Radiology Consolidation: An Update on the Practice Landscape

Fifteen years ago, the face of radiology practice looked distinctly different. Most practitioners were either in private practice or they aspired to be. That trend is now in the midst of a 180-degree turn. Today, radiology’s landscape is dominated by steadily increasing consolidation.

Consolidation – an effort to bring together disparate groups and resources to create a stronger entity – isn’t a phenomenon unique to radiology, industry experts said. Medical practices and hospitals on both coasts are in a mad dash to increase their market share and strengthen their positions at the bargaining table with large insurance companies.

“We’re seeing this in radiology, too, where groups are gobbling up other groups,” said Patrick Moore, president of Smart Physician Recruiting. “Or, even in some cases, hospital systems are saying to radiology groups, ‘We’re done negotiating. Either you’ll be our employees or we’ll find someone else.’”

A Diagnostic Imaging survey conducted last spring revealed radiologists are anxiously monitoring the growth of consolidation in the industry. Among survey respondents, 70 percent they were “very” or “a little” concerned about facing an acquisition or a merger. This percentage, Moore said, still accurately reflects the mood among private practitioners today. In addition, nearly 75 percent of respondents said they have either already experienced or anticipate feeling a slowdown in business.

Factors Pushing Consolidation

The steady decline in Medicare reimbursement has been the biggest factor driving the consolidation trend, Moore said. The DI survey reported only 30 percent of private practice providers were interested in hospital employment, but as these cuts have continually chipped away at their bottom line, many have decided to abandon the uncertainty associated with independence and rush back into the hospital’s relative safe haven.

This move could give radiologists some stability in income, but it will be lower than those in private, independent practice. It does, however, relieve radiologists of the worry about drumming up and maintaining business.

Kirk Rebane, co-founder of healthcare financial advisory firm Haverford Healthcare Associates, agreed that financial change is supporting consolidation. The impact of shrinking reimbursement will only deepen as more phases of the Affordable Care Act (ACA) are implemented.

“Healthcare reform has turned the tide toward the hospital being the center of healthcare as opposed to outpatient setting where it has been for the past 15 years,” he said. “Now, imaging centers that physicians invested in and got good returns from for a while suddenly don’t look as good of an investment.”

Maintaining independence and resisting consolidation will also become increasingly difficult as larger health systems begin to exert more influence in the healthcare industry, Rebane said. If private radiology practices join with several other practices or a larger health system, they will likely benefit from an augmented ability to negotiate more favorable reimbursement rates from payers.

In addition, radiology’s rapidly advancing technology is also driving more consolidation. According to Cynthia Sherry, MD, radiologist and immediate past president of Southwest Diagnostic Imaging (SDI) in Dallas, the need for state-of-the-art equipment often leads practices to join together or move under the hospital’s umbrella.

“To take full advantage of technology you almost have to be big,” she said. “A small group just cannot justify the expense of really advanced computer systems. It makes more sense to be able to spread the cost over a larger area.”

Sherry, who led her practice through a merger, serves of the board of the American College of Radiology’s Radiology Leadership Institute and was previously part of the ACR Task Force on Relationships between Radiology Groups and Hospitals and Other Healthcare Organizations.

Impact of Consolidation

Although consolidation efforts most directly affect radiology practices and hospital systems, these mergers do affect patients. However, patients are usually completely unaware, Sherry said.

“The fact that practices have consolidated is probably invisible to our patients,” she said. “But, we are better able to have access to their records if they’ve had other studies done within the group, giving us the opportunity to provide more coordinated, timely care.”

Some radiologists – particularly new graduates – could view consolidation and the associated hospital employment positively, Rebane said.

“These young radiologists are more willing to be employees and have job security because they saw what happened to their parents during the 2007-2008 financial crisis,” he said. “They saw their parents lose their retirement money, so they don’t have the same entrepreneurial spirit.”

Not all results borne out of consolidation will be beneficial, however, Moore said. If the trend toward joining multiple groups together continues at its current pace, the industry could find itself perpetuating the one belief its leaders are currently battling – the perception that radiology is a commodity.

Moore said he anticipated consolidation would push the prices of radiology services down, prompting hospitals and health systems to select a radiology group that will most benefit the bottom line. Larger groups that serve more clients also have a tendency to focus on the number of scans read per day, frequently cloistering radiologists to maximize their productivity. Doing so makes them less visible within the hospital and undermines the added value they bring to the facility.

Private Practice Reaction

Although most radiologists would prefer to remain autonomous in their practices, most have come to terms increased consolidation as a reality, said Moore, based on his conversations with clients.

“Most of the physician candidates I deal with in job searches have accepted it,” he said. “It is what it is. They’ll say, ‘I still need to and want to work. I’m just going to make less money, and I’m going to have to deal with what this employer wants me to do to as long as it’s reasonable.’”

Young radiologists are also entering the job market with a different view of income than their more seasoned counterparts, he said. They expect lower incomes and have relinquished the idea of being a partner in a private practice.

These managed expectations don’t mean, however, that radiologists have abandoned their attempts to integrate into hospital culture. According to Rebane, radiologists involved in consolidation are continuing their efforts to work with hospital administrators and become a conspicuous presence in the healthcare system.

But not every private practice relishes the idea of joining a larger group. Despite the increasing difficulty of remaining independent, it could be possible, he said.

“Practices who want to be independent must double their efforts to demonstrate their value to the healthcare system and not expect compensation for all hours worked,” Rebane said. “They must also be willing to invest time and actively connect with hospital administration.”   

Geographic location could also be a factor. Practices located in more rural environments away from larger hospital systems will likely have a greater chance of maintaining their independent practice model, he said.

Lessons Learned From Consolidation

When Southwest Imaging and Interventional Specialists (SIIS) decided to join with several other radiology practices and consolidate into Dallas’s SDI, practice leaders listed standard reasons for the move: more secure market share, independence from the hospital, and a stronger role in payer negotiations.

Ultimately, the consolidation has been beneficial, said Sherry, who originally led SIIS, but success didn’t come without a few hard-learned lessons. These stumbling blocks, affecting both individual providers and the entire consolidated group, highlighted the minefields associated with stitching together disparate groups.

“Blending different practice cultures was much harder than we expected because we initially felt we were very alike during the beginning phases of this process,” she said. “But, culture eats strategy for lunch every time, so you have to be careful about melding cultures.”

For her practice, specifically, joining a consolidated group meant Sherry and her original colleagues had to relinquish a measure of subspecialty practice.

It was also difficult and costly, she said, to evenly distribute the various technologies and back-office staff each practice brought into the mix, as well as develop a governance system that everyone perceived to be fair. The groups looking to form SDI drafted their system in the midst of the merger after all parties agreed the consolidation would be beneficial and successful.

What’s Coming

The future of consolidation efforts in radiology is difficult to determine, Rebane said, because it depends upon variable economic factors and the implementation of the ACA. But if the trend continues on its present trajectory, the number of independent practices will continue to decline with the federal government and large insurance payers driving these practices together or into the hospital.

“What we could see is hospitals being a sole source, giving providers scans to read but telling them they have to cut their fees,” Rebane said. “And, if they’re not part of the network that’s participating with the hospital, then they’ll get left outside.”