MICA Fights to Preserve Its Images : Medicine: Aside from near-term losses, the company must cope with industry trends that are sure to shape its future.
Medical Imaging Centers of America’s recent disclosure that it expects to report a pretax loss for both its third and fourth quarters had a precipitate effect on the company’s stock: The shares lost nearly half their value in the first trading day after the announcement, falling to $5 each.
New MICA President Michael Jeub said the company will lay off 40 employees, or 8% of its work force, in a major restructuring over the coming months. MICA shares slipped $.125 on Monday to close at $4.875 in over-the-counter trading.
But Medical Imaging Centers of America is facing more than near-term losses and restructuring costs. MICA is confronting industry trends that are certain to have a substantial impact on the company’s future, including federal legislation that, if passed, could restrict or limit payments to certain providers of medical services such as those offered by MICA.
MICA is also facing increasingly stiff competition from companies that have been drawn by the high profits earned by MICA and other medical imaging providers.
MICA provides magnetic resonance imaging, CAT (computerized axial tomography) scans, ultrasound testing and other services at 300 hospitals and clinics in 35 states, as well as at 17 stand-alone imaging centers. The company has been one of the state’s fastest-growing, most profitable public companies over the past two years. Fiscal 1990 revenues were $78.3 million, nearly double those of 1989. Profits jumped to $6.2 million from $4 million.
The company has ridden the enormous growth in popularity of MRI and CAT scans as diagnostic tools for physicians. MRIs and CAT scans pick up signs of a disease or injury that traditional X-rays miss. Thus far at least, government and private insurers have been happy to pay the steep fees--typically ranging from $600 to $900 per procedure--reasoning that the technology assists a doctor in making an earlier diagnosis and results in lower overall medical costs.
Meanwhile, outside providers of imaging services, such as MICA, have benefited because many hospitals and clinics prefer to contract with them to install and staff the machines, relieving them of the financial risk and burden.
But there have been widespread abuses and over-referrals of MRIs, particularly by doctors who own a financial interest in the imaging equipment, said Perry Plumart, a spokesman for U.S. Rep. Pete Stark (D-Oakland), chairman of the House subcommittee on health, which oversees Medicare.
A significant percentage of magnetic resonance imaging equipment in the United States has been purchased by limited partnerships that include physician investors. Too many of the doctor-owners are succumbing to the temptation of pecuniary gain that comes from ordering tests for their patients using their machines, Plumart said.
The easy and substantial reimbursements available from government and private insurers have encouraged physicians to over-refer patients to the point that more MRI tests were conducted in Los Angeles last year than in all of Europe, Plumart said.
Although the machines are used mostly for valid medical purposes, too many physicians react in knee-jerk fashion to patients’ sore elbows, tummy aches and double vision by sending them for an MRI, critics say.
Stark’s subcommittee will begin hearings Oct. 17 to review a recently completed study by the state of Florida that found “massive abuses” and over-referrals involving MRI and CAT scans.
Legislation proposed by Stark would prohibit doctors from referring Medicare patients for MRIs, CAT scans and ultrasound tests at facilities in which the doctors own a financial interest.
No one is accusing MICA of impropriety, however. In fact, the company has positioned itself for the most part as an outside provider. Over the long term, the company could even benefit from a Stark bill, since hospitals and clinics would be more inclined to contract with MICA to avoid the potential for self-referrals.
But the company is also partly at risk if the Stark bill passes, since it is involved in MRI and CAT scan joint ventures with various doctor groups that now generate about 12% of MICA’s revenues, Jeub said. If Stark’s legislation prohibits doctor “self-referrals,” those revenues could dry up.
Jeub said Friday that the company has already begun offering to buy out its doctor partners at those facilities so the MICA centers affected could still take patients and qualify for the Medicare reimbursements. It was not clear Monday what the cost of such buyouts would be to MICA.
“I don’t think Stark is going to affect their business that much, and the reason is that most of their business is not done with (machines in) physician ownership,” said Paul Brown, a health care securities analyst with Volpe, Welty & Co. in San Francisco. “Most of MICA’s ownerships come from contracts they sign directly with hospitals.”
MICA and other providers, however, could suffer from the chilling effect on MRI use that the public hearings and a Stark bill could create, an effect that could lead to reduced reimbursements from insurers.
The company is also facing a stiffer competitive climate because of the enormous growth in installations of MRI and CAT scan machines nationwide.
