Q2 2019 Earnings Call
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Good day and welcome to the Radnet Inc. second quarter 2019 financial results Conference call.
Today's call is being recorded at this time I'd like to turn the call over to Mr., Mark Stolper Executive Vice President and Chief Financial Officer Radnet, Inc. Please go ahead Sir.
Thank you.
Good morning, ladies and gentlemen, and thank you for joining Dr. Howard Berger and me today to discuss Radnets second quarter 2019 financial results.
Before we begin today, we'd like to remind everyone of the safe Harbor statement under the private Securities Litigation Reform Act of 1995.
This presentation contains forward looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995.
Specifically statements concerning anticipated future financial and operating performance Radnets ability to continue to grow that business by generating patient referrals and contracts with radiology practices.
Recruiting and retaining technologists, receiving third party reimbursement for diagnostic imaging services.
Successfully integrating acquired operations generating revenue and adjusted EBITDA for the acquired operations as estimated among others are forward looking statements within the meaning of the safe Harbor.
Forward looking statements are based on management's current preliminary expectations and are subject to risks and uncertainties, which may cause radnets actual results to differ materially from the statements contained herein.
These risks and uncertainties, including those risks set forth in Radnets reports filed with the FCC from time to time, including Radnets Annual report on Form 10-K for the year ended December 31st 2018, and Radnets quarterly report on Form 10-Q to be filed shortly.
Undue reliance should not be placed on forward looking statements, especially guidance on future financial performance, which speaks only as of the date. It is made.
Radnet undertakes no obligation to update publicly any forward looking statements to reflect new information events or circumstances. After the date, they were made or or to reflect the occurrence of unanticipated events.
And with that I'd like to turn the call over to Dr. Berger.
[noise] [noise]. Thank you Mark good morning, everyone and thank you for joining us today.
On today's call Mark and I plan to provide you with highlights from our second quarter 2019 results.
Give you more insight into factors, which affected this performance and discuss our future strategy.
After our prepared remarks, we will open the call to your questions I'd like to thank you all for your interest in our company and for dedicating a portion of your day to participate in our conference call. This morning.
Overall I am very pleased with our performance in the second quarter, which was a continuation of the strength of our business demonstrated in the fourth quarter of last year and the first quarter of this year.
During the second quarter, we drilled 18.3% revenue growth and 13.0 EBITDA growth as compared with the second quarter of last year. Both metrics were the highest of any second quarter in our company's history.
Our performance was driven by significant aggregate and same center procedural volume growth.
In this quarter, we achieved a 3.5% same center growth.
This is primarily attributable to a number of efforts of our regional teams first our marketing teams are having success differentiating our centers and service offerings relative to our competitors. We continue to believe our equipment multi specialty radiology practices I T systems, Inc.
[laughter] Susan.
And conveniently located centers are the best in the business.
Further the investments we have made in recent years in leading edge equipment are recognized by our referring patients and physicians.
Not only is our equipment and images are the highest quality, but investments. We've made in newer equipment has allowed us to alter protocols to scan patients more quickly.
Thus, increasing the number of scanning.
Slots in our centers. This provides us additional capacity at our already busy facilities.
Our volumes are also benefiting from the further recognition of patients, referring physicians and health plans of the continuing disparity between hospital pricing for imaging services and that of outpatient pricing.
Our pricing remains at a fraction of the head of the local hospitals for the same services.
In a health care landscape, where health insurance companies are becoming more cost conscience and patients are assuming more financial responsibility for health care. The disparity between hospital and freestanding outpatient pricing is substantial and very meaningful.
Overtime, we expect a steady increase of patients in ambulatory centers at the expense of hospital volumes.
This trend is occurring slowly as health care referral patterns tend to be sticky and slow to change, but we are convinced that this is where healthcares, leading we are seeing the outpatient migration in patients in all disciplines and health care, including more volumes flowing into urgent care centers freestanding surgery centers outpatient clinical laboratories home health settings, physical therapy centers and the list goes on.
Health care is undergoing a transformation and it is our belief that we are still in the initial stages of this change.
I believe these trends are partially why we are having continued success with establishing additional health system joint ventures.
Many of the outstanding Health systems, with whom we are partnering our forward thinkers and recognize their institutions much change in order to remain relevant and competitive in this changing landscape.
Thus they seek out partnerships with redundant and leaders and other specialties and medicine, who have histories of success operating distributed networks of high quality community based locations.
Today about 25% of our centers are held within joint ventures with health systems.
And we anticipate this number could potentially double in the next few years as we grow and expand with existing health system partners and in new markets as well as create partnerships with new institutions. We continue to see benefit for Radnet. In these partnerships as we are able to leverage the joint ventures partners relationships with referring physicians, which in almost all situation leads to improved volumes.
Additionally, our health system partners have increased our visibility and strengths with private payers.
Furthering our goal to establish long term fair and sustainable pricing.
In the second quarter, we became operational in our second joint venture with dignity health in Ventura County, California.
Underwritten its existing regional brand of Rolling Oaks, Radiology, we established a colo network or for Multimodality imaging centers in Ventura, Oxnard and Kim are real.
Redness contributed three existing centers in those markets and dignity contributed one imaging center, which is co located within its St. John's regional.
Medical Center.
Taking these relationships and outreach into these communities are already bringing great value to the newly created partnership.
Also in the second quarter, we completed the acquisition of current radiology, which further expands our presence in Kern County in Bakersfield, California.
Current owns five imaging centers in his service the communities of Kern County for more than 50 years market is over 800000 people.
During the quarter, we began the integration of current into Radnet, particularly as it relates to merging its service offerings with radnets existing trucks and radiology locations in that market.
This current transaction, which has approximately 25 million of annual revenue.
Red Hat is an example of the power of our regional operating model.
By increasing our presence and further penetrating densely populated regional markets, we expand the power of our local brands improve our service offerings to our patient population.
And position us to partner with regional health systems and payers.
Lastly, subsequent to the end of the second quarter, we announced an expansion into.
Artificial intelligence.
Conjunction with creating a newly created.
Artificial intelligence intelligence Division of Radnet, we purchased the 75% of new projects that we already did not own.
New logics is an early stage company focused on developing AI solutions within radiology.
Radnets newly created division will focus on developing testing acquiring investing in technologies that focus on image interpretation and radiology business processes.
In addition to internally developing a solutions through our newly acquired.
Logics team, we will evaluate partnering licensing in investing in AI solutions developed by others.
We expect that artificial intelligence will have a transformational impact on the diagnostic imaging and radiology industry.
Machine learning Big data applications, and automation algorithms will allow us to deliver our services more cost effectively efficiently and accurately.
We are committed to supporting technologies that make our business, Ron and ways to advantage our patients joint venture partners, referring physician communities and contracted health plans, we will demonstrate this commitment through investing in leading edge solutions being developed by new projects and others.
We are frequently being presented with new technologies and products for us to test and evaluate.
Redness position as the largest owner and operator of six sites diagnostic Jim diagnostic imaging centers makes us an ideal.
Laboratory for technologies of the future today, we spend almost 20% of our globally build net revenue on the radiologist interpretation of our images.
If artificial intelligence where to lower the cost of image interpretation by making our affiliated radiology is more productive and more accurate all of radnets stakeholders stand to benefit materially.
As we move into the second half of the year I expect our business will produce a significant amount of free cash flow.
To date, we have spent almost $50 million of roughly 65 million 2019 capital expenditures budget.
This is typical as we frontload, our construction and equipment replacement programs each year to meet our operating objectives by year end.
We completed the second quarter with a cash balance of over $30 million enema and I'm anticipating this cash balance to substantially increase by the end of the year.
This expected significant cash balance at end year will either be used to repay debt consistent with our 10 Ewing de leveraging strategy or be reinvested in growth opportunities that we may identify.
At this time I would like to turn the call back over to Mark to discuss some of the highlights of our second quarter 2019 performance. When he is finished I will make some closing remarks.
Thank you Howard.
I'm now going to briefly review, our second quarter 2019 performance and attempt to highlight what I believe to be some material items.
I will also give some further explanation of certain items in our financial statements as well as provide some insights into some of the metrics that drove our second quarter performance.
Lastly, I will update 2019 financial guidance levels and discuss Medicare reimbursement for 2020.
In my discussion I will use the term adjusted EBITDA, which is a non-GAAP financial measure the company defines adjusted EBITDA as earnings before interest taxes, depreciation and amortization and excludes losses or gains on the disposal of equipment other income or loss loss on debt extinguishments bargain purchase gains and non cash equity compensation.
Adjusted EBITDA includes earnings equity earnings in unconsolidated operations and subtracts allocations of earnings to non controlling interest in subsidiaries and is adjusted for noncash or extraordinary and one time events taking place during the period.
A full quantitative reconciliation of adjusted EBITDA to net income or loss attributable to Radnet Inc. common shareholders is included in our earnings release.
With that said.
I'd now like to review, our second quarter 2019 results.
For the three months ended June Thirtyth, 2019, Radnet reported revenue of $289.1 million and adjusted EBITDA of $43.1 million.
Revenue increased $44.7 million or 18.3% over the prior year same quarter, and adjusted EBITDA increased $5 million or 13% over the prior year same quarter.
For the second quarter of 2019 as compared to the prior year second quarter MRI volume increased 9.7% see t. volume increased 14.1%.
Pet Cts volume increased 9%.
Overall volume taking into account routine imaging exams inclusive of X Ray ultrasound mammography and all other exams increased 11.4% over the prior year second quarter.
And the second quarter of 2019, we performed 2 million 72875 total procedures.
The procedures were consistent with our Multimodality approach in the second quarter, whereby 75% of all the work we did by volume was from routine imaging.
Our procedures in the second quarter of 2019 were as follows.
283717, m. arise as compared with 258547 M. rise in the second quarter of 2018.
223449, Cts as compared with 195758 Cts in the second quarter of 2018.
10840, pet Cts as compared with 9943 pet Cts in the second quarter of 2018.
And 1 million 554869 routine imaging exams as compared with 1.396 million 857 routine exams.
In the second quarter of 2018.
For the second quarter Radnet reported net income of $4.9 million, a decrease of approximately $507000 over the second quarter of 2018.
Adjusting for the impact of the financing transaction and legal settlements accounted for in other expenses during the quarter on a tax affected basis of $912000.
Adjusted net income was $5.8 million.
In the second quarter, an increase of $405000 over the second quarter of 2018.
Per share diluted net income for the second quarter was 10 cents per share compared to 11 cents in the second quarter of 2018 based upon weighted average number of diluted shares outstanding of $50.1 million and 50.1 million shares in 2019 and 48 point.
5 million shares in 2018.
Adjusting for the impact if any of the financing transaction and legal settlements accounted for in the other expenses.
Per share diluted adjusted net income was 12 cents in the second quarter of this year compared to 11 cents in the second quarter of 2018.
Affecting net income in the second quarter of 2019 were certain noncash expenses and nonrecurring items, including the following.
$1 million of noncash employee stock compensation expense, resulting from the vesting of certain options and restricted stock.
$371000 of severance paid in connection with headcount reductions related to cost savings initiatives.
$101000 loss on certain on the sale of certain capital equipment.
And $1.3 million of other expenses related to the financing transaction and legal settlements.
And $973000 of noncash amortization of deferred financing costs and loan discounts on debt issuances.
Overall GAAP interest expense for the second quarter of 2019 was $12.4 million.
This compares with GAAP interest expense in the second quarter of 2018 of $10.6 million.
Cash paid for interest during the quarter, which excludes non cash deferred financing expenses and accrued interest was $13 million as compared to $8.5 million in the second quarter of last year.
The increased interest expense is the result of increased term loan debt and the consolidation of NJ and which has its own credit facility.
At June Thirtyth 2018.
Adjusting for the par value of our term loan we had $706.1 million of net debt, which is total debt at par value less our cash balance.
Note that this value now includes the NGL again net debt of approximately $49.1 million for which Radnet is neither a bar or youre a guarantor.
At June Thirtyth 2019, we were undrawn on our $137.5 million revolving line of credit and had a cash balance of $30.6 billion.
During the quarter, we repaid $12.1 million of notes and leases payable and term loan debt and had capital expenditures net of asset dispositions of $17.4 million.
Since December 30, Onest 2018 accounts receivable increased approximately $10.4 million due to the growth in our revenue and from new acquisitions.
And our net days sales outstanding or Dsos were 46.6 days a decrease of approximately 4.1 days since year end 2018.
At this time I'd like to update our 2019 fiscal year guidance levels, which we released in conjunction with our fourth quarter and year end 2018 results and amended after our first quarter financial results.
For total net revenue this quarter, we increased both the bottom end and the top end of our guidance levels by $50 million. So our new guidance. Our revised guidance range is $1.1 billion to 1 billion 150.
Million dollars.
For adjusted EBITDA, we increased the bottom.
End of our range and the top range of end of our range by $3 million.
So our new guidance range is $158 million to $168 million.
And we also increased our capital expenditure range by three men $3 million. So our new guidance range is 63 million to 68 million.
We chosen to leave our free cash flow generation guidance levels. The same at $45 billion to $55 billion as well as our cash interest expense, we've kept constant at $43 million to $48 million.
The strong financial performance of the first and second quarters has provided us the confidence to increase our 2019 full year guidance ranges for revenue and adjusted EBITDA.
The consistent organic growth and the contribution from recent acquisitions and health system joint ventures are causing us to exceed our initial 2019 projections and thus far.
We remain optimistic about the continuation of these trends through the end of the year and into 2020.
I'll now take a few minutes to give you an update on 2020 reimbursement and discuss what we know with regards to 2020 anticipated Medicare rates.
With respect to Medicare reimbursement, we recently received a matrix for proposed rates by CPT code, which is typical as part of the physician fee schedule proposal that is released about this time every year.
We have completed an initial analysis and compared those rates to 2019 rates.
We volume weighted our analysis using expected 2020 procedure volumes.
Our initial analysis shows that our Medicare rates for 2020, we will be essentially neutral relative to 2019 rates.
While there is a small negative impact from pricing our performance bonus under Mips, which is the merit based incentive payment system in 2020 based upon our measurement year or 2018 fully mitigate this impact.
For those of you who are less familiar with Mips CMS is required by law to implement a quality payment incentive program, which rewards value and outcomes.
Performance is measured in four areas quality improvement activities promoting interoperability and cost.
Radnets performance under maps with excellent providing us a bonus for 2020 reimbursement, whereas a poor performance could have resulted in a negative reimbursement impact.
We are obviously very pleased with the reimbursement outcome as reimbursement has at times been challenged in the past.
Of course, the proposed rates for the physician fee schedule, our subject to comment from the lobbying and industry groups and there is no assurance the financial rule to be released in the November 2019 timeframe will reflect these same proposed rates.
Whether or not the final rule in November timeframe is consistent with the proposed rates. We will continue to be focused on lowering our cost structure through using our scale and ability to drive efficiencies in our organization.
We will continue to seek pricing increases from private payers in regions, where we are essential to the healthcare delivery system, recognizing that our prices remain significantly discounted as compared to hospital settings.
We will also continue to pursue partnership opportunities with health systems, where we think these are <unk> arrangements could result in increased volumes and long term stable pricing from private payers.
Lastly, we will continue to acquire strategic targets at three to five times EBITDA in our core geographies.
That further our strength in local markets and achieve efficiencies with our existing operations.
I'd now like to turn the call back over to Dr., Berger, who will make some closing remarks.
Thank you Mark.
Before we move on to the question and answer portion of our call I'd like to emphasize why we believe it is such an exciting time to be in our industry and why the future looks very bright for diagnostic imaging.
First we remain a technology driven industry each year, there are new advances in equipment and related technologies, which open new applications for what we do and drive incremental patient volumes overtime.
Right radiology remains the key diagnostic tool for identifying most injuries and diseases.
Advances such as Threed breast imaging multi sleigh Cts scanning pits C T and now Palomar devices to name a few were unheard of 20 years ago and continue to push the envelope of diagnostic medicine.
We continue to believe that the requirement to invest and reinvest substantial capital expenditures into our centers represents a significant barrier to entry for others, particularly smaller less capitalized operators.
Second artificial intelligence, which I discussed earlier will have transformational impact on how we and other industry players do business in the new future.
Yeah, it promises to make our radiologists more productive and accurate.
Hey, I should also shortened scan times and report turnaround times.
Hey, I will refine business processes and in pick areas, such as marketing and revenue cycle.
Ultimately and might allow operators like ourselves.
To reduce overall costs.
Thereby materially impacting our margins.
Third our industry will continue to benefit from the migration of patients away from acute care settings in favour of ambulatory outpatient centers. This will continue to benefit patients and referring physicians and significantly address the rising cost of health care.
Patients prefer freestanding centers, because at their convenience and higher level of service.
Lastly, the diagnostic imaging industry remains fragmented and will benefit from the efficiencies that can be gained from sensible and methodical regional consolidation.
We intend for ran into continue to lead this charge in targeted geographies, we see an accelerating opportunities set for us to further penetrate and expand our regional networks and more aligned with health systems and insurance companies.
Operator, we're now ready for the question and answer portion of the call.
Thank you if you would like to ask a question at this time. Please press star one on your telephone keypad and if you are using a speakerphone. Please make sure that your mute function is turned off to allow your signal to reach our equipment.
Again that is star one is <unk> at this time.
Well pause for a moment to assemble the queue.
[noise].
And we'll go first to Brian Tanquilut of Jefferies.
Hey, good morning, guys, congratulations on a great quarter.
I guess my first question for Howard or Mark Your same store volume came in at 3.5% I think it's probably the highest I've seen in years.
So is there anything you would call out in terms of what the drivers were for.
That robust same store growth during the quarter and how do you think about the sustainability of that level of growth.
Good morning, Brian .
I think it comes predominantly from two places.
Number one as I mentioned in a.
Our opening remarks, the movement of patients from hospitals into outpatient centers, while it is slow.
I believe it is starting to pick up some pace.
We know that because our conversations with almost all of the commercial insurance payers are beginning to discuss more opportunities and methods by which we can help accelerate that growth.
In addition to that the joint venture partners, who we've more recently here, particularly in California.
Become.
Partnered with.
We are also helpful in moving patients from hospital to the freestanding centers along with the groups that are part of those health systems.
More referring more of their patients into the joint venture centers. The other part of it which I think is important it is to understand that the investment that we make in our equipment, particularly the newer equipment is allowing us to shorten scan times and increase the volume in our centers, which are challenged with backlogs in particular, when we look at the primary advanced imaging modalities am our CTP and pets Siti all have that have been significantly affected by new technology technological advances occurring with software.
And artificial intelligence that allows us to shorten scan times. We're also standardizing our protocols across all of our markets and using best practices to help shorten those scan times. So we have been able to achieve in many of our centers that are challenged with.
These higher volumes, reducing our scan times often by as much as 25 too.
33%, which results in more revenue.
Per unit time or per hour in our centers and is helping to drive that volume along with the new technologies that give us a wider range of applications. So.
I think those are the kind of tools that we're seeing out there that are primarily the driver in that I I do think this is sustainable because we have yet to see.
The full impact of hospital migration and the inflammation implementation of a new tools and techniques to reduce or scan times.
Awesome and then Mark I guess the question for you I mean, the strong same store and translate the good EBITDA growth, but as I look at the margin.
It's still down on a year over year is there anything to call out.
In terms of the Q2 margin performance.
Yes, sure so our arm.
You are right the aggregate revenue way up EBITDA aggregate up.
Margins compressed about 50 basis points here in the second quarter relative to last year and that's primarily the result of two acquisitions that we made.
On April 1st the acquisition of Kern Radiology, and then a another acquisition in long island called Zilka, where we acquired about $30 million of revenue to which in the quarter, we received from which in the quarter, we received very little EBITDA.
Because those were two almost asset deals that came on were very strategic to our that particular regions of Bakersfield.
Where we are now in the midst of consolidating Dickering radiology group with our existing operation there called trucks in radiology, that's going to take a quarter or two before we start seeing.
The.
The enhancement that we're expecting to get on the on the EBITDA side and then in terms of the Zika.
Operation that was very strategic tour on.
For another location, where we can send our HCP and long island lives and that we expect to turnaround as well. So we think theres actually some.
Potentially a significant improvement that we that we will get on our margin side by by getting the contribution for those that $30 million of revenue to look more like the rest of our business.
Got it and then.
One last question for me as I think about capitation, there was a sequential increase in obviously year over year as well.
Is this a good run rate to be thinking about for the rest of the year on capitation.
Yes, it is Brian .
The primary increase in that is coming from our new capitation contracts with the.
The subsidiary of emblem called the HCP advantage care physicians.
And in addition to that we are in the midst of discussing with all of our capitation.
Contracts pricing for the 2020.
Calendar year. So we're comfortable that that run rate is sustainable and probably should be growing also.
Got it actually Howard if I ever since I have you if I may add one more question.
Since you mentioned AI towards the end of your comments.
And I appreciate all the comments and how it helps the operationally, but in terms of monetization.
Of your asset.
The data that you are sitting on and the AI capabilities that you guys.
We have.
Hello, how are you thinking about the ability for radnet to monetize that going forward.
Yes, we are talking to.
A couple of companies that.
Neither will do data warehousing and use some of the.
Medical records or information that we have as part of an overall.
Availability and business to monetize at into the community.
I don't know is that will be a substantial part of revenue that will create much of.
Change in the overall company's performance, but more importantly will give us access to other people, who we single out that can help us.
The more operationally effective in adopting artificial intelligence inside the company My concern all along is and has been how commercial artificial intelligence and data storage can be from an enterprise standpoint.
I think that to the extent that it helps us.
With our margins by producing efficiencies.
More accuracy and potentially creating a competitive advantage to hospitals and other freestanding centers may be the biggest benefit should benefit of all of it from long term standpoint, So I think positioning the company in the artificial intelligence and data storage area will be critical but not so much from commercializing it as it will be for the internal consumption.
All right I appreciate that thank you.
Thank you Brian .
And again that is star one if you have a question at this time start when the signal well pause for a moment.
And our next question comes from Mitra Ramgopal of Sidoti.
Yes, Hi, good morning, first I was just wondering on the.
Nice same store numbers, we saw if you're starting to see any benefit at all from the insurers like United healthcare et cetera, and the shifting of more of these procedures away from the hospital outpatient.
Uh Huh Ninja.
I think we are I think it's a little too early to try to quantify that in greater detail.
You know part of what we believe that we're seeing is just.
A shift simply based on the competitive benefit that I believe we provide a as opposed to our other.
[noise] competitors in the freestanding market and I think that.
As I mentioned in some of my remarks here or the ability to change referral patterns in health care is generally a very slow one.
Even those hospital systems that are acquiring medical groups find it a slow process of trying to get those referring physicians to alter their referral patterns and I'm not just talking about imaging I'm talking about all the ambulatory services, but it is something that over a period of time I believe we will continue to benefit from the Radnet and it centers will benefit from so if you look at those forces. If you will inside health care in general and imaging in particular that drive volume.
The ones that have always been there, meaning you know increasing the population, which drives more imaging, an aging population, which drives more imaging and greater applications with new technology. The dimension that we're adding now is a more directed effort on the part of health plans and our and health systems.
Two into the lower cost more cost effective imaging centers, and it's hard to kind of peel back as to which of those is contributing.
Two the same store sales or organic growth, but in aggregate I expect all of those to continue to be a factor here with an additional acceleration coming from the last part that I just mentioned it. The other thing we're seeing and this is not unique to United Health members, but because there has been such a migration and accelerated migration to higher deductible health plans, you're seeing patients themselves you are being more aggressive in directing themselves to lower cost settings, and and as time goes by patients get more and more educated at as of the disparity between the pricing that they're seeing in the hospital versus the ambulatory centers and so we're seeing some of that acceleration.
And out of the hospitals in favor of our centers just because patients are getting more educated.
Okay, No that's great. Thanks for the color.
The other thing I wanted to follow up on a little is obviously as you continue you built a nice scale no on the JV side and.
As you look at further expansion or are you seeing heightened interest in terms of maybe hospital is now starting to approach you more just because of you are seeing the benefits.
The autos are getting working with you.
I think we're seeing that.
In California Weve.
Right up our efforts for joint ventures more so than.
Doing it on the East coast.
On the East Coast were already joint ventured with several major hospital systems, particularly in Maryland.
And in New Jersey, where we have the our WJ Barnabas joint venture so.
The likelihood of us seeing a lot of additional joint ventures in those markets.
It is probably.
You are going to be.
Disappointing and maybe a very very slow.
On the other hand here in California, where managed care and the.
The huge.
Geographic expanse that patients can come from.
Are getting more and more traction from our existing.
Joint venture partners, who are looking to expand all of those joint ventures and at least two or three other.
Large health systems here in California that were in active discussions with about.
Expanding new joint venture relationships with so I do expect that to continue and I think as that model itself proves successful like it already has it wouldnt surprise me if we start to hear interest maybe in other geographies that we're not currently in the market.
In in those particular markets. So I think it's a very good model for us in terms of long term security and stability and one that should provide us opportunities to.
Enhance the growth of the company, both organically and by acquiring more centers.
Okay.
Thanks again for that and then.
I know you'd mentioned in terms of the jvs, having conversations with them as it relates to.
That sort of price increases and I, just wondering what the reimbursement environment looks like and how comfortable you feel that you should be able to.
Get some.
Nice gains there.
In bars. This did you say.
Yes on the JV side, I think you'd mentioned you're going to be having a number of conversations in terms of contract renewals.
Looking to implement some price increases.
Yes that was it wasn't so much with the Indian joint ventures as it was reviewing our capitation contracts and looking at a.
Rebasing some of those contracts for 2020, so that's primarily a function of what goes on here in California.
Routinely on an annual basis, but which we are.
Accelerating and focusing more on for our 2020 at year end.
Okay. Thanks for clearing that up and then finally, obviously with the AI Division now I was just wondering if you think there are any yet.
Areas, where you think you need to get into to feel any or ready to make wrung out your offerings. So to speak I know you already have the Teleradiology breastlink no AI et cetera.
I'm not sure if there's anything else really for you to add near term.
Near term, probably nothing else I think though with the enormous opportunity there AI represents for US I think that there will be a major focus for us for the remainder of this year and moving into 2020, we've we've identified about a half a dozen companies who we'd like to partner with or maybe even ultimately invest in that I think can take some of the technologies that they've they're developing and continue to work on that I think will add substantial value to the company. So.
I believe that will be the focus for us for the remainder of this year and going into 2020 from an investing opportunity and.
Using the tools that I think are uniquely capable with artificial intelligence to.
Improve all of the processes by which we run this company.
Okay. Thanks, again for taking the questions.
Thanks, Matt Thanks Mitra.
And again Thats Star one if you have a question at this time, we'll go next to John Ransom of Raymond James.
Hey, one thing that you may have said this but I'm just struggling to remember is.
When you do your your hospital Jvs.
I know I know one of the big points for Radnet is that your much cheaper, but if we're thinking apples to apples. So let's say you have a center and.
You know.
Elyse suburb and then you do have another center with a hospital JV partner is it right to assume that may be that that rates a little bit different since the hospital was negotiating this right for you or is it essentially kind of the same commercial rate, whether or not it's a hospital partner or not or just.
That too simplistic the question.
I think that's a great question, John and good morning.
Sorry, actually I think we have information or from a historical standpoint that relationships with hospitals do help us with reimbursement in particular I'm, referring to our partnership with the R. WJ Barnabas health system, where with their health, we've actually been able to negotiate.
Jeffrey fee schedule, which is different from the published.
Peafiel.
Fee schedule for the physicians that is substantially better and where we get you know increases every year. So that's something that I think we've already demonstrated part of the benefit and to that end our partnership with.
And joint venture with our R.W.J. Barnabas continues to be budgeting exceed expectations. So we're very focused on new Jersey in particular in the expansion of that and.
What happens with that when we do new acquisitions.
We're able to get a rate lists.
From acquiring those centers and putting them under the joint venture fee schedule.
Which help us helps us significantly de leverage those transactions, we think ultimately that same opportunity exists here in California, and just because of the number of health systems that we're dealing with the opportunity to expand that.
And the population in California.
Excuse me.
Then we have there could wind up being a very significant opportunity for assembly here in California.
Which accounts for about 40% of the Companys overall revenues.
So just to be clear John though these are still outpatient rates that are substantially lower than.
What the hospitals surcharging in those markets. So their outpatient rates that are higher than what perhaps radnet would have been able to negotiate on its own using the leverage of the you know and strength of the health system that we're partnered with but there is still much closer to radnet rates than they are to or a hospital.
Alright, so second unless a completely unfair question, but.
If you had to guess.
Let's say you have.
100 people and I and our group medical plan.
Today, you know do you have any idea what percentage of those.
Even though that gosh, if I go to the freestanding center I'm going to save.
You know three x. ever going to the hospital I mean, it seems to me like those engagement efforts and that education effort as Phil.
First or second inning, but do you have any perspective on that and even with your own employees in your own health plan do you proactively reach out to them and say you know for certain scheduled procedures like outpatient surgery or imaging, it's <unk> or even a primary care as a heck of a lot cheaper to go here than it is to go to the hospital.
I think you're right I'm almost all accounts there John .
Patient and that that will be the first time. That's happened this year by the way that I've been right about [laughter] I'm already feeling better about thanks.
[laughter], you're going to say it was the first time today, but okay [laughter].
[laughter] patient engagement or what I think is more broadly referred to as consumerism is a complicated subject because.
There's still is a preponderance of patients who go where their doctor tells them to go I mean at the end of the day the ability for the average patient to make a decision that might be contrary to what he thinks their doctor recommends is something that we and the health plans have to fight against.
I think that their process.
Can be facilitated with plan design and education, but we work very hard with our referring physicians.
On to try to educate them what we're finding is that both the health plans and our health system partners are getting more and more engaged in that process, which in of itself will I think create a much bigger impact. Ultimately then the patient education side of it and we use other radiology business managers on the East Coast. For example that have programs that they called Smart choice, where they indeed on behalf of the health plan field calls from the patients because they do the pre authorization and in their process. They will attempt to try to switch a patient who they know has been referred to a hospital to a lower cost freestanding facility and while they have had.
Some success in doing that.
It's a very slow process and one that has been in some respects disappointing so.
With armed with that information, we go back to the health plans and say you know we have to start that process is not so much at the patient level, but at the referring physician level and and with some health plan design changes and the conversations that we're having today are unlike those that we've ever had in the past and while it's still slow I do believe that that will be the primary methodology by which that transformation or transition will occur.
So what do you guys see with your out what do you guys see with your own employees in that respect, yes, yes, I was going to comment on that so, whereas where a big enough company, where we're self insured for our health plan, yet and we have created narrower networks to try to drive our employees into specific locations, depending upon what specialty for instance for imaging.
He as you might guess Radnet is the exclusive provider of imaging services to the Radnet health plan and and so we are essentially at out of the Blue Shield network. We've narrowed the network to include only Radnet centers. We've done we've chosen and outpatient laboratory to do the same thing where we're getting a very low low pricing and we were using services like teladoc and others that are you know that that are in network that we've negotiated a carve out in you know in our benefit plan with with our Blue Shield network to try to try to narrow the network. Yes, we're limiting choice we are.
But where we're providing value.
For for our employees and lowering the cost so I think more and more large self insured employers are willing to let you know that narrow choice in favor of being able to provide lower premiums and lower cost is borne by the actual employer for providing health care and I think thats the future.
Sure Okay.
And just.
Lastly from me always ask this question and I don't expect to answer changes every 90 days, but.
You know it is the M&A, Oh, I'm, sorry wrong question.
Mark I think you've mentioned to me before.
Capacity utilization starting to become a little bit of a constrain on your same store growth.
So just you know practically speaking how much more volume can you squeeze out of your same store imaging centers as you sit today.
Well I'm going to take that one instead of Mark John and that was partly the focus I had on artificial intelligence and other processes, one that I called a protocol optimization that we're working on very diligently about three years ago four years ago, we hired a radiologist, who probably is from a technological standpoint.
Maybe the most sophisticated in the entire industry and his sole focus is to work with our centers, our radiology groups and with management in purchasing of new equipment, and then implementing protocols and were finding.
Steve mutual benefit from those efforts here that will allow us to add additional revenue and slots for imaging in those centers that are challenged with volumes.
And this is something that we expect to do in every modality that we're currently performing in our centers. So that's why I put as much emphasis I did on artificial intelligence and other technological advances.
Not being so much for us.
Commercial opportunity, but an internal opportunity to drive revenue and when you think that.
In the past the average scan time for an MRC by has been about a half hour. So that we're able to do maybe about two patients an hour. We've now reduced that in the majority of our centers down to about 20 minutes, so picking up one extra scan per hour.
Can be a substantial influence.
In our in our business performance here, if we have that demand to fill those slots in many of our centers we do so.
That's a key takeaway I think from the earnings call here that I I want to reemphasize and thank you for asking that question.
Okay. That's it for me thank you.
And with no further questions in the queue I'd like to turn it back for any additional or closing remarks.
Thank you operator.
Hmm again, I would like to take this opportunity to thank all of our shareholders for their continued support and the employees of Radnet for their dedication and hard work management will continue its endeavor to be a market leader that provides great services with an appropriate return on investment for all stakeholders.
Thank you for your time today, and I look forward to our next call.
And again this does conclude today's conference ladies and gentlemen, we appreciate everyone's participation today and you may now disconnect.