Investor interest in radiology is booming, with multiple well-capitalized platforms competing to secure partnerships with the top physician practices across the country.  Until recently, consolidation in radiology has been limited, when compared to other specialties such as emergency medicine, anesthesia, and dermatology. Having made inroads in consolidating those other specialties, however, private equity firms, private equity-backed group practices, and publicly traded multi-specialty groups have recently turned their attention to radiology.
Radiologists and administrators across the country are keenly aware of what’s driving this recent change. From consolidating health systems to reimbursement trends, MIPS/MACRA, and artificial intelligence, the specialty is met with new demands and challenges. To keep pace with ever-growing demands to demonstrate value—and to garner the significant advantages that come through scale, more and more independent practice groups are choosing to partner with outside investors whose significant resources, infrastructure, and know-how can position groups well for long-term success.

Nevertheless, physician leaders must carefully consider the pros and cons of partnering with outside investors, and determine whether such a move is likely to align with the long-term objectives of its organization, as well as the patients in the community they serve.

Though practice mergers may be en vogue today, it’s a decision that requires careful evaluation and planning—and will not ultimately make sense for every group. In radiology today, even after the decision has been made to pursue a transaction, sellers will need to know what a good deal looks like for them. Most essentially, beyond the economics, a truly successful partner will be one that complements both the practice’s vision for future growth and its core values.

Initial Assessment

When considering potential suitors, decision-makers will need to keep long-term goals in mind. The allure of some short-term wins can be heady for a practice that’s eager to find a partner, but more careful alignment around the end-goal is the only way to ensure longevity. However, before this alignment is possible, practice leaders must come together to determine what will be most important for their organization as a whole.

In other words, radiology practices should begin their search for a partner by first looking within. What is their vision for their organization? What do they require to make themselves stronger and more competitive in the marketplace? What are their strengths and weaknesses?

Partnerships can offer practices the opportunity to invest in a more comprehensive array of resources, state-of-the-art technologies, or more active ways to engage patients. In an increasingly competitive marketplace, these capabilities allow a practice to recruit and retain talent, to gain a better market position, and to offer more to its patients. The end result, ideally, is for clinicians to spend more time on patient care and less time on administrative matters, which in turn can lead to improved physician satisfaction, as well as greater financial results.

Timing Is Everything

A common mistake practices make is waiting too long to evaluate a potential partnership opportunity. There will always be an inherent struggle between the seller (the practice), who wants to wait for the highest valuation, and the investor, who wants to better understand the selling practice’s growth prospects. The seller cannot wait so long that growth potential starts to flatten or drop (and with it, the market’s interest).

Preparing a defensible financial model with three years of revenue and expense projections, as well as estimated capital expenditure needs and ownership changes should help give practice leaders insight into the most opportune time for a potential liquidity event. The bottom line? When it comes to partnerships, future growth potential is more important than historical results.

Some questions to consider: How does the practice’s proposed go-forward compensation model compare with the rest of the market? Will this approach allow the practice to remain competitive in attracting new talent and success down the road? Might a partnership afford the practice the opportunity to grow its referral networks, leading to an increase in their patient base and revenue stream? Are there opportunities to rebuild the income that was “sold” in the transaction—commonly referred to as “income repair”?

A more specific consideration is equally as important: Is there full alignment in the economics of the practice going forward between the sellers and the investors? For example, would the sellers and investors both benefit from future revenue growth? What about the benefits of physician productivity increases or overhead savings?

Study the Landscape of Suitors

Beyond the financial side-by-side, practices must also perform their own due diligence to compare the strategy and culture of potential partners. For instance, what makes one partner more attractive than another—what do they bring to the table? How do these offerings measure up to the practice’s strategic needs as determined in their initial fundamental assessment?

Moreover, practice leaders should consider several factors when determining whether there is a cultural fit:

  • Commitment to patient care
  • Physician culture
  • Ability to recruit and retain
  • Investment in cutting-edge technology
  • A platform that is ready for value-based reimbursement
  • The governance model

Practice leaders should also study the market for past successes, as well as lessons learned. Specifically, practices should conduct reference calls on each investor to understand their respective track records. The hope? Investors who have achieved many successful deals in the past will repeat that success in the future.

The Future of Partnership

The true test of whether a transaction is successful is if five years down the line, the group is still able to attract and retain the same caliber of talent. A second measurement tool is whether the practice can still drive the same customer success, and even grow its client base.

A successful partnership will be able to bring synergies to the table, either in the form of additional revenue or cost-saving measures. For example, the drive toward value-based care is making it increasingly important to have the proper tools in place to decrease unnecessary tests and imaging.

If a partnership can offer strategic efficiency in determining which processes are applicable and when, the streamlined workflow can help pave the way to growth in referral networks and, as a result, a growing customer base. After all, in a properly structured transaction, both sides of the partnership will benefit as the practice grows.

Further, the additional infrastructure, resources, and focus on strategic efficiency will enable the combined entity to invest with a longer-term perspective, rather than operating on a reactive basis. With a larger base of business and more stable financial resources, the practice can afford to be more aggressive with growth opportunities—potentially spending more on marketing, even when the ROI isn’t perfectly defined—or confidently buying out a local competitor.

Final Thoughts

In today’s market, radiology practices must grow strategically to remain viable. A partnership can offer capital resources to invest in technology and more efficient processes to keep up with growing market demands. Partnerships can be an effective way to achieve scalability with greater efficiency, but it is critical to make sure the strategies and cultures are aligned.

Executing on a partnership requires significant upfront preparation and months of hard work. Trusted mergers and acquisitions advisors with industry expertise who are well-versed with such processes can serve as invaluable resources to help guide practice leaders who are evaluating whether or not a partnership can make sense for them—or what they can be doing to optimize results in a status-quo scenario.