Medical scanning companies Alliance Healthcare Services Inc. and InSight Health Services Holdings Corp. both call Orange County home. The similarities end there.
Newport Beach-based Alliance, the larger of the pair, is seeking to grow through diversification by getting into cancer screening and treatment services.
Lake Forest-based InSight is staying the course, looking to its mainstay business of scanning for growth, with some tweaks here and there.
Both companies run scanning centers and mobile units that provide what essentially are elaborate, detailed X-rays for hospitals and doctors.
They offer positron emission tomography scans, which are used to detect cancer, and magnetic resonance imaging and computed tomography to detect brain and spinal problems.
Customers include hospitals, doctors, insurers and government healthcare plans.
In the past two years, Alliance has expanded into cancer treatment services to lessen its reliance on scanning, where there’s a constant threat of government funding cuts.
Alliance now has 23 cancer centers and is “about on track” with its goals, Chief Executive Paul Viviano said.
The company aims to see cancer services make up $100 million in yearly sales, or about 20% of its business in the next two years, according to Viviano.
InSight is staying closer to home in its bid for growth.
For starters, it’s been shedding weaker scanning centers by selling 10 in California as well as stakes in joint ventures in Ohio and New York. InSight also closed a California center.
In April, InSight bought two imaging centers in the Boston area.
The company plans to buy imaging centers to create “densely clustered” markets around the country, Chief Executive Kip Hallman said.
Like Alliance, InSight also is seeking to take over scanning operations for hospitals that got into the business seeking profits but no longer want the expense of running them.
“We think growth will be significant because of the challenges hospitals are facing,” Hallman said.
The different backgrounds of Alliance and InSight are behind their divergent strategies.
Alliance is a sizable public company with pressure for growth from shareholders and analysts. The company had a recent market value of $385 million with its shares off by about half from their latest peak in September.
“It’s really been a testament to Viviano that he’s been able to find other growth opportunities in a company whose core business was and continues to be in sort of a steady decline,” said Rob Mains, a New York-based analyst with Memphis brokerage Morgan Keegan & Co.
Alliance’s first-quarter revenue rose 11% from a year earlier to $132 million. Profits before taxes and other items were up 10% to $47.8 million.
InSight isn’t under the same kind of pressure as Alliance.
It’s publicly traded, but only sort of. InSight became public as a way to complete its bankruptcy reorganization in 2007. But its shares are lightly traded on the low-profile over-the-counter Bulletin Board exchange with no analyst coverage.
Its shares had an exaggeratedly low market value of $2 million last week.
InSight remains disinterested in pursuing a higher-profile stock listing.
“Frankly, I’m just not focused right now on Wall Street,” Hallman said. “We’re really focused on our business and executing what we need to here.”
InSight’s low profile gives it cover to pursue its strategy.
The company’s revenue for the three months ended in March fell 18% to $53.5 million because of a combination of selling underperforming scanning centers, reimbursement drops from mobile customers and fewer accounts served.
Profits before taxes and other items grew 48% to $8.5 million.
Shares of Alliance and other healthcare service companies are being impacted by the prospect of healthcare reform from President Obama, analyst Mains said.
“There’s uncertainty, and investors don’t like uncertainty, particularly at a time when the economy looks like it might be recovering,” he said.
Emerging healthcare reform could open up more chances to sell scanning services to hospitals in the long term as they struggle with the effects of reimbursement changes, InSight’s Hallman said.
Debt is a factor for Alliance and InSight.
Alliance had $666 million in debt at the end of March. Down the road, the company plans to restructure a bank loan due at the end of 2011 and bonds due in 2012, according to Viviano.
Like just about anyone refinancing these days, Alliance faces a higher interest rate than the 7% it’s now paying.
Alliance has a “BB-” Standard & Poor’s credit rating, which is the top-tier of non-investment grade, or junk, status.
Viviano downplayed debt concerns.
“We’re not viewed as overleveraged,” he said.
InSight has its share of debt at $290 million as of March 31. But the company eliminated $195 million of debt through its bankruptcy, in which it traded most of its shares to lenders.
“Less debt is good,” Hallman said.
Both companies face a perpetual issue of shifting government funding of medical scans.
Earlier this month, the Medicare Payment Advisory Commission, which advises lawmakers on the federal health program for the elderly and disabled, said use of scans to diagnose cancer, heart problems and other conditions is growing twice as fast as other types of healthcare and called for limits on reimbursements.
Medicare makes up a small part of the healthcare market but insurers and others follow the program’s guidelines on reimbursement.
The industry’s gearing up to fight back. Viviano said a trade group that he chairs, the Washington, D.C.-based Association for Quality Imaging, is advocating against any Medicare cuts.
The industry is “feeling plenty of pressure,” Viviano said, but less than bigger Medicare cost drivers such as hospitals, drugs, Medicare HMOs and doctor payments.
The ever present threat of cuts is what led Alliance into cancer treatment.
The company has made acquisitions in the past two years of centers that provide chemotherapy and other cancer treatments.
The market is growing with an aging population and advancing technology, according to analyst Mains.
And, just as hospitals are outsourcing scanning services, they also could look to others to take over their cancer treatment centers, he said.
