While most would agree that radiology practices are undergoing consolidation, many questions remain regarding its extent and the effects, resulting in hype, hyperbole, and not a small amount of uneasiness throughout the specialty.

In an attempt to bring some order to the subject, Randal Roat, FRBMA, Strategic Radiology COO, reviewed the landscape, tallied up the available numbers, and attempted to assess whether consolidation had delivered on its objectives in “Radiology and Independence in a Consolidating World,” a talk presented at the RBMA Paradigm meeting on April 15 in Colorado Springs.

He also shared the results of Strategic Radiology’s “Pulse-Check Survey,” which provided some interesting insights into the mood, challenges, and demographic profiles in radiology practice as provided by the 45 practice executives who participated in the survey.

To begin, Roat reviewed the lexicon of consolidation as well as the current practice models in radiology.  In outlining the models, he reviewed the fiduciary obligations of each model, the purposes, the influences, and the radiologist–administrator relationship. “When we look at these models, ownership is important,” Roat said.

In the Academic Practice, the radiologist typically is an employee and the fiduciary responsibility of the practice goes back to the institution. In the Corporate Practice, radiologists are typically employed, although some may be primarily non-governing shareholders, with a fiduciary responsibility to shareholders and investors. In the Hospital-employed Practice, employed radiologists have a fiduciary responsibility to the institution, and there is a distinction between the purpose of for-profit and non-profit hospitals. In the Independent Practice, radiologists are shareholders and the fiduciary responsibility is to shareholders and patients; likewise, in the Affiliated Practice Model, assemblages of aligned private practices, responsibility is to shareholders and patients, but the obligation is to multiple groups, not one.

Relationship and Mission

Given that the audience was primarily non-physician practice executives, Roat spent time delineating the physician–administrator relationships associated with the different models:

• Academic: Typically, the physician and administrator leaders are colleagues or team members.
• Corporate: In this model, the relationship between the physicians (typically employed, possibly a limited shareholder) and the administrator transitions from employee/employer relationship to colleagues or team members. “In some cases, the administrator might even be the boss, and that is a real big change,” Roat noted.
• Hospital-employed: In this model, both radiologist and administrator are employed and are members of the same team.
• Independent: Radiologists are owners and partners in the business entity, and administrators typically are employees, and maintain an employee /employer relationship.
• Affiliated: Leader relationships are similar to those in the independent model: Employer/employee.

His assessment of the various practice model missions was based on a review of their web sites.

Academic institutions promote new approaches to medicine, improved outcomes, and access through multiple locations in the case of the UCLA Health System.

The corporate practices advertise their goal to transform medicine and use related terminology on their web sites, including next generation, leading the way, transformation, investment, and growth.

Representing the hospital-employed radiology model, Sutter Health focuses on the medical team, state-of-the-art technology, and expert care that can be obtained close to home.

A review of several Strategic Radiology independent practice member web sites yielded a focus on patients, health and well-being, and community.

Web sites of several affiliated practice models—including Strategic Radiology—focused on collaboration, best practices, quality improvement, cost reduction, scale, and efficiency.

Consolidation Drivers and Options

Opportunity was at the top of Roat’s list of consolidation drivers. “Radiology is fragmented and there is opportunity in this industry, so capitalizing on this opportunity is a reason,” he said. To illustrate the opportunity that consolidators see in radiology, he shared the following data points from a Coker 2018 Industry Spotlight report:

• Estimated 27,000+ radiologists
• Half operate in an estimated 3,000 private practices (a recent analysis in JACR identified an estimated 2,216 single-specialty radiology groups)
• In 2016, radiology generated an estimated $18.3B in revenue
• 100 largest practices account for less than 20% in revenue
• Volume projected to grow 1.8% per year and reach $19.9B in 2022
• Since 2010, the U.S. population per radiologist has increased 4%.

Another commonly cited factor fueling the consolidation trend is an increasingly complex business and regulatory environment. “Some people are saying, ‘Look, I just want to tap out of this,’” Roat speculated.

Fear, uncertainty and doubt, including the fear of missing out on capitalization opportunities, are causing some practices to choose to sell to a consolidator, and in some cases, a practice may not see another path. “For some very large practices that have scaled to a region, scaled to a state, the next evolutionary step might be scaling nationally,” he said. “They may feel they need some assistance, some business support, and some financial support.”

Finally, there is the green reason. “Everybody says, ‘Yeah, they want the money,’ and to an extent that is true,” Roat said.  “I also think there are a lot of other factors that go into this decision, and you can’t tie it just to one of them.”

Objectives and the Practice of the Future

Quite a few radiology practices have grown organically over the past several decades in response to health system growth, and also through mergers and acquisitions to achieve greater scale, access to technological resources, and to be able to provide more subspecialized services around the clock. Roat enumerated other objectives cited by consolidators as benefits of scale: More resources, ability to invest in technology, data aggregation, population health, and the efficiency of corporate governance.

With multiple courses of action available to independent practices—maintain status quo, merge or affiliate with other independent groups, align with a hospital, or sell to a consolidator—Roat suggested taking a pause to consider what the ideal practice of the future should look like.

“I’ve heard a lot of conversation about what other organizations are doing, and I think it might serve us better to ask what the practice of tomorrow will look like,” he suggested. “What type of practice do we need to build to succeed, hit those moral imperatives, and survive under the business constructs? If you look at it that way, the questions then become: Do we build our practice? Do we reinvest in our practice? Do we monetize our practice?”

Roat recommended reviewing the ACR’s Imaging 3.0 resources, which provide a roadmap to value-based practice and supports radiologist leadership and a patient-centered, integrated care model; demonstrates a consultative role for radiologists; and is hallmarked by quality, appropriateness, safety, efficiency, and patient satisfaction.

He also directed attendees to a document co-created by the ACR and the RBMA called Most Valuable (Radiology) Practice. 

“This is what clinician leadership has identified as a pathway to move forward,” Roat said. “As the business guy, I become focused on how we make all of this happen, but ultimately it is the radiologists who can provide direction for where their company, that is designed to practice medicine, should go.”

Corporate Consolidation

In taking a deeper dive into corporate consolidation, Roat shared the following data on general physician M&A activity from PriceWaterhouseCooper:

• in first quarter of 2017, there were 78% more physician group M&As compared with last quarter of 2016;
• in 2018, physician acquisitions added up to $12,251,000,000;
• in 2018, there were $11,990,000,000 in hospital deals.

“Physician acquisitions out-paced hospital acquisitions in 2018, so that is a lot of activity,” Roat observed.

We’ve also seen an increased number of radiology practice acquisitions by corporate consolidators in the past two years, Roat noted. Since the start of 2017:

• Radiology Partners, backed by the private equity firm New Enterprise Associates, Australia's sovereign wealth fund, and others, has announced 15 practice acquisitions adding up to 634 radiologists, and has reported a radiologist count north of 1,000;
• Mednax, a public company, has announced seven acquisitions adding up up to ~331 radiologists, and bringing its radiologist count to an estimated 681, including vRad, which operates as a separate division;
• Envision, which was acquired by KKR in September 2018, announced the acquisition of three practices plus the corporate consolidator Imaging Advantage, adding up to an estimated 460 additional radiologists for an estimated total of 793;
• Three private equity firms have either entered the market since 2017 or are holding steady:
  • Excellere, which entered radiology with the acquisition of one large practice in 2016, acquired another practice early this year adding 29 radiologists to its total of 90 for an estimated sum of 119
  • Welsh, Carson, Anderson & Stowe acquired two practices since 2017 for an estimated total of 145
  • Great Point Partners, which entered radiology in 2015 with the acquisition of a teleradiology company and a private practice has not made any new radiology practice acquisitions since 2017. 

A Changing Radiology Landscape

Roat reviewed a recent analysis published in the Journal of the American College of Radiology that showed a decline in the total number of radiology practices as well as a trend toward larger practice size. Based on an analysis of PECOS data from 2014 and 2018, this article by Rosenkrantz et al offers further evidence of consolidation activity within the radiology market.

• The total number of medical groups in which radiologists practice declined 14.6% between 2014 and 2018.
• The total number of single specialty groups in which radiologists practiced declined 21.2% between 2014 and 2018.

During the same time period, the number of radiologists practicing in groups of less than 50 declined, while those practicing in groups of 50 or more either remained stable or increased:

• 1-2 radiologists:                      2014 (5.2%)—2018 (3.5%)
• 3-9 radiologists:                      2014 (15.6%)—2018 (10.4%)
• 10-24 radiologists:                  2014 (29.4%)—2018 (22.7%)
• 25-49 radiologists:                  2014 (26.7%)—2018 (26.7%)
• 50-99 radiologists:                  2014 (17.9%)—2018 (20.4%)
• 100-499 radiologists:              2014 (5.1%)—2018 (16.3%)

Whether or not consolidation has delivered on its objectives is harder to assess, Roat acknowledged. “By and large, it is probably still too early in radiology to say,” he said.

He did, however, point to a peer-reviewed report on the experience in dermatology, an early target of private equity firms, that raises concerns about the fiduciary obligations of corporate practices, evidence of quality declines and higher patient cost, as well as practice failures.

Roat referred to an article published in the Journal of the American College of Dermatology by Konda et al that provides data supporting the hypothesis that private equity had targeted for acquisition outlier dermatology practices that performed a greater than average number of high-dollar procedures, such as intralesional injections and skin biopsies

The same article created a storm of controversy when it was pulled, reportedly under pressure from members of acquired practices including the incoming president of the American College of Dermatology, according to an article in the New York Times.

Radiology Pulse Check

Toward the end of his talk, Roat invited Anthony Werner to the podium to present the results of a Pulse-Check survey that Strategic Radiology distributed via three email blasts to RBMA membership. Werner is a director at Minneapolis-based CliftonLarsonAllen, which tabulated survey results.

The survey received 45 responses from eight radiologist leaders and 37 practice administrators. Most represented independent practices, but 6.5% were from corporate-owned practices and 4.4% identified as out-sourced administrators, likely employed by billing MSOs.

Overall, the survey provides some interesting insights into practice priorities, needs, and the concerns that are keeping practice leaders up at night. Werner shared the following key takeaways from this snapshot:

• In general, demand for radiology services is robust:
• Almost half of all participating practices reported a democratic governance model (43.4%) but 30.4% said the board made most decisions.
• Growth since 2012 has been robust: Half reported growing 20% to 50%; 8.7% reported growing between 50% and 100%; 6.52% said they grew more than 100%.
• Leadership was the skillset of greatest importance for a growing practice according to 91% of respondents.
• Generation X has displaced the Baby Boomers as the dominant generation in these practices at an average of 50% of composition.  However, at least one practice reported 100% Boomer composition.
• Millennials are on the rise and comprised a high of 76% among our responding practices.
• Income had increased over the past three years for 60.9% of responding practices; 13% reported declines and 26.1% said income was flat.
• IT has raised the cost of doing business: The biggest investment by practices since 2012, was reported as PACS/RIS; technology upgrades were also reported as the greatest single need by most respondents.
• Partner well-being is excellent, according to 22%; good according to 74%; and pessimistic among 6.5%.
• The greatest amount of fear and anxiety is being generated by the possibility of losing hospital contracts to consolidators; losing relationships when hospitals sell; keeping up with growth due to hospital mergers.

Finally, for discussion purposes, Roat created what he called a strawman grid that assessed the potential ability of the different models to deliver on quality, efficiency, resources, data, governance, and scale.  Admittedly, the assessment was non-scientific and highly subjective. As one might predict, the grid created much conversation and collegial disagreement, perfectly reflecting the current state of radiology.