Diagnostic imaging business Capitol Health Ltd (ASX: CAJ) has this morning told investors it is suspending its interim dividend amid falling revenues and earnings, while it could also raise up to $50 million in new capital in the coming months.

The shares plunged more than 28% shortly after the market opened, hitting a low of just 14 cents.

So What: Capitol Health is Victoria’s leading medical diagnostic imaging facilities operator, while it is also expanding its operations into other states around Australia. However, its performance has been plagued recently by a review of the Medicare system and this was evident in today’s results.

The company reported revenue of $77.5 million, which was up 57% on the prior corresponding period (pcp), but boosted largely by acquisitions during the 2015 financial year.

These revenues were impacted by system weakness which resulted in net profit after tax (NPAT) of just $2.2 million, down from $4.6 million in the pcp. Notably, this result was also impacted by one-off acquisition and restructuring costs of $1.7 million before tax.

Source: ASX website; Capitol Health 1-year share price chart

Source: ASX website; Capitol Health 1-year share price chart

As a result, however, the board of directors has decided to suspend the group’s interim dividend payout to shareholders and said it would review its ability to pay a dividend at the end of the year. This was largely expected as a way to help the company navigate through the tough environment currently facing the medical diagnostic imaging market.

The company had $97.6 million of debt on its balance sheet as at 31 December 2015, with just $20.6 million of cash. It said it had engaged National Australia Bank Ltd. to investigate raising up to $50 million through a senior unsecured bond issue during the second-half.

Now What: While the healthcare sector is a lucrative one to be in, given its defensive earnings streams and the country’s growing (and ageing) population, the diagnostic imaging industry itself is facing some strong headwinds. Notably, Integral Diagnostics Ltd (ASX: IDX)Primary Health Care Limited (ASX: PRY) and Sonic Healthcare Limited (ASX: SHL) are also at risk.

Indeed, the Australian government announced a review of the Medical Benefits Scheme (MBS) in April 2015 and made another announcement late last year, stating it would strip around $639 million over four years from bulk-billing incentives. The uncertainty caused by these reviews have impacted revenues and cast a shadow over Capitol Health’s future earnings potential.

Although it remains a risky prospect, the sharp drop in the company’s share price has certainly increased the appeal of Capitol Health. It’s certainly worth keeping a close eye on and perhaps further research, especially if its shares do fall any further.

In early morning trading, the Capitol Health share price was down 20.5% to 15.5 cents.

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Motley Fool contributor Ryan Newman has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. You can follow Ryan on Twitter @ASXvalueinvest.

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.