With payment models shifting, belts getting even tighter and hospital relationships more fragile than ever, the radiology practice model is evolving. Increasing demands for subspecialist coverage, coupled with the need to trim costs, are fueling a spate of mergers and acquisitions across the U.S., a trend that is projected to continue and perhaps, accelerate, as healthcare reforms are implemented. This month, Health Imaging & IT visits with practices on the leading edge of the merger movement to create a guide to surviving—and thriving—amidst changing business relationships.

Beware the clash of cultures

"I've never seen a bad deal morph into a good deal," cautions Steve Forthuber, COO of RadNet's Eastern Operations in Baltimore. The reverse, however, is true, and two factors account for the bulk of breakups and bad deals—culture clashes and business factors.

"Cultural issues—staffing, hours, quality—are difficult. They can be very problematic and poison or destroy a merger. Before spending big bucks to sort out the legal and accounting aspects of a proposed merger, it's wise to make sure you can work your way through the cultural issues," notes Lawrence R. Muroff, MD, CEO and president of Imaging Consultants in Tampa, Fla.

"In many cases, culture is not given the emphasis it merits prior to the merger. It's much tougher to manage after the merger," adds Lynn Elliott, CEO of Radiology Associate of North Texas in Dallas.

Charlotte Radiology, an 85-radiologist practice in North Carolina, completed a two-year merger with a 17-physician group at the end of 2009 and credits its upfront investment in cultural integration as a key to success. "The amount of time we spent trying to define the post-merger mission objectives and leadership helped make the process as seamless as possible," explains COO Mark Jensen. The groups assessed best practices in both organizations to determine which practices might best fit the merged organization.

Similarly, in the year preceding a dual merger with two practices (one with 12 radiologists and the second with 25 radiologists) in March 2011, Radiology Associates of North Texas, a 73-radiologist practice, organized regular meetings with representatives of all three groups. "Each time we worked through various implications of the merger, so that each group felt represented in making plans.  We worked out the differences in advance of pulling the trigger," says Elliott.

Some cultural information, he says, can be gleaned via analysis. For example, an examination of RVUs often indicates whether a practice is a lifestyle-oriented group or a high-production organization. "Whether or not practices are in sync regarding lifestyle, revenue and productivity is important to know," Elliott says.

Other considerations such as governance, management style, discipline and call require conversations about previous models and discussions about how they will be handled going forward. Some issues, says Elliott, may lend themselves to an analytical presentation while others require discussion, debate and resolution.

Integration…with ease

Meanwhile, RadNet is a master of the accelerated acquisition, aiming to embed new centers firmly into the fabric of the organization of its 206 imaging centers (and it seems, ever growing) within 60 to 90 days of the acquisition. "It's in our company's DNA to make mergers and post-acquisition blending of cultures as smooth as possible," explains CIO Ranjan Jayanathan.

The process begins with a town hall meeting to introduce corporate culture, human resources and benefits. "We run the company to our beliefs," offers Forthuber. "If people choose not to get on board, we deal with it fairly quickly. Otherwise, it destroys the culture."    

A fair amount of RadNet's success is tied to its consistency, so the business implements its service agreements and supplier contracts from day one in newly acquired centers. They also apply customer service training to fold new staff into service metrics, so patients, physicians and payors have consistent experiences in terms of scheduling, turn-around time and other customer service metrics.

At the same time, RadNet strives to understand local culture and relationships before instigating wholesale changes. For example, if a center has a different scheduling process that works with a referring office, RadNet discusses the process with the groups to determine the rationale for the process and see if RadNet's methods might apply. "We don't want to disrupt relationships until we understand what they are and why they work that way," explains Forthuber.

Another key to success, he says, is assimilating best practices from new acquisitions. "Every time we do an acquisition, we want to get smarter. We don't assume we know everything, and with 206 centers we can take the best of the best and drive it throughout the organization," says Forthuber.

Culture club

Back at Charlotte Radiology, the view is consistent: learning, cultural integration and success are ongoing processes. In addition to meeting on a monthly basis prior to the merger, the Charlotte Radiology integration committee met periodically after the merger to consider areas that had been overlooked or those not working out to pre-merger expectations. "This provided a forum for issues that might have been festering," notes Jensen.

For example, prior to the merger the two practices had different ways of accounting for time off. "Through the integration committee, we developed a hybrid that incorporated best practices from both groups," explains Arl Van Moore, MD, president of Charlotte Radiology.

Similarly, RadNet completes a postmortem after every acquisition, reviewing the process to determine what they learned, what went well and what could be improved on in the future.

Such post-acquisition forums may be critical to the success of future endeavors. "This merger took a long time. Next time, we may not have the luxury to invest as much time as we did during the last go-round. Our challenge going forward will be to be as effective with the outcome with less planning time. Hopefully, experience will help," offers Jensen.

The Best of Both Worlds Inside a Joint Venture Imaging Center

The motto "if you can't beat them, join them," may hold true for hospitals and radiology practices in 2011. While hospitals and radiology practices compete for imaging customers in many communities, Texas Health Presbyterian Dallas and Southwest Imaging & Interventional Specialists in Dallas, bypassed that approach and instead embraced a joint venture imaging center in 1987. The model benefits everyone involved, claims Cynthia S. Sherry, MD, a radiologist at Texas Health Presbyterian Dallas. The distinctions between the radiology practice and the hospital are invisible to patients and referring physicians. Plus, the joint venture has helped the radiology practice ward off competition from non-radiologists. "When our practice has been threatened, as in the case of clinical physicians purchasing imaging equipment for their offices, the hospital has stepped in and blocked such installations among physicians with offices on the hospital campus," she says. In addition, as the hospital moves forward with a comprehensive cancer center, the radiology practice is on the ground floor, partially because of the pre-existing relationship.  "There are strategic reasons to partner with a hospital, even if the numbers seem less favorable at first," Sherry continues.   Despite the appeal of such partnerships, Sherry does not envision a trend toward joint ventures. That's because the trend among hospitals is to partner with physicians who bring patients to the hospitals, such as orthopedists or cardiologists. And radiologists don't want to partner with hospitals for multiple reasons, including unwillingness to cede control to hospital partners or a refusal to invest the upfront capital required for a joint venture. Unfortunately, those that aren't willing to consider a partnership may miss a mutually beneficial opportunity.

Back to business

Although culture is critical to the ultimate success of mergers and acquisitions, radiology is a business and proposed mergers must make sense from strategic and financial standpoints. The strategic rationales for a merger may include geographic expansion, extended subspecialist coverage or consolidation of overnight coverage.

These considerations are excellent strategic reasons for mergers; however, financial factors must drive the decision. "Practices need to look at the deal realistically and objectively—without emotional attachment—to determine if it makes financial sense," advices Forthuber.    

The RadNet COO advocates thorough business projections to assess the financial impact of the merger, but a fair number of practices may not have a handle on some required inputs. For example, after the change in CPT bundling for abdomen and pelvis studies at the beginning of 2011, some practices failed to project the impact of the change into their rates. "This is a known factor that will impact the future. If practices aren't valued accurately right out of the gate, it can turn into a significant challenge."

In addition to staying on top of changes in codes, practices need to understand contractual differences. That is, they need to run a CPT code analysis of the revenue impact of switching contracts. "One group might have significantly better contracts than the other. By moving to a combined practice, their revenues will decrease," offers Elliott.

The financial evaluation process requires a thorough pre- and post-merger analysis of all practice functions, ranging from revenues to IT to scheduling and billing to determine if projected savings will materialize. Any function, Elliott points out, could bring increased or decreased costs post-acquisition.

Mergers do provide an opportunity to consolidate costs. When Charlotte Radiology merged with a 17-radiologist practice, it realized savings in malpractice fees as the new, combined rate for the larger practice was less than the total of the previous, separate rates. In addition, the merged group's billing costs increased only slightly with the merger, not in proportion to the 17 new physicians.

In other cases, a merger means increased costs. Radiology Associates of North Texas, for example, saw increased IT costs after its recent acquisitions, primarily because the group aims to expand teleradiology to new entities. "The merger opens the door to increased efficiencies on the physician manpower side that will offset those costs. We believe once we implement centralized teleradiology to new entities we can realize efficiencies," says Elliott.

These issues illustrate the complex dance between strategy, finance and planning that can make or break a merger. However, a thorough understanding of practice cultures and sound financial projections are essential to the success of any merger. Investing the time upfront can prevent a bad deal and establish a long-term foundation for a successful partnership, which is the ultimate goal of every merger.

The Endangered Hospital Contract? Radiology, Service & Leadership

Just a few short years ago, a contract between a hospital and radiology practice could be considered all but perpetual. Today, however, hospital contracts are up for grabs. An article in the March 2010 issue of the Journal of the American College of Radiology refers to the escalating "epidemic" of contract losses. The advent of teleradiology and national radiology providers, coupled with the ever-increasing pressure to trim healthcare costs and looming uncertainty about accountable care organizations and bundled payments, have all played roles in recent contract losses. On the flip side, radiologists have played a role in the demise of some contracts, asserts Lawrence R. Muroff, MD, CEO and president of Imaging Consultants in Tampa, Fla. "There is tremendous, pervasive apathy throughout the country. Radiology is a service specialty and there are obligations to provide legitimate service to patients, referring physicians and hospitals. In many cases, radiology practices are not providing the service, responsiveness and value added they need to provide to ensure tenure," he continues. The generation of radiologists who cut their teeth in the era of maximizing productivity and stalwart independence needs to master a new vocabulary to thrive in the coming years. High on the list of operative terms is the somewhat unfamiliar metric of service. The list of practical value-added services is lengthy and includes: Provision of sub-specialty expertise. Speaking the language of referring physicians, which includes answering pertinent questions in the report. Referring physicians likely know a femur is fractured; they want to know if it's surgical, if it's stable and understand its relationship with vital structures. Keeping call in-house. The alternative, says Muroff, risks commoditizing the practice. In addition, radiology practices need to reinvent and rebrand their roles in the hospital, which means volunteering for leadership and governance roles. "There's no guarantee if you insinuate the practice into the medical and social fabric of the hospital and community that you won't be replaced; however, you are less likely to be replaced if you sit on the hospital board or serve as an officer of the medical staff," offers Muroff. Such intangibles of service have been slow to come about, acknowledges Cynthia S. Sherry, MD, a radiologist at Texas Health Presbyterian Dallas. "It is important for radiology groups to remind hospitals of the value they bring beyond generating a report," continues Sherry. The problem is that radiology service intangibles, like speaking the language of referring physicians and delivering robust reports, are difficult to measure. In addition, while practice leaders may be adept at expressing the value of the practice, individual radiologists need to "walk the talk" of marketing and relationship building, says Sherry. In fact, the American College of Radiology (ACR) has recognized the need to infuse leadership throughout radiology practices and initiated a radiology leadership institute to elevate the level of professionalism in radiology and educate radiologists about improved leadership within their practices, hospitals and communities. Such training will be essential going forward, especially if accountable care organizations (ACOs) as currently conceived come to fruition. "Radiology is not a player right now, but they need to become one because of the high costs of imaging. If an ACO wants to cut expenses, imaging is a target. Radiologists, as the experts in imaging, can have a great impact on costs by assuring that the right test is done in the right way at the right time," explains Sherry. The catch, however, is making the transition from the current model of accepting and completing imaging orders to the value-added model of sharing imaging expertise, even when it means eliminating an ordered exam.