Business Buzz Saw Hits Anatomic Path Firms

Both IMPATH and US Labs cut loose CFOs as each deals with different types of problems

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CEO SUMMARY: In recent years, both companies have enjoyed sustained and rapid growth in offering anatomic pathology (AP) services nationally. The departure of CFOs from both companies, each for different reasons, is a sign that such unbridled growth has created unique problems for each AP company. These problems are probably due to management decisions and not changes in the AP marketplace.

TWO NATIONAL ANATOMIC pathology companies recently replaced their Chief Financial Officers (CFO), each for a different reason.

For any company, replacement of the CFO represents a significant event. It is often a sign that management is grappling with internal problems. Because anatomic pathology services have been a fast-growing segment of the lab testing industry, the shuffling of CFOs at IMPATH, Inc. and US Labs, Inc., based in New York City and Irvine, California, respectively, are significant events.

Negative Cash Flow

In the case of US Labs, the departure of its CFO was unrelated to accounting practices. Apparently the fast-growing AP company has been outspending its revenues. The negative cash flow, also called the “burn rate” by investors, had precipitated a crisis of confidence in the executive leadership of US Labs.

To address the situation, in late April the Board moved Chairman and CEO Mike Danzi to Vice Chairman. It installed R. Judd Jessup as Chairman and CEO. Jessup was formerly President of FHP International’s HMO division, which covered 1.8 million lives in 11 states.

Substantial restructuring is under way at US Labs to bring expenses in line with revenues. One sign of this activity is the transfer of its diagnostic cytology business to Pathology, Inc., based in Torrance, California. This pathology practice has an ongoing business relationship with US Labs. The service change-over for diagnostic cytology services was effective on May 20, 2002.

Knowledgeable sources tell THE DARK REPORT that the investor groups which funded US Labs are looking at different exit strategies for the relatively young company. The negative cash flow is substantial and obtaining more money through another round of venture capital funding is not a desired option.

One interesting aspect to US Labs’ business woes is a nearly parallel situation at Specialty Laboratories, Inc. (See TDR, April 22, 2002 and May 13, 2002.) Both companies are in a financial squeeze, but for different reasons. Credible rumors indicate that officials from both companies have looked at business scenarios that could possibly bring both companies together.


On May 16, IMPATH announced the resignation of CFO David J. Cammarata. In the careful language used by public companies in their press releases, Chairman and CEO Anu D. Saad, Ph.D. was quoted as saying “Dave has made valuable contributions during his eight years at IMPATH and we wish him well in his new endeavors.”

Cammarata joined IMPATH in the years before its initial public offering. Thus, he was responsible for the difficult job of managing the finances of a rapidly-growing company. This included handling issues triggered by the frequent acquisitions that IMPATH used to build its revenue base.

…IMPATH has been under increased scrutiny by Wall Street analysts over its billing practices and how it reports revenues, accounts receivables, bad debt, and days sales outstanding (DSO).

Cammarata’s exit from IMPATH is linked to recent events involving the company. Regular readers of THE DARK REPORT know that IMPATH has been under increased scrutiny by Wall Street analysts over its billing practices and how it reports revenues, accounts receivables, bad debt, and days sales outstanding (DSO).

These issues are related to certain IMPATH business practices which caught the attention of local pathology groups. In particular, this involved two elements. One was the way IMPATH billed insurance companies and balance-billed patients for the amount unreimbursed by insurers. The other involved its policies for coding and billing multiple markers on individual cancer cases.

In both instances, IMPATH instituted practices which were outside the norm for most anatomic pathology providers. Its activities have been considered aggressive by those pathologists who preferred very conservative coding and billing procedures. However, to date, IMPATH has only dis- closed one settlement with Medicare, which involved allegations that it improperly billed Medicare for test controls run in parallel with certain types of assays.

Thus, IMPATH’s replacement of its CFO at this time is a sign that increased interest by the professional investment community in its financial and accounting practices is causing significant changes to take place within the company. Some of these changes may involve reforms to certain of IMPATH’s more aggressive billing and contracting practices. If so, those reforms should become visible in the marketplace once a new CFO has been hired.

Supported By Lab Industry

In recent years, THE DARK REPORT has noted the sustained growth in specimen volume and revenues posted by the handful of companies that offer anatomic pathology services to the national marketplace. This is an important trend which affects the profitability of local pathology groups.

However, it is also true that business success breeds its own unique problems. The recent turnover of CFOs in two national AP companies is a sign that such growth-related issues are now causing problems which need resolution.


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