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RadNet Inc (RDNT) Q2 2019 Earnings Call Transcript

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RadNet Inc (NASDAQ: RDNT)
Q2 2019 Earnings Call
Aug 8, 2019, 10:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day and welcome to the RadNet Inc second Quarter 2019 financial results conference call. Today's call is being recorded.

At this time, I'd like to turn the call over to Mr. Mark Stolper, Executive Vice President and Chief Financial Officer of RadNet Inc. Please go ahead, sir.

Mark D. Stolper -- Executive Vice President and Chief Financial Officer

Thank you. Good morning, ladies and gentlemen, and thank you for joining Dr. Howard Berger and me today, to discuss RadNet's second quarter 2019 financial results.

Before we begin today, we'd like to remind everyone of the safe harbor statement under the Private Securities Litigation Reform Act of 1995. This presentation contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Specifically, statements concerning anticipated future financial and operating performance RadNet's ability to continue to grow the business by generating patient referrals and contracts with radiology practices recruiting and retaining technologists, receiving third-party reimbursement for diagnostic imaging services, successfully integrating acquired operations, generating revenue and adjusted EBITDA for the acquired operations as estimated among others are forward-looking statements within the meaning of the safe harbor.

Forward-looking statements are based on management's current preliminary expectations and are subject to risks and uncertainties which may cause RadNet's actual results to differ materially from the statements contained herein. These risks and uncertainties including those risks set forth in RadNet's reports filed with the SEC from time-to-time, including RadNet's annual report on Form 10-K for the year ended December 31, 2018 and RadNet's quarterly report on Form 10-Q to be filed shortly.

Undue reliance should not be placed on forward-looking statements, especially guidance on future financial performance, which speaks only as of the date it is made. RadNet undertakes no obligation to update publicly any forward-looking statements to reflect new information, events or circumstances after the date they were made or to reflect the occurrence of unanticipated events.

And with that, I'd like to turn the call over to Dr. Berger.

Howard G. Berger -- President and Chief Executive Officer

Thank you Mark, and good morning everyone and thank you for joining us today. On today's call, Mark and I plan to provide you with highlights from our second quarter 2019 results, give you more insight into factors which affected this performance and discuss our future strategy. After our prepared remarks, we will open the call to your questions. I'd like to thank you all for your interest in our company and for dedicating a portion of your day to participate in our conference call this morning.

Overall, I am very pleased with our performance in the second quarter, which was a continuation of the strength our business demonstrated in the fourth quarter of last year and the first quarter of this year. During the second quarter, we drove 18.3% revenue growth and 13.0 EBITDA growth as compared with the second quarter of last year, both metrics with the highest of any second quarter in our company's history. Our performance was driven by significant aggregate and same centered procedural volume growth. In this quarter, we achieved 3.5% same center of growth.

This is primarily attributable to a number of efforts of our regional teams. First, our marketing teams are having success differentiating our centers and service offerings relative to our competitors. We continue to believe our equipment, multi-specialty radiology practices, IT systems and conveniently located centers are the best in the business. Further, the investments we have made in recent years in leading edge equipment are recognized by referring patients and physicians. Not only is our equipment and images are of the highest quality, but investments we've made in newer equipment has allowed us to alter protocols to scan patients more quickly, thus increasing the number of scanning slots at our centers. This provides us additional capacity at our already busy facilities. Our vines are also benefiting from the further recognition of patients referring physicians and health plans of the continuing disparity between hospital pricing for imaging services and that of our patient pricing.

Our pricing remains a fraction of that of the local hospitals for the same services. In a healthcare landscape where health insurance companies are becoming more cost conscience and patients are assuming more financial responsibility for healthcare, the disparity between hospital and freestanding outpatient pricing is substantial and very meaningful.

Over time, we expect a steady increase of patients in ambulatory centers at the expense of hospital volumes. This trend is occurring slowly as healthcare referral patterns tend to be sticky and slow to change. But we are convinced that this is where healthcare is leading. We are seeing the outpatient migration of patients in all disciplines of healthcare, including more volumes flowing into urgent care centers, freestanding surgery centers, outpatient clinical laboratories, home health settings, physical therapy centers and the list goes on. Health care is undergoing a transformation and it is our belief that we are still in the initial stages of this change.

I believe these trends are partially why we are having continuous success with establishing additional health system joint ventures. Many of the outstanding health systems with whom we are partnering are forward thinkers that recognize their institutions much to change in order to remain relevant and competitive in this changing landscape. Thus, they seek out partnerships with RadNet and leaders in other specialties in medicine with histories of success, operating distributed networks of high quality community based locations. Today, about 25% of our centers are held within joint ventures with health systems, and we anticipate this number could potentially double in the next few years as we grow and expand with existing health system partners and in new markets, as well as create partnerships with new institutions. We can continue to see benefit for RadNet in these partnerships as we are able to leverage the joint ventures partners relationships with referring physicians, which in almost all situations leads to improved volumes. Additionally, our health system partners have increased our visibility and strength with private payers, furthering our goal to establish long term, fair and sustainable pricing. In this second quarter we became operational at our second joint venture with Dignity Health and Ventura County, California. Under RadNet'S existing regional brand of Rolling Oaks Radiology, we established a co-lo [Phonetic] network of four multi-modality imaging centers in Ventura, Oxnard and Camarillo.

RadNet contributed three existing centers in those markets and Dignity contributed one imaging center, which is co-located within its St. John's Regional Medical Center. Taking these relationships and outreach into these communities are already bringing great value to the newly created partnership. Also, in the second quarter, we completed the acquisition of Kern Radiology, which further expands our presence in Kern County and Bakersfield, California. Kern owns five imaging centers and has serviced the communities of Kern County for more than 50 years, a market that has over 800,000 people. During the quarter, we began the integration of Kern into RadNet, particularly as it relates to merging its service offering with RadNet's existing trucks [Phonetic] in radiology locations in that market.

This current transaction, which has approximately 25 million of annual revenue to RadNet is an example of the power of our regional operating model. By increasing our presence and further penetrating densely populated regional markets, we expand the power of our local brands, improve our service offerings to our patient population and physicians to partner with regional health systems and payers. Lastly, subsequent to the end of the second quarter, we announced an expansion into artificial intelligence in conjunction with creating a newly created artificial intelligence division of RadNet, we purchased the 75% of NewLogix that we already [Indecipherable] NewLogix is an early stage company focused on developing AI solutions within radiology, RadNet's newly created AI division will focus on developing, testing, acquiring and investing in technologies that focus on image interpretation and radiology business processes.

In addition to internally developing AI solutions through our newly acquired NewLogix team, we will evaluate partnering, licensing and investing in AI solutions developed by others. We expect that artificial intelligence will have a transformational impact on the diagnostic imaging and radiology industry. Machine learning, big data applications and patient algorithms will allow us to deliver our services more cost effectively, efficiently and accurately. We are committed to supporting technologies that make our business run in ways to advantage our patients, joint venture partners, referring physician communities and contracted health plans. We will demonstrate this commitment through investing in leading edge solutions being developed by new objects and others. We are frequently being presented with new technologies and products for us to test and evaluate. RadNet's position as the largest owner and operator of fixed type diagnostic gym -- diagnostic imaging centers makes us an ideal laboratory for technologies of the future.

Today, we spent almost 20% of our globally billed net revenue on the radiologists interpretation of our images. If artificial intelligence would lower the cost of image interpretation by making our affiliated radiologists more productive and more accurate, all of RadNet's stakeholders stand to benefit materially. As we move into the second half of the year, I expect our business will produce a significant amount of free cash flow. To date, we have spent almost 50 million of our roughly 65 million, 2019 capital expenditures budget. This is typical as we front load our construction and equipment replacement programs each year to meet our operating objectives by year end.

We completed the second quarter with a cash balance of over $30 million and I'm anticipating this cash balance to substantially increase by the end of the year. This expected significant cash balance and here will either be used to repay debt consistent with our continuing deleveraging strategy or be reinvested in growth opportunities that we may identify. At this time, I'd like to turn the call back over to Mark to discuss some of the highlights of our second quarter 2019 performance. When he is finished, I will make some closing remarks.

Mark D. Stolper -- Executive Vice President and Chief Financial Officer

Thank you, Howard. I'm now going to briefly review our second quarter 2019 performance and attempt to highlight what I believe to be some material items. I will also give some further explanation of certain items in our financial statements, as well as provide some insights into some of the metrics that drove our second quarter performance. Lastly, I will update 2019 financial guidance levels and discuss Medicare reimbursement for 2020.

In my discussion, I will use the term adjusted EBITDA, which is a non-GAAP financial measure. The company defines adjusted EBITDA as earnings before interest, taxes, depreciation and amortization and excludes losses or gains on the dispose of equipment, other income or loss on debt extinguishments, bargain purchase gains and non-cash equity compensation. Adjusted EBITDA includes earnings -- equity earnings in unconsolidated operations and subtracts allocations of earnings to non-controlling interest in subsidiaries and is adjusted for non-cash or extraordinary and one time events taking place during the period. A full quantitative reconciliation of adjusted EBITDA to net income or loss attributable to RadNet Inc common shareholders is included in our earnings release.

With that said, I now like to review our second quarter 2019 results. For the three months ended June 30, 2019, RadNet reported revenue of $289.1 million and adjusted EBITDA of $43.1 million. Revenue increased $44.7 million or 18.3% over the prior year's same quarter and adjusted EBITDA increased $5 million or 13% over the prior year same quarter. By the second quarter of 2019 as compared to the prior year second quarter, MRI volume increased 9.7%, CT volume increased 14.1%, PET-CT volume increased 9%. Overall volume taking into account routine imaging exams inclusive of x-ray, ultrasound, mammography and all other exams increased 11.4% over the prior year second quarter.

In the second quarter of 2019, we performed 2,072,875 total procedures. The procedures were consistent with our multi-modality approach in the second quarter, whereby 75% of all the work we did by volume was from routine imaging. Our procedures in the second quarter of 2019 were as follows, 283,717 MRI's as compared with 258,547 MRI's in the second quarter of 2018, 223,449 CT's as compared with 195,758 CT's in the second quarter of 2018, 10,840 PET-CT's as compared with 9943 PET-CT's in the second quarter of 2018 and 1,554,869 routine imaging taking exams as compared with 10,396,857 routine exams in the second quarter of 2018. For the second quarter, RadNet reported net income of $4.9 million, a decrease of approximately $507,000 over the second quarter of 2018. Adjusting for the impact of the financing transaction and legal settlements accounted for in other expenses during the quarter on a tax effected basis of $912,000, adjusted net income was $5.8 million in the second quarter, an increase of $405,000 over the second quarter of 2018. Per share diluted net income for the second quarter was $0.10 per share compared to $0.11 in the second quarter of 2018 based upon a weighted average number of diluted shares outstanding of 50.1 million shares in 2019 and 48.5 million shares in 2018. Adjusting for the impact of the financing transaction and legal settlements accounted for in the other expenses per share diluted adjusted net income was $0.12 in the second quarter of this year, compared to $0.11 in the second quarter of 2018.

Affecting net income in the second quarter of 2019 were certain non-cash expenses and non-recurring items, including the following. $1 million of non-cash employee stock compensation expense resulting from the vesting of certain options and restricted stock. $371,000 of severance paid in connection with headcount reductions related to cost savings initiatives. $101,000 was uncertain and the sale of certain capital equipment and $1.3 million of other expenses related to the financing transaction and legal settlements. And $973,000 of non-cash amortization of deferred financing costs and loan discounts on debt issuances. Overall GAAP interest expense for the second quarter of 2019 was $12.4 million. This compares with GAAP interest expense in the second quarter of 2018 of $10.6 million.

Cash paid for interest during the quarter, which excludes non-cash deferred financing expenses and accrued interest was $13 million as compared to $8.5 million in the second quarter of last year. The increased interest expense is the result of increased term loan debt and the consolidation of NJIN, which has it's own credit facility. At June 30th, 2018, adjusting for the par value of our term loan, we had $706.1 million of net debt, which is total debt at par value less our cash balance. Note that this value now includes the NJIN net debt of approximately $49.1 million, for which RadNet is neither a bar or nor a guarantor.

At June 30th, 2019, we were undrawn on our $137.5 million revolving line of credit and had a cash balance of $30.6 million. During the quarter, we repaid $12.1 million of notes and leases payable and term loan debt and had capital expenditures net of asset dispositions of $17.4 million. Since December 31st, 2018. accounts receivable increased approximately $10.4 million due to the growth in our revenue and from new acquisition. And our net day sales outstanding or DSOs were 46.6 days, a decrease of approximately 4.1 day since year end 2018.

At this time, I'd like to update our 2019 fiscal year guidance levels, which released in conjunction with our fourth quarter and year end 2018 results and amended after our first quarter financial results. For total net revenue, this quarter we increased both the bottom end and the top end of our guidance levels by $50 million, so our new guidance or revised guidance range is $1.1 billion to $1.15 billion. For adjusted EBITDA, we increased the bottom end of our range and the top range of end of our range by $3 million. So our new guidance range is $158 million to $168 million. And we also increased our capital expenditure range by $3 million. So our new guidance range is $63 million to $68 million. We've chosen to leave our free cash flow generation guidance levels the same at $45 billion to $55 billion as well as our cash interest expense we've kept constant at $43 million to 48 million. The strong financial performance of the first and second quarters has provided us the confidence to increase are 2019 full year guidance ranges for revenue and adjusted EBITDA. The consistent organic growth and the contribution from recent acquisitions and health system joint ventures are causing us to exceed our initial 2019 projections thus far. We remain optimistic about the continuation of these trends through the end of the year and into 2020.

I will now take a few minutes to give you an update on 2020 reimbursement and discuss what we know with regards to 2020 anticipated Medicare rates. With respect to Medicare reimbursement, we recently received a matrix for proposed rates by CPT code, which is typical as part of the physician fee schedule proposal that is released about this time every year. We have completed an initial analysis and compared those rates to 2019 rates. We volume weighted our analysis using expected 2020 procedure volumes.

Our initial analysis shows that our Medicare rates for 2020 will be essentially neutral relative to 2019 rates. While there is a small negative impact from pricing, our performance bonus under MIPS, which is the merit based incentive payment system in 2020 based upon our measurement year of 2018 fully mitigates this impact. For those of you who are less familiar with MIPS, CMS is required by law to implement a quality payment incentive program which rewards value and outcomes. Performance is measured in four areas, quality, improvement activities, promoting interoperability and cost.

RadNet's performance under MIPS was excellent providing us a bonus for 2020 reimbursement, whereas a poor performance could have resulted in a negative reimbursement impact. We are obviously very pleased with the reimbursement outcome, as reimbursement has at times been challenged in the past. Of course, the proposed rates for the physician fee schedule are subject to comment from the lobbying and industry groups and there is no assurance the financial rule to be released in November 2019 time-frame will reflect these same proposed rates.

Whether or not the final rule in November time-frame is consistent with the proposed rates, we will continue to be focused on lowering our cost structure through using our scale and ability to drive efficiencies in our organization. We will continue to seek pricing increases from private payers in regions where we are essential to the healthcare delivery system recognizing that our prices remain significantly discounted as compared to hospital settings. We will also continue to pursue partnership opportunities with health systems where we think these arrangements could result in increased volumes and long-term stable pricing from private payers. Lastly, we will continue to acquire strategic targets at three to five times EBITDA in our core geographies that further our strength in local markets and achieve efficiencies with our existing operations.

I'd now like to turn the call back over to Dr. Berger who'll make some closing remarks.

Howard G. Berger -- President and Chief Executive Officer

Thank you, Mark. Before we move on to the question and answer portion of our call, I'd like to emphasize why we believe it is such an exciting time to be in our industry and why the future looks very bright for diagnostic imaging.

First, we remain a technology driven industry. Each year there are new advances in equipment and related technologies, which open new applications for what we do and drive incremental patient volumes overtime. Radiology remains the key diagnostic tool for identifying most injuries and diseases. Advances such as 3D breast imaging, multi-slice CT scanning, PET-CT and now PET MRI devices to name a few were unheard of 20 years ago and continue to push the envelope of diagnostic medicine.

We continue to believe that the requirement to invest and reinvest substantial capital expenditures into our centers represents a significant barrier to entry for others, particularly smaller, less capitalized operators.

Second, artificial intelligence, which I discussed earlier will have transformational impact on how we and other industry players do business in the near future. AI promises to make our radiologists more productive and accurate. AI should also shorten scan times and report turnaround times. AI will refine business processes and impact areas such as marketing and revenue cycle. Ultimately, AI may allow operators like ourselves to reduce overall costs, thereby materially impacting our margins.

Third, our industry will continue to benefit from the migration of patients away from acute care settings in favor of ambulatory outpatient centers. This will continue to benefit patients and referring physicians and significantly address the rising cost of healthcare. Patients prefer freestanding centers because of their convenience and higher level of service.

Lastly, the diagnostic imaging industry remains fragmented and will benefit from the efficiencies that can be gained from sensible and methodical region consolidation. We intend for RadNet to continue to lead this charge in targeted geographies. We see an accelerating opportunity set for us to further penetrate and expand our regional networks and more align with health systems and insurance companies. Operator, we are now ready for the question and answer portion of the call.

Questions and Answers:

Operator

Thank you. [Operator Instructions] And we'll go first to Brian Tanquilut from Jefferies.

Brian Tanquilut -- Jefferies -- Analyst

Hey, good morning guys. Congratulations on a great quarter. I guess my first question for Howard or Mark, your same store volume came in at 3.5%. I think it's rather highest I've seen in years. So is there anything you would call out in terms of what the drivers were for that robust same store growth during the quarter and how do you think about the sustainability of that level of growth?

Mark D. Stolper -- Executive Vice President and Chief Financial Officer

Good morning, Brian. I think it comes predominantly from two places. Number one, as I mentioned in our opening remarks, the movement of patients from hospitals into outpatient centers while it is slow, I believe it is starting to pick up some pace. We know that because our conversations with almost all of the commercial insurance payers are beginning to discuss more opportunities and methods by which we can help accelerate that growth.

In addition to that, the joint venture partners who we've more recently here, particularly in California, become partnered with are also helpful in moving patients from hospital to the freestanding centers, along with the groups that are part of those health systems, more referring more of their patients into the joint venture centers. The other part of it, which I think is important, is to understand that the investment that we make in our equipment, particularly the newer equipment, is allowing us to shorten scan times and increase the volume in our centers, which are challenged with backlogs. In particular, when we look at the primary advanced imaging modalities, MRI, CT and PET-CT, all of them have been significantly affected by new technology, technological advances occurring with software and artificial intelligence that allows us to shorten scan times. We're also standardizing our protocols across all of our markets and using best practices to help shorten those scan times. So, we have been able to achieve in many of our centers that are challenged with these higher volumes, reducing our scan times, often by as much as 25% to 33%, which results in more revenue per unit time or per hour in our centers and is helping to drive that volume along with the new technologies that give us a wider range of applications.

I think those are the kind of tools that we're seeing out there that are primarily the driver. And I do think this is sustainable because we have yet to see the full impact of hospital migration and the implementation of new tools and techniques to reduce our scanning times.

Brian Tanquilut -- Jefferies -- Analyst

That's awesome. And then, Mark, I guess the question for you. I mean -- the strong same store translated the good EBITDA growth, but as I look at the margin -- still down year over year. Is there anything to call out in terms of the Q2 margin performance?

Mark D. Stolper -- Executive Vice President and Chief Financial Officer

Yes, sure. So our -- you're right aggregate revenue weigh up EBITDA aggregate up. Margins compressed about 50 basis points here in the second quarter relative to last year. And that's primarily the result of two acquisitions that we made on April 1, the acquisition of Kern Radiology and then another acquisition in Long Island called [Indecipherable] where we acquired about $30 million of revenue to which in the quarter we received -- from which in the quarter we received very little EBITDA because those were two almost asset deals that came -- were very strategic to our particular regions of Bakersfield, where we're now in the midst of consolidating the Kern Radiology group with our existing operation there called Truxton Radiology. That's going to take a quarter or two before we start seeing the enhancement that we are expecting to get on the EBITDA side. And then in terms of [Indecipherable] -- operation that was very strategic for another location where we can send our ACP and Long Island lives and that we expect to turnaround as well. So, we think there's actually some potential significant improvement that we -- that we'll yet on our margin side, by getting the contribution from those that $30 million of revenue to look more like the rest of our business.

Brian Tanquilut -- Jefferies -- Analyst

Got it. And then one last question for me, as I think about capitation, there was a sequential increase in the year-over-year as well. This is a good run rate to be thinking about for the rest of the year on capitation.

Howard G. Berger -- President and Chief Executive Officer

Yes, it is, Brian. The primary increase in that is coming from our new capitation contract with the subsidiary of Emblem called the ACP, Advantage Care Physicians. And in addition to that, we are in the midst of discussing with all of our capitation contracts pricing for the 2020 calendar year. So we're comfortable with that run rate is sustainable and probably should grow also.

Brian Tanquilut -- Jefferies -- Analyst

Got it. Actually, Howard, if I -- since I have you, if I may ask one more question. As you mentioned, AI toward the end of your comment and I appreciate all the comments on how it helps the operationally. But in terms of monetization of your asset or the data that you're sitting on and the AI capabilities that you guys have. How do you think about the ability for RadNet to monetize that going forward.

Howard G. Berger -- President and Chief Executive Officer

We are talking to a couple of companies that either will do data warehousing and use some of the medical records or information that we have as part of an overall availability and business to monetize that into the community. I don't know if that will be a substantial part of revenue that will create much of a change in the overall company's performance but more importantly, it will give us access to other people who we single out that can help us, the more operationally effective in adopting artificial intelligence inside the company. My concern all along is and has been how commercial artificial intelligence and data storage can be from an enterprise standpoint. I think that to the extent that it helps us with our margins by producing efficiencies, more accuracy and potentially creating a competitive advantage to hospitals and other freestanding centers, maybe the biggest benefit of all of it from a long term standpoint. So I think positioning the company in the artificial intelligence and data storage area will be critical, but not so much from commercializing it as it will be for the internal consumption.

Brian Tanquilut -- Jefferies -- Analyst

I appreciate that. Thank you.

Howard G. Berger -- President and Chief Executive Officer

Thank you Brian.

Operator

[Operator Instructions] and our next question comes from Mitra Ramgopal of Sidoti.

Mitra Ramgopal -- Sidoti -- Analyst

Yes. Good morning. First, I was just wondering on same store numbers that we saw. If you're starting to see any benefit at all from insurers like United Health Care, etc etera and shifting of more of these procedures that [Indecipherable] in the hospital to all patients?

Howard G. Berger -- President and Chief Executive Officer

Hi, Mitra. I think we are, I think it's a little too early to try there, quantify that in greater detail. Part of what we believe that we're seeing is just a shift simply based on the competitive benefit that I believe we provide as opposed to our other competitors in the freestanding market. I think that, as I mentioned in some of my remarks here, the ability to change referral patterns in healthcare is generally a very slow one. Even those hospital systems that are acquiring medical groups find it a slow process of trying to get those referring physicians to alter their referral patterns. And I'm not just talking about imaging, I'm talking about all the ambulatory services.

But it is something that over a period of time, I believe will continue to benefit from the RadNet and it's centers will benefit from. So if you look at those forces, if you will, inside healthcare, general and imaging in particular, they drive volume -- the ones that have always been there, meaning, increasing the population, which drives more imaging, an aging population, which drives more imaging and greater applications with new technology. The dimension that we're adding now is a more directed effort on the part of health plans and our -- and health systems into the lower cost that are more cost effective imaging centers and it's hard to kind of peel back as to which of those is contributing to the same store center or organic growth but in aggregate I expect all of those to continue to be a factor here with an additional acceleration coming from the last part that I just mentioned.

Mark D. Stolper -- Executive Vice President and Chief Financial Officer

The other thing we're seeing and this is not unique to United Health members, but because there has been such a migration, an accelerated migration to higher deductible health plans, you're seeing patients themselves being more aggressive in directing themselves to lower cost settings. And as time goes by, patients get more and more educated as of the disparity between the pricing that they're seeing in the hospital versus the ambulatory centers. And so we're seeing some of that acceleration, you know, out of the hospitals in favor of our centers just because patients are getting more educated.

Mitra Ramgopal -- Sidoti -- Analyst

Okay, now that's great. Thanks for color. The other thing I wanted to follow up on a little is obviously, as you continue, you've built a nice scale now on the JB side and as you look at further expansion. Are you seeing heightened interest in terms of maybe hospitals now starting to approach you more just because you're seeing the benefits the others are getting working with you?

Mark D. Stolper -- Executive Vice President and Chief Financial Officer

I think we're seeing that in California where we've picked up our efforts for joint ventures more so than doing it on the East Coast. On the East Coast, we're already joint venture with several major hospital systems, particularly in Maryland and in New Jersey, where we have the RWJ Barnabas joint venture, so the likelihood of us seeing a lot of additional joint ventures in those markets is probably going to be disappointing and maybe very, very slow. On the other hand, here in California, where managed care and the huge geographic expanse that patients can come from are getting more and more attraction from our existing joint venture partners who are looking to expand all of those joint ventures and at least two or three other large health systems here in California that we're in active discussions with about that expanding new joint venture relationships with so I do expect that to continue. And I think it's that model itself proves successful like it already has. It wouldn't surprise me if we start to care interest maybe in other geographies that we're not currently in the market -- in those particular markets. So I think it's a very good model for us in terms of long term security and stability and one that should provide us opportunities to enhance the growth of the company, both organically and by acquiring more sense.

Mitra Ramgopal -- Sidoti -- Analyst

Ok. Thanks again for that. And then I know you'd mentioned in terms of the JV's having conversations with them as it relates the sensual price increases, and I'm just wondering what the reimbursement environment looks like and how comfortable you feel that you should be able to get some [Indecipherable]

Howard G. Berger -- President and Chief Executive Officer

In bound of this that you are saying?

Mitra Ramgopal -- Sidoti -- Analyst

On the JV side, I think you'd mentioned you're going to be having a number of conversations in terms of contract renewals looking to implement some price increases?

Howard G. Berger -- President and Chief Executive Officer

That wasn't so much with the -- in the joint ventures as it was reviewing our capitation contracts and looking at rebasing some of those contracts for 2020. So that's primarily a function of what goes on here in California routinely on an annual basis, but which we are accelerating and focusing more on -- for our 2020 year end.

Mitra Ramgopal -- Sidoti -- Analyst

Okay, thanks for clearing that up and then finally, obviously with the AI division now, I was just wondering if you think there are any other areas where you think you need to get into the feel any or ready to make a [Indecipherable] your offering, so to speak? I know you already have the Teller Radiology, Breastlink now, AI, etc. I'm not sure if there's anything else really for you to have near-term.

Howard G. Berger -- President and Chief Executive Officer

Near term, probably nothing else, I think, with the enormous opportunity that AI represents for us. I think that that will be a major focus for us -- for the remainder of this year and moving into 2020. We've identified about half a dozen companies who we'd like to partner with or maybe even ultimately invest in that I think can take some of the technologies that they've -- they're developing and continue to work on that I think will add substantial value to the company. So I believe that will be the focus for us for the remainder of this year and going into 2020 from an investing opportunity and using the tools that I think are uniquely capable with artificial intelligence to improve all of the processes by which we run this company.

Mitra Ramgopal -- Sidoti -- Analyst

Ok, thanks that you have taken the question.

Howard G. Berger -- President and Chief Executive Officer

Thanks Mitra.

Operator

[Operator Instructions] We'll go next to John Ransom of Raymond.

John Ransom -- Raymond James

Hey, one thing. You may have said this, but I'm just struggling to remember. When you do your hospital JV's and one of the big points for RadNet is that you're much cheaper. But if we're thinking apples to apples [Indecipherable] you have a center and you know, L.A. suburb and then you do another center with a hospital JV partner. Is it right to assume that maybe that that rates a little bit different since the hospital is negotiating this right for you, or is it essentially kind of the same commercial rate, whether or not it's a hospital partner or not, is that too simplistic a question?

Howard G. Berger -- President and Chief Executive Officer

I think that's a great question, John. Good morning,

John Ransom -- Raymond James

Yes sir.

Howard G. Berger -- President and Chief Executive Officer

Actually, I think we have information from a historical standpoint that relationships with hospitals do help us with reimbursement. In particular, I'm referring to our partnership with the RWJ Barnabas Health System, where with their health we've actually been able to negotiate a separate fee schedule, which is different from the published PPO fee schedule for the physicians that is substantially better and where we get, increases every year. So that's something that I think we've already demonstrated part of the benefit to that end, our partnership with the joint venture with RWJ Barnabas continues to be budget and exceed expectations.

So we're very focused on New Jersey in particular, in the expansion of that. And what happens with that when we do new acquisitions, we're able to get a rate list from acquiring those centers and putting them under the joint venture fee schedule, which helps us significantly deleverage those transactions. We think ultimately that same opportunity exists here in California. And just because of the number of health systems that we're dealing with, the opportunity to expand that and the population in California that we have that could wind up being a very significant opportunity for us similarly here in California, which accounts for about 40% of the company's overall revenues.

Mark D. Stolper -- Executive Vice President and Chief Financial Officer

Just to be clear, John, these are still outpatient rates that are substantially lower than what the hospitals are charging in those markets. So their outpatient rates that are higher than what perhaps ran that would have been a negotiate on its own using the leverage and strength of the health system that we're partnered with. But there's still much closer to RadNet rates than they are to the hospital.

John Ransom -- Raymond James

All right. So second, it's completely unfair question, but If you had to guess, let's say you have 100 people in a group medical plan. Today, do you have any idea what percentage of those even know that, if I go to this freestanding center, I'm going to save 3X ever going to the hospital. I mean, it seems to me like those engagement efforts and that education effort is still for a second inning. But do you have any perspective on that. And even with your own employees and your own health plan, do you proactively reach out to them and say for certain scheduled procedures like outpatient surgery or imaging, or even in primary care, it's a heck of a lot cheaper to go here than it is to go to the hospital?

Howard G. Berger -- President and Chief Executive Officer

I think you're right in almost all accounts there, John.

John Ransom -- Raymond James

That'll be the first time that's happened this year, by the way, that I've been -- I'm already feeling better about thanks.

Howard G. Berger -- President and Chief Executive Officer

Patient engagement or what I think is more broadly referred to as consumerism. It is a complicated subject because there still is a preponderance of patients who go where their doctor tells them to go. I mean -- at the end of the day, the ability for the average patient to make a decision that might be contrary to what he thinks their doctor recommends is something that we and the health plans have to fight against. I think that their process can be facilitated with plan, design and education. But we are working very hard with our referring physicians to try to educate them. What we're finding is that both the health plans and our health system partners are getting more and more engaged in that process, which in and of itself will, I think, create a much bigger impact ultimately than the patient education side of it.

We use other radiology business managers on the East Coast, for example, that have programs that they call smart choice, where they indeed, on behalf of the health plan field calls from the patients because they do the pre-authorization, and in that process they will attempt to try to switch a patient who they know has been referred to a hospital to a lower cost freestanding facility. And while they have had some success in doing that, it's a very slow process and one that has been in some respects, disappointing. So with armed with that information, we go back to the health plans and say, we have to start that process, not so much at the patient level, but in some referring physician level and with some health plan design changes. And the conversations that we're having today are unlike those that we've ever had in the past. And while it's still slow, I do believe that that will be the primary methodology by which that transformation or transition will occur.

John Ransom -- Raymond James

So what do you guys do with here? What you got to do with your own employees in that respect?

Howard G. Berger -- President and Chief Executive Officer

Yes. I was going to comment on that. So, whereas we're a big enough company where we're self-insured for our health plan.

John Ransom -- Raymond James

Yes.

Howard G. Berger -- President and Chief Executive Officer

And we have created narrower networks to try to drive our employees into specific locations, depending on what specialty, for instance, for imaging -- as you might guess RadNet, is the exclusive provider of imaging services to the RadNet health plan and so we are essentially out of the Blue Shield network. We've narrowed the network to include only RadNet Centers. We've done -- we've chosen an outpatient laboratory to do the same thing where, you know, we're getting very low pricing and we're using services like teladoc and others that are, that are in network, that where we've negotiated a carve out in our benefit plan with our Blue Shield network to try to narrow the network.

Yes, we're limiting choice but we're providing value for employees and lowering the cost. So I think more and more large self-insured employers are willing to narrow choice in favor of being able to provide lower premiums and lower costs that's borne by the actual employer for providing healthcare and I think that's the future.

John Ransom -- Raymond James

Sure. Okay. And just lastly for me, I always ask this question, and I don't expect the answer changes every 90 days. Mark, I think you have mentioned to me before capacity utilization starting to become a little bit of a constraint on your same store growth. So just, practically speaking, how much more volume can you squeeze out of your same store imaging centers, as you said today?

Howard G. Berger -- President and Chief Executive Officer

I'm going to take that one instead of Mark, John. And that was partly the focus I had on artificial intelligence and other processes, one that I called protocol optimization that we're working on very diligently. About three years ago, four years ago, we hired a radiologist who probably is, from a technological standpoint, maybe the most sophisticated in the entire industry and his sole focus is to work with our centers, our radiology groups and with management in purchasing of new equipment and then implementing protocols.

And we're finding substantial benefit from those efforts here that will allow us to add additional revenue and slots for imaging in those centers that are challenged with volumes. And this is something that we expect to do in every modality that we're currently performing in our centers. So that's why I put as much emphasis I did on artificial intelligence and other technological advances, not being so much for us commercial opportunity, but an internal opportunity to drive revenue. And when you think that in the past, the average scan time for an MRI has been about a half hour, so they were able to do maybe about two patients an hour. We've now reduced that in the majority of our centers down to about 20 minutes.

So picking up one extra scan per hour can be a substantial influence in our business performance here. If we have that demand to fill those slots within many of our centers, we do. So that's a key takeaway, I think, from the earnings call here that I want to reemphasize and then thank you for asking that question.

John Ransom -- Raymond James

Okay. That's it for me. Thank you.

Operator

And with no further questions in the queue, I'd like to turn it back for any additional or closing remarks.

Howard G. Berger -- President and Chief Executive Officer

Thank you, operator. Again, I would like to take this opportunity to thank all of our shareholders for their continued support and the employees of RadNet for their dedication and hard work. Management will continue it's endeavor to be a market leader that provides great services with an appropriate return on investment for all stake holders. Thank you for your time today, and I look forward to our next call.

Operator

[Operator Closing Remarks]

Duration: 59 minutes

Call participants:

Mark D. Stolper -- Executive Vice President and Chief Financial Officer

Howard G. Berger -- President and Chief Executive Officer

Brian Tanquilut -- Jefferies -- Analyst

Mitra Ramgopal -- Sidoti -- Analyst

John Ransom -- Raymond James

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