CEO SUMMARY: Here is first confirmation that Pathology Consultants of America has indeed purchased American Pathology Resources. The combination of the two pathology-based physician practice management companies demonstrates that the pathology industry is on the verge of rapid transformation.
PATHOLOGISTS SHOULD EXPECT 1998 and 1999 to be years of fast-paced, even radical change. Traditional business models of pathology are about to undergo rapid transformation.
The catalyst for this change is the nascent trend involving pathology-based physician practice management (PPM) companies. Evidence to confirm the reality of this impending transformation comes from the announcement by Pathology Consultants of America (PCA) that they signed a definitive agreement to acquire American Pathology Resources (APR). Both companies are headquartered in Nashville.
“Discussions were launched between our two companies in late December,” stated Brian Carr, President of PCA. “The definitive agreement to purchase was signed last Thursday. We expect the sale to close by April 30.”
Terms of the deal were not revealed. It was a stock for asset purchase and involved no cash. It was known that APR was struggling from the debt burden and financial terms relating to its buy-out in 1994 from former owners Laboratory Corporation of America. Prior to the buy-out, APR was known as Reference Pathology Laboratories.
Strategic Business Plan
“Our strategic business plan gets a big lift from this acquisition,” noted Carr. “In particular, APR’s two anchor practices in St. Louis and Nashville are perfectly matched to our market model. Both practices are respected regional providers with strong market presence. In fact, APR brings us seven pathology practices and 41 pathologists. This brings to 71 the number of pathologists managed by PCA.”
From THE DARK REPORT’S perspective, the more interesting aspect to this transaction is the fact that PCA will retain certain members of APR’s executive team, for very good reasons. PCA’s interest in APR’s executives reveals much about the management directions PCA intends to pursue.
“We got a very competent management team that did some remarkable things at APR during the last 18 months,” noted Carr. “Lawrence Kloess III was APR’s Chief Operating Officer. For us he will become Vice President of Operations. David Bourgeois was Senior Vice President, Acquisitions. At PCA he will become our Vice President of Development and Strategic Planning. Rick Ferguson, APR’s Vice President of West Coast Operations will join us as Vice President of Operations.”
“What we do is sell our ability to execute strategies in a local market as a partner with the pathologist,” explained Carr. “We do it with a parallel financial incentive model. So what we sell is only as good as the management people on our team. That is why we appreciate what the executives at APR accomplished during the last year.”
According to Carr, American Pathology Resources originally started out as an employee model PPM. “Back in 1995, APR went to market with this employee model PPM,” observed Carr. “For a lot of reasons, it was not successful. Late in 1996, APR reinvented itself.
“APR restructured itself into an equity model pathology PPM. In late 1996, it became an equity partner with an eight-pathologist practice in St. Louis,” he continued. “During the past year APR built an off-site histology laboratory. During the same year, this practice expanded. It now numbers 20 pathologists and enjoys a diversified and growing revenue stream.
Different Business Plan
“From our perspective,” said Carr, “it was no small accomplishment for the management team at APR to successfully reposition the company from an employee model PPM to an equity model PPM. Its successes, like the St. Louis project, demonstrates the capabilities it adds to PCA.
“At PCA we are building for the future,” he explained. “We believe that it is the quality of the people on our management team which creates success. Our philosophy is built upon creating value for our practice partners.
“For example, we told our Denver practice that it was impossible for us to build value for them from Nashville,” Carr continued. “The way we would build value for them is with an on-site practice administrator in Denver. This is the person who is local and who will execute the day-to-day strategy. This individual will manage the sales force. He will negotiate managed care contracts. He will be out in the community to build the pathology practice’s presence in the market.
“PCA will always have significant pathologist ownership and direction. It is a company that was created by pathologists for pathologists. That makes it unique among pathology PPMs operating today.”
“That is how you build value. Our job at headquarters in Nashville is to give that practice administrator the tools, the support and the leadership to make things happen in Denver, where it counts. We understand that it is good management execution at the local level which makes the difference. It is the ability to block and tackle better than the competition which insures financial success and a growing market share for our pathology practices in each community.”
PCA’s acquisition of APR serves notice that this new pathology PPM intends to become an aggressive, profitable competitor in the marketplace. Expect to see Pathology Consultants of America move swiftly to carve out its place in the pathology marketplace.