Mednax, a national medical group based in Sunrise, Fla., has made a move into the teleradiology business by agreeing to acquire Virtual Radiologic Corp., a major provider of outsourced radiology and telemedicine services.
The $500 million cash deal comes after Mednax CEO Roger Medel hinted at this year's J.P. Morgan Healthcare Conference that the company was looking to add a third specialty in addition to pediatrics and anesthesiology. The company frequently acquires small practices to build up its business.
Virtual Radiologic, also known as vRad, operates a network of over 350 mostly sub-specialty trained radiologists who interpret diagnostic images for more than 2,100 healthcare facilities across the U.S. and abroad. The company generates annual revenue of about $185 million.
Mednax hopes the company will offer a platform for growth within the teleradiology and broader telemedicine market, Medel said in a statement.
“We believe the opportunities for organic growth at vRad and for cross-selling between the company's and MEDNAX's customer bases are compelling,” Medel said. “This acquisition also further broadens the scope of services we can provide to our hospital partners.”
vRad's technology and data-analysis capabilities will also aid Mednax's efforts to improve quality and cost effectiveness, Medel said. The company also uses a proprietary picture archiving and communication system to facilitate services.
Ryan Daniels, an analyst with William Blair, estimates that the U.S. teleradiology industry earns an estimated $3 billion in sales every year. That's a decent chunk of the $18 billion in sales generated by the radiology industry as a whole. Daniels said in a note Tuesday that he expects vRad's business to grow in excess of Mednax's neonatal and anesthesia specialties, due to the aging population, radiologist shortages and the clinical benefit and efficiency that comes with outsourcing diagnostic image reading.
The companies have only 6% overlap between the facilities that they serve, which means there are immense opportunities for cross sales, Daniels said. Mednax management has expressed interest in expanding vRad's business into pediatric radiology, cardiac imaging and pathology, he said.
The current management team at vRad will continue to lead as the company becomes a part of Mednax. The acquisition is expected to close in the second quarter.
Experts say major advancements in digital cloud technology are transforming the field of radiology, opening up opportunities for more hospitals to outsource reading of images to reduce costs and turnaround time, and potentially improve quality. Rules like those requiring meaningful use of electronic health records have put pressure on providers to make wider use of the cloud for sharing images.