In a Major New Consolidation, Radiology Partners to Acquire MEDNAX Radiology Solutions

In a sign of the accelerating consolidation of radiology practices nationwide, on September 10, the El Segundo, California-based Radiology Partners, the leading radiology practice in the U.S., today announced, via a press release, a definitive agreement to acquire MEDNAX Radiology Solutions, a division of MEDNAX, Inc., in a transaction with an enterprise value of approximately $885 million. “The combination of RP and MEDNAX Radiology Solutions brings together two of the top radiology leaders and teams in the U.S.,” the press release, posted on Thursday morning, stated. “The boards of directors for both organizations unanimously approved the transaction.” And it quoted a joint statement from the two firms stating that, “Combining our expertise, experience and infrastructure will enable us to create new pathways for innovation that we can bring to our patients and our clients. I could not be more excited about the new home for our physicians and staff.”

“This is a milestone day. The MEDNAX radiology practices are among the best in the country, and we are excited to welcome so many outstanding radiologists and physician leaders to our practice,” said Rich Whitney, Radiology Partners’ CEO, in a statement contained in the press release. “We believe the benefits of increased scale, paired with local practice autonomy and physician leadership, will allow us to continue to advance patient care, improve clinical value and ultimately transform radiology. The addition of these leading practices, as well as the nation’s premier tech-enabled teleradiology platform, represents an amazing opportunity to accelerate our progress on this important mission.”

When finalized, the acquisition is expected to add more than 800 radiologists to RP’s existing practice of 1,600 radiologists. MEDNAX Radiology Solutions consists of more than 300 onsite radiologists, who primarily serve patients in Connecticut, Florida, Nevada, Tennessee, and Texas, and more than 500 teleradiologists, who serve patients in all 50 states. MEDNAX Radiology Solutions physicians interpret 11.8 million exams annually, guiding the care of millions of individual patients.

“Radiology Partners has distinguished itself within the radiology community as a mission-driven practice committed to clinical innovation, outstanding service delivery, physician leadership development and local practice decision-making, all of which aligns with the values of our radiologists,” said Ricardo C. Cury, M.D., chief medical officer of MEDNAX Radiology Solutions, said in a statement contained in the press release. “Combining our expertise, experience and infrastructure will enable us to create new pathways for innovation that we can bring to our patients and our clients. I could not be more excited about the new home for our physicians and staff.”

“The combination will enable greater capabilities for large-scale clinical programs driving value-creation and cost reduction across the healthcare system, subspecialty offerings for patients and clients in the regions served, and increased opportunities to develop and elevate radiologist leaders to advance RP’s mission and improve patient care,” the press release said.. “The transaction between RP and MEDNAX Radiology Solutions is subject to regulatory approval and customary closing conditions.”

MEDNAX Radiology Solutions is one division of the Sunrise, Florida-based MEDNAX Health Solutions Partner, which currently encompasses 3,025 physicians in 300 practices spread across the U.S. Other divisions include the Pediatrix Medical Group, the bstetrix Medical Group, and Surgical Directions.

Brian Casey, a staff writer at AuntMinnie.com, wrote on Thursday morning that, “Under the deal, Radiology Partners would acquire the Mednax Radiology Solutions business, adding more than 800 radiologists to the 1,600 radiologists in the Radiology Partners network. Mednax radiologists interpret some 11.8 million medical images annually, and are primarily located in Connecticut, Florida, Nevada, Tennessee, and Texas. Mednax also employs more than 500 teleradiologists, who serve patients in all 50 states. The combined entity,” Casey noted, “would sharply expand the national footprint of Radiology Partners, and move the company further toward its goal of becoming a nationwide radiology network that can contract with large hospitals and healthcare networks.”

Casey added that “The deal comes after Mednax announced in June that it would be putting its radiology services business on the block as part of a restructuring. The company had built the business up over the years through a series of acquisitions, such as teleradiology provider vRad in 2015, as well as a series of smaller radiology groups. But the acquisition spree also incurred debt that began to weigh heavily on the company, and Mednax announced a review of its operations in 2018 that led to the company beginning to sell off businesses. The COVID-19 pandemic added insult to injury, with radiology procedure volume dropping 50%-60% in its first financial quarter.”

Earlier this summer, Arun Gill, a senior analyst at the London-based Signify Research, had analyzed the situation of MEDNAX, noting that the company had found itself in some difficulty after the onset of the COVID-19 pandemic in the United States had drastically lowered diagnostic imaging volume. Gill wrote that, “Earlier this month saw Mednax announce significant plans to transform its business. Mednax intends to: sell its Mednax Radiology Solutions business, which includes its radiology groups and the teleradiology market leader Virtual Radiologic (vRad); reposition itself as a dedicated pediatrics and obstetrics business, including a return to its original company name, Pediatrix Medical Group.”

Gill noted that “Mednax made its entrance into the radiology business following the $500m acquisition of vRad in 2015. It has since continued its growth strategy of acquiring significant local radiology groups and imaging practices, with its tenth practice added in January 2020. Since 2016, overall revenues for Mednax have grown from $3.2bn to $3.5bn in 2019, an increase of 10%; however, EBITDA has suffered a 24% decline over this four-year period. The accumulated debt for Mednax during this period of acquisition has been substantial, with c. $1.7B in net unpaid debt owed by the overall business as of June 2020. Through the sale of its Radiology Solutions business, Mednax is aiming to apply the sale proceeds towards reducing this debt. The company had already been taking steps to ease the financial burden since 2018, including the sale of healthcare management services business MedData in October 2019, and American Anesthesiology medical group in May 2020.”

Gill went on to say that, “Whilst the president of Mednax Radiology Solutions suggested the intent to sell was not influenced by the COVID-19 pandemic, the temporary halt of all non-urgent diagnostic imaging procedures may well have been a key factor in the timing of this decision to sell; COVID-19 had a substantial impact on the radiology business in April 2020, with Mednax’s volumes plummeting by c. 50% and a reduction of 25% on revenues (Y-o-Y). For vRad specifically, imaging volumes in mid-April 2020 declined by c. 55% before recovering considerably at the end of May 2020 (c. -25% YoY), although this is still significantly down.”

Indeed, MEDNAX executives had had to announce difficult second-quarter financial results. On July 30, the company issued a press release with those results, stating that “MEDNAX, Inc. (NYSE: MD), the national health solutions partner specializing in prenatal, neonatal, pediatric, and radiology services, today reported a net loss of $8.03 per share for the three months ended June 30, 2020, primarily reflecting a non-cash loss on sale related to the Company’s previously announced divestiture of American Anesthesiology. On a non-GAAP basis, MEDNAX reported Adjusted EPS from continuing operations of $0.32. For the 2020 second quarter, MEDNAX reported the following results from continuing operations: net revenue of $509 million; net income of $8 million; and adjusted EBITDA of $65 million. As previously announced, on July 12, Mark S. Ordan was appointed Chief Executive Officer and a Director of the Company. Mr. Ordan succeeds Roger J. Medel, M.D., MEDNAX’s founder, who remains a director. And it quoted Ordan as stating that, “As CEO, I will champion our longstanding mission to take great care of the patient, every day and in every way. Particularly during such an unprecedented healthcare crisis, clinicians affiliated with MEDNAX have proved their unwavering dedication to that mission. I’m most excited about the growth opportunities available to the Company, and I will work closely with our clinicians, our streamlined organization and our Board to support this organization’s success, and its unique and important role in the healthcare ecosystem.”