Although imaging centers share many concerns with ambulatory surgery centers, they have been going through harder times and even bigger market changes than ASCs, says Kevin McDonough, senior manager in the Dallas office of VMG Health.
Lower volume and profits
Imaging centers have been seeing volume and profits shrink at an even greater pace than surgery centers, Mr. McDonough says. "Ten years ago, reimbursement for MRIs in freestanding setting was really high," he says. "Imaging centers were being opened on every street corner." As with ASCs, physicians were looking for a share in the facility reimbursement.
Then came the first cuts in imaging reimbursements under the Deficit Reduction Act of 2007, and yet more cuts were to follow. In the past five years, imaging centers have seen a total of $8 billion in reduced reimbursements, according to a report by Diagnostic Imaging.
So far, ASCs have avoided this amount of cuts, Mr. McDonald says. If they were to experience such a sharp drop, "we'd be seeing a lot more surgery centers going out of business or looking for someone to take them over," he says.
In addition to declining reimbursements, imaging centers are facing tighter capital markets, making it difficult to upgrade their very expensive machinery. "If you have to replace an MRI or CT, you're talking about something like a million dollar investment," Mr. McDonough says.
Imaging has undergone wave after wave of new technology, such as the development of MRIs in the early 1980s and the introduction of open MRIs in the 1990s. Still more advances are in the pipeline, such as bimodal and even trimodal imaging, but now there are fewer buyers. Generally, he says, "centers are making do with old equipment rather than buying new technology."
More consolidation
Another similarity with ASCs is a leveling off of the growth of imaging centers and a wave of consolidations, Mr. McDonough says. "The number of imaging centers stopped growing around 2007 or 2008, a little before ASCs," he says. The Radiology Business Journal reports that the number of freestanding imaging centers in the United States fell from 6,419 in 2008 to 6,311 in 2010.
Mr. McDonough says consolidation among imaging centers is probably even more pronounced than with ASCs. "As imaging centers struggle financially and see performance decline, offers to buy them out have become more attractive," he says.
Buyers of imaging centers include large, publicly traded companies, such as Alliance Imaging and RadNet, imaging management companies and small imaging conglomerates that own 4-6 centers in a particular market, he says. But perhaps the biggest buyers are hospitals and health systems.
Hospitals buying back imaging centers
In another parallel with ASCs, Mr. McDonald says hospitals are regaining control of an imaging industry that they used to dominate before freestanding centers came along. Just as hospitals are able to raise an ASC's reimbursement by converting it into an HOPD, "a hospital can flip an imaging center to hospital provider-based reimbursement and immediately increase its income," he says.
When a group of radiologists sells their imaging center to the hospital, they have similar choices as when surgeons sell an ASC to a hospital, he says. The radiologists may enter into a contract with the hospital to read images for the center or become hospital employees.
How ASCs are different
With so many parallels between the two markets, will surgery centers meet the same fate as imaging centers? Like the rest of the healthcare industry, both markets face the possibility of substantial Medicare cuts to reduce the federal deficit this fall and in coming years.
However, Mr. McDonald sees several key differences between ASCs and imaging centers. Unlike the huge reimbursement cuts imaging centers withstood in the past five years, there are no plans afoot to specifically target surgery centers with deep cuts, he says.
Furthermore, policymakers made deep cuts in imaging center reimbursements because they identified rampant overuse of imaging. Mr. McDonald says policymakers understand that surgery is a lot less prone to overuse than imaging. "It's more likely that a physician is going to order an unnecessary MRI scan than he would say, 'Let's operate on this patient's knee'," he says. "The physician is going think twice about that."
Learn more about VMG Health.
More Articles Featuring VMG Health:
Surgery Center Transactions and Valuation: Thoughts From VMG Health's Kevin McDonough
Jen Johnson Promoted to Partner of VMG Health