Growth Strategies for Thin Times

In 2004, the specialty of radiology was thriving and blissfully unaware of the decade of austerity ahead. Procedure volumes were on the rise, technology was taking great leaps forward, and medical imaging was the toast of medicine. No fewer than three imaging modalities—MRI, CT, and mammography—had appeared on various millennial lists of the top medical innovations of the 20th century. Life—and practice—were good.

Radiology’s fortunes took a turn on January 1, 2005, when 10 years of reimbursement cuts were initiated by the DRA, setting in motion widespread cost-cutting and productivity-enhancing initiatives (across practice settings) that continue today. Radiology Business Journal interviewed the leaders of three progressive practices in different regions to discover how they have managed to survive, grow, and even thrive in a very punishing business environment: Southwest Diagnostic Imaging Ltd (SDI), Scottsdale, Ariz.; Advanced Diagnostic Imaging (ADI) PC, Nashville, Tenn.; and Consulting Radiologists Ltd (CRL), Minneapolis.

To put the reimbursement cuts into perspective, consider the experience of Southwest Diagnostic Imaging Ltd (SDI), a 105-radiologist practice with 25 imaging centers in the Greater Phoenix area. SDI tracks charges against payments for each class of insurance, including Medicare, and has been doing so for 15 years.

Establishing the baseline, in 2004, at 100 percent of global billing charges collected, SDI found that Medicare reimbursement for outpatient imaging declined by 30 to 35 percent over 10 years (see figure and table). Rodney Owen, MD, FACR, co–vice president of SDI and longtime president of Scottsdale Medical Imaging Ltd (SMIL), shares the data with the caveat that the practice reduced charges slightly in 2008. The impact of the cuts, however, is likely to be understated.

“The healthcare inflation rate has been running at three percent over the past 10 years,” he says. “Factor in 10 years of a three-percent inflation rate in terms of 2004 dollars, and we are probably approaching 50 percent.”

While differing in size and market approach, SDI, ADI, and CRL have responded aggressively and proactively to the challenge of a potential 50 percent cut in revenue, using many of the same tactics. “I think it has made us strive to be more efficient, it has made us more service focused, and it has made us look for additional opportunities to diversify the practice,” Chad Calendine, MD, explains. Calendine is president of ADI, with 36 FTE radiologists.

With 37 on-site hospital and clinic clients and many more teleradiology customers, CRL has reached a point where diversification, profitable growth, and sustaining relationships have become the priorities. Christopher Tillotson, MD, president of CRL, says, “Looking at our current environment, going forward, we are getting away from the idea of growth for growth’s sake. In just adding more of the same, your profitability doesn’t go up. What we’ve been trying to do is start to look at how we can provide a broad set of services to a range of clients. We provide subspecialized onsite and remote radiology services as well as mobile and outpatient imaging for urban and rural healthcare providers. By providing more value to our clients, we can strengthen and maintain our relationships.”

Figure. The red line charts the impact on global outpatient payments, over 10 consecutive years, of Medicare reimbursement cuts for medical-imaging services performed at the outpatient imaging centers of Southwest Diagnostic Imaging Ltd. The amount collected as a percentage of global billing in 2004 was defined as 100 percent. Courtesy of Rodney Owen, MD, FACR.

Efficiency measures

Like other well-run practices, SDI has assiduously worked both sides of the efficiency coin: expense reduction and productivity enhancement. A high level of subspecialization is one tactic that the practice has used to maximize work RVUs performed per slot, per work shift. “We definitely found that a group of neuroradiologists can get through the neuroradiology MRI exams a lot faster than general radiologists, and they can offer better quality,” Owen says.

SDI further refined its workflow with the assistance of a process-improvement engineer, hired eight to 10 years ago. “We’ve had that process engineer sit down and work with the radiologists—both the positive outliers and the negative outliers—and we’ve come up with best practices for how people actually get the work done,” he says.

Through membership in the 17-practice consortium Strategic Radiology, SDI has access to a database in which each radiologist is classified by subspecialty. “We know, across 1,400 radiologists, what the quartiles are in terms of work RVUs per shift,” Owen notes. “Having the benchmarks is really helpful because they tell you what is possible to achieve and what is within reason. If we have a section of musculoskeletal radiologists reading x RVUs per slot, we can go to the Strategic Radiology database and see, across its practices, what the average is, as well as what the bottom 25 percent and the top 25 percent of musculoskeletal radiologists are reading per day. Do we have an opportunity for improvement, or are we at the top of the heap?”

Increasing productivity has been the focus on the professional side of the practice, but on its sizable outpatient-imaging side, the engineer has focused on cutting costs using lean, Six Sigma™, and other process-improvement tools. “This is what businesses have done for 25 years, and that is what we are having to do with our outpatient centers,” Owen says.

After 10 years of these activities, however, Owen believes that the practice might have hit the wall in ferreting out cost-cutting opportunities; in fact, deferred investments are likely to lie ahead. “Right now, the outpatient industry is at an unprecedented low debt level, and that’s going to have to go away,” Owen says. “People are going to have to start reinvesting and replacing technology. The manufacturers all are stating that the past five years have been an unprecedented lull, in terms of equipment purchases.”

Seeking savings

ADI has left no stone unturned in its mission to cut overhead, Michael Moreland, CEO, reports. “As we grew larger and gained more scale, especially on the imaging-center side, we looked very aggressively at our costs,” he says.

Four or five years ago, the practice, which operates 12 imaging centers in a joint venture with a hospital partner, held first-dollar–coverage contracts for equipment maintenance; it has since gone to what is essentially a self-insured plan, representing a minimum $1 million savings annually, Moreland adds. In a similar way, the practice partnered with several other practices to form a captive health-insurance company, saving several hundred thousand dollars a year on health insurance.

Like SDI, the practice keeps a laser focus on imaging-center operational costs, including staffing levels and supplies. “Calendine is very good at knowing exactly what he uses when he’s working in the clinics,” Moreland notes. “He’s continually driven down costs of basic supplies, down to the tiny needles used for epidural steroid injection and the repackaging and repricing of the trays. It’s everything. We never look at new equipment; we always buy used. We never look at things the same way: We always ask what we can do to reduce costs.”

Cost cutting, however, can take a practice only part of the way to maximum efficiency, Calendine says. “The biggest way to move the needle on that is for radiologists to become more efficient,” he says. “They are your largest cost center: the radiologists themselves. Our group RVU average is much higher than it used to be.”

Through investments in IT, including a real-time, nonanonymized productivity dashboard that all radiologists can see, ADI has achieved a 25-percent increase in radiologist productivity over 10 years, Calendine says. “That is probably minimal,” Moreland adds. “Every year, we say this is the last time we are going to squeeze that, but every year, we eke out a little more productivity.”

Lean and mean

CRL has also kept close tabs on its biggest cost center—at the same time that its onsite client list has grown from three hospitals to 37, in 25 years. “Our number-one cost is radiologists, so the fewer radiologists we can work with, the better,” Tillotson says. “It’s much more efficient to use teleradiology to move work around—to cover the peaks and valleys that occur across our network. Teleradiology allows us to do that.”

Investments in IT have made explosive growth possible in the number of clients that CRL can serve throughout Minnesota and four adjacent states. “Like a lot of groups, we started using teleradiology just to provide our own internal coverage,” Tillotson notes.

The group grew to the point at which it made sense to add a night-coverage radiologist to handle its internal business, but there wasn’t quite enough work for one person. “We started to promote ourselves to other groups to do after-hours coverage, and now, we are in North Dakota, South Dakota, Iowa, Wisconsin, as well as Minnesota—with many sites that we cover to different degrees at different times,” Tillotson says.

He adds that the practice has no interest in becoming a national teleradiology presence, as most hospital client sites entail some level of on-site service. “We like to stick to places we might be able to drive to in a day or reach by taking a short flight,” he says. “That technology component is what allowed us to do that. It didn’t exist, in its current form, 15 years ago, and it has allowed us to develop rapidly.”

In the old days, a secretary with an interest in computers helped troubleshoot the IT needs of the practice. Today, the practice employs between seven and 10 IT FTEs. Fortuitously, one partner, a neuroradiologist with a high level of skill in computer science, has created many software solutions to practice problems, including a customized worklist and a voice-to-text solution. “We realize that is not typical,” Tillotson says. “It is just our good luck.”

Growth as a strategy

Growth in practice size has been a key strategy for SDI. In 2004, SMIL merged with Valley Radiologists (Phoenix) to create the 70-radiologist SDI. Earlier this year, SDI merged with East Valley Diagnostic Imaging (Mesa, Ariz.), folding an additional 35 radiologists into the practice.

“What we are finding is that for the payors in a given area, you’ve got to cover the relevant geography,” Owen says. “Payors insure the metro Phoenix market. For us to be their go-to people, we have to say, ‘We have your whole market covered, both inpatient and outpatient,’ and that’s a critical strategy.”

Benefits to be gained through growth are considerable. “We’ve definitely gotten huge economies of scale in terms of billing, operations, and contracting,” Owen says. “When I look at our business, both inpatient and outpatient, as it’s evolved over the past 20 years, it is infinitely more sophisticated and substantially more efficient.”

Becoming a large-revenue corporation brings with it the ability to invest in large IT systems, internal programmers, and talented people to run operations and practice finances. “Now, we have a chief revenue officer who is very sophisticated and knowledgeable,” Owen says. “Size has brought us that. From a radiologist’s perspective, it’s brought increased subspecialization. It’s better for patients, better for the hospitals, and better for the referring physicians.”

On the outpatient-imaging side, growth is not optional, he says. “When you get substantially less reimbursement per unit of work, you are just going to have to do more work on those fixed assets,” he says. “It is going to be critically important for survival.”

Due to a lack of new service lines, the only way to grow, in the current market, is by gaining market share, he believes. “There are a few new things coming down the pike whereby patients who aren’t currently getting imaged may get imaged,” Owen suggests, citing a potential increase in imaging for neurodegenerative diseases and for lung-cancer screening.

In Nashville, ADI has turned its size into an asset at the negotiating table. “Our commercial rates are up substantially in the past 10 years,” Calendine says, and he attributes that fact, in part, to size. “We aggressively manage our commercial contracts, which is something many groups don’t do,” he says. “In fact, we use an outside consulting company specifically for that purpose.”

Its relationship with the nonprofit Saint Thomas Health (Nashville), the area’s low-cost hospital system, has helped. “There is a certain advantage for the radiology practice that staffs the low-cost hospital system in any market,” he notes, adding that the practice has used that influence.

Using imaging-center assets

While it might seem counterintuitive to bulk up on outpatient–imaging-center assets (for which reimbursement has suffered the greatest reductions), all three practices have increased their holdings of outpatient imaging centers over the past 10 years. It was a strategic decision that has served each of them well.

“As people were struggling and wanting to exit the market, we bought several more imaging centers—and grew from having one to three to 12,” Moreland says. Since 2009, that growth has taken place within an imaging-center network jointly owned by ADI, Saint Thomas Health, and one other practice, which officially launched in 2011. ADI has exercised the same clout that it has on the professional side with commercial payors, in its outpatient-imaging global rates.

“There’s only one other freestanding clinic in town, so basically, the competition is between Vanderbilt University Medical Center—high cost and high expense—and us,” Moreland adds. “We are renegotiating our contracts constantly.” The larger the practice becomes, the more influence it has. “We’ve been able to maintain margins, even with cuts. There’s not as much competition,” he says, so size carries advantages in contracting.

SDI has 25 imaging centers, and 18 of them are multimodality sites. Since 2004, the practice has built four imaging centers from the ground up, two of them in critical geographic areas; its newest center will open in September 2014. Recently, SDI aligned itself with one health-system client in a joint venture on 10 of its outpatient imaging centers in Scottsdale. The deal includes a management contract for SDI.

Despite lean methods, Six Sigma, and all of the best efforts of the efficiency engineer, reimbursement is a cause for concern, Owen says. “Too many cuts and no one will be in the business,” he says. “If all of the freestanding outpatient imaging centers close and the business goes to hospitals, society is going to lose because hospitals do it way more expensively and way less efficiently. Right now, the payors and Medicare are both going to have to realize they’re getting a smoking deal.”

One of SDI’s key strategies is to educate payors in the Phoenix market. “We’ve been gaining substantial cost reductions without really realizing it because their fee schedules are indirectly tied to Medicare,” Owen says. “They’ll say, ‘We’re still paying 90 percent of Medicare, as we always have.’ We’ll say, ‘Yes, but 90 percent is 65 percent of what it used to be.’ Maybe they don’t realize it, but it’s time to have that conversation.”

CRL took advantage of two of four imaging centers to create closer alignment with its largest health-system client, Allina Health (Minneapolis). Karen Kleinhans, MHA, chief of strategy and business development for CRL, says, “The health system employs about 1,200 physicians, and almost 800 of them are in primary care. They can make or break an imaging center, based on where they send their referrals.”

Faced with the decision to compete or partner with Allina Health, CRL chose partnership. “Since the joint venture was established, we’ve increased our volume tremendously at those sites, simply from Allina Health’s business alone,” Kleinhans says. “We had a lot of independent practices referring to us (specialty practices, mainly), but now, we have a lot of primary-care practices referring to us as well, from a broader geography.” Growth aside, the partnership is a strategic decision to promote sustainability and long-term economic security, she adds.

Big enough

SDI has 97 FTE radiologists, CRL has 70, and ADI has 36. Each practice leader suggests that the practice might have reached the optimal practice size.

Professional-only corporations probably don’t have to grow, once they’ve attained a large enough size to support subspecialization and IT investments, Owen says. He puts that number at between 35 and 100 radiologists. “I think you get diminishing returns with growth. It might be important for you to grow larger, but I think you are going to run up against no new opportunities for savings,” he says.

Minneapolis–Saint Paul is unusual in that three large practices dominate the market. Tillotson acknowledges that there has been some discussion among the practices about ways to work together, but thus far, those discussions have not led to serious consideration of a three-way merger.

“We have good relationships among the groups, and we spend time together to discuss both synergies and areas of conflict. For example, since we all serve Allina, we discuss areas where we might be able to serve them more efficiently and appropriately,” Tillotson says. “While it is not a true partnership, it is a relationship in which we try to interact with our colleagues who also are competitors (to some degree).”

He continues, “If you tried to lead my group, which has 70 radiologists and maybe 140 employees, there are plenty of things to keep you busy. To contemplate leading a group of 150 radiologists and 250 employees is a big undertaking, and the leaders of the other groups realize that, too. Short of going to some very tightly driven, top-down corporate culture, I think it would be hard to manage a group of that size.”

ADI, CRL, and SMIL all value the democratic model—with elected leaders, but a voice for all partners. Calendine says that a practice must be large enough to achieve presence and alignment with at least one health system; to reap the benefits of scale and profitability from business infrastructure and overhead; and to attain the service levels required, including 24/7 subspecialty coverage for hospitals and outpatient imaging centers.

“I think you do have to attain a certain size, and that’s probably 40 or 50 radiologists,” he says. “After that, you are left to grow with your aligned hospitals and health systems in your market or you are looking for opportunities outside your market, on a national scale.”

Working to diversify

In November 2012, ADI scaled the imaginary barrier between the worlds of private practice and teleradiology to strike a deal with a relatively new, private-equity–backed national teleradiology company in Nashville. Providing professional interpretations is not a part of the arrangement.

“The company has plenty of radiologists,” Calendine says. “What it lacked was the ability to manage radiologists. It was a national group that couldn’t manage radiologists. We can manage radiologists, but we were a local group, and we needed to continue to grow.”

ADI provides management and operations expertise on the reading side, including how the radiologists interact with IT, how their reading lists are displayed, how studies are parceled out, and how they are dictated. “There’s a certain methodology to that, and we formed it, over several years, to make us very efficient,” Calendine says. “That’s our model: That’s how we do it, and that’s how we’ve been able to be successful.”

In fact, Calendine says, managing the national group is much like managing ADI. “I talk to the site chiefs, and we work on the processes just as I do with my partners here,” he says. “It’s just like running ADI, but it’s national. It’s is a little larger than ADI, as far as numbers of studies, sites, and people go, so it’s a little more complex in the staffing piece. We’ve been able to reduce the company’s staffing and make it more efficient.”

The move was, in part, defensive, Moreland says. “We were looking for a big home run,” he says. “Should we somehow lose a hospital contract, we know that we could pick up a million interpretations (or any portion thereof) from the national company. We look at it as a good insurance policy.”

Practices should be aware of emerging barriers to growth in their markets, three of which Owen describes. “Payors are trying to offer cheaper healthcare by narrowing the network and narrowing patient choice,” Owen says. “If you are not in that narrow network, you are going to lose covered lives.” Another barrier to growth, Owen says, is simply operating on such thin margins that it is difficult to make investments related to providing new services.

The third limiting factor is what Owen calls the systemization of healthcare. “Instead of practicing in these little individual-subspecialty groups, physicians are starting to aggregate through accountable-care–like organizations or through narrow networks, providers, or integrated providers,” he says.

Medicare’s sustainability issues will continue to present challenges—and opportunities—for radiology practices. Tillotson says, “We realize that everybody is losing here; it’s difficult to get ahead. There are no secrets out there: no untapped modalities or sources of income. I guess I’m skeptical that you could grow your way out of the problems that we have.”

Improving existing business

CRL has turned its attention to building equity in its many current relationships by improving—and demonstrating—the value of its services. “Hospital systems are really keen on making sure that we are delivering the triple aim: the highest clinical quality; the most cost-effective, most appropriate care; and the best patient experience,” Kleinhans says. “We are on board with our hospitals in delivering on this.”

CRL and Abbott Northwestern Hospital (Minneapolis) every year to set specific goals regarding quality and performance. On the basis of meeting certain performance measures, there is risk and reward for CRL, Kleinhans reports. “That is one of the ways we are always trying to deliver the value our customers want, and that is how we sustain our partnerships,” she says.

To support a patient-safety initiative at Abbott Northwestern Hospital, CRL’s interventional and body radiologists underwent an eight-month course on team-based care that encourages everyone—physicians, nurses, and technologists—to speak up if there is a safety concern. “Our physicians deliver patient care, read images, talk to patients, talk to referring physicians, and consult on all types of questions. As they enter a procedural environment, they are very much a part of the team in bringing about the cultural shifts needed to improve the patient experience, the quality, and the cost effectiveness of care,” Kleinhans says.

CRL has built a robust, practice-based quality program that includes peer review, intervention, and (if necessary) performance-improvement plans. It regularly reports blinded results internally—as well as to clients, in a polished report published every three years. The report includes results in all quality-reporting areas and provides a handy leave-behind item for visits to potential new clients. “We have something that we can put into their hands that they can look at, study, and ask questions about,” Tillotson says.

Clearly, radiology is moving into a new (and even more challenging) future as healthcare reform is implemented. With limited resources available for growth, after a decade of reimbursement cuts, the specialty will be challenged to make the investments and decisions necessary to remain a vital and central participant in healthcare delivery. To remain competitive and grow, successful practices are doubling down on service.

“We’re very market and system friendly,” Calendine says. “We don’t compete; we follow the service initiatives, we let our health system set the expectations, and we meet them. It’s a paradigm shift that should be embraced by all practices, but it isn’t.”

Like it or not, it is a paradigm shift that increasingly favors practices of size, Owen notes, because the amount of change happening directly correlates to the amount of non–RVU work time that must be allocated to make sure that a practice is part of that change. For instance, a group of 10 physicians will be challenged to participate in clinical-guidelines initiatives and the many other change initiatives in which practices are being asked to participate, Owen says.

“It’s overwhelming,” he states. “If you try to spread that across 100 physicians and 20 staff, all of a sudden, you have the ability to respond to it, react to it, and handle it appropriately.”