Business and Corporate Models for Interventional Radiology in the Office Based Lab and Ambulatory Surgical Center Setting

The landscape of healthcare is shifting towards outpatient settings such as Office-Based Labs (OBLs) and Ambulatory Surgery Centers (ASCs). This transition, driven by the Centers for Medicare & Medicaid Services (CMS), presents various business and corporate models for interventional radiologists seeking to practice outside traditional hospital environments. The role of private equity and management services in facilitating these transitions is highlighted, offering opportunities for growth, efficiency, and enhanced control over practice operations. The document also discusses the financial aspects of establishing an OBL or ASC, the benefits of outpatient procedures, and the adaptability of private equity deals to the specific needs of medical practices. It concludes by emphasizing the potential for long-term wealth creation and the adaptability of these models to individual physician needs.

Introduction

In the ever-evolving landscape of healthcare, particularly with CMS directing the relocation of procedures from the hospital setting, Interventional Radiologists who seek to practice outside of hospitals and large groups and are interested in working in an Outpatient-Based Lab (OBL) or Ambulatory Surgery Center (ASC) have a range of opportunities and models to consider. They encounter the challenging intersection of medical practice and business management, necessitating optimal strategies in navigating this intricate healthcare marketplace. In this exploration, we shed light on different corporate and business models applicable to outpatient interventional radiology settings. These different models are transforming the business dynamics of interventional radiology, equipping radiologists with the tools needed to not only adapt to the unprecedented changes and opportunities on the horizon but also to fulfill their life goals, desires, and needs.

Structure can manifest in various forms, all pursuing similar objectives: corporations that receive independent financing or are supported by Venture Capital or Private Equity can present opportunities for Interventional Radiologists interested in owning and participating in their Outpatient-Based Lab (OBL) or Ambulatory Surgery Center (ASC). Management Companies, on the other hand, can offer the necessary infrastructure and expertise for physicians embarking on an entrepreneurial role.

The costs associated with establishing a new OBL typically range from 1.5 million to exceeding 3 million dollars for an ASC. The development of these centers assumes a multitude of expenses. In this discussion, our focus centers on Venture Capital, Private Equity, and Management Firms, particularly those backed by Private Equity.

Venture Capital

Venture Capital firms commonly invest in de novo or early-stage startups with high growth potential, even if they aren’t profitable yet. In outpatient radiology settings, venture capital supports innovative, emerging companies working on new technologies, services, and business models. These investments target companies in the early stages of development, often with limited industry experience. Typically, the Venture Capital fund will require majority ownership in the greater than 51% range.

Traditional Private Equity

Private equity investments typically focus on well-established companies that are in a phase of growth, seeking operational enhancements, restructuring, or expansion. Within outpatient healthcare, private equity firms frequently direct their investments toward established healthcare providers and practices, aiding them in achieving growth, operational efficiency improvements, and strategic trans-formations.

Management Firm with Private Equity

A management services firm with private equity backing combines a more tailored experience for the providers with similar capabilities of both a traditional private equity model and a venture capital model. Proprietary knowledge within the industry paired with readily available capital allows the management services company to accelerate growth at a quicker rate for the company, whichever stage of growth the company is in. Examples of companies that provide this service are: American Vascular Associates, American Endovascular Centers, and Comprehensive Integrated Care and a few others. The larger Radiology Corporations such as Radiology Partners and RadNet have not pursued the OBL and ASC models. Corporate structure of the Equity firms will vary with size and platform.

Reasons to Transition to OBL/ASC

According to recent statistics the radiology market is expected to reach a value of 40.21 billion by 2026. Transitioning to the outpatient procedure realm, whether OBLs or ASCs, for interventional radiologists can provide practitioners cost savings and increased patient satisfaction (Hickey et al. ) while maintaining safety and excellent outcomes. One of the key motivations for this transition lies in the potential for enhanced efficiency and flexibility in the delivery of interventional radiology services. Hospital-based procedures often involve intricate scheduling and resource allocation, leading to prolonged wait times for both practitioners and patients. In contrast, office-based lab procedures offer a streamlined environment that fosters faster turnaround times, reducing patient wait times and optimizing the utilization of valuable physician hours. Additionally, there were cost savings associated with office-based procedures as more of the procedure payment stays with the radiology practice rather than going towards the hospital facility fee. This efficiency is not only patient-centric but also allows interventional radiologists to maximize their daily caseload, thereby increasing revenue potential and improving the overall financial health of their practice.

Furthermore, outpatient settings empower interventional radiologists to gain greater control over their practice operations. Hospital-based procedures can sometimes be burdened by administrative bureaucracies and rigid protocols that can stifle the autonomy of practitioners. In OBLs and ASCs, radiologists can tailor their workflows and protocols to better suit their specific patient population and clinical preferences. This flexibility enables them to provide more personalized care and adapt quickly to emerging technologies and treatment modalities, leading to higher job satisfaction and professional fulfillment. By fostering a more favorable work environment and patient experience, the transition to outpatient settings aligns with the evolving trends in modern healthcare, where patient-centered care and adaptability are highly valued. This paradigm shift can prove advantageous for interventional radiologists aiming to thrive in the ever-changing landscape of interventional medicine.

Outpatient Radiology exemplifies the substantial benefits of private equity engagement, boasting a distinctive 49% average market share among private equity (PE) firms. Notably, radiology stands as the solitary specialty that has demonstrated a decrease of nearly 2% in expenditures per patient post-acquisition, highlighting the remarkable efficiency and cost-saving potential associated with partnering with private equity firms. These cost reductions create a pathway for building a more competitive practice, better equipped to serve patients in an increasingly competitive landscape.

In the realm of private equity transactions, it is crucial to acknowledge their adaptability. No single formula applies to all situations, and these arrangements can be tailored to align with the specific needs of medical practices. Within the domain of Physician Practice Management (PPM), a common income percentage ranging from 20% to 30% characterizes new platform private equity deals, although this percentage can be adjusted to accommodate the preferences of the medical partners. A consistent benefit, regardless of the initial percentage, lies in the capacity to access upfront capital equivalent to several years’ worth. This upfront capital often benefits from favorable tax treatment as capital gains ( Figs. 1-3 ).