The radiology profession is in a state of flux and facing uncertain times. However, many practices continue to enjoy a sure footing in their markets, thanks to growing demand for services and, pivotally, a greater willingness to adopt serious-minded approaches to the management of their operations, reports Lawrence R. Muroff, MD, FACR, a leading authority on what makes today's imaging groups tick.

Muroff, president and CEO of Imaging Consultants Inc, Tampa, and a clinical professor of radiology in the colleges of medicine at the University of Florida and the University of South Florida, is the organizer and moderator of the annual Economics of Diagnostic Imaging (EDI) conference held in Washington, DC. Each year at this gathering (conducted through the auspices of Educational Symposia Inc, a company Muroff cofounded but retired from in 2001), the audience is polled about the health of their practices. Muroff then pores over the responses and attempts to corroborate what he has observed anecdotally while traversing the nation in his capacity as a practice consultant. Here are some of his most interesting findings from this past October's EDI meeting:

• Practices are, in general, becoming larger. The day of the small group may be ending.
• The path to partnership is shorter and easier than ever. Sweat-equity arrangements that allow relatively inexpensive buy-in, even when the group has a technical component worth millions, are gaining in popularity.
• Starting salaries for fellowship-trained radiologists are up. Now, the average is around $250,000 for that debut year in practice.
• In-house billing may be the wave of the future for large practices. Many large groups that outsource the billing function want to do it themselves—which may or may not be a good thing.
• Hospitals are not letting up in their demands for more carve-outs from radiology. Nothing personal; it's just business.

Supersize Me

Muroff hints that small groups—those with five or fewer radiologists—may, in time, go the way of the buggy whip. "Groups are getting larger," he says. "Based on our EDI data, it appears that the most commonly encountered group is moderately sized [11 to 20 members]."

"The rapid timeframe for achieving full partnership in practices today is, in part, a reaction to the shortage of radiologists." —Lawrence R. Muroff, MD

Undoubtedly, fans of mom-and-pop or boutique practices will be disappointed by the trend toward supersizing, but Muroff sees larger groups as advantageous. "Small groups cannot provide subspecialty expertise—it makes no economic sense for them to attempt it—and yet, subspecialty expertise is what the market wants," he says. "A group of five would simply have no viability if it consisted of a nuclear medicine specialist, a body imager, an interventionalist, a mammographer, and a neuroradiologist, for instance. But each of those subspecialists could be very viable in a group with 20 or more generalists."

Muroff also thinks that large groups have an edge in the battle for real estate. "A large group has the economic wherewithal to open offices in different parts of a geographic area, providing better access for patients and, thus, greater reach for third-party carriers," he says. "It's impractical to try something like that if you're a small group."

A feature in common among larger radiology practices is ownership of significant amounts of technology, Muroff points out. "The larger a group, the more economic strength it will possess—and the more economic strength it possesses, the more it will use that strength to keep itself up to date technologically with investments in new equipment, systems, and software," he says.

Naturally, being large is not all a bed of roses; a few downsides exist. The main one: income and the ranks of radiologists increase linearly, while problems associated with practice governance, management, and interpersonal relationships tend to increase exponentially, Muroff shares. The good news, according to the newest EDI polling results, is that radiology groups "are becoming aware of the fact that they have to pay attention to the business side of their group in order to most effectively practice the quality of radiology that would be necessary and important for their patients," Muroff says.

Making Buy-In Affordable

A plurality of EDI conference attendees revealed that, for new members of their respective practices, the journey to partnership is completed now in as little as 1 year but seldom more than 3: the average is about 2 years to shareholder status.

Figures 1-2 & 3-4 (Click the images for a larger version.)

"The rapid timeframe for achieving full partnership in practices today is, in part, a reaction to the shortage of radiologists," Muroff explains, adding that the dearth of candidates has substantially impacted many practices. "In a few instances, we find that time-to-partnership remains longer than 3 years. This is most apparent in very large practices, in practices that are the dominant or only one in the market, and in practices that are situated in a highly desirable market where they have no difficulty attracting radiologists."

Increasing numbers of groups are allowing newcomers to become practice partners—with full voting rights—by means of sweat-equity rather than a traditional cash-purchase buy-in, the EDI data suggest.

"With sweat-equity—which, by the way, is not another term for ‘taking call'—a radiologist can achieve complete and equal partnership fairly easily," Muroff says. "It's easiest in groups that do not have a technical component, but far more common in those that do. For those practices with a large technical ownership, sweat-equity is an attractive option. Let me offer an example. These days, a group with a professional and technical component might allow a radiologist to buy-in for, say—I'll just arbitrarily pick a figure—$75,000. That radiologist would enter the practice as a shareholder with an equal voice in the governance and strategic planning of the practice. However, because the buy-in price of $75,000 is low, the radiologist would, in his or her first year of shareholder status, receive zero share of the technical income stream. Then, in the second year, he or she might receive 25% of their share of the technical income stream, rising to 50% in the third year, 75% in the fourth, and finally 100% in the fifth. This is how many groups are able to avoid asking for a buy-in that otherwise could be in excess of $1 million—a very steep price that might act as a deterrent to recruitment."

This same strategy also can be employed in reverse when a radiologist retires or otherwise departs the practice. As Muroff describes it, buy-out of the retiring partner could likewise begin with a payment of, again for illustration's sake, $75,000. Then, throughout the first year of his retirement, the radiologist continues to enjoy a full equity position in the technical income stream. Over the next several years, his position is incrementally reduced until, finally, it stands at zero.

Figure 5 (Click the image for a larger version.)

"This arrangement discourages shareholders who are nearing retirement age from blocking practice growth," Muroff says. "A common situation is when you have a radiologist who plans to retire in a year; suddenly, there comes an opportunity to open another office somewhere. Trouble is, it's going to cost a couple of million dollars to open that office. Under normal circumstances, the retirement-bound radiologist would be inclined to oppose that outlay because, first, it's money that will come out of his or her salary and bonus, and, second, he or she will never see the profit stream from that new office, because it won't be profitable until a year or two after retirement. The technical component pay-out arrangement would eliminate the problem because the retiring radiologist will financially benefit from the new office's technical stream for some years afterward and, therefore, have no incentive to block it."

Muroff asserts that these kinds of buy-in and buy-out deals have a favorable impact on group dynamics. "They prevent a practice from devolving into a divisive mix of haves versus have-nots," he says. "In fact, I've visited many groups where they did develop into a divisive mix because they did not have a sweat-equity buy-in system, and it was one of the prime problems tearing at the fabric of the group. It led the have-nots to think they were somehow being taken advantage of."

Strings Attached

Approximately half of the EDI attendees indicated that their practices are looking to add at least one more radiologist immediately, with almost one third of additional practices anticipating recruiting a new radiologist no later than July. If those practice hires happen to be fellowship-trained radiologists, they can expect a starting salary of about $250,000, the data show. "And it's on the rise," Muroff says. "I've seen a few instances where they are being offered close to a half-million dollars. This, too, is a response to the shortage of fellowship-trained radiologists. But it's also a reflection of the expectations of fellows—and of residents—and the desire of groups to attract the best candidates."

A slight majority of survey respondents expressed interest in setting up a program that would fund a resident or fellow as a means of obtaining from the young practitioner a pledge to join the group after he completes training. "A proposal of some very thoughtful academicians would have some private practices directly fund residency and fellowship slots to the tune of a couple hundred thousand dollars each," Muroff says. "But I don't see any great enthusiasm among practices for doing that. What I do see is practices identifying a desirable candidate in his or her last or next-to-last year of training and offering to supplement that individual's salary by $15,000 to $60,000 a year in exchange for a commitment to join the practice later on. In other words, the practice is making payments directly to the fellow, not to the fellowship program. These relationships typically work out quite nicely. They are helpful to the fellow, and the outlay is economically inconsequential to the practice. But the practice stands to benefit enormously from this small investment by being able to lock in a desirable new radiologist.

"This same type of arrangement can be started earlier, during, say, the candidate's first year of residency," Muroff continues. "You could pay this individual a supplement to residency salary every year that he or she is in training; in exchange, the resident promises to become part of your practice and remain with it for x-number of years. If the new radiologist leaves the practice before fulfilling that obligation, he or she must repay with interest all the money you paid during training."

Figures 6-7 (Click the image for a larger version.)

A question posed to EDI attendees was: Excluding call pay, do interventional radiologists in your practice have a different salary level than diagnostic imagers? Eighty-eight percent said no.

"It's true that there is a difference in interventional radiology RVUs [relative value units] compared to diagnostic imaging RVUs, with the former being seen as the less productive of the two," Muroff says. "But I believe you cannot pay people differently in a practice based on their RVU production. Particularly in a hospital setting, somebody has to do the grunt work—the barium studies, the scoliosis measurements, the things that take a lot of time and effort and are not very productive in RVUs, but without which, there would not be the more productive and profitable things for the other members of the practice to do.

"Where the salary difference between interventional radiologists and diagnostic imagers shows up is in call pay," he continues. "Of the conference audience, 37% said interventional radiologists and diagnostic imagers in their practices are paid differently for call. And that, I believe, is a growing trend. What's occurring is that a significant number of practices either are currently or are considering outsourcing their night call. This sets up a two-tiered situation in a practice, because if you can outsource night call, then a certain segment of the practice—the diagnostic imagers—doesn't have to take as much of it. And because the diagnostic imagers are taking less night call, they can be paid differently for it compared to the interventional radiologists, who are taking more night call."

Bringing It Home

Figures 8-9 (Click the image for a larger version.)

In another important area, 60% of attendees say they presently bill themselves or are making preparations to bring billing in-house.

"Practices, as they grow larger, tend to become more cost-conscious, and so they begin looking for ways to consolidate business operations," Muroff explains. "One way this is done is by bringing billing in-house. However, under appropriate circumstances, outsourced billing can be very cost-effective. In either case, significant problems can occur if the radiologists do not get involved. Tremendous amounts of money can be lost for want of physician involvement. For example, if you dictate a cervical spine study after reading seven views but you fail to state in your dictation, ‘seven views of the cervical spine,' then the billing and coding people are obligated by law to downcode to the least expensive procedure, which would be a one-view cervical spine.

"By getting involved with the billing process, you gain an understanding of how to properly dictate so that you're not downcoded," Muroff continues. "Also, you learn how to manage denials. Many radiologists have no notion that their claims are being denied, and, when informed that they are being denied, many at first refuse to believe it's even possible. Active involvement by the radiologist with his or her billing operation, whether in-house or outsourced, inevitably brings substantial monies back to the practice—monies that can then be spent on additional income-generating equipment to fuel further growth."

Ninety percent of survey-takers who have a contract with a hospital report that they have lost turf to other specialists. By and large, this is occurring because of economic imperatives. "For example, a cardiologist tells the hospital, ‘Look, give my group the cardiovascular nuclear medicine piece, or I'm not going to put my patients in your hospital,' " Muroff says, noting that the most common carve-out is for cardiac imaging. "Cardiologists have been very aggressive in trying to supplement their traditional practice with diagnostic imaging. And being seen with increasing frequency are attempts by cardiologists and vascular surgeons individually and together to carve out peripheral vascular interventional radiology work—not just the angiographic studies, but also the angioplasties and stents.

Figures 10-13 (Click the image for a larger version.)

"Carve-outs hurt radiology practices not only by reducing income opportunities but also by making recruitment harder," he continues. "If you're fellowship trained in interventional radiology, you'll want to join a practice where you're able to do the work you were trained to do, the work you enjoy. You may not be so eager to join a group where you can't do that work because the cardiologists and vascular surgeons have taken it over."

Still, Muroff allows that not all carve-outs are bad. "The only situation where a carve-out can potentially be advantageous is where the radiology group lacks the expertise to provide the service," he suggests. "In that instance, it makes sense to give the business to the cardiologists or whomever, and it's better for the patients in terms of quality of care."

The Good Will Thrive

A big unknown confronting the radiology world is how the federal Deficit Reduction Act of 2005 and related legislative attempts to pare reimbursements for imaging services will impact practices. Based on what he has seen in the EDI data, Muroff predicts that the uncertainty will, at the very least, prod groups to a new level of caution when it comes to acquisitions—whether it be in the form of joint ventures, the purchase of new equipment, or the opening of additional offices.

Figures 14-16 (Click the image for a larger version.)

Muroff laments, however, that some groups will choose to ignore the signs of danger. "Those that are most likely to pay little or no heed to the risks they face are those that continue to be governed haphazardly," he says. "They can be counted on to act unpredictably. If they're successful, it will almost be in spite of anything they do, not because of it."

By contrast, the groups sure to prosper will be those that have developed good governance habits. "They take a proactive approach to problems and have a clear sense of direction—a direction provided by a mission statement and a business plan," he says. "We're in a time of change, and to thrive in such times, an organization needs to be as nimble as possible."

Most of the groups represented by attendees at the EDI conference fall into the category of well-governed and proactive practices, as evidenced by the very fact that they chose to send radiologists and administrators to this educational event. It then causes one to wonder just how representative of radiology in general these attendees and their groups really are.

"A few issues can be raised concerning the validity of our data," Muroff concedes. "Chiefly, the survey takers do tend to be from practices that are more progressive than the norm; no random sampling is involved. Nevertheless, I am quite confident that the data present an accurate view of what seems to be happening throughout the country. The data seem to validate the experiences of a number of leading experts in the socioeconomics of diagnostic imaging...and certainly validate my own experiences as a consultant in radiology. The data presented me with no major surprises, no figures out of line with what would have been expected. The data corroborate my observations."

Muroff first began surveying radiologists at this meeting back in the late 1970s, except for a few years of hiatus in the mid-1980s. Muroff will conduct the survey again at the next EDI meeting, slated for October 25–29 at the Pentagon City Ritz Carlton in Washington, DC.

Rich Smith is a contributing writer for Imaging Economics.