CEO SUMMARY: As early cases of COVID-19 spread in some states, pathologists at the 50-member ProPath group in Dallas prepared for a widespread outbreak by preserving cash and working with bankers and other advisors to apply for federal stimulus funding. Executives also furloughed pathologists and other staff temporarily before using federal funds to bring them back. Despite a 65% drop in specimen volume, the executives are confident the pathology group can weather the pandemic.
EARLY IN FEBRUARY, physician-owners at ProPath began discussing how to weather the economic effects of the novel coronavirus as the pandemic swept across the country.
Based in Dallas, ProPath is one of the nation’s larger physician-owned pathology groups. At the time, there were no reported cases of COVID-19 in Texas and the group’s normal specimen volume was unchanged. Still, Cory A. Roberts, MD, the group’s President, Chairman, and CEO, and his colleagues became concerned when news reports showed the virus spreading in China, Italy, and other countries, and in New York, Washington state, and elsewhere in the United States.
By the end of February, Roberts informed all staff about the need to prepare for the first confirmed case in Texas of SARS-CoV-2, the virus that causes the illness. “On Feb. 27 I addressed everyone company-wide,” Roberts said in an interview with The Dark Report. “I explained all the steps we needed to follow and the importance of ensuring we practiced good hygiene.
“Texas did not get its first case of COVID-19 until about a week later and the Dallas area didn’t have its first confirmed cases for another couple of weeks,” recalled Roberts. “Our pathology group did not see a drop in specimen volume until the second half of March.
“Rather than waiting for the virus to hit, we anticipated a fall in specimen volume and had to briefly furlough some doctors,” he said. A week later, other physicians in the group were furloughed. Furloughing staff was the most difficult step Roberts had to take in response to the pandemic.
“Simultaneously, we began aggressive cash-flow protection measures,” he added. “We talked to our bankers, outside advisors, outside legal counsel, and our in-house attorney. We gathered information from webinars and conference calls about the pandemic and steps our pathology group should take. Also, our executive team started meeting daily.
“That planning helped us to track the legislation coming out of Congress and to strategize with our bank in advance of the opening of the Paycheck Protection Program (PPP),” Roberts noted. The PPP was built into the Coronavirus Aid, Relief, and Economic Security Act that Congress passed on March 27.
Chasing Stimulus Funds
“We submitted our PPP loan application on Friday, April 3, the first morning they were accepted,” he added. “By about 10 pm we had a loan number and were fully funded late on Wednesday night, April 8. Also, we applied for Medicare Advance payment funds immediately.
“After receiving the PPP funds from the bank, we brought back all our employees and we will be able to keep paying everyone at least through the first week in June,” he said. “By that time, we anticipate specimen volume will be approaching normal.”
One key to ProPath’s success so far was the cash-flow model that CFO John Stokes and colleagues designed in March. “The model showed adequate cash on hand through July, even with severe volume drops and no federal relief,” he reported. “That gave us confidence that our pathology group was well positioned and would be fine until the work came back and specimen volume picked up.”
Conservative Spending Plan
As a large pathology group, developing the financial model in response to the COVID-19 outbreak was a challenge. “We’re the largest, 100% physician-owned nationwide pathology practice in the country,” Roberts said.
ProPath has an 85,000-square-foot campus on five acres in Dallas that accommodates staff offices and the main corporate lab. The team includes about 50 pathologists and almost 500 employees, including sales and support staff in 10 states. ProPath’s pathologists serve as medical directors in 26 Texas hospitals.
In February, ProPath acquired a two-member pathology practice in Fall River, Mass., its only anatomic pathology operation outside of Texas.
During the last two weeks of February and the first week of March, ProPath built its cash-flow model on conservative spending. “Our group halted all travel and capital spending,” noted Roberts. “By early March, we closed the job searches we had for all 22 open positions and began reviewing small-dollar spending,” he said. “We then started to hold back on some accounts payable items to conserve cash.
“We were well prepared by the middle of March, and that’s before we saw the number of case referrals fall lower and lower as each day passed,” Roberts reported.
Volume Dropped in March
“The first week or two that referrals declined occurred during spring break season, which is a big deal here in Texas,” he said. “Typically, our group sees a dip in specimen volume during March for that reason. So, it was difficult to separate the true causes. But then, from about March 16 on, our volume started gradually dropping until by the end of the month when we had a significant fall off.
“In fact, by the end of March, incoming case referrals were down to just 30% of normal outpatient biopsy volume,” he explained. “Our primary business is outpatient biopsies and testing in addition to inpatient cases. “Normally, the tissue volume we process in our laboratory averages about 2,400 blocks a day,” Roberts added. “But, by the end of March, we were doing only about 600 blocks a day.
“As April ended, our biopsy specimens were down by 65%, compared with the same month last year,” said Roberts. “Our pathology group also does other work, such as flow cytometry, cytogenetics, molecular, and so on,” he added. “Molecular testing may be down only about 25% from normal volume.
“All of this other work was impaired less dramatically, and, so far, has remained insulated from the severe drop we saw in biopsies,” noted Roberts. “Case referrals were down by 30% for our consulting service that includes esoteric testing, such as flow cytometry and bone marrows.
“Another part of our business comes from a consulting service where other pathologists send cases to our subspecialist pathologists for review,” he noted. “That work has remained somewhat insulated too.”
ProPath also does testing for women’s health. “The volume in women’s health is down about 40% to 50% from normal volume,” he noted.
Flow Cytometry, IHC
In flow cytometry and immunohistochemistry, the decline in volume is not as deep as it is in biopsies. “Normally, each day we do about 25 specimens in our flow lab,” he explained. “The decline in this segment of our business is hard to quantify but the dip was mild, started later, and came back quicker. We also do several hundred immunostains a day for other labs. We send those slides back out to the referring labs. That was another part of our business that was much less affected.”
Such a steep decline in specimen volume and case referrals through March and April required furloughing some pathologists and other staff. “As a physician, you never contemplate either furloughing staff or being furloughed,” he commented. “So, that decision was a tragic and devastating component of this pandemic.
“Going into the last week of March, as our pathology group saw the crash in volume, a number of fantastic physicians were furloughed on a Sunday night,” he continued. “The following week, a few additional physicians were furloughed when it became clear that the number of specimens was still way below normal. At this time, applications for PPP funding were not even open.”
Pay Cut for Owners
In addition to conservative spending and staff furloughs, the physician owners agreed to a pay cut. “Owner compensation was cut by 50%, retroactive to March,” Roberts reported. “The owners also agreed not to take any pay in April or in the coming months.
“We felt it was important for owners to be the first dollars cut and the last dollars returned,” explained Roberts. “Our strategic plan was to act quickly to ensure longevity and hope to return some of those savings to employees after the crisis. “Also, we made cuts in compensation among salaried team members, specifically to keep as many people on the payroll as possible, even at lower pay rates,” he added.
This was happening during the time Congress was developing the trillion-dollar legislation that included the payroll protection program, but before it was signed into law. “Within days of implementing the second round of furloughs, the PPP funding was in our bank account by Thursday, April 9,” he reported. “So, we looked at the dollars and the forgiveness factors and decided on Friday, April 10, to bring all employees back under the parameters of the PPP.
Group Is Conserving Cash
“At this moment, financial modeling indicates our pathology group should be good until the first week of June,” noted Roberts. “That’s when the funds from the PPP end. Our projects indicate our group will have conserved enough cash and the current plan is to keep everyone after that date.
“Even though the group doesn’t have enough work to justify retaining that many staff, we’re at least able to pay people something,” concluded Roberts. “Now, because of our aggressive measures early on, I’m quite hopeful we’ll be able to restore people at the end of the PPP period, even if we don’t have the income volume of case referrals to match that level of payroll.”
Back in February, ProPath’s leadership team showed unusual foresight when it recognized that the earliest cases of COVID-19 showing up in Europe and North America could indicate a serious outbreak of the novel coronavirus. That triggered strategic planning and urgent development of a crisis response plan that proved to be prescient.
Global COVID-19 Pandemic
This proactive response to the earliest signs of what quickly evolved into a globalpandemic enabled ProPath to quickly identify how the rapid decline in the dailynumber of incoming case referrals wouldrequire immediate action. Pathologists and pathology practice administrators may want to study the actions ProPath is using to protect the financial position of the group while keeping as many of the pathologists and lab staff on the payroll as possible.
While Normal AP Volume Remains Low, Physician Staff Takes on New Responsibilities
ONCE FUNDING ARRIVED LAST MONTH through the federal Paycheck Protection Program (PPP), the 50-member ProPath group in Dallas brought back physicians who were furloughed in March. Because the group’s anatomic pathology (AP) specimen volume still remained low due to the virus, the pathologists needed new responsibilities, said Cory A. Roberts, MD, the group’s President, Chairman, and CEO. Roberts viewed the unused staff capacity as an opportunity.
“We have an aggressive plan to move ahead on a number of research projects,” he said. “Before specimen volume fell sharply at the end of March, these projects were secondary priorities. Now, they have new urgency.”
One such priority is to validate a new Aperio AT2, the whole-slide imaging (WSI) system that ProPath acquired from Leica Biosystems in December. A second is clinical research with academic partners, and a third involves developing artificial intelligence for use in AP.
“Early in the year, we were validating the WSI system because it was a big part of our business plan for 2020,” he said. “We expect digital pathology will generate revenue and provide a good return on our investment. “For example, we expect increased compensation for breast prognostic work using WSI. For that work, there’s a higher reimbursement level than with conventional slide review.
“We also are validating that system for primary diagnosis and expect to use digital pathology for a growing portion of our outpatient work—meaning the 2,400 specimen blocks we review each day,” Roberts added. “Using WSI, we can transmit those images to our doctors in other hospitals rather than use couriers.”
Accelerated DP Validation
WSI validation ended when pathologists were briefly furloughed in two waves late in March. “As we brought pathologists back, we didn’t have clinical work for them. So we developed plans to accelerate the validation,” he noted. “We also accelerated research projects we’re doing with academic medical centers,” Roberts said. “The pathologists who are not doing clinical work are now writing academic papers full time.”
In a separate strategic initiative, ProPath is working with Reveal Biosciences, a company in San Diego developing artificial intelligence to increase accuracy and reproducibility for WSI. “We have about 15 projects with Reveal to develop accurate clinical diagnosis tools for artificial intelligence that use their analytic models for anatomic pathology,” Roberts said.
Contact Cory Roberts, MD, at 214-237-1641 or Cory.Roberts@propath.com.