The tough credit market could force hospitals to cut down on spending for diagnostic equipment, which makes Lake Forest-based InSight Health Corp.’s chief executive excited.
InSight, which provides medical scanning services to hospitals that don’t have expensive internal departments, could benefit from outsourcing of diagnostic tests, according to Kip Hallman, InSight’s chief executive.
“It is, we think, a great opportunity,” said Hallman, who took the top spot at InSight in April. “We expect that part of our business to benefit from this (economic) turmoil. We think growth will be significant because of the challenges hospitals are facing.”
Hospitals aren’t really impacted by recessions,they serve patients in need of treatment regardless of the economy.
But there’s a twist with this recession: The financial crisis has made borrowing more costly for hospitals. That could prompt some to put off buying equipment or shed some operations.
In recent years, hospitals have eyed medical scanning as a way to make money. Many have taken on scanning services themselves, instead of contracting for them with InSight and other providers, including Newport Beach-based Alliance Imaging Inc.
But some may have found the business isn’t what they thought it would be as the federal Medicare health program for the elderly and poor has cut reimbursements for scanning.
A projected outsourcing trend comes at a good time for Insight, which emerged from bankruptcy protection last year and has been in a rebuilding mode since.
The company’s hospital services group provides mobile scanners and runs standalone imaging departments at hospitals. Services include computed tomography scans and positron emission tomography scans.
Hallman said people “can’t really put off” PET scans, which are used to detect cancer, or MRI and CT scans, which are used to detect brain and spinal problems.
InSight’s customers include Los Angeles County, which recently signed another 10-year contract with InSight as its imaging provider for its teaching hospitals, including Harbor-UCLA Medical Center.
Hallman, previously InSight’s chief operating officer, succeeded Bret Jorgensen, who led the company through its reorganization. InSight got out of bankruptcy by trading 90% of its common stock to bondholders, who in turn forgave $195 million of debt due in 2011.
InSight still has about $300 million worth of bonds on its books that it refinanced earlier this year. The company has three years before it has to address that debt and now is generating enough cash to pay interest on it, according to Hallman.
InSight paid about $7.9 million in interest in the three months ended September, down from $9.2 million a year earlier.
InSight now has $38 million in cash and an unused $28 million line of credit.
“I think we’re very, very well positioned to grow our hospital services business,” Hallman said.
Changes are under way for InSight’s imaging centers, which grew quickly through several acquisitions. InSight has sold about 15 centers in remote markets and plans to sell some more in the next few months, according to Hallman.
“The company had grown by acquisition over a number of years and was spread out too thin in some areas,” Hallman said.
InSight plans to buy imaging centers to create what Hallman calls “densely clustered” core markets such as Phoenix, the upper East Coast, Ohio and Northern California.
“I don’t think that it’s important for us or any other imaging company to be a ‘national provider,'” Hallman said. “The benefits to scale at a national level just aren’t that significant.”
Challenges Remain
InSight still faces challenges. The company, which trades on the low-profile Bulletin Board exchange with a recent market value of about $430,000, lost $7.3 million on a 7% revenue slide to $67.8 million in the three months through September.
InSight doesn’t plan to seek a listing on a higher-profile stock exchange, Hallman said.
“I feel like we don’t need (the listing) right now,” he said.
A Securities and Exchange Commission filing shows that Connecticut investor James Bennett, either directly or through funds controlled by him, owns 46% of InSight.
No analysts follow the company.
InSight didn’t plan to be a public company after the bankruptcy. But former chief executive Jorgensen said in 2007 that going public was a way to get its bankruptcy reorganization done without having to compensate some executives.
Also, some of InSight’s bondholders wanted the company to be publicly traded, Jorgensen said.
InSight had been taken private back in 2001 by J.W. Childs Associates LP of Bos-ton and the Halifax Group LLC of Washington, D.C. Childs now owns 8% of InSight.
