CEO SUMMARY: After a lot of money and much effort, the fledgling crop of companies wanting to consolidate and manage pathology group practices has narrowed into just two market leaders: AmeriPath and Pathology Service Associates. These two companies could not be more different in their goals and operating philosophies. For local pathology groups, this is certainly an unexpected outcome.
IT DIDN’T HAPPEN WITH MUCH FANFARE or public attention, but there are now just two important players in the battle for control of local anatomic pathology resources.
AmeriPath, Inc. and Pathology Service Associates, Inc. (PSA) have emerged as the “big dogs” in the market for local pathology services. The numbers tell the tale. AmeriPath employs 426 pathologists in 21 states. PSA provides services to more than 80 practices and 400 pathologists in 13 states.
New Path Business Models
This development is significant. If the trend in healthcare is toward consolidation of small provider units into larger business models, then many anatomic pathologists will find themselves working under new business arrangements in coming years.
After all, a large portion of the nation’s 13,000 board-certified pathologists still work in small group practice settings, numbering from one to four doctors, often serving only a single hospital. Ongoing market forces will continue to pressure these small pathology groups to consolidate into larger business units.
This pressure to consolidate is not welcomed by many pathologists, who value the traditional independence that their private group practice setting has provided them. Yet ongoing economic trends within the healthcare system continue to push the era of the small pathology group practice toward its end.
Given the regionalized nature of the nation’s integrated healthcare networks (IHN), it is highly significant that the economic marketplace has allowed only two pathology organizations to reach large size by emphasizing local pathology.
This duopoly creates an interesting situation within the anatomic pathology profession, because the motives and goals of both companies are significantly different. AmeriPath is a publicly-traded corporation which needs to deliver regular and significant increases in revenues and earnings to support its share price and remain attractive to investors.
PSA is a member-owned organization of state pathology networks. It describes itself as “pathology at the point of care” and its goal is to preserve the independence of local pathology groups while providing them the business tools they need to thrive and prosper in the evolving world of integrated healthcare.
Value Of Local Pathology
Although different in their ultimate financial goals, the companies share one characteristic that sets them apart from other important pathology business models: both AmeriPath and PSA believe in the value of anatomic pathology services provided at the local level and supported by an inter-regional business organization.
That means both pathology companies must develop a local pathology presence in major population centers to give them the clout necessary to negotiate favorable terms with payers, hospital systems, and large physician groups, such as IPAs. For that reason, both AmeriPath and PSA need to continually recruit additional pathology groups into their organization if they are to remain financially viable businesses.
For competition, these two companies face a marketplace sorted into five distinct business models. (See sidebar on next page.) At the local level that means competing against the existing small independent pathology groups and, where present in that city, either pathology “super-groups” or large academic and tertiary center pathology groups.
At the same time, the growing number of national pathology providers will be sending sales reps into these same cities to generate case referrals to their national pathology laboratories. This evolving mix of competitors for anatomic pathology cases means that the marketplace is becoming more complicated.
That is why the apparent duopoly of AmeriPath and Pathology Service Associates is a significant event. Over the last five years, it was these two companies which survived the shakeout of the pathology PPM (physician practice management) start-ups. If the principle of “survival of the fittest” applies to the market for anatomic pathology services, then these two companies triumphed during this last market cycle.
As the pathology profession enters the next cycle of change in the healthcare marketplace, both AmeriPath and PSA will be challenged to keep their leading position. Executives at both companies will not forget the still-recent example of such market leaders as MedPartners and Columbia/HCA, whose past accomplishments were not a guarantee of future success.
Pathologists and their practice managers should remember that same lesson. Early leaders in the race do not always have the stamina at the end to finish first. The business models of anatomic pathology are undergoing evolutionary change. It is by no means settled that AmeriPath and PSA will sustain continued, profitable growth.
Better Than Competitors
The one clear fact at this point in the current market cycle is that the business model and management implementation of AmeriPath and PSA were better than their competitors. As a result, they achieved size and critical mass even as competitors withered away.
It remains to be seen whether America’s evolving healthcare market will favor one pathology business model over another. Will it be local pathology, supported by a corporate team? Or will it be national AP providers and/or regional pathology
Market Favors Five Distinct Pathology Business Models
IN RECENT YEARS, FIVE PRIMARY BUSINESS MODELS HAVE EMERGED in the anatomic pathology marketplace. Because of ongoing changes to the American healthcare system, the long term viability of each business model has yet to be demonstrated. However, the greatest pressure for change is upon the small private group practice which typically serves just one hospital.
One revealing insight offered by this list of five pathology business models is the increased number of “employee-pathologists” now working around the country. The steady growth of national anatomic pathology companies, particularly AmeriPath, is fueling a demand for pathologists willing to work on salary as opposed to a group practice partner with a share of the net profits at year-end.
- Single-Hospital, Independent Private Group Practice
This is the traditional business model which has dominated the pathology profession. In today’s marketplace, it is still the predominant practice setting for pathologists, but economic pressures for change are strongest on this pathology business model.
- Regional, Multi-Hospital Group Practice
During the 1990s, several regional “super-practices” emerged. These are pathology groups which number more than ten pathologists and serve multiple hospitals within a metropolitan region. Bayless Pathmark in Cleveland and Brown Associates of Houston are examples of this type of pathology company.
- Academic/Tertiary Center Group Practice
This is a distinct business model because the size of the pathology group and its medical mission require it to have subspecialty expertise not found in other hospital settings. Its pathology subspecialty expertise enables the academic/ tertiary center group to generate cases from a wider region, even nationwide.
- Inter-Regional “Practice Management” Company
This business model operates local pathology practices, supported by a cross-regional headquarters. It competes by using local pathology resources, drawing upon sophisticated business expertise and capital from the headquarters staff. The two biggest organizations in this category are AmeriPath, Inc. and Pathology Service Associates, Inc., but each uses a very different business plan to support its affiliated pathologists.
- National Pathology Company
Included in this category are all the companies which employ pathologists and offer services across multiple states. Examples are Laboratory Corporation of America, Quest Diagnostics Incorporated, DIANON Systems, Inc., IMPATH, Inc., and specialty lab companies which offer anatomic pathology services as part of their product mix.