Paul Viviano tells Liz French that when the industry threw challenges its way, this company rolled with the punches.

In 1983, Alliance Imaging, Inc. was founded as a shared mobile CT provider, but by the time Paul Viviano was brought on as CEO in 2003, the company was facing a formidable challenge: hospitals that once relied on mobile MRI services were bringing the technology inhouse. The market began to decline, and the company wasn’t quite sure where to go.

Paul Viviano

In 2005, the company acquired PET Scans of America, adding 10 PET scanners to its repertoire. Viviano explained that the acquisition was a “tuck in,” meaning that Alliance Imaging only bought the equipment and the contracts, not the overhead or the corporate offices. “It was a very effective acquisition. We integrated the two networks and leveraged the synergies between the companies.”

This year, Alliance Imaging partnered with the University of Pittsburgh to create Alliance Oncology and since opened two radiation oncology centers in California. Although the venture (Alliance Imaging owns 80% and the university owns 20%) has just gotten off the ground and won’t yield strong results until 2008, Viviano anticipates it will grow rapidly.

In total, Alliance Imaging performs 1 million scans annually with 494 imaging systems, operates 74 fixed sites, and provides services to more than 1,000 hospital clients. PET and fixed-site represent 46% of the company’s 2006 revenue. “Two products that didn’t exist four years ago now constitute nearly 50% of our business— that just shows how much progress we’ve made,” said Viviano.

Alliance Imaging still holds 40% of the country’s marketshare in mobile MRI, but the company is scaling back its operations until supply meets demand. This year alone, it divested 25 of its 300 mobile MRI units. “We won’t phase it out altogether, but the business will continue to modestly shrink. At some point, we’ll reach an equilibrium.”

Viviano expects the company to continue grabbing on to growing industry trends, such as cardiac imaging. At the moment, Medicare doesn’t reimburse cardiac imaging services, but that may soon change, and Alliance Imaging will be poised to take advantage of the opportunity.

Partnering with the competition
This year, Alliance Imaging’s revenues will reach $450 million, and although a significant portion of that success is due to the investment in growing segments to compensate for the lack of demand in mobile MRI, it is also a result of the company partnering with hospitals rather than competing with them.

Most companies in the fixed-site and PET businesses compete against hospitals, Viviano explained, but Alliance Imaging didn’t want to take that route. By partnering with hospitals, the company avoids dealing with health plans and struggling to become part of their networks. It also gets to leverage the patient base already present at the hospital.

Because Alliance Imaging focuses solely on imaging, it can often run a fixed site more efficiently than the hospital can on its own. “The hospitals know their communities well, but because we’re focused on imaging, we can design a successful strategy, deploy the capital, and provide clinical and administrative guidance, taking that burden off their hands. That’s our value proposition, and we have a strong track record,” Viviano said.

Alliance Imaging’s partnership structure will come in handy in 2007 when the Deficit Reduction Act of 2005 takes effect. The legislation aims to save nearly $40 billion over five years, in part through Medicare cuts, especially for non-hospital providers. Alliance Imaging provides an outsourced, turnkey service to hospitals, meaning the hospitals pay the company directly on a per-procedure basis. “We rent the space and own the equipment and staff. Our hospital partners are not affected by the Deficit Reduction Act. Therefore, 87% of our income will remain stable. That’s a complicated way of saying we structured our revenue stream and our contracts differently than everyone else in the industry.”

The other 13% is vulnerable to Medicare changes because Alliance Imaging, although it has partnered with all of its hospital clients, is licensed as a non-hospital provider in some cases. Viviano said that the company may restructure some of those contracts, “but if they’re more profitable the way they are, we’ll leave them alone,” Viviano said

For Alliance Imaging’s competitors, it is a different story. Because they are mostly independent facilities, 100% of their revenues will be a risk when the Deficit Reduction Act goes into effect on January 1.

The legislation may fuel the company’s growth in the future, the CEO explained. Alliance Imaging could, theoretically, pick up additional volume as reduction in reimbursement forces a portion of the competition to hoist up the white flag. The bill has the potential to spark industry consolidation, meaning Alliance Imaging will have the opportunity to purchase smaller companies and expand its footprint. “Because our balance sheet is strong, we will be in a unique position to evaluate these opportunities as they come along,” he said.

“This is an interesting time, and a lot of challenges—and opportunities—are ahead of us. As we further carve out our niche in the industry, we will continue to meet the needs of our hospital partners.”