Radiology Partners added another 500 physicians to its roster last year and now covers all 50 U.S. states, the industry giant said Wednesday. But credit analysts are issuing caution around the practice’s aggressive, debt-fueled growth strategy.
The El Segundo, California-based company also expanded to 155 new sites of service last year and has inked partnerships with 17 of the 20 largest hospital systems in the country. Rad Partners shared the numbers in an April 19 news announcement tied to the provider group reaching a decade of operations.
“2022 marked a significant milestone for our practice as we celebrated 10 years of transforming radiology, and we look forward to continued growth and innovation in 2023 and beyond,” Chairman and CEO Rich Whitney said in prepared remarks.
Rad Partners said it also added two unnamed radiology practices in 2022 while expanding or opening in Illinois, Iowa and Colorado. That’s along with establishing seven new radiology practices, according to the announcement. Altogether, the group now employs more than 3,300 radiologists across 3,250 sites interpreting 53 million exams annually, making it “the largest radiology practice in the U.S.”
A former DaVita exec, Whitney co-founded the company in 2012. Backed by private equity firm Whistler Capital (31.6% ownership stake as of November)—alongside venture capital firm New Enterprise Associates (19.6%) and the Australian sovereign wealth Future Fund (10%)—RP has grown rapidly since then.
But its expansion strategy has left the company with high financial leverage, Moody’s analysts reported last year. Rad Partners’ debt-to-earnings ratio was roughly 10x for the 12 months ending in September. The investor service said it expects the number to remain “very high,” at more than 8x, in the next year-plus.
“Credit exposure to governance risk considerations is very highly negative, reflecting sustained high financial leverage and track record of debt-funded acquisitions under private equity ownership,” analysts Adam Chaim and Ola Hannoun-Costa wrote late last year. “Credit risk exposures to social considerations is highly negative, reflecting the company's exposure to human capital and reliance on a highly skilled workforce (radiologists) and exposure to labor shortages and wage inflation.”
Through a spokesperson RP said it will continue to weather the forces affecting the specialty.
"Notwithstanding the economic and policy headwinds that radiology practices face and must be addressed, we remain committed to adapting to the current environment by reducing debt and strengthening our balance sheet through organic EBITDA growth," Rad Partners said. "RP has positive cashflow, substantial liquidity and continued year-over-year EBITDA growth."
In an analysis issued March 31, Standard & Poor’s estimated Rad Partners’ leverage to be at 10.5x-11.5x, with annual revenues of $2.6 billion. About 80% of the company’s debt—or $1.64 billion—is maturing in 2025, “which may raise some refinancing issues amid risk from operational and macro challenges,” analysts noted.
“This is only partially offset by Radiology Partners’ greater scale and the interest rate hedges it has in place,” S&P experts noted. “Radiology Partners has recently initiated some cost-saving measures which we expect will help improve margins and adjusted leverage in 2023.”
In Wednesday’s announcement, RP said the practice will continue to invest in clinical programs while pursuing opportunities that “drive strategic growth.” Private equity backers often operate on a five- or 10-year investment cycle, but RP did not disclose plans to seek a sale.
“Our physician shareholders and our outside investors are committed to our mission to transform radiology, and that is not a short-term endeavor,” a spokesperson said by email.
Critics of PE's entree into imaging expressed concern about the lasting mark Rad Partners and other such entities will leave on the specialty.
"It would be nice of RP's growth over the past decade brought with it commensurate improvements to the field of radiology," Ben White, MD—a Texas neuroradiologist, blogger and critic of Rad Partners and PE in general—told Radiology Business. "Instead, the funding model has exacerbated the radiologist shortage, complicated recruitment nationwide and destabilized several previously successful independent practices. I wish the influx of private equity capital could be seen as anything other than a net negative."
The announcement came a day after news broke of insurer UnitedHealthcare filing suit against Rad Partners, claiming the provider group improperly billed for imaging services. The spokesperson said RP traditionally issues growth announcements within Q1 and had already planned the announcement prior to UHC’s complaint, which was filed on April 14 in California.
Editor's note: This story has been updated to include additional information from a Rad Partners spokesperson and a comment from Ben White, MD.
Marty Stempniak has covered healthcare since 2012, with his byline appearing in the American Hospital Association's member magazine, Modern Healthcare and McKnight's. Prior to that, he wrote about village government and local business for his hometown newspaper in Oak Park, Illinois. He won a Peter Lisagor and Gold EXCEL awards in 2017 for his coverage of the opioid epidemic.