More AP Consolidation: Aurora Buys Two Groups

Brazos Valley pathologists find a new owner that will support independent pathology services

Aurora, BVP

CEO SUMMARY: Seeing the changes overtaking pathology practices, Brazos Valley Pathology decided to sell two of its group practices to Aurora Diagnostics. Last month’s transaction was not designed to fix financial problems nor was it because of retiring pathologists. Rather, it was done proactively to ensure that BVP’s 11 pathologists had access to the resources of a larger pathology organization so that they could expand or add technology as needed in the future, while practicing independently.

PRIVATE ANATOMIC PATHOLOGY prac- tices continue to face the dual pres- sures of lower reimbursement for key anatomic pathology CPT codes and exclusion from the narrow networks of managed care plans.

This double-whammy means patholo- gists are paid less per test and are losing access to patients. As a consequence, smaller pathology groups are opting to put themselves up for sale, looking to merge with larger groups, or negotiating to become employees of hospitals and health systems.

Consolidation In pathology

As the consolidation of private pathology groups gained momentum over the past five years, THE DARK REPORT has written about these transactions. When small pathology groups lose their independ- ence, it’s seldom publicized, making the scale of such consolidation difficult to gauge. (See TDR, May 19, 2014.)

One recent acquisition of community hospital-based pathologists in Texas pro- vided an opportunity to talk with the selling pathologists and learn the reasons behind their decision to sell to a larger pathology company.

On July 15, Aurora Diagnostics, Inc., of Palm Beach Gardens, Florida, announced that it acquired two divisions of Brazos Valley Pathology, PLLC. This Texas company has an affiliated pathol- ogy billing business and two community hospital-based pathology practices. One is Brazos Valley Pathology, based in Bryan/College Station. The other is Trinity Pathology Associates of Tyler, Texas. A total of 11 pathologists work in the two pathology groups.

This transaction is part of a trend of regional pathology consolidation. That’s because Aurora Diagnostics will operate the two newly-acquired pathology groups from its business division in Austin, Texas, known as Austin Pathology Associates.

“We saw several benefits in this trans- action,” stated Michael K. Cohen, M.D., the President and Partner Pathologist of Brazos Pathology Associates and Trinity Pathology Associates. “For example, the 11 pathologists in BVP gained a large partner with expertise and resources that can help us going forward. Our patholo- gists saw this as providing more security as we move into the future.

Two pathology Groups

“Brazos Valley Pathology was founded in 1996 and our pathologists have worked independently in the two groups since then,” he noted. “We saw that Aurora Diagnostics had a similar model of practice and was already operating in Austin, Texas, and both of those were important considerations.”

Aurora Diagnostics describes itself as an “independent specialized laboratory company focused on anatomic pathology at 25 locations in the United States. Employing over 130 licensed physicians, Aurora Diagnostics provides high-quality diagnostics and testing information” to referring physicians and to “more than 60 community hospitals.”

In addition to acquiring the two prac- tices and its 11 pathologists, Aurora also acquired ProMedX Billing Solutions, an entity majority owned by Pathology Resource Consultants, LP, that focuses on billing services, Cohen said. “Aurora did not acquire Pathology Resource Consultants, a pathology practice man- agement firm,” added Cohen. “PRC’s consultants will continue to consult with pathologists in other group practices.”

After years of deep budget cuts, pathol- ogists are struggling financially. In addi- tion, many older pathologists have retired, closing their practices or selling to larger pathology groups.

Pathology Group’s Sale

However, according to Cohen, neither of those scenarios drove BVP to sell the two practices to Aurora. “The transaction was not designed to fix problems that our pathologists faced in the current market for pathology services,” noted Cohen. “Rather, we wanted to ensure that the 11 BVP physicians had access to the resources of a larger pathology organiza- tion so that they could expand or add technology as needed in the future.

“The market for pathology services in Texas is still robust,” he continued. “Our hospital contracts are solid and the inde- pendent practice of medicine may be stronger in Texas than it is in other parts of the country.

“Our agreements with payers are good right now, but the future is less certain. That’s true everywhere,” observed Cohen. “What is happening among health plans is a concern for anyone who contracts with insurers. For example, Anthem has announced plans to acquire Cigna and Aetna has said it wants to merge with Humana. Those deals could disrupt the market here in Texas.

“Another development was the recent announcement by Blue Cross Blue Shield of Texas that it was pulling out of the PPO market in Texas” he stated. “Who knows what that will do to pathol- ogy services—if anything? We also sus- pect that payers may require at-risk contracts in the future. There are signs that health plans are making such changes now as they prepare to accom- modate the Affordable Care Act.

Preparing For The Future

“All these changes show that we can’t be certain about what will happen in the future,” said Cohen. “We would like to continue to practice independently and this is what I believe will be the best prac- tice model for pathologists going forward. So it makes sense for us to join a larger organization that will allow us to do so.
“Since we founded PRC, our two constituent groups have operated under that umbrella and practice independ- ently,” emphasized Cohen. “In addition, our consulting business has managed other groups over the years, providing services so that pathologists can practice independently.

“BVP was structured so that Pathology Resource Consultants did the accounting and all the backroom functions to support the two practices,” he explained. “That allowed the five pathologists and two pathology assistants at BVP and the six pathologists and two pathology assistants at Trinity Pathology to concentrate on pro- viding pathology services full time. That’s what they went to school for and that’s what they wanted to do.

Pathology Best When Local

“When you look at what’s happening across the country, pathology is like most specialties in medicine in that it’s best practiced locally,” he said. “Therefore, to succeed, specialists like us need to continue to prac- tice locally. There are models of pathology practice that haven’t allowed pathology groups to function independently, and I believe those systems don’t allow patholo- gists the appropriate level of freedom for them to practice most effectively.

“We thought that the system Aurora developed seems to respect the traditional practice of pathology with enough support so that our pathologists can be profession- ally satisfied and successful,” explained Cohen. “This benefits the pathologists, the medical communities they serve, and Aurora Diagnostics.

Pursuing Independence

“I’m biased, of course, but I believe the best model for pathologists is for them to develop relationships with the physicians in their communities and with their local hos- pitals,” declared Cohen. “After all, we’re in the business of reporting results and that work is still very personal and important. It’s why pathology at the point of care works best. In our conversations with Aurora, we saw that same philosophy.

“Equally important was our view of pathology’s future,” he continued. “We realized that we pathologists will need to have a larger organization behind us. In the coming years, it will become more difficult, if not impossible, to practice in smaller groups that have just four, five, or six pathologists.

“Aurora is a larger organization that has the technical expertise to continue to deliver pathology services into the future,” added Cohen. “Aurora Diagnostics also has the administrative support we might need in the coming years. That includes such resources as enhanced information systems and digital pathology equipment that we may soon require to be competitive and offer more sophisticated diagnostic services.

“It had all of these capabilities that we didn’t have,” he noted. “Because of these reasons, Aurora looked like the right way to go for us. And now we’re all employees of Aurora and we believe that’s the best arrangement for us going forward.

Contracting With ACos

“One last factor that made Aurora a good fit was that we know we will need to contract more with accountable care organizations in the coming years,” emphasized Cohen. “ACOs do not have a very big presence here where we operate, but that is likely to change soon. We felt that we would be able to find out how to work with ACOs by dis- cussing contracting strategies with patholo- gists in any of the other Aurora locations.

“For all these reasons, we think that our merger with Aurora Diagnostics positions us well for whatever happens in the near future and in the long term as well,” he concluded.

Pathologists and their practice adminis- trators should take note of one important element in the reasons for the decision to sell Brazos Valley Pathology and the timing of this sale. The 11 pathologists decided to restructure their business in advance of any negative market changes. As a conse- quence, they had a wider range of sale options than if their practice was under financial pressure.

Contact Michael K. Cohen M.D., at 979-776-2476 or mcohen@bvpathology.com.

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