CEO SUMMARY: Another national pathology player is betting on Florida. DIANON Systems, Inc.’s purchase of a local pathology laboratory raises the competitive bar in Florida. With AmeriPath and Pathology Service Associates already gearing up to battle for market share, DIANON’s local presence brings a savvy competitor closer to the battleground.
FlORIDA IS ABOUT TO BECOME a major battleground for anatomic pathology services. Three pathology powerhouses are preparing to contest each other for increased market share.
DIANON Systems, Inc. served notice that it will be a combatant. The company, based in Stratford, Connecticut, acquired
Pathologists Reference Laboratory (PRL) of Tampa in January.
“DIANON Systems intends to be a value consolidator. Florida is the perfect market to unify anatomic pathology services and offer them in a uniform package.”
VP, Marketing & Technology Development Integrated Healthcare Solutions
PRL is a significant pathology provider in the Tampa market. Comprised of five pathologists, it performs 40,000 surgical pathology cases and 200,000 cytology evaluations every year.
Because DIANON Systems has traditionally operated a centralized pathology laboratory, purchase of a Florida pathology practice surprised many observers. It is the first evidence that DIANON Systems intends to expand into local markets.
“Yes,” responded Jim Barry, Vice President, Integrated Healthcare Solutions at DIANON Systems, “purchasing PRL represents one phase of our business plan for ‘consolidating’ pathology services within DIANON Systems.
“We use the term ‘consolidate’ in a specific sense,” he continued. “Internally, we consolidated pathology services by funneling large specimen volumes through our central laboratory. This gave us leverage to improve quality, consistency and productivity among our 28 pathologists. Our sophisticated reports and information services play a key role in the consistent growth of our anatomic pathology business.”
“Externally, we would like to provide the same services to other pathology groups,” noted Bill McDowell, Director of Pathology Development. “DIANON wants to offer value-added anatomic pathology services which are consistent to all our clients, physicians and managed care plans, regardless of their location within the United States.”
Timing of DIANON Systems’ purchase in Tampa is not coincidental. It has to to with the potential size of Florida’s market for anatomic pathology services. “Florida tops our list of geographical areas we consider critical to our growth plans,” explained McDowell. “It has a large population and a high proportion of Medicare patients. Demographic trends will cause the number of Medicare patients in Florida to increase rapidly as baby- boomers age.”
Managed Care Penetration
“Florida also has a high penetration of managed care,” noted Barry, “although not as high as California. PRL gives DIANON a local pathology presence. It allows DIANON to compete in Florida for two reasons.
“First, we are physically close to surgicenters and other sources of AP specimens in that market. We want to provide physicians in Florida with the ability to use our programs while sending to a local pathologist,” said Barry. “Second, a few of the managed care plans in that state want a provider to have local presence. PRL allows us to attain provider status for those managed care plans.”
Barry’s comments demonstrate how intense the competition for anatomic pathology specimens in Florida has already become. For many years DIANON Systems maintained six to seven sales representatives in the state. But that is no longer enough. A physical presence allows DIANON Systems to be more competitive with other pathology companies.
DIANON Systems’ acquisition of Pathologist’s Reference Laboratory demonstrates that the company is responding to changes to Florida’s anatomic pathology marketplace. Expect to see further acquisitions, but only in key markets where DIANON Systems needs a local presence to compliment its central pathology laboratory in Stratford, Connecticut.
From a competitive market perspective, DIANON Systems’ acquisition of PRL is a definitive statement that the company is ready to commit substantial sales resources into protecting and enhancing its existing market share of anatomic pathology in Florida.
DIANON Generates More Revenue In ’97
During 1997, DIANON Systems, Inc. increased revenues 8.7%, from $56 million to $60.9 million. Net income jumped 52%, from $2.2 million to $3.3 million.
Long considered an innovator in clinical pathology and diagnostic testing, DIANON Systems has quiet- ly shifted emphasis towards anatomic pathology. This segment of the company’s business grew 19% from 1996. Besides urology, DIANON Systems is offering specialized services in dermatopathology, gastroenterology, and cervical pathology.
A simple concept encouraged DIANON Systems to build up anatomic pathology. “Competition is intense in clinical pathology and laboratory testing,” stated Jim Barry, VP, Marketing and Technology Development. “It was four years ago that we recognized the relative lack of competition for a national provider of anatomic pathology testing, combined with the opportunity to provide added value.”