Smart Choice MRI Receives $3M from ThedaCare for Midwest Expansion

Merging with a rival often makes a lot of business sense. Investing in a company that provides competing services, by contrast, may require more explanation.

Today, most magnetic resonance imaging scans are done at hospitals. But they’re being challenged by companies like Mequon, WI-based Smart Choice MRI, which charges patients a flat $600 rate for scans—less than what hospitals typically charge. When CEO Rick Anderson was contacted by a leader at ThedaCare, a network of hospitals and clinics based in Appleton, WI—where Smart Choice opened an imaging center in July—he feared the worst.

“When I first got the call, I thought, ‘uh-oh,’” Anderson says. “I thought, ‘We’re building a clinic in Appleton. This can’t go well because this is the big 800-pound gorilla in Northeast Wisconsin and they obviously heard we’re coming.’”

But Anderson says that a couple of interactions with ThedaCare were all it took to assuage his concerns. Indeed, relations between the two groups now appear to be congenial—this week, the health system announced it invested $3 million in Smart Choice, which Anderson says will help fuel its planned expansion into neighboring states.

Anderson says ThedaCare now owns a 10 percent stake in Smart Choice, meaning its pre-money valuation was $30 million. He says the company has raised more than $10 million in total, and that it could raise even more in the coming months.

ThedaCare chief information officer Keith Livingston has joined Smart Choice’s board of directors as part of the deal, Anderson says.

Smart Choice prefers to build near commercial centers, not medical centers. That means that rather than competing against hospital MRIs, like those of ThedaCare, Smart Choice adds choice to a growing market for imaging services, Anderson says.

“We are where people are,” he says. “For us, the typical consumer goes to Target, crosses the parking lot to get an MRI, grabs their dry cleaning and a sandwich at Subway and goes back to work.”

Smart Choice currently operates six imaging centers in Wisconsin, Anderson says, and the company plans to open 13 more this year: nine in the Chicago area—starting with Schaumburg, IL, next week—and four in the Twin Cities.

Anderson says his company is able to start scanning patients at a new location within 60 days of signing a lease. The MRI machine in each imaging center comes from GE Healthcare, which Anderson says has been “inspired and challenged” in the effort to keep up with the breakneck pace Smart Choice favors.

Where, one might ask, is the fire?

Anderson says the urgency reflects Smart Choice’s desire to make the wait for an alternative to getting MRIs at the hospital as brief as possible. That’s much more of a concern than, say, new entrants to the industry, he says.

“You don’t see a lot of people moving into this space, trying to do what we’re doing,” Anderson says. “GE themselves has said that there’s no one in this space that does anything near what we do in terms of a fair, transparent pricing model.”

Anderson might be correct that there aren’t many early-stage imaging center chains that have gained significant traction, but Smart Choice isn’t the only company seizing the MRI market opportunity.

Los Angeles-based Radnet (NASDAQ: RDNT), for example, operates 297 locations, all of them in coastal states. That’s according to the company’s website, which has scant pricing information beyond a claim that Radnet’s imaging services are up to 40 percent cheaper than those performed at hospitals.

In 2014, the California-based radio station KQED reported that one of its contributors was charged $1,660 for an MRI at a Radnet location in San Francisco.

Anderson says that if Smart Choice were to expand beyond the Midwest, two … Next Page »

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Jeff Buchanan is the editor of Xconomy Wisconsin. Email: jbuchanan@xconomy.com Follow @_jeffbuchanan

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