S&P has a certain reputation in the field of financial studies. It recently published an outlook for one of the fastest-growing imaging industry laterals. However, it also considered the risks associated with the radiology sector due to intense consolidation activities.
Standard & Poor shared the outlook after the completion of US Radiology Specialists’ largest acquisitions to date. USRS’s improved business variety associated with an emphasis on outpatient settings and better bottom line supported by the recent high margin acquisitions remain the two reasons behind S&P’s optimism.
The Analysts’ Findings
Another highlight was USRS’s financial stability in association with the flow of solid operating cash. Analysts further expressed their expectations about retention of this stability subject to a moderate level of acquisitions activities. However, they did not exclude the possibility of enhanced risks consequent upon the high rate of M&A activities in the concerned industry.
In its report, published on 16th Feb, S&P clarified that the radiology sector has an increasing tendency for aggressive acquisition activities for its fragmented business nature and sector-specific consolidations. Therefore, this sector can go beyond its natural capacity to withstand higher credit metrics while pursuing acquisitions.
Before taxes, interests, amortizations, and depreciations, USRS’s income margin went up by 23% on Sep, 30. This amount is almost 17% of the 2019 sum. Experts attributed this surge to improved scale and better management of the revenue cycle over the last four years. According to S&P, integration costs, and wage inflation due to national staffing shortage neutralized some part of this gain.
USRS and Its Growth
USRS came into existence in the year 2018. It has grown fast ever since its inception. In 2022, it registered a revenue expansion of almost $860 million which was nearly a fivefold expansion. According to analysts, this expansion will continue for imaging firms. They further mentioned that expansion will ultimately benefit the providers in negotiating with payers.
However, they also highlighted the integrated costs and risks involved with this process. Data showed that 69% of the revenue can be attributed to commercial payers alone, and 99% of these contracts are in-network. The analysis further explained that 80% of the business done by the company involves outpatient settings, which is a favorable component as payers get billed on a global scale.
Expert analysts David Peknay and Richa Deval threw more light on the issue. According to this duo, the company offers integrated services clubbing outpatient imaging and other radiology services for physicians in many markets. Such integrated services always benefit the company in more ways than one.
The Limitations
However, despite the extraordinary revenue growth, the company enjoys a restricted credit rating. According to the experts, limited emphasis on radiology services, risk of unfavorable reimbursement changes, and the company’s short history under its present ownership are three primary reasons for the low rating.
Medicare has been one of the important contributors to the company’s revenue (20%). However, in the recent past, Medicare has experienced reimbursement cuts. Nevertheless, the outpatient settings worked as insulation against these alterations.
The analysts further noted that USRS’s cost structure includes a considerable portion of the physicians’ payments. This should compensate for the reimbursement cut margins to some extent. They further mentioned that USRS has a unique ability to generate organic growth (revenue) consequent upon new contracts and mild rate increments.
They also pointed to USRS’ volume growth due to patient volume shift to outpatient centers as a possible way of offsetting the rate cuts to some extent.
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