Radiology Mergers and Acquisitions: Remain Independent or Join Together?

This article addresses issues uncovered in a recent Diagnostic Imaging survey that found nearly 70 percent of private practice radiologists said they were concerned about being acquired by a local hospital and losing business. A majority also reported that they wanted to remain independent. Click here for the entire survey.

A practice merger or acquisition - it’s a concept that often unnerves the independent radiology practice or imaging center. It’s also a professional relationship that’s quickly becoming more common, and many of you might find yourself wanting to know how best to handle it.

In fact, a recent Diagnostic Imaging survey found nearly 70 percent of respondents were “very” or “a little” worried about being acquired by a hospital or health system. It’s likely that an increasing number of radiology practices will be faced with the possibility as healthcare reform barrels toward an accountable or coordinated care model. Industry experts predict integrated providers, including ones with imaging specialists, will be the leaders within the new systems.

“Integration is not a question. It’s a given. It is happening and is going to happen with greater intensity and with greater velocity and vector over the next 10 years,” said Doug Smith, managing partner of Barrington Lakes, a healthcare consulting firm specializing in integrated imaging strategy development. “Either be the consolidator or be consolidated. Make up your mind what to do.”

Historically, when an imaging practice or center has joined with a hospital, the fusion has been either a traditional merger or a traditional acquisition. However, Smith said, two additional models exist today: the merge-light and network models.

In a merge-light situation, both entities share a tax ID number, a board of directors, and an executive committee. However, they retain their original compensation, benefits, and management structures. Within the network model, practices, such as pediatric and neurointerventional radiologists, affiliate and refer cases within the same web of providers. Linking this way alleviates any worries about providers within the network poaching patients, Smith said.

Whether you opt to move forward with a merger or acquisition or prefer to remain independent, there are steps you can follow to make either process less arduous. Either way, Smith said, first identify what you want your end-goal to be.

“My advice at the front end is for practices or groups to comprehensively understand why they’re considering a merger or acquisition,” Smith said. “At the end of the day, they need to be able to identify how life will be different as a result of a merger. They better clearly understand that or they’ll float around, trying to figure it out.”

Navigating a Merger or Acquisition

When talking with clients facing a merger or acquisition, Smith said always provides a set of instructions:

• Pinpoint the objective for pursuing a merger.
• Discuss leadership, governance, management and financial cultures to ensure there’s a match.
• Elect a three- to four-person merger investigation committee to represent the partnership and relay information.
• Create task forces for each major element of the merger, such as committees for bylaws, government, and compensation.

Remaining Independent

Although the accountable or collaborative care model is expected to be the predominant health system model in the near future, there is no guarantee this type of system will lead the way in every market. And, even where it does take the lead, not every imaging group or center will want to join.

For those wishing to remain separate from a major hospital or health system, Jonathan Burklund, managing partner of healthcare investment banking firm River Corporate Associates, has advice.

• Keep all radiological equipment current.
• Don’t distribute all earnings to partners; retain some earnings for capital investment into the practice.
• Focus substantial energy on handling issues outside the practice; make the No. 1 customer - frequently a major hospital - the No. 1 priority.
• Engage the hospital or other large clients to discuss their imaging needs and how to meet those requirements.

No matter your choice, Smith recommended talking at length about any moves.

"Have meaningful discussions. Talk with colleagues who have been through this. Get an advisor, go find educational opportunities to learn what's going on," he said. "It can make your head spin. Get engaged and understand that this isn't a fad that's going away. It's just not."