CEO SUMMARY: Few independent pathology groups have developed robust laboratory consulting businesses. But adopting that strategy has brought important benefits to Delta Pathology Group, LLC, of Shreveport, Louisiana. Not only has providing lab consulting services to cash-strapped hospitals led to ongoing lab management contracts, but Delta’s consulting arm, called Pathology Resource Network, is gaining a reputation for its expertise in helping hospitals improve their lab’s performance.
WHAT’S A PATHOLOGY SUPERGROUP to do after it has achieved critical mass through consolidation of several smaller pathology groups in its primary service area? Form a laboratory consulting company, that’s what!
This strategic decision was made back in 2003, by the executive committee of Delta Pathology Group, LLC, of Shreveport, Louisiana. In 2005, the pathology group founded Pathology Resource Network, LLC, (PRN). PRN started as a management company with 45 people that provided lab management and accounts payable services.
Since then, PRN has played an essential role in helping Delta Pathology and its 26 pathologists establish client relationships with physicians and hospital labs throughout Louisiana and surrounding states. In that regard, PRN provides an example to other pathology groups as to the importance of diversifying business services that can help attract new clinical clients and increase their loyalty.
The numbers tell the tale. “Today, PRN employs 112 full-time equivalent employees,” stated Vivek K. Khare, M.D., FCAP, a Delta pathologist. “The Delta pathologists provide medical directorship for 50 hospital laboratories and provide testing services for 2,000 physicians in Louisiana. Delta Pathology has about 350 employees.
“Annual volume totals more than 2.25 million clinical lab tests, along with 215,000 surgical pathology accessions,” he noted. “Our couriers travel 1.3 million miles across the state every year.”
Major Growth Contributor
Pathology Resource Network has been a major contributor to growth at Delta Pathology. During strategic planning in 2003, Delta’s executive committee performed a SWOT analysis (strength, weaknesses, opportunities, threats).
“Our SWOT analysis resulted in a 10- year plan to create a ‘one stop shop’ menu of services,” recalled Khare. “We set out to expand our offerings in anatomic, clinical, molecular pathology, and genetic testing. To support this, we planned to expand our business and logistics infrastructure so we could offer lab management services, particularly to the smaller hospitals throughout Louisiana.
“During our analysis, we noted that national laboratories and out-of-state boutique laboratories were encroaching on our market,” he continued. “As well, hospital systems were cutting costs and limiting capital spending for laboratory projects.
“We saw the opportunity to offer value in a new type of relationship with hospitals,” added Khare. “We would offer a business solution to the problems some of our hospitals were facing with their laboratories. The solutions ranged from organizing traditional delivery of professional and technical services to offering solutions for laboratory consolidation and assistance, along with the due diligence required to assess whether or not to outsource the clinical laboratory.
“Further, we recognized that before we compete effectively against the national labs and these out-of-state boutique labs, we would need two things,” he said. “First, Delta Pathology would have to offer a sophisticated menu of routine, reference, and esoteric laboratory services—supported by our specialist pathologists. “Second, these clinical service strategies would require us to put in place sophisticated infrastructure specifically to excel in handling the pre-analytical and post-analytical phases of laboratory testing,” noted Khare.
Demand for CLIA Assistance
It was at this stage that Delta Pathology’s business strategy positioned it to take advantage of an emerging area of laboratory consulting. “As we put this plan into action, we saw a market need for CLIA oversight for rural hospitals in Louisiana,” he said. “In 2005, we formed PRN and asked Marilyn Bullock, MT, ASCP, to assume the full-time role of CLIA consultant for PRN.
“The CLIA consulting and CLIA audits that she does are now our flagship offerings,” stated Khare. “Hospitals in Louisiana rely on this work and we have out-of-state clients as well.”
The fact that more rural hospitals in Louisiana need help with CLIA compliance in their laboratories mirrors a wider trend covered in this issue of THE DARK REPORT. More information about PRN’s CLIA consulting services and experiences will be presented in the next issue of The DARK REPORT.
Hospitals Outsourcing Labs
On the subject of increased outsourcing of lab testing services by hospitals, Khare says that the change in technical component (TC) billing has definitely played an important role. “The trend toward more clinical lab outsourcing with hospital clients expanded after July 1, 2012,” Khare said.
That is when the federal Centers for Medicare & Medicaid Services (CMS) eliminated the technical component exemption for certain lab tests. When the exemption was eliminated, labs could no longer bill separately for the TC work they did on some tests. Instead, the hospital billed for those tests and received the Medicare payment.
“Suddenly, pathology labs like ours were not getting the technical component income and had to bill the hospital for it,” explained Khare. “Hospital administrators viewed that income as their own, thereby exacerbating the idea that the lab was a cost center and not generating any revenue.
“Most vulnerable to that thinking were administrators at hospitals that had no lab outreach or reference testing income,” he said. “In these hospitals, not only are limited resources diverted to other departments, the laboratory now has to do more with even less.
“Delta and our new entity, Omega Diagnostics Services, now collectively own six clinical laboratories that have been acquired from hospitals that outsourced their inpatient and outpatient labs,” added Khare. “ This trend will continue as competing hospital departments divert unrestricted capital away from their laboratories, particularly in those health systems where the hospitals lack robust and profitable physician office outreach volumes.”
PRN has found that the simple fact that hospital administrators identify their laboratory as a cost center can begin a downward spiral. “Here is what happens,” noted Linda Price, PRN’s Practice Manager. “The lab may not get the administrative support it needs to hire and retain adequate lab staff or buy supplies.”
In addition to requests from hospitals for CLIA audits of their labs, Khare noted that, from PRN’s earliest days, requests came from hospitals seeking consultations on laboratory consolidation, design, management, staffing, and outsourcing. “In situations where the hospital labs had little or no outreach revenue, the hospitals were eager to outsource their lab operations, if possible,” he said.
“The national labs offer low-cost reference testing,” observed Khare. “However, we can provide more comprehensive services, particularly medical directorship combined with lab management and CLIA consultation.
“In addition, our pathology group offers a clinical lab and molecular reference testing menu to complement traditional frozen section and professional/technical anatomic pathology services,” he explained. “Finally, the ability for our laboratories to acquire hospital laboratories adds more value to the traditional clinical oversight roles we had played as medical directors.
“Local pathologists have an advantage over national labs,” said Bruce Williams, M.D., FCAP, another Delta pathologist. “We just acquired a large lab that no longer had any outreach services and the physicians in that area wanted a local lab to do stat and anatomic tests locally.
“Keeping the lab testing local gave us a competitive advantage,” emphasized Williams. “Local pathologists also have relationships with local physicians and other hospitals. We daily prove that a local pathologist can deliver efficiencies in addition to high quality pathology services. That gives us a competitive advantage over national lab companies.”
Local Means Faster TAT
Khare agreed, noting that some hospitals in the region have TC contracts with national labs. “The national lab produces the slides and then the local pathologists read them out,” he said. “But it often takes four or five days for the national lab to produce an H&E slide because it goes out of state after the specimen is grossed here. By contrast, with all the lab facilities we operate throughout the state, we can consistently produce slides in 12 hours from the time the specimen is procured.”
THE DARK REPORT observes that the pathologists at Delta Pathology Group provide a useful example of how local pathologists can turn the tables on the national companies. However, to gain this competitive advantage requires a willingness to form a consolidated pathology practice, invest considerable capital to establish the needed infrastructure, and a willingness for the pathologists themselves to go out and develop new business.
To Serve Local Physicians and Hospitals, Louisiana Pathologists Go ‘Back to the Future’
THERE WAS A TIME WHEN HOSPITALS or local pathologists operated all of the pathology services and lab testing services in a community,” stated Vivek K. Khare, M.D., FCAP, a pathologist with Delta Pathology of Shreveport, Louisiana.
“But then, over the years, pathologists carved out the anatomic pathology and many hospitals sold their lab outreach services to one of the national lab companies,” he continued. “When that happened, there were three different entities providing three different pathology services in most communities.
“At least here in Louisiana, the pendulum may be swinging back to a local emphasis for laboratory testing,” offered Khare. “Seeking to increase efficiency, hospitals and labs are coalescing again into larger organizations.”
It’s a “Back to the Future” trend. “Like the 1970s, local pathology groups and local hospitals see value in doing both lab testing and lab consultations on site,” he continued. “This pro- vides the local labs with the best competitive advantage, particularly because boutique laboratories don’t have those economies of scale due to their concentration on only one aspect of the lab industry.
“In those classic days of the 1970s and early 1980s, the traditional lab marketing strategy involved selling physician to physician,” noted Khare. “At Delta Pathology, we are doing that now as we visit a doctor’s office and offer to do their skin biopsies and provide clinical lab services too.
“Most everyone is interested in simplification,” he emphasized. “In our region, physicians don’t like the idea of sorting specimens and requisitions into different containers and having to call different labs to do different tests. This plays to our strength as a one-stop laboratory.
“It is why Delta Pathology offers not only anatomic, clinical, molecular, genetic, and reference testing, but also the IT infrastructure that physicians need, plus the management and consulting services for tertiary care hospitals and small rural facilities,” observed Khare. “We also serve physicians’ offices and hospital labs that need the efficiency we can provide. By consolidating the volume, we can improve efficiency.
“This is why we believe the trend is coming full circle where the one-stop-shop, offered largely by community laboratories, is in demand again,” he concluded. “We are returning to a proven model of comprehensive laboratory testing services and a direct relationship between a local laboratory and local physicians.”
Delta Pathology and PRN Offer Range of Services
ONE MAJOR SOURCE of new business relationships for Pathology Resource Network (PRN) is its ability to consult with hospital and lab clients on how to comply with the Clinical Laboratory Improvement Amendments (CLIA).
“In addition, we provide a full menu of lab consulting services,” noted Vivek K. Khare, M.D., a pathologist with Delta Pathology and PRN. “These range from laboratory design and lab management to business consulting on accounts payable, billing and coding. PRN provides logistics for courier and it also offers human resource consulting.
“PRN has considerable expertise in information technology,” continued Khare. “Our laboratory information system has proprietary anatomic pathology features and can be connected to all of the following: EMRs, EHRs, web portals, health information exchanges, and interface services.
“Delta Pathology and PRN operate four histology labs, each with an associated IHC platform in strategic areas throughout the state and each one has a catchment area from which those specimens are procured and then processed,” he commented. “Cytopathology and molecular testing are centralized to a core lab in Shreveport, which services the entire state.
“Regarding our clinical lab offerings, we have a consolidated full service lab in Shreveport and it covers the north and mid Louisiana” he stated. “In the greater New Orleans area, we recently acquired a clinical lab that will serve southeast Louisiana and the NOLA region.”