The Diagnostic Imaging Services industry is a vital component of the healthcare sector. Diagnostic imaging involves the use of non-invasive procedures to generate representations of internal anatomy and function that can be recorded on film or digitized for display on a video monitor. Diagnostic imaging procedures facilitate the early diagnosis and treatment of diseases and disorders and may reduce unnecessary invasive procedures, often minimizing the cost and amount of care for patients. Diagnostic imaging procedures include MRI, CT, PET, nuclear medicine, ultrasound, mammography, X-ray and fluoroscopy.
The imaging market in the United States is estimated to generate more than $100 billion annually with radiology practices and imaging centers accounting for approximately $19 billion in annual revenue. The imaging market is highly competitive, consisting of owner-operator radiologists, freestanding outpatient diagnostic imaging centers and hospitals. There are estimated to be more than 6,000 freestanding outpatient diagnostic imaging centers in the United States. The landscape in the diagnostic imaging space is highly fragmented with the top 100 practices representing less than 20% of the total market.
Radiology exams can be performed at a hospital’s main radiology department or in an outpatient setting, including hospital outpatient departments, physician offices or independent diagnostic testing facilities. Of late, the industry is witnessing a broad shift of procedure volumes from the hospital setting to the outpatient centers. Outpatient diagnostic imaging is generally more cost-efficient compared to imaging performed in the traditional inpatient or on-campus hospital setting. This dynamic, combined with the convenience of outpatient care for patients (patients prefer outpatient settings), will result in outpatient imaging growth outpacing the overall radiology market. The gap in pricing between traditional hospital in-patient facilities and freestanding outpatient facilities has been a significant area of focus for government and third-party payors. In an effort to curtail costs, CMS and commercial payors have adopted over time a number of policies to drive price-transparent, site-neutral reimbursements for advanced outpatient imaging procedures, and steerage to lower-cost, outpatient entities. Payors have also increased requirements for pre-authorization of advanced diagnostic procedures in an effort to ensure the medical necessity of those procedures. These trends are expected to drive procedure volume toward outpatient settings, both freestanding and hospital-outpatient. Currently, approximately 40 percent of imaging volume is performed at outpatient imaging centers and physician clinics, while the remaining 60 percent is conducted within hospitals.
Demand Drivers and M&A Trends
The diagnostic imaging industry is relatively recession resistant and has strong growth potential. Factors such as an aging population, growing disease prevalence, increasing consumer awareness regarding preventive diagnostic screening, and advancements in technology will continue to drive industry growth. Growing demand for imaging in an outpatient setting is also likely to drive volumes for the industry.
Mergers and acquisitions (M&A) in the industry has been gaining momentum over the past decade. The fragmented nature of the industry, benefits of scale and the growth of value-based payment models are some of the key factors driving consolidation in the industry. Hospitals, publicly traded operators and large private equity-backed organizations are the most active acquirers in the market. Key players in the industry include publicly traded players such as RadNet, Inc. (RDNT) (357 imaging centers) and Akumin, Inc. (AKMN) (180 imaging centers).
According to public transactions data obtained from Scope Research, the average EV/EBITDA multiple is 6.70x and the median multiple is 5.59x. Overall, EBITDA margins for diagnostic imaging centers have hovered around 22%.
 RadNet, Inc., “Annual Report – 10K 2022”, www.sec.gov
 Tmcconnell. “2021 Outlook: Diagnostic Imaging Centers and Radiology Practices.” HealthCare Appraisers, 3 May 2021, https://healthcareappraisers.com/2021-outlook-diagnostic-imaging-centers-and-radiology-practices/.
 Akumin, Inc., “Annual Report – 10K 2022”, www.sec.gov