It is no secret that the current radiology landscape is highly fragmented, with roughly 25,000 radiologists spread across 3,000 practices (Becker's Hospital Review, "Radiology: Hospitals' biggest opportunity needs a quality standard"). As often happens in a highly fragmented industry, many of these radiology practices are facing the decision of whether or not to affiliate, merge, or join larger groups to stay competitive.
Smaller radiology practices often lack the back-office capabilities, infrastructure, and capital to keep up with growing demand. Many expect the trend toward consolidation to continue due to the uncertain climate surrounding increasingly complex reimbursement models, hospital mergers, and pressure to measure and demonstrate clinical quality as well as outcomes.
A strategic plan can be an effective tool to help leaders determine if a partnership is right for their practice. Typically, these plans outline the short- and long-term goals and objectives of the practice for the next three years, at a minimum. A successful strategic plan can help practice leaders anticipate possible partnership scenarios and forecast potential effects, both positive and negative. It can also serve as a guide for ensuring that shareholder objectives, growth goals, and culture are aligned with potential partners.
When developing a strategic plan to guide growth decisions, practice leaders should consider the following questions.
What are your practice's long-term goals?
Andrew Colbert of Ziegler and Company.Developing intentional long-term goals is critical for practice leaders considering a future partnership. It can be easy to get caught up in the allure of a partnership that can help the practice meet a near-term goal such as hitting a revenue target that was set for the year, but both partners need to have aligned long-term goals in order to survive the test of time. Too many times medical groups launch into external partnership discussions without first determining their own objectives and strategy.
Reviewing a practice's strengths and weaknesses can be a way to determine which long-term goals the practice will need outside help to achieve. Consider where the company could use the most assistance and look for a strong partner that complements that weakness. Assessing strengths and weaknesses can help decision-makers determine what potential partners need to bring to the table beyond money, such as technology capabilities (i.e., artificial intelligence, workflow software), increased leverage with payors, or stronger hospital relationships.
Is now the right time?
Radiology practices in the optimal position to consider partnerships are those that have demonstrated historical growth and still see more on the horizon.
A common mistake companies make is waiting too long to pursue a partnership opportunity. There will always be an inherent struggle between the seller, who wants to wait for the highest valuation, and the investor, who wants to know the company has future potential. The seller cannot wait so long that growth potential starts to flatten or drop -- and with it, the buyer's interest.
Outlining potential revenue and expense changes, capital expenditures, and ownership changes (i.e., new shareholders) should help give practice leaders insight into the opportune time for a sale.
The bottom line is that when it comes to partnerships, future growth potential is more important than historical results.
What does a successful partnership look like?
Before beginning to explore partnership options, senior leadership should define exactly what they are looking for in a partner.
The importance of finding a partner that fits culturally cannot be understated. Practice leaders need to know that merged teams can only achieve success by working hand in hand in a harmonious way.
Oftentimes, when considering a potential partnership, the economic terms may seem attractive, but the differences in culture are too large to overcome. The term "culture" can often seem like an intangible idea, but there are several factors to consider that can help practice leaders determine whether there is a cultural fit:
- Commitment to quality service and patient care
- How they intend to preserve physician culture and long-term employment
- Ability to recruit and attract top-quality physicians
- Importance of investment in technology/data analytics
- Tools to facilitate the move toward value-based reimbursement
- Philosophy of leadership
The potential partner's dedication to investing in innovative technology and utilizing data analytics are especially important given that these two factors are increasing the speed and accuracy at which radiology practices can provide quality care. Two examples of current technologies transforming the patient experience are unified worklist technology and the use of artificial intelligence. If the potential partner does not find these sorts of technological advances critical to future success, the partnership may fulfill a short-term goal but not be sustainable in the long term.
Who is the best partner to achieve the practice's goals?
Once the vision of what a successful partnership looks like is determined, the next step is for executives to determine who the better partner will be for their practice: an investor group or a corporation. Whichever type of partnership a company chooses, it's highly valuable to consider a partner that has past experience in working with physician groups.
Investor groups
There are several benefits of partnering with an investor group. The main one is that an investor group is likely to provide practice leaders with greater autonomy in decision-making. Investor groups bring significant financial resources and growth expertise to the partnership. The trade-off is that there may be less of a financial payment at the deal closing in exchange for more upside in the future (typically in the form of equity appreciation). This can be preferable for a group that is bullish on the future growth potential.
Corporations
Partnering with an existing national practice is another option for radiology practices. The main benefit of bringing on this type of partner is the extensive experience the leaders have in either the same or a similar field. Typically, corporations also bring existing back-office infrastructure and technology capabilities. The corporation may be able to bring synergies to the table either in the form of more revenue or cost-saving measures. There are ways to structure this partnership so that the practice receives economic benefits from growth, either in the form of profit sharing or compensation pool growth.
The bottom line
In today's radiology market, practices need to continue to grow to remain competitive. Expanding back-office capabilities, infrastructure, and capital helps practices keep up with increasing demand. Partnerships can be an efficient way to achieve scalability and greater efficiency. With help from trusted advisors who are familiar with the unique challenges of the radiology industry, leaders can take the necessary steps to evaluate whether a partnership is the best next step to grow the practice.
Andrew Colbert is a managing director and founding member of Ziegler's Healthcare Investment Banking practice. Colbert has represented eight radiology groups on innovative transactions. He specializes in advising physician groups on strategic and financing alternatives including merger and acquisitions, capital raising transactions, and partnership development. More information is available at www.ziegler.com/radiology.
The comments and observations expressed herein are those of the author and do not necessarily reflect the opinions of AuntMinnie.com.
