CEO SUMMARY: Doctors Pathology Services in Delaware is successful for two reasons. First it runs the largest pathology lab in the state. But more important, it runs one of the few successful mobile pathology services anywhere. The Mobile Intraoperative Consultation Service(MICS)allows the pathologist to do pathology work on site at ambulatory surgery centers, physicians’ offices, or hospitals as needed. The MICS also allows the market directly to physicians, as well as to meet with patients. It’s a business model that offers many advantages for entrepreneurial pathologists.
THERE IS A NEW BUSINESS AND MARKETING MODEL for anatomic pathology (AP) in Delaware. It is both mobile and office-based, and deals directly with surgeons and other physicians working outside of hospitals.
Raman (Ray) Sukumar, M.D., Medical Director of Doctors Pathology Services (DPS), in Dover, Delaware, started his mobile anatomic pathology business three years ago and is already adding both more clients and more mobile laboratory vans. He spoke about his business strategies and experiences at the Executive War College in Miami last May 9-10, 2006.
Three years ago Sukumar moved into leased space in Dover to start up his new mobile pathology business, which he calls MICS, or Mobile Intraoperative Consultation Service. MICS is a state-of the-art alternative to hospital-based anatomic pathology services.
It is this fact that sets Sukumar’s anatomic pathology business model apart from anything existing today in the United States. What Sukumar accomplished since the founding of his AP practice three years ago defies the common wisdom in anatomic pathology.
Essentially, Sukumar established a pathology laboratory in an office building, and then developed a steadily growing general anatomic pathology practice including cytology, autopsies, and second opinions, that serves office-based physicians, ambulatory surgery centers, diagnostic imaging centers, and other outreach clients.
Meeting A Growing Demand
Sukumar has achieved this business success without any links to hospital-based pathology groups, nor by performing services for hospital inpatients and outpatients. This pathology service business model is unusual precisely because it is totally disconnected from a hospital. That distinguishes it from almost every other pathology group practice in the United States—groups which are organized primarily to serve the needs of hospital inpatients. Most of these pathology groups then pursue outreach testing as an important supplement to their hospital-sourced revenue. Not Sukumar.
“In Delaware, the increasing number of ambulatory surgery centers (ASCs) created a service demand that was unaddressed by hospital-based pathologists in this state,” Sukumar explained. “I wanted the ability to deal directly with the surgeons and provide services they were unable to get immediately.
Reluctance To Compete
“Hospitals and hospital-based pathology groups often have difficulty developing new models and competing equally with commercial laboratory companies,” he continued. “This reluctance to respond to market changes, as well as the opportunities unfolding in Delaware, was frustrating. I decided to take control of my personal practice of pathology and become independent from any hospital.”
Sukumar’s vision of a new service model for anatomic pathology was not without risk. But the clinical and business opportunity was compelling. “To my knowledge, this business model had no precedent, yet I could see how it could add value to referring clinicians and benefit patients,” he said.
Sukumar spent six months planning and preparing to launch the business. This time was spent interviewing prospective physician-clients about their pathology needs and preparing a proto-type mobile histology van. He retained consultants to assist in business planning and implementation.
The consultants helped establish the information system; guide development of DPS’ Web site, brochures, and forms; obtain CLIA certification for the lab; buy instruments; and get a loan. Sukumar worked on designing the van, leasing space, hiring the right team of people, and organizing insurance contracts.
In launching his new pathology business, Sukumar believed it was important to emphasize the clinical value that his pathology services could bring to referring physicians. He holds three board certifications in pathology and he has a long-standing track record of providing high quality, low cost services.
“I wanted to deliver pathology services with the sophistication of an academic center, but in a way that enhanced the physician’s personal practice of medicine,” noted Sukumar. “This goal led me to the current service model we use today.
“Because this business model of pathology was unknown, we had to create everything ourselves, matching our capabilities to the different needs of office-based physicians, ASCs, and other referral sources,” he added. “When we thought we were ready to open our doors, we did a dry run for a week. The goal was to perfect the front end of the laboratory to guarantee an excellent first impression with clients.”
The linchpin to Sukumar’s business strategy was a mobile pathology van. “The van would travel to client sites so that we could provide frozen sections and adequacy for fine needle aspirations (FNAs),” he said. “But since we provide what is not available to them, they give us all their other tissues that our transporters take back to the lab for regular processing.” Setting up a histology laboratory for frozen sections in an ambulatory surgery center (ASC) proved to be expensive—both in equipment and employees.
On the other hand, Sukumar recognized that providing pathology services at the ASC or physician’s office would give his company competitive advantage. Thus, he decided to bite the cost bullet and proceeded to take the frozen section equipment to the surgical centers and provide real time results, confer with the surgeons, and be available to talk with patients.
Lab Business Start-Up Costs Required About $700,000
RAMAN (RAY) SUKUMAR, M.D., Medical Director of Doctors Pathology Services (DPS), in Dover, Delaware, estimated that starting up DPS required a capital investment of about $700,000.
This total included $50,000 to build out and outfit a laboratory of 3,000 square feet, $100,000 for instruments and microscopes, $20,000 for start up supplies, $10,000 for labor and travel, $250,000 for information systems, and $70,000 in start up cash.
An additional $200,000 went into the Mobile Intraoperative Consultation Service (MICS), Sukumar explained. “A new MICS van costs $200,000, and about $4,000 a month to operate. This includes insurance, lease payments, and driving 50 miles a day,” Sukumar said. “The daily costs are equivalent to reimbursement for one patient frozen section or one FNA per day.”
To estimate the monthly revenue for the MICS and the stationary lab, Sukumar projects revenues of about $275 per surgical accession or $175 per 88305 Level IV surgical pathology, gross and microscopic.
Laboratory On Wheels
“One of our biggest challenges was perfecting the van,” recalled Sukumar. “We want to make sure that the histology van worked perfectly when at a client’s office or ASC. We plan to have the patent rights by the end of the year. We worked with a former Chrysler engineer and an RV builder to design the inner workings, the necessary connections, and fine details.
“Much hard work went into our prototype,” he said. “The end result, however, is an office and laboratory on wheels. It’s been the perfect solution for a one-pathologist service.”
Sukumar’s goal of serving ambulatory surgery centers puts him at the center of one of healthcare’s fastest-growing clinical services. The number of ASCs increased by 50% from 1997 to 2003. Among Medicare certified ASCs, 40% are concentrated in five states: California, Maryland, Florida, Texas, and Washington.
Many of these ASCs are independently owned. Local physicians often share in the ownership. It is common for these physicians to join with hospitals or to partner with a larger for-profit company that specializes in building and operating ASCs.
Full Line of Path Services
Sukumar points out that the fastest growing procedures done in ASCs, endoscopy centers, and physicians’ offices include minor musculoskeletal procedures, minor general surgeries, breast biopsies, skin lesions, colonoscopies, and upper gastrointestinal endoscopies. Insurance plans are recognizing the clinical and economic benefits of these services and an ever-increasing number of payers cover these procedures. New technology also supports closed surgical techniques. For example, the new technology of fast-acting anesthetics now make it possible to perform certain procedures in an ASC.
Sukumar’s business strategy is simple. “We provide the full line of pathology services,” he said. “We start a relationship by offering on-site frozen section and FNA adequacy services. Most physicians are delighted when they learn that a pathologist will come to their location and provide a real-time diagnosis. As they learn about our quality and service, we then gain entrée to the physician office work.
“Using this business formula, DPS has grown rapidly over the past three years,” continued Sukumar. “It is now positioned for additional growth in all areas, including plastic surgery, ENT, GI, ob-gyn, FNAs, tumor markers, muscle biopsies, skin, bone mar- rows, podiatry, endocrinology, and veterinary pathology.
“One of us drives to the ASC in the van, which is equipped like a pathologist’s office and includes the equipment necessary for cutting, staining, and reporting—all the aspects needed for frozen sections,” Sukumar explained. “While on site with a client, I take the opportunity to develop relationships and conduct marketing discussions with the surgeons, physicians, and nurse practitioners at the facility.
“Some sites have as many as 20 to 40 surgeons, so it is very productive for me to personally introduce myself and my pathology services to these physicians,” he added. “It is actually a powerful way for me to sell my pathology practice because I am a doctor presenting my clinical services to other doctors. Physicians like the fact that they know me personally and I am willing to travel to their site to provide real-time pathology services.”
Staffing For Service
Since the launch of the business in May 2003, DPS has grown rapidly and become profitable. “We started with seven full time employees,” said Sukumar. “We now have 25 people on staff, which equates to 16 FTEs.
“The breakdown of staff physicians shows the breadth of technical capabilities in our laboratory,” he added. “There are 2.6 pathologists; 1.2 cytologists; 1.0 molecular technologist (who is in management training); 1.0 administrative manager, who works as a pathology assistant 50% of the time; 1.0 histology technical manager; 3.5 histology techs; and 6.7 FTEs for other support positions. Also, the plans are to expand our MICS service with the mobile laboratory. So the company will be looking for a new pathologist to run DPS. At that point, I’ll be searching for a special person who would work with us.”
In addition, Sukumar has hired a physician with three years of experience in molecular research and development in China. “This addition makes it possible for our pathology company to be more involved with molecular research projects at universities,” explained Sukumar. “This also positions DPS to be first at introducing new diagnostic procedures to its client physicians.”
Move To A Larger Lab
One indication of the practice’s rapid growth is the fact that DPS moved to larger laboratory facility in October. Currently the laboratory serves an average of 70 patients per day.
“The new laboratory contains about 10,000 square feet of space and is one of about 30 labs in the United States that provides PCR-based testing for sexually-transmitted diseases (STDs) and genetic testing from liquid-based cytology,” Sukumar noted. “We can provide cytology, GC/CT, and HPV all from one vial. We perform immunohistochemistry, FISH, ISH, DIF, special, and routine stains.
Quality and service is a given and Sukumar stays on top of both. “We have 48-hour turnaround time (TAT) with 24/7 accessibility,” he said. “Our front end staff is exemplary. We have comprehensive, easy-to-read reports with uniform reporting formats.
“We provide periodic monthly quality assurance (QA) data for our clients, so they can see how they are involved in the laboratory process,” continued Sukumar. “QA is an important aspect of the laboratory. Errors are monitored by the Rollover Monitoring System using CoPath. We divide the monitors into groups, including client errors, front-end errors, grossing errors, technical errors, transcription errors, and pathologist errors.”
Sales development is ongoing at DPS and emphasizes pathologist-to-physician contacts. “Most of our work comes from networking, and referrals. We choose our expansion wisely,” stated Sukumar. “We are careful to assess each regional market that we enter. We choose not to take on work that is not our strength. We do only what we do best.
“Factors we consider in our marketing efforts include case mix and volume in a market, reimbursement rates, amount of self pay, and the likelihood of collecting,” he explained. “With slim profits from some insurance companies, we monitor our billing results closely. We outsource billing and monitor the results.”
Delaware’s Largest AP Lab
Over the past three years, Sukumar and his staff have become the largest anatomic pathology service in Delaware. DPS offers specialties in hematopathology, cytology, dermatopathology, uropathology, and GI pathology.
“Our business strategy is to remain in the Delaware area and become a pathology service for pathologists,” he explained. “We will help set up community-based pathology services. We can now also direct hospital AP and CP services and provide pathology services to ASCs and diagnostic imaging centers (DICs). We will help set up pathology labs, provide locum tenens services for small groups, and provide rapid and low cost consultation services where needed. We also have mobile histology vans (MICS) that we can franchise and plan to have a booth at the Federated Ambulatory Surgery Association (FASA) annual meeting in New Orleans in April 2007.”
Business growth has provided sufficient cash flow to pay off all loans and produce a monthly net profit, he said. Having cash flow and a modest profit allows Sukumar to give employees education benefits, a profit sharing plan, and to offer four-day work weeks.
Ray Sukumar, M.D. Shares Lessons Learned During Business Launch
FOR THOSE PATHOLOGISTS considering a mobile pathology service, Ramen (Ray) Sukumar, M.D., Medical Director of Doctors Pathology Services (DPS), in Dover, Delaware, suggests using the Medicare fee schedule as expected revenue. Doing so means the pathologists would need to keep all costs low. Sukumar offered the following lessons learned during the launch and operation of his pathology practice:
•Keep the organization flat. Have no VPs and supervisor titles.
•Become a member of buying clubs. Buy previously-owned vehicles for transportation.
•Hire tech-savvy support staff, college graduates, and reliable part-time staff.
•Hire only those techs that can gross.
•Hire a bookkeeper and keep close tabs on expenses and revenue.
•Set up an easy-to-use, flexible laboratory information system.
•Save by scanning requisitions and other important documents.
•Rent or lease lab space. Don’t buy.
•Build a diversity of clients. Don’t count too much on one large client. “In the first seven months we lost 40% of our work overnight due to a change in an insurance contract,” Sukumar said.
•Don’t count on patients paying their bills.
•Outsource billing, and get the billing company to arrange contracts for you.
•Don’t bargain on fees. Get the con- tracts first. Next, demonstrate how important your pathology services are to the physicians. Then renegotiate contract terms.
•Provide patient education to clients so that patients better understand pathology and lab services. This educates and encourages patients to pay.
•It is imperative to get perfect front end demographic data.
•Have a second person do QA on the data entry, which prevents back end corrections and rebilling—both costly and time-consuming steps.
Sukumar recognizes that his pathology practice business model is unusual, but he believes it is a model other pathologists should emulate. “In almost any community in the United States, an office-based pathology practice like DPS can profitably provide services to the many physicians who practice in offices and/or who operate ASCs that are not affiliated with hospitals.
“What’s more, in healthcare, there are several areas where growth in demand for pathology services is substantial and increasing,” continued Sukumar. “There is growth in ASCs, endoscopy centers, and diagnostic imaging centers (DICs) in Philadelphia and in Washington, D.C. We will use our second mobile van to expand into these two markets.
“In addition, we believe we provide better service than national lab companies,” Sukumar continued. “Look at what we bring to the table. We know the physicians, we live and work in the community, and we can physically be at their site when they need us. We have the expertise and the knowledge, and we bring surgeons a level of pathology services they can get from few other sources.
“These surgeons appreciate their relationship with us, particularly since we provide that extra level of service to their patients. They feel they get the best of both worlds—the academic-level pathology service that includes the latest diagnostic technology and knowledge, delivered by an efficient, well-run operation.”
Freedom From The Hospital
For Sukumar, there are significant other advantages from running a mobile lab. “I particularly like the freedom from hospital bureaucracies,” he offered. “The system of non-profit hospitals is one source of the expensive and often unreliable care delivered in this country. Hospitals are frequently slow to react to physician and client needs. Their clinical decisions often don’t involve the physicians who bring in the business. They often don’t have the cash or the interest to support entrepreneurial development, and their accounting systems are inefficient at finding the true cost of service.
“That is why there is change within the healthcare system and the steadily growing number of ASCs and DICs are taking work away from hospitals,” he observed. “In the past, it was necessary for physicians to be closely connected with their local hospitals. But today, there are compelling advantages for physicians to refer their patients to non-hospital facilities.”
THE DARK REPORT observes that this trend of physicians moving away from hospitals is the fuel that propels growth in Sukumar’s operation. Progressive pathologists and pathology practice administrators would be well served to study Sukumar’s new pathology business model and adopt its best features into their own practice environment.
DPS’ success and early growth validates Sukumar’s vision, hard work, and commitment to client service. What’s more, Sukumar’s timing is perfect. ASCs now provide physicians with more control over the procedure scheduling for surgeons and financial opportunity. So too does the mobile histology van (MICS) business concept provide pathologists with a value-added service that can attract all of a physician’s case referrals. It opens the door to larger volumes of specimens and revenue that provide local pathologists with more control over their business while generating increased profit.
Sukumar’s entrepreneurial success is both a reminder and an example to the pathology profession. There is opportunity for a pathologist to build a financially viable practice by providing other physicians with clinical services that have added value and enhance clinical outcomes.