John Valla talks about what this organization has done to successfully overcome a major hurdle in the diagnostic imaging healthcare industry.

In January 2006, the diagnostic imaging industry was hit with the announcement of the federal Deficit Reduction Act of 2005. This act contained a provision to significantly reduce the Medicare reimbursement rates for all non-hospital imaging providers, beginning in January 2007. The reductions in reimbursement meant an average of 35% less revenue generated from Medicare MRI procedures and 10% to 25% less revenue from other types of Medicare imaging procedures.

John Valla, President and CEO

“The DRA directly affected the bottom line, and many of the smaller players in this industry have found it very difficult to survive. We’re starting to see more centers close their doors and fewer new entrants into the market,” said John Valla, president and CEO. “I think the new trend will be larger players consolidating the sector, which has been and still is largely fragmented.” Medical Resources intends to be one of the consolidators as evidenced by its recent acquisition of 15-center operator Med-Tel International.

Top-notch service
Medical Resources owns and manages 67 fixed-site outpatient medical diagnostic imaging centers in 10 states in the US. The organization has developed a strong regional presence in the Northeast, Mid-Atlantic, and Florida markets, operating its centers utilizing independent contractor agreements with leading radiologists in those regions.

While pricing pressure from the DRA caused a 5% overall revenue decline for Medical Resources, Valla believes that this can be more than offset with increased volumes as overleveraged competitors struggle to obtain adequate financing to remain in business. “Our strategy is to operate our centers at the lowest possible cost while providing the highest level of service,” Valla continued.

In a recent survey taken by Intelesys, a leader in patient satisfaction reporting, Medical Resources’ centers scored 98% for overall patient satisfaction and willingness to recommend to friends and family. “We believe that patients prefer a non-hospital environment that is convenient and solely dedicated to imaging,” Valla said.

Increasing the value
For the longer term, Valla noted that Medical Resources has adopted a strategy that will significantly increase its value. The company’s strategy has a multi-part focus that includes: achieving substantial growth through acquisitions, continually upgrading its imaging equipment, partnering with hospitals and to provide or manage their diagnostic imaging services, and developing a radiology model that improves margins.

Each of the strategy points will add value to the company. For instance, the focus on growth through acquisitions will provide better geographic concentration and additional sites in existing markets while achieving material synergies from the combinations. Upgrading the company’s equipment is a necessity in today’s environment to remain state-of-the-art. Partnering with hospitals by recruiting hospital campus developers as strategic partners adds to the company’s revenue base while extending its 20-year history of successful partnerships. Finally, the contract radiologist costs are a major cost for all fixed-site operators, and the company is striving to adapt this radiology model to become more cost-effective.

“While the DRA impact has been quite dramatic, there is often opportunity in times of uncertainty, and we believe we have the people, the financial resources, and the strategy to seize those opportunities,” Valla concluded.