Capital access slows imaging center buyouts

A mass exodus of physician investors from the U.S. imaging centerindustry has yet to materialize, despite the impending one-twopunch of health-care reform and self-referral restrictions. Marketsoftness in imaging services has put a damper on center acquisitions.Chains that could be snapping up physician-owned centers are insteadattending to their bottom lines. Expansion opportunities are outthere, however.

One newcomer to the industry, National Imaging Affiliates,has adopted a measured pace in acquiring physician-owned centers.Nashville-based NIA was formed last year by Frank Kyle, formerlypresident of MedInc (now ImageAmerica), and San Antonio businessmanJames Leininger (SCAN 7/15/92).

NIA acquired its third imaging center in May with the purchaseof a multimodality center in Fayetteville, NC. Late last yearNIA purchased a multimodality center in Bremerton, WA, and anMRI center in San Angelo, TX.

All three of the centers were physician-owned. NIA bought 100%of the Bremerton and San Angelo centers and 80% of the Fayettevillecenter.

NIA has avoided centers that don't have stable referring bases,choosing instead to focus on high-quality centers that stand agood chance of surviving the coming industry shakeout, accordingto Kyle, who is president of NIA.

"We're being very selective," Kyle said. "We'drather buy one or two good centers than half a dozen headaches."

NIA has found that physician investors are not as quick tounload centers as conventional wisdom might suggest.

"They are not in any hurry," Kyle said. "Theother shoe hasn't dropped yet. Physicians are curious about whattheir options are and there is some dialogue taking place, butnobody is rushing for the door yet."

Part of the problem stems from the fact that few center companieshave access to the financing needed to make acquisitions. Becauseof concerns over health-care reform, capital has dried up in boththe debt and equity markets as banks and investors shy away fromthe provider end of the health-care industry. The dismal performancesof several public imaging companies have not bolstered investorfaith in the industry, Kyle said.

"Capital markets are going to be very skeptical of ourindustry," Kyle said. "It's a real dichotomy in thatyou have a tremendous need for the industry to restructure, butthe capital is not there to do it."

As a result, physicians have decided to hang on to their investmentrather than sell at a low price.

Kyle does see the predicted consolidation of the industry takingplace within the next year. Imminent passage of a comprehensivefederal ban on physician self-referral (see story, page 1) shouldspur an industry shakeout, however.

NIA hopes to take advantage of the shakeout. While it continuesto acquire independent centers, the firm also has its eye outfor potential merger candidates among multicenter operators.

"We're very bullish long-term on the business," Kylesaid. "Physicians have to have access to quality imagingto practice. Once the marginal centers close and the consolidationtakes place, you'll see a reemergence of some quality operators.And there is room for plenty. This is a big business."