologists in order to provide 24/7 subspecialty interpretations. These groups see the advantages of size, allowing them to focus time and resources on the service and quality measurements that are being promoted in the marketplace. There is little doubt that the bar has been raised. The great groups will step up to the table.

We also are seeing many mergers of groups of 10 to 50 radiologists that will be completed in 2014. As these groups walk through the process, it is apparent that there are many synergies and cost savings available.

We continue to be very optimistic about the future for private radiology groups. Leadership will be one of the keys to success. Consider looking into the ACR Radiology Leadership Institute, if you have not done so already. Thank you for your participation in the survey.

Joseph P. White, CPA, MBA, CliftonLarsonAllen, CPA Consultants and Advisors

The consolidation trend gathered steam in the radiology private-practice sector in 2013, a year in which the average and median sizes of the nation’s largest private practices increased from 46 (in 2012) to 50 and from 40.5 to 42, respectively. Administered by CliftonLarsonAllen and Radiology Business Journal, the sixth annual survey also reveals that the growth was fueled by the very largest practices (those with more than 65 FTE radiologists), with relatively insignificant median growth seen in the smaller-practice cohorts.

Financial information submitted by the practices is confidential, so the criteria used to rank them were number of FTE radiologists and (if two practices had the same number of radiologists) FTE employees. We included 101 practices this year because the three smallest practices all had 29 FTE radiologists.

The Web-based survey was made available to readers of Radiology Business Journal and imagingBiz.com, and an effort was made to rank all practices in the United States by gathering data from practice websites and soliciting input (via telephone) from practice representatives. The names of those practices that did not confirm their information are printed in light blue (see table), and their rankings are likely to be undeservedly high because they are ranked by total (not FTE) radiologists.

We welcome your assistance in getting us closer to a complete, accurate list. Our smallest practice had 23 FTE radiologists in 2012. This year, the smallest practice had 29 FTE radiologists.

In 2013, there was continued attrition in the number of employees in all practice cohorts (except those with 50 to 65 radiologists); this is likely to be a response to persistent reimbursement cuts. We also saw revenue per FTE employee increase in practices with fewer than 49 radiologists, but decline in the larger practices, which employ three to five times as many people as the smaller practices.

With imaging-center ownership up in the larger two practice cohorts and down in the smaller two groupings, it is not surprising that the larger practice groups are much bigger employers. One of the most curious findings, however, is that last year, groups in the largest practice cohort had the greatest revenue per FTE radiologist; this year, they had the lowest.

The Top Five

Radiology Associates of North Texas (Fort Worth, Texas), held onto the summit that it claimed last year after the merger of three North Texas practices, adding two FTE radiologists—for a total of 124. Texas has six practices in the upper half of the ranking (more than any other state). Is the market ripe for consolidation, or is there something to the notion that Texas inspires activity on a grand scale?

Advanced Radiology Services (ARS), Grand Rapids, Michigan, number two in 2013 (with 111 FTE radiologists), has been a top-ranked practice since the survey was initiated in 2008. ARS serves 13 hospitals; does not own any imaging centers; and employs 101 people, many of whom are likely to be employed in the practice’s managed-services organization (which handles the group’s billing). ARS added slightly more than two FTE radiologists in 2013.

Integra Imaging (Spokane, Washington) is new to the list, but the two practices that merged to create this monolith have ranked among the largest radiology private practices since 2008. Integra Imaging was the result of a 2012 merger between Inland Imaging and Seattle Radiologists, and with a combined 97 radiologists, it debuts at number three in the ranking.

Even though Radia Medical Imaging (Everett, Washington) added 11 radiologists in 2013, it slipped from third to fourth on the list, underscoring the rapid rate of growth in the top quartile of the list. Radia Medical Imaging ranked below Integra Imaging (also weighing in at 97 radiologists) because it employs 152 people, compared with Integra Imaging’s 567. With two practices ranking among the largest five in the country, Washington appears to inspire size.

One of the 12 practices new to the ranking this year was fifth-ranked Advanced Radiology (Baltimore, Maryland), with 94.25 FTE radiologists. Although Advanced Radiology doesn’t have even one employee, it does have an ownership interest in 30 imaging centers, which its business partner, RadNet, operates (and presumably owns as well). The practice serves eight hospitals.

Top-heavy Growth

Our 2013 survey validates the fact that consolidation is underway among radiology practices, resulting in a growing number of megagroups—including 11 private practices with 80 or more FTE radiologists. The median practice size grew by 1.5 FTEs—considerably less than the average size grew (four FTEs).

The reason is clear. Most growth took place in the upper ranks of the radiology 101.

The median number of radiologists in the cohort representing the largest groups (with more than 65 radiologists) increased by much more than 1.5 FTEs (Figure 1), leaping from 73 to 79.5. The average size of this group increased from 78.9 to 82.

The median size of the cohort with 50 to 65 radiologists, however, remained the same (at 55). The average size declined from 55.9 to 55.4 FTEs.

There was not much change in average size of practices in the 35-to-49–radiologist cohort, either; the median and average sizes of these practices were 40.2 and 40.7 in 2012, but 40 and 40.1 in 2013. The cohort of the smallest practices grew slightly, with the median and average sizes increasing from 30 and 29.7 to 30 and 31.1.

Hospital Contracts on Hold

Only the largest and smallest practice-size cohorts eked out increases in the median number of hospitals served (Figure 2). The group having more than 65 radiologists saw its median number of hospitals served increase from 14 to 15; the group with fewer than 35 radiologists increased the median number of hospitals served as well, from five in 2012 to six in 2013.

The median number of hospitals served by the 50-to-65–radiologist group declined by two, to nine; the median number of contracts held by the 35-to-49–radiologist cohort remained stable, at six. Clearly, competition for hospital contracts is keen, as that universe has not expanded since it peaked at 5,010 (in 2008). It had declined to 4,973 by 2011, according to the most recent data from the Henry J. Kaiser Family Foundation.

This year’s survey confirms that the nation’s largest radiology practices continue to be interested in the imaging-center business. Imaging-center ownership has increased in the two largest practice-size cohorts (Figure 3), from a median of seven to nine in the group with more than 65 radiologists and from five to seven in the 50-to-65–radiologist group.

The median number of imaging centers owned by the smallest group stayed the same, at two. It dropped significantly in the 35-to-49–radiologist cohort.

The median number of employees decreased in every practice-size cohort except the 50-to-65–radiologist group (Figure 4), where it more than doubled. Perhaps this reflects the increase in imaging centers owned by practices in this cohort.

Concluding Numbers and Thoughts

With consolidation underway among radiology practices and median annual procedures flat in all cohorts (Figure 5), it is safe to assume that competition for hospital contracts will heat up, particularly as practices become more efficient, more highly subspecialized, and better equipped with IT. The need to subspecialize has been cited as a factor in increased practice size, and this year’s survey demonstrates that practices are making significant headway toward this goal.

Only 13% of the practices that reported coverage patterns acknowledge using a combination of in-house and outsourced 24/7 subspecialized coverage. The rest provide in-house 24/7 coverage with no outside assistance. Most of the 101 largest radiology practices do business in just one or two states, but 23% reported doing business in three or more states—and one does business in 16.

This year, 28 of 101 practices contributed financial data (on the condition that the data would not be shared). We are grateful for this trust, as it enables us to share broad trends that might resonate with the group. We hesitate to read too much into trends suggested by such a small sample, but the reporting practices were fairly evenly distributed and represent about 25% of each practice-size cohort.

Based on reported revenues per radiologist and per employee, it could be that the increased costs of running a large organization—including IT, professional management, imaging-center operations, and marketing—are outrunning the number of studies that radiologists can read (and the contracts that leaders can secure). It is likely, too, that larger practices are making greater investments in activities that do not generate RVUs directly. It is apparent that more of the practices on the lower half of the list are divesting themselves of imaging centers and employees, perhaps in an effort to maximize revenue for partners—with no thought given to the longer term.

In conclusion, we congratulate the practices included among the 101 largest. Growing and prospering in a time of shrinking reimbursement are not easy things to do. Navigating a changing and demanding regulatory environment is challenging; charting a course into an uncertain future takes courage. We salute your practice-building skills and extend our gratitude to the practice leaders who took the time to participate in the annual survey.

The sponsors gratefully acknowledge the assistance of Laura Tierney, manager, health care, and Kathy Bartels, client service assistant, CliftonLarsonAllen LLC, who provided the computations and research for this survey.