RadNet buys Medical Arts to expand New York imaging network

Dive Brief:

Imaging service provider RadNet has acquired Medical Arts Radiology to expand its presence in New York, giving it control of 10 imaging centers in Long Island, an area adjacent to its existing stronghold in and around New York City.
RadNet cast the tuck-in acquisition as complementary to the full-risk imaging services deal it struck with nonprofit health insurer EmblemHealth earlier this year.
RadNet has not publicly disclosed the financial details of the deal but analysts at Jefferies valued the takeover at around $60 million.

Dive Insight:

RadNet is a big player in outpatient imaging. Working out of its West Coast headquarters, the service provider has established a presence in five states through a series of deals. In New York, RadNet has built a network of 89 sites through deals including the 2010 acquisition of Sonix Medical Resources and the 2015 buyouts of New York Radiology Partners and Diagnostic Imaging Group.

The earlier takeovers gave RadNet a big enough presence in New York to enter into its first East coast full-risk capitation contract with EmblemHealth in July. The agreement gave RadNet responsibility for providing imaging services to 26 EmblemHealth locations on a per-member, per-month fixed price.

Now, with a view to serving the 200,000 patients covered by the EmblemHealth agreement, RadNet has acquired Medical Arts.

The takeover covers 10 imaging centers in Long Island that generate sales of around $40 million a year by performing approximately 180,000 procedures, including MRIs, CTs, X-rays, ultrasounds and bone density scans. These procedures are managed by 350 full and part-time staff who have access to 15 radiologists in Long Island.

RadNet will continue to serve this existing customer base while also using its newly-acquired presence on Long Island to service the EmblemHealth contract. Analysts at Jefferies expect the acquisition to "boost RadNet’s market share (and potential gain-sharing incentives) under its capitated contract" with the insurer. Jefferies also thinks the combination of the Long Island sites and RadNet's existing New York footprint will "create opportunities for revenue and operating synergies."

The takeover is unlikely to be the last time RadNet expands through an acquisition. RadNet has a long history of buying up small, regional networks of imaging sites and the nature of the market means it may be incentivized to continue doing so. As Jefferies notes, RadNet is in a strong position to consolidate a fragmented industry.

If RadNet pursues a regional roll-up strategy, it could realize economies of scale and position itself to win contracts with payers that want to see more imaging performed outside of hospitals. Anthem pushed the concept of prioritizing freestanding sites, such as those run by RadNet, last year when it unveiled plans to refuse to pay for certain imaging services at hospitals.