Virtual Radiologic buys out NightHawk, says it’s an ideal match

Virtual Radiologic announced Sept. 27 it will acquire NightHawk, a publicly traded national teleradiology practice, making Virtual Radiologic the largest radiology practice in the country. However, radiologists aren’t too worried about the deal because Virtual Radiologic still has to compete with thousands of other practices.

Virtual Radiologic will acquire all of the outstanding common stock of NightHawk for $6.50 per share in cash, which is double NightHawk’s closing stock price of $3.25 per share on Sept. 24. The transaction is valued at approximately $170 million.

The combined entity will have 325 radiologists serving nearly 2700 healthcare facilities across all 50 states and reading approximately six million studies annually. Additionally, more than 75% of the affiliated radiologists will be fellowship-trained subspecialists.

In an interview with Diagnostic Imaging, Virtual Radiologic CEO Rob Kill said NightHawk was an attractive target because it has a reputation for employing exceptional radiologists who deliver demonstrated radiology outcomes. The demand for quality and service from Virtual Radiologic’s customers is ratcheting up, he said, so the acquisition made sense.

“The belief is whether it’s nighttime or daytime, having the depth of subspecialty expertise we have can ultimately improve the quality,” he said. “The efficiency that we bring allows greater speed of diagnosis, which in turn impacts quality and in turn impacts costs. We think the combination, taking the best of these two organizations, allows us to better service our customers than we do today.”

The move obviously combines two heavy hitters in radiology but probably won’t change much in the day-to-day world, said Dr. Howard Forman, a professor of diagnostic radiology and epidemiology and director of the M.D./MBA program at Yale University.

“It’s a consolidation in an industry that is still having a hard time proving where it adds its value. Certainly as economies of scale, and maybe even scope, they potentially have more to offer than they do as stand-alone entities,” he said. “But neither entity as an ongoing enterprise can prove it specifically adds value as opposed to just acting as a broker for radiology services.”

It remains to be seen whether the combined Virtual Radiologic and NightHawk will have a competitive advantage, he added.

“They are an enormous entity in terms of the teleradiology space, but they compete with thousands of other nonincorporated practices based out of either private or academic group practices,” he said.

Kill didn’t disagree.

“The professional services market for radiology is $20 billion. Combined, Virtual Radiologic and NightHawk have slightly more than 1%, which is not a lot of concentration,” he said. “It’s a big market out there, so yes, obviously we’re a big player, but it’s a drop in the bucket of the overall market.”

Kill also emphasized the company is not looking to compete with local radiology groups.

“In all cases, we want to partner as an invited guest to help them at their practice,” he said. “We’re not looking to compete with local radiology practices.”

Moving forward, Virtual Radiologic has a three-pronged approach. The company will continue to serve the traditional role of teleradiology, including remote off-hour reads; it will provide the firm’s technology to those who want it via vRad enterprise connect; and if a group wants to have the backing of Virtual Radiologic’s resources while retaining its local autonomy, like in the case of S&D Medical, they may do so.

“It really comes down to the needs of the local group; what’s their desire and what level of partnership they want to take,” Kill said.

Dr. Alan Kaye, an editorial advisor to Diagnostic Imaging and chair of radiology at Bridgeport Hospital, Yale New Haven Health System, in Bridgeport, CT, said he expects the move lead to more day reads by today’s teleradiology providers. Night reads have had a low barrier to entry, and there is, therefore, fragmentation with many entities in the space. 

"Day reads have bigger challenges and bigger rewards," he said. "As opposed to lifestyle enhancers for affiliated practices, they constitute a threat to their existence. There will not be as many providers, and a large company like this will have an edge. Radiology practices will have to ‘walk the walk’ of quality and service in order to maintain their security in this new era.  They will have to exercise their very substantial competitive edge: their relationships with the local medical communities."