MTI plans dual center/mobile future

Combine the world's largest fleet of mobile MRI vans with a growingfixed-site imaging center business, stir in more than a pinchof U.S. health-care restructuring and leaven with cheap debt.Could this be a blue-ribbon recipe for approaching managed-carecustomers with imaging services?

That is the hope of mobile MRI giant Mobile Technology (MTI)of Los Angeles. As a prerequisite, however, MTI must trim itsheavy debt load. Otherwise, its growth plans could fall flat.

MTI is highly leveraged, as are most of its mobile imagingcompetitors. The privately-held firm jumped to the top of themobile pack five years ago with its acquisition of the MRI andCT fleet of previous industry leader, Mediq Mobile Services (SCAN4/13/88).

MTI expanded its MRI fleet to 100 units two years ago withthe purchase of mobile provider LINC Scientific Imaging from theLINC Group of Chicago (SCAN 12/12/90). The firm continues to operateover 100 MRI systems and almost 20 CT and lithotripsy machines,according to Joseph W. Cilorzo, president and CEO.

Unfortunately for MTI, demand for mobile MRI services leveledout after the company aggressively expanded its fleet. Many hospitalcustomers worked up enough imaging business--with the help oftheir mobile provider--to justify purchasing a dedicated scanner.

MTI IMPLEMENTED A RESTRUCTURING PROGRAM in January to cut mobileoperating costs and a strategic plan to capture business fromcustomers opting for fixed sites (SCAN 1/27/93). Talks with lenderson debt restructuring, underway since last year, were accelerated.

MTI has met with each of its 15 lenders individually, and isnow trying to work out an overall restructuring plan with them.Hopefully, this will be accomplished over the next two months,resulting in lower interest expense for the company, Cilorzo said.

"You can stand high leverage if the market is growingrapidly and you are paying down the debt. But when the marketmatures as quickly as mobile MR has matured, then that repaymentand heavy interest payments get to be a problem. That is the problemwe (mobile MRI firms) are all facing right now," he toldSCAN.

Operational changes at MTI earlier this year reduced 120 positionsand closed down four regional offices. Four regional vice presidentsbecame two, while twelve district managers were added. The districtmanagers operate out of their homes and on the road. Most staffcuts involved administrative overhead functions.

"The philosophy we have adopted is that those who arenot selling something or not operating an MR system are part ofthe support structure. We want to have the most efficient andeffective support structure. For MTI, that meant having a smallerone," Cilorzo said.

Sales representatives were cut as well, though. Part of thereduction involved reassigning territories with no existing businessto sales representatives in more established areas, he said.

"Understanding the industry better now, we found thatwe couldn't afford this kind of (new territory) development,"Cilorzo said.

Once its refinancing is worked out, MTI will be better placedto fund fixed-site joint ventures with existing mobile customersand also acquire established centers. Mobile services will likelyremain about half of the company's service business over the longrun.

MTI WILL NOT SHRINK its mobile fleet drastically, but some downsizingwill occur over the next year. Several units under operating leasesmay be returned to the lessors, Cilorzo said. The bulk of MTI'sfleet is owned by the company.

No mobile-van clients will be abandoned, he said, but the firmwill work with hospitals to improve route efficiency. In somecases, scan volumes may not justify the number of van trips madeto particular sites. Opportunities exist for route consolidationthat should benefit both clients and MTI, he said.

Changes yet to be dealt out in the U.S. health-care systemcould turn up a wild card for mobile imaging, Cilorzo said. Whilemobile firms would not be wise to count on these changes, mostare watching national developments with keen interest. If theClinton administration clamps down on investments by hospitalswith marginal demand for particular services, this could invigoratemobile imaging and shared services.

"It should revalidate the whole notion of the mobile business,which was and is still a sound concept. The problem is that therehas been a lot of noneconomic buying of equipment," he said.

Even assuming no change in the regulatory environment, mobilecapability provides inherent advantages for a medical imagingfirm. Mobile services offer added flexibility and market reachthat could be key to winning large contracts with managed-carehospital groups, Cilorzo said. To accomplish this objective, however,MTI must combine mobile services with a solid regional fixed-sitepresence.

MTI will build its fixed site first through conversion of existinghigh-volume customers, he said. This strategy makes business sensefor several reasons:

• Fixed-site partnerships will allow MTI to benefit whenthe overall volume of medical imaging increases. MRI procedureshave been growing at a healthy 10% to 15% rate in the U.S., butmobile-only firms have not captured this growth;

• Long-standing business relationships are already inplace that will allow MTI and its partners to move smoothly intoa fixed-site business; and

• Referral histories are well known and likely to continueinto the future, presenting less revenue uncertainty than is thecase with acquisitions of existing physician-owned centers.

"We have a good base of existing clients and their volumesare known. We don't have to worry about referral patterns poststart-up," Cilorzo said.

MTI converted two mobile customers to fixed-site last yearbut not as part of a comprehensive strategy, he said. A deliberateeffort is now underway to develop long-range fixed-site contractsand equity investments in centers.

"Where economics are a bit of a stretch we would liketo (convert clients to fixed-site) with existing equipment. Whereeconomics warrant, we would do it with new equipment and investwith the hospital in bricks and mortar to accomplish that,"he said.

MTI expects to be the majority owner of most centers and, insome cases, will be sole owner, Cilorzo said. At a minimum, developingan imaging site would involve parking an existing mobile van ata hospital on a permanent basis.

Down the road, MTI expects to enter the market for center acquisitions.Once the company's balance sheet is firmed up, an initial publicstock offering could offer alternative financing to support thisdrive, he said.

Although MTI's existing fixed sites are in the northeast U.S.,the company expects more center business to develop in the southand west, largely because of the greater prevalence of certificate-of-needrestrictions in the northeast region, Cilorzo said.

The southern U.S. offers potential for continued growth inmobile services as well as fixed sites, due to the rural natureof much of that market, he said.