CEO SUMMARY: Few pathologists realize how much impact AmeriPath’s business activities will have upon the profession of pathology. Regardless of AmeriPath’s ultimate success or failure, it will bring about irrevocable change to the pathology industry. As the harbinger of such change, AmeriPath will receive more criticism than is their due.
UNTIL NOW, most pathologists survived the arrival of managed healthcare with a minimum of turmoil or financial pain. However, that is soon to change.
The most visible symbol of this change is AmeriPath, Inc. of Riviera Beach, Florida. AmeriPath intends to create a national pathology organization which is publicly traded, competes in multiple markets and provides a full menu of pathology services in direct competition to local pathology practices.
THE DARK REPORT believes that AmeriPath’s arrival coincides with a new and intensely competitive era for pathology. No longer will pathology be seen as a somewhat clubby profession of individual pathology practices serving individual hospitals. Gone will be the unspoken gentlemen’s agreement against “stealing contracts” from local pathology practices.
In its place will come a system of intense competition where service, price and “value-added” determines who gets the anatomic pathology contracts. The transition from the traditional pathology world into the new era will be traumatic for those pathologists who remain comfortable with the old healthcare paradigm of fee-for-service.
It is important to recognize that Ameripath is not responsible for the changes about to unfold. Market forces, economics and politics are driving the transformation of both pathology and our existing healthcare system.
THE DARK REPORT predicts that AmeriPath will launch a new and intensely competitive era for pathology.
If AmeriPath is not responsible for the coming changes to pathology, then why is this company important? Three reasons make AmeriPath important to the pathology profession.
One, AmeriPath’s business model represents a radical change to the way pathology services are organized and delivered. It is a new approach to meeting the challenges of managed healthcare.
Two, AmeriPath has size and clout to be influential in a number of markets where it has acquired large pathology practices. AmeriPath’s performance in these particular markets will demonstrate whether the AmeriPath business model can be successful.
Third, AmeriPath is well-financed and well-led. This gives them the money and the management expertise to pursue business opportunities which competing pathology practices cannot.
Compared to the other emerging models of pathology business organizations, AmeriPath has influence, money and momentum. Like General Motors, IBM, and Intel, all market leaders in their own industries, AmeriPath will attract attention because it is the largest.
Competing pathology business models have been described in earlier issues of THE DARK REPORT. American Pathology Resources of Nashville, Physician Solutions of Nashville and Pathology Service Associates of Florence, South Carolina are some of the better-recognized organizations hatching new business models for pathology. But none of these companies has created as large a revenue base and critical mass as AmeriPath.
Three Major Outcomes
What are the changes which THE DARK REPORT believes will be triggered by AmeriPath? We predict three major outcomes from the business activities of AmeriPath. Each will have a different impact upon pathology, but all are interrelated in critical ways.
First, the most direct impact will be to introduce open competition into the market for pathology services. Traditionally, each hospital had an established relationship with one pathology group. Only in rare circumstances did a hospital pull the contract from that pathology practice.
But widespread hospital mergers, acquisitions and joint ventures create an environment which encourages adminis- tration to change traditional pathology relationships. New administrators don’t have long-time personal relationships with the existing pathologists. It is easier for these new administrators to scrutinize existing pathology arrangements and consider alternative sources of pathology services for reasons of lowing costs, solving problems with internal politics or gaining enhanced pathology expertise and service over the existing practice. Consolidation of pathology services across the member hospitals of a developing system might also be a reason to consider changing existing pathology arrangements.
Soliciting New Hospitals
AmeriPath can exploit this fundamental shift in hospital administration thinking. It intends to actively solicit contracts from hospitals where it is not a provider. It will be motivated to do so despite political consequences for one reason: Wall Street’s incessant pressure for increased earnings.
Thus, over time, AmeriPath will be an outside supplier bidding to provide pathology services to new hospitals. New contracts mean increased revenues. Increased revenues mean higher share prices. Higher share prices mean job security of AmeriPath’s executives. The fact that AmeriPath must give Wall Street ever-increasing earnings will motivate Ameripath to aggressively market its pathology services.
Second, AmeriPath will probably be the first company to seriously address the issue of productivity. Notwithstanding arguments about quality and clinical expertise, the pathology profession has never tested the limits of individual productivity.
Yes, the profession of pathology is concerned about the spector of overworked pathologists pushing glass at a frantic rate and compromising patient care. But in reality, managed care cannot afford to compromise patient care. Managed care requires an eventual balance of productivity, quality and cost. This means that the entire pathology profession will soon be forced to push the boundaries of productivity.
AmeriPath will simply be the first company driven to explore that boundary. Any successes that improve pathologist productivity will give it a competitive advantage. Any failures will provide invaluable lessons, teaching others what to avoid. Increasing the productivity of pathologists is a sensitive subject, but AmeriPath will be forced to address it because of the financial pressure that comes with operating as a public company.
Third, AmeriPath represents the first manifestation of a new marketplace phenomena: the creation of a market for the buying and selling of pathology practices. Before AmeriPath came along, if a pathologist was interested in selling his practice, his only option was probably selling to another pathologist.
That is rapidly changing. The arrival of pathology-based physician practice management (PPM) companies is creating a market for pathology practices. Each sale of a pathology practice establishes valuation benchmarks which affect every pathology practice in this country.
AmeriPath To Pursue Five Basic Strategies
AmeriPath is telling Wall Street precisely how it intends to compete against local pathology groups to capture additional business. Here is a summary of their key strategies to increase their anatomic pathology business:
Focus on anatomic pathology:
To develop an internal consulting network and specialized expertise.
- Acquire leading practices:
AmeriPath intends to acquire promi- nent pathology practices in markets throughout the United States.
- Expand sales and marketing efforts:
Introduce professional sales and marketing to sell pathology services. Solicit AP specimens across larger geographical areas.
- Increase contracts with hospitals:
Besides gaining new contracts by acquiring practices, AmeriPath feels it can convince hospital systems to contract with them.
- Achieve operational efficiencies:
AmeriPath will centralize billing and collections. It expects to harvest other efficiencies in the management of the acquired pathology practices.
What does all this mean to individual pathologists, and the profession of pathology? It is too early to declare specifics about impending changes. But is is not too early to understand what forces are driving change.
AmeriPath is up and running. Regardless of whether their stock becomes public or not, they will continue to seek acquisitions. They will also begin to canvas their market areas for new pathology contracts. Pathology practices located in cities where AmeriPath operates will be forced to respond in a competitive manner.
There are still many unanswered questions about AmeriPath. Is its business plan viable? Can its management team implement the business plan? Will providers buy AmeriPath’s services? Can AmeriPath grow without acquisition?
Only the marketplace will provide accurate answers to these questions. But THE DARK REPORT wants to warn all pathologists: AmeriPath is real. AmeriPath will stimulate changes to the way the business of pathology is conducted.