CEO SUMMARY: Pathology Partners, Inc. got a new President and CEO this month. The company is organized to build and operate independent regional histology and cytology laboratories in support of anatomic pathologists. Its business model is different than competing pathology companies and Pathology Partners believes that it will be well-positioned as integrated clinical care becomes the norm.
IS THERE MONEY TO BE MADE operating regional histology and cytology laboratories in support of anatomic pathologists?
Pathology Partners, Inc. of Dallas, Texas believes the answer to this question is yes. The company, now in its third year of operations since receiving $20 million of venture capital funding, is carefully building an infrastructure of regional histology and cytology laboratories.
Pathology Partners was originally organized to be a pathology physician practice management company (PPM). The financial problems of the PPM industry, along with rapid changes to the pathology profession, led the company to shift its strategic focus away from the acquisition and management of pathology practices. Instead, the company is developing regional pathology laboratories.
Earlier this month, Pathology Partners selected Stephen Spotts to be its new President and CEO. Spotts was promoted from his position of Vice President and Chief Development Officer. He replaces Richard D’Antoni, who recently left the company to pursue other interests.
“This is an exciting time for us,” stated Spotts. “On May 1, we opened up a new laboratory in Birmingham. We expect to have another new laboratory operational in Dallas by July 1. These lab operations put us into two new regional markets.”
Different Business Strategy
Pathology Partners has a different business strategy than other national pathology companies. “Typically, competing pathology firms generate increased test volumes by sending sales reps directly to physicians,” explained Spotts.
“This is not our core business,” he continued. “Instead, we identify outsourcing opportunities for anatomic pathology work. We want to provide histology and cytology services to hospitals, surgicenters, and large pathology group practices, preferably under a contract outsourcing arrangement.”
In simplest terms, the business plan at Pathology Partners is to build and operate pathology laboratories in various cities around the United States. This is a different and unique business model for regionalizing pathology services.
Pathology Partners’ first regional pathology lab was constructed in Miami. “During the time when our focus was on pathology practice management,” stated Spotts. “we purchased Histopathology Consultants, a 12-pathologist group. We then constructed a 12,000 square foot laboratory.
Serves Three Hospitals
“Under outsourcing agreements, our Miami laboratory serves the Mercy Hospital (512 beds), Cedars Medical Center (575 beds), and Aventura Hospital and Medical Center (407 beds),” added Spotts.
“Our second laboratory was built in Conroe, Texas. We purchased two small labs in Houston and consolidated them. Our lab has outsourcing contracts to serve three hospitals. We anticipate a fourth hospital will be added shortly. We will also provide services to ambulatory surgery centers in Houston that are owned by HEALTHSOUTH Corporation.”
“On May 1, our new laboratory in Birmingham, Alabama became operational,” he said. “This laboratory serves two acute care hospitals owned by HEALTHSOUTH, plus seven HEALTHSOUTH ambulatory surgery centers located in Alabama.
“Dallas is our newest market,” Spotts added. “On July 1, this lab will begin operations. It will provide services to one HEALTHSOUTH acute care hos- pital, along with seven HEALTH- SOUTH ambulatory surgery centers in the Dallas market.”
As a business strategy, Pathology Partners thinks it has an unserved market niche. “There are many smaller hospitals which find it expensive to maintain a pathology laboratory. This is particularly true of rural hospitals.” observed Spotts. “These facilities have a difficult time in hiring and retaining histotechs. To control expenses, they often cut back service hours, but this doesn’t meet the needs of the hospital’s medical staff.
Physician Solutions Firm Evolved Into Path Partners
Many pathologists remember the flurry of recruiting activity that pathology physician practice management (PPM) companies conducted during 1995-1997.
One company that was ever-present at pathology meetings throughout the country was Nashville-based Physician Solutions and its President, Harold Roe. When Physician Solutions finally landed its venture capital funding in early 1998, the decision was made to make Dallas the headquarters. Shortly thereafter, Physician Solutions had a new President and CEO, Richard D’Antoni, and a new name, Pathology Partners.
“We believe that we can offer better service to such facilities,” noted Spotts, “while at the same time helping them control costs. To date, our experience bears this out. Hospitals and surgery centers recognize and appreciate the increased levels of service we provide.”
One interesting aspect of the Pathology Partners business model should intrigue pathologists. Unlike existing pathology PPMs, Pathology Partners does not want: 1) to buy or manage pathology practices; nor 2) to compete for specimens. Its regional histology laboratories are company-owned and company-operated facilities that prepare specimens which will be diagnosed by area pathologists.
“We prepare the anatomic pathology specimen in our laboratory. These slides are then sent to the appropriate pathologist for evaluation,” explained Spotts. “That means we do not compete with local pathology practices for specimens. The pathologists get the professional component for their work, and in many cases, we actually generate increased specimen volumes for the pathology practices that contract to work with our laboratory.”
Pathology Partners’ working relationship with HEALTHSOUTH is another asset. “As we looked at the market- place, we saw that anatomic pathology specimens originating from surgery centers and similar sources were an underserved market,” said Spotts. “Generally these sources are not well- served by nearby hospitals because of the difficulty of doing frozen sections.
“We want to serve this unaddressed market segment,” he continued. “It allows us to build our anchor laboratory in that city. We then intend to expand that pathology lab into a regional ‘super-lab’ that offers histology and cytology services beyond the 30-mile radius that is typical of most pathology labs.”
This unique business plan of Pathology Partners was a direct response to the changed circumstances of the PPM business when Pathology Partners completed its venture capital funding. During the past 24 months, the company has moved carefully to redirect its business priority toward the construction and operation of histology and cytology laboratories.
“Within our company, the level of enthusiasm is at its highest levels,” stated Spotts. “Support from our board and venture capitalists is strong and without reservation. Performance of our first regional laboratories gives us confidence that our business strategy is right on target.”
Among the members of Pathology Partner’s Board of Directors are venture capitalists and outside directors which include James B. Powell, M.D., President of TriPath Imaging, Inc. and formerly President and CEO of Laboratory Corporation of America, and Louis Villa, Jr., M.D., President of Histopathology Associates.
…Pathology Partners is another example of the evolutionary experiments in the healthcare marketplace that are creating new pathology business models.
In recent years, Pathology Partners has been one of the quieter companies on the national pathology scene. However, that may be changing. If its budding relationship with HEALTHSOUTH continues; and if smaller hospitals find it appealing to outsource histology and cytology, then Pathology Partners might be able to expand into new cities at a fairly swift pace.
More importantly, if Pathology Partners demonstrates that outsourcing histology and cytology can be a profitable business, then it will be first to establish a new business model within the anatomic pathology profession.
THE DARK REPORT observes that Pathology Partners is another example of the evolutionary experiments in the healthcare marketplace that are creating new pathology business models. Moreover, the Pathology Partners business model is organized specifically to regionalize this aspect of anatomic pathology services.