RadNet, Inc. Common Stock Morgan Stanley 24th Annual Global Healthcare Conference

Thank you all for attending. I'm Chris Bruson, managing director here at Morgan Stanley, and I'm joined today by Mark and Greg. Maybe I'll pass it to you for quick intros on your end.

Sure. Mark Stolper, chief financial officer of RadNet. Been with RadNet, this is my 23rd year in the same seat.

Yeah, exactly. Greg Sorensen. What a great thing. I'm the chief strategy officer. I've only been with RadNet here six and a half years, so the youngster on the team. But Chris, we're looking forward to the conversation. Thanks for having us. Excellent.

So I want to start with the competitive landscape in radiology. Given your scale, can you provide a little perspective on the opportunity for further industry consolidation?

Sure. I'll start. One of the interesting things about the diagnostic imaging industry is that it remains highly fragmented. When you look at other areas of healthcare services, like dialysis or clinical laboratory, home health systems, there's been a lot of consolidation, and our industry really is sort of the Wild West. If you take the top five players, of which we're the largest outpatient player in diagnostic imaging, we own less than 20% of the market. It's believed that there's somewhere north of 6,000 outpatient diagnostic imaging centers in the U.S. We're the largest player by a factor of almost 2 to the next player, and we have 445 centers. A lot of room for continued growth and consolidation, which we believe will happen over the coming years.

I would say, it's interesting, this is an industry where, at least we're seeing in our hands, scale really does make a difference. Especially, I think everybody who has IT at the core of what they're doing realizes that once you have scale, all those investments really start to pay off in a way that is difficult for the single or kind of smaller chains. I think there's going to be even more pressure in the future for consolidation to happen.

Yeah, that's a good point. I mean, most of the centers out there are owned by mom-and-pop radiologist-owned facilities who don't have the benefits of scale in revenue cycle, billing and collecting, equipment purchasing, equipment service, up and down the cost structure. Like other areas of healthcare services, scale matters, particularly in an arena where there's a shortage of labor and labor is continuing to be more expensive.

Yep. I want to expand on that point a little bit about when we think about kind of white space in the radiology market, what is reimbursement like in the market, and how can that help to impact incremental growth? When we think about that too, some of the efficiencies from a clinical staffing model that you kind of hit on.

Sure. Well, when you talk about reimbursement, you really have to have a bifurcated discussion between government reimbursement and private pay or commercial insurance. The Medicare reimbursement has been fairly stable over the last few years in our industry. I think CMS recognizes the importance of diagnostic imaging as a gateway to the broader healthcare delivery system. They also recognize on the outpatient side, meaning the Physician Fee Schedule, that they want to move as much of this business out of the hospitals to the lower cost sites of care, so there's been stability in the Medicare reimbursement side. This year, meaning 2026, we had a slight increase. Next year, it's about a net neutral for us. Unfortunately with CMS, and with our government, we can't count on increases going forward in our industry to deal with the rising costs of doing business.

On the commercial side of our business, however, that's where we have a focus, and that's where we've got some greater ability to impact or affect reimbursement. We learned early on in the company's history, over 30 years ago, that it was extremely important to have concentration on a regional basis because that gives you a seat at the table with negotiating rates with the commercial insurance companies, because if you can prove to them that you're indispensable to their provider network, and if you were to not come to an agreement on pricing, that that would create both access issues and quality issues, and the volume that you would no longer be doing for them would end up going back into the much more expensive hospitals. They have to deal with you.

They have to come to an agreement. So we've been pretty effective as we've grown our concentrations on both the East Coast and the West Coast, in negotiating increases each year to our commercial book of business, which has been extremely important and very valuable in our ability to absorb the inflationary aspects of doing business today and growing our book of business.

I would just add, Chris, I think one of the biggest sort of rumors or sort of news items in the government reimbursement is the Trump administration's chatter about site-neutral payments. This has been something that's been talked about for at least a decade, maybe two decades more because if you look at your radiology spend, which for many payers is a substantial part of their spend, they can't help but notice that RadNet's rates are a fraction of what an inpatient or HOPD rate is, and that drives them nuts. This is an area where the commercial payers have actually been in the lead, so you've seen some of the bigger payers really put incentives to try to get to the imaging services to lower site's cost of care, like ours.

We are also seeing that pressure, hence opening centers in Walmart and other kind of. We are trying to get our cost down. If the Trump administration were to be successful in that, I think that would be a major disruption in the industry. We see it as a major potential tailwind positive for us because we have learned how to image at a low cost Yeah in a sustainable, scalable way.

Most of my former colleagues that were at big AMCs, academic medical centers, don't have that cost discipline. It is just not part of their DNA. If imaging services were cut in half, reimbursement or a quarter down to our levels, I think they would just close. I don't think they could afford to staff and provide the service at the level of let's call it relative inefficiency compared to the outpatient, more nimble market. That is a big unknown right now.