“October 15, 2001 Intelligence: Late Breaking Lab News”

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It’s a sign of the times for managed healthcare. Pacificare Health System, Inc. will offer its first preferred provider organization (PPO) health plan. the PPO is being marketed in California, Oklahoma, and Texas. Enrollment starts this month. Until now Pacificare’s business model was solely built around a fully-capitated, provider-assumes-all-risk arrangement. But during the past 24 months, increasing numbers of hospitals and physician groups refused to accept capitated, full-risk contracts. This forced Pacificare to shift its business model away from capitation.


Here’s one reason why Pacificare is abandoning its fully capitated-total risk business model. The California Department of Managed Care reports that only 44% of the state’s more than 200 medical groups meet all financial solvency standards required by regulation. Below-cost reimbursement from HMOs is a major source of near-bankrupt conditions among many physician groups in California.


It’s another nail in the coffin of the PPM (physician practice management) business model. U.S. Oncology, Inc., based in Houston, Texas, announced a plan to allow its 50 or so oncology practices to buy back their independence at a big discount. Financing, secured by the practice’s own accounts receivables, will be available to expedite the sale. U.S. Oncology, after abandoning the PPM business, feels it has a better future offering services in the oncology pharmacy market.


After the collapse of large multi-specialty PPMs such as MedPartners, PhyCor, and FPA Medical Management a couple of years ago, it was believed that single-specialty PPMs were more viable. But the fate of the six pathology PPMs that received venture capital funding is instructive. Two of these, Pathology Partners, Inc. in Dallas, Texas and U.S. Labs, Inc. in Irvine, California quickly adopted a different business strategy entirely. Of the remaining four, Inform DX, Inc. (formerly Pathology Consultants of America) ended up acquiring financially-ailing American Pathology Resources, Inc., (APR) and PathSOURCE, Inc. But, with its own financial problems, Inform DX was acquired last year by AmeriPath, Inc., which continues to own and operate pathology practices in 21 states.

There’s an executive search underway at Specialty Laboratories, Inc. of Santa Monica, California to find a new vice president of sales and marketing. The position opened up when John Littleton, the former VP of sales, resigned on September 28.Littleton was part of the executive team which generated strong revenue growth in recent years and positioned Specialty Labs for its successful initial public offering (IPO) last fall. Littleton says he intends to take a sabbatical through the end of the year before considering other opportunities in the laboratory industry.


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