Woman Radiologist Viewing Xray on Screen

Private equity’s interest in radiology is growing for many of the same reasons that once pushed emergency care and anesthesia into the limelight.

Preparing for transition

Why Private Equity Likes Radiology

  • 9/24/2019

With the passage of the Affordable Care Act in 2010, private equity activity involving hospitals and contract-based specialty practices began to increase significantly. Early on, much of this activity involved emergency medicine, leading to the development of several practice consolidators. Anesthesia followed as the next top specialty focus area for consolidators and private equity firms.

Ironically, while radiology has long been viewed as a leading field for adopting new technologies and practices, it has lagged behind emergency medicine and anesthesia when it comes to private equity activity. But that appears to be changing now.

Radiology groups lean into partnerships

Radiology is a highly fragmented $18 billion-plus industry. In today’s health care environment, imaging is increasingly becoming more critical to improving the overall quality of care, including for care coordination, utilization management, and big data.

As reimbursement continues to shift from volume to value, hospital consolidation continues, and technology and infrastructure needs increase. More and more independent radiology groups are determining that they need to partner in order to prosper — and in some cases, to survive.

Core market drivers that make radiology appealing to private equity include:

  • Market size
  • Highly fragmented market
  • Favorable demographics (i.e., aging population)
  • Increasing technology costs
  • Need for improved back-office operations
  • Increasingly central role in population health management
  • Importance of scale for success

Private equity groups recognize the tremendous opportunity to scale this business model, and there are many groups that can act as platform investments to regional or national providers. In fact, the largest independent radiology groups in the country are continuing to grow. Radiology Business reported in its 2018 Top 100 listing that the number of groups with 65 or more full-time-equivalent (FTE) radiologists grew to 25 in 2018 from just eight in 2009. The average number of FTEs in the top 10 groups increased from 100 in 2015 to 124 in 2018.

In addition, there are a tremendous number of add-on opportunities. The Radiology Business 2018 ranking showed that the top 50 groups nationally had a combined 3,794 radiologist FTEs — only 11.5 percent more than the 33,000 estimated.

Specific factors drive radiology interest

Several factors that make private equity attractive to radiology groups include:

Physician leadership — Quality of care is the most critical factor when deciding to partner. Unlike hospitals, when private equity acquires a radiology group, they often retain control over things like care protocols, hospital relationships, scheduling, and other patient-centered activities.

Increasing technology needs — Compared with other specialties, radiology requires much higher technology capital expenditures. Faced with increasing costs, many groups recognize that their future compensation may likely decrease.

Largest Independent Radiology Groups Continue to Grow


Shifting radiologist demographics
— As baby boomers age, a large number of retirements are expected in the coming years. These retirees are often being replaced by younger radiologists who are less interested in running the business side of a practice.

Personal liquidity — Often a radiologist’s largest personal asset is the value of his practice. By selling the practice to a private equity firm, the radiologist can better diversify his personal portfolio and mitigate risk.

Long-term gain — Almost every private equity transaction will require the radiologist to roll over part of their equity. However, it allows the radiologist to participate in potential gains when the private equity group exits its position in five to seven years.

How we can help

This radiology trend is expected to continue for several years. At CLA, we monitor new developments in the health care industry so that you can make educated decisions for the future.

This article was adapted from versions that originally appeared in the Association for Corporate Growth’s (ACG) Middle Market Growth publication and the Radiology Business Management Association (RBMA) Bulletin.