Outpatient Imaging Affiliates News

OIA Forms Joint Venture With Thomas Jefferson University

OIA Forms Joint Venture With Thomas Jefferson University

Outpatient Imaging Affiliates OIA-Nashville, TN) has formed a joint venture with Thomas Jefferson University Hospital and an affiliates radiology group that will open a new 8,500 square-foot freestanding imaging center in Philadelphia in December. This is the fifth joint venture that OIA has secured since its inception in September 2000.
Company President Frank Kyle tells DIIR that interest in developing outpatient imaging centers is being sparked by Medicare reimbursement policy. MRI, CT and PET services performed in an outpatient facility are reimbursed approximately 20% more on average than they would be if done in a hospital setting.
Another key motivation, according to Cannon King, OIA’s vice president of development: many inpatient radiology departments are reaching the limits of their capacity. As a result capacity constraints at some hospitals, physicians are being forced to refer business to outpatient facilities. “Radiologists are losing reading fees because of backlogs, “he adds.
David Levin, MD, the recently retired chairman of radiology for Thomas Jefferson University Hospital and the driving force behind the joint venture with OIA, says the hospital need additional imaging capacity in a number of modalities, MRI and CT especially. “OIA was able to minimize our capital outlay, structure the transaction to maximize reimbursement for outpatient imaging services, and devote the people necessary to quickly bring this center to reality.”
The deal with OIA underscores the growing national trend toward partnerships between for-profit imaging center management companies on the one hand and local hospitals and radiology groups on the other hand. OIA has formed four other joint ventures in Florida, Missouri, Tennessee and North Carolina.
How OIA Structures Its Joint Ventures
According to Kyle, OIA’s typical joint venture agreements involve a local radiology and/or oncology group and sometimes a hospital as well. The venture is structured as a for-profit entity, and each partner is required to make an equity investment. Ownership and board membership equal the percentage investment by each partner.
A potential joint venture, for example, might borrow $3 million, Kyle says, to purchase equipment and make leasehold improvements to develop a new imaging facility with a full range of diagnostic services, including MRI, CT, PET, ultrasound, mammography, x-ray and bone densitometry. Another $750,000 would be raised from the partners to pay legal fees to create the entity, hire employees and develop a marketing program. One scenario under this example might have OIA, a hospital partner, and a radiology group each contributing $250,000. Each would then have a 33% interest in the joint venture and equal board representation.

OIA is willing to invest in projects without requiring a controlling interest, Kyle notes, as long as it has responsibility for managing the facility. The company typically signs 10-year agreements to handle billing and collections, marketing and management services for each joint venture facility. It keeps approximately 10% of facility revenue for these services.
Kyle says the typical full-service imaging center is expected to break-even about six months after opening. After three years, he projects, each facility will be generating roughly $4 million annually collected revenue and, by that time, each partner will have earned back its initial investment from dividends.
Some Tips For A Successful Joint Venture
Kyle believes the odds of success for joint ventures can be increased by selecting the right geographic market. Some markets, he points out–such as south Florida, Phoenix, Baltimore and parts of Texas–are saturated with outpatient imaging facilities and are now suffering from pricingwars. He says second-guessing and arguments over decision-making among partners are most likely when business is poor–that’s why OIA focuses on states that require certificate-of-need, which inhibits overcapacity.
To run an outpatient imaging facility, Kyle says, hospitals and radiology groups must understand the service-oriented culture that is required. Key aspects of such a culture include easy scheduling of patients’ exams, quick turnaround time for reports to physicians and a patient-friendly environment at the imaging center itself.
Finally, Kyle stresses the need for open lines of communication between OIA and its hospital and radiology group partners. “Fundamentally, our role is to tell our partners what we are going to do, then do it, while keeping our partners informed every step of the way.”