CEO SUMMARY: Pathologists looking for a viable future in a healthcare system marked by integration of clinical care and value-based reimbursement will be interested to learn about Spectrum Medical Group based in Portland, Maine. This 180-member multispecialist group includes 22 pathologists (but no primary care physicians). It has found a way to serve ACOs, health plans, hospitals, and patient-centered medical homes by providing a variety of specialist physician services.
MANY PATHOLOGISTS AND LAB DIRECTORS today are considering how they can become part of accountable care organizations and patient-centered medical homes.
This is a fundamental question of business strategy for pathology groups. Healthcare is moving toward integrated care organizations and away from fee-for-service reimbursement. Thus, every pathology group practice in the United States is confronted by a basic clinical and financial survival issue.
Currently there is no obvious organic way for anatomic or clinical pathology groups to become part of ACOs or PCMHs without getting an invitation to participate from the ACO administrators or the PCMH’s primary care physicians.
But in Maine, Spectrum Medical Group has found a way to include pathologists in traditional and non-traditional contracting arrangements with hospitals, health systems, ACOs, and PCMHs, said David Landry, Spectrum’s CEO.
Formed in Portland, Maine, in 1996, the Spectrum Medical Group is an organization of 180 specialty physicians in Maine. The group contracts with hospitals, health systems, other physicians groups, and third-party payers.
“Our group has no primary care physicians,” emphasized Landry. “Instead, it has hospital-based specialists: anesthesiologists, radiologists and pathologists along with office-based groups such as physiatrists, radiation oncologists, neurologists, and surgeons.
“Upon Spectrum’s formation in 1996, it was comprised of two anesthesia groups, two radiology groups, and a pathology group,” continued Landry. “Today we have 11 practices. All practices operate under one corporate identity but participate in what I call a federated governance structure. By that, I mean each group has local control of its practice.”
“Several years ago, Spectrum decided it would not get involved in adding primary care physicians,” he stated. “Rather, it would develop the capability to plug into existing primary care groups or health systems as they develop their own strategies—whether they are ACOs, PCMHs, or other contracting entities.
“One of our key strategies is to develop what we call a ‘plug and play specialty solution,’” Landry noted. “This allows us to go to any ACO being developed with an offer to deliver a range of specialist-physician services customized to its needs.
“We simply plug into that ACO and deliver the specialty physician services—including pathology—that they want,” he said. “The beauty of the plug-and-play strategy is that it allows us to contract with other ACOs as the opportunities arise.
“Two examples show the interest in our plug-and-play service,” added Landry. “We are currently speaking with a primary care group in southern Maine that wants us to plug in as their ACO partner to deliver all the specialty services that we offer. At the same time, we are having similar conversations with a big hospital system that is developing an ACO.
“Our value proposition to hospitals, health systems, ACOs, PCMHs, and others is that we can deliver high quality services at a lower cost than these organizations could do if they built their own network of specialty physicians,” emphasized Landry. “So far it has been successful. We have not been displaced out of any relationship because a primary care group wants to in-source its pathology services or a hospital decides it can do it better if it controls these services.”
At this time, the majority of Spectrum’s pathology services are still delivered in support of hospitals. “Most of our pathology work is based in hospitals,” stated Landry. “By that I mean that our 22 pathologists work in eight or nine different hospitals. Most of these hospitals have their own internal labs—both clinical and histology labs— where our pathologists work.
“Spectrum’s 22 pathologists represent about 50% of all pathologists in the state,” he added. “They do about two thirds of all the anatomic pathology work in Maine and about 50% of the clinical pathology work in the state.
Cross Border Services
“In addition to serving eight or nine hospitals in Maine, we also do work in New Hampshire at several hospitals, and in Massachusetts at Anna Jaques Hospital in Newburyport,” he noted.
“Some days we send pathologists to be onsite at Anna Jaques Hospital,” Landry continued. “We will also transport specimens from that location up to our subspecialist pathologists, depending on the need and the case involved. For all of the hospitals Spectrum serves, it does a combination of hospital-based work and outpatient work.
“Of course, we contract with commercial labs, such as Quest Diagnostics Incorporated and Converge Diagnostics in Walpole, Massachusetts, which is now part of Quest,” stated Landry. “We also have a partnership with Aurora Diagnostics, based in Palm Beach Gardens, Florida, for outpatient work done in physician offices. Aurora does the technical component and we do the professional component.
“Because we do not own clinical pathology or anatomic pathology labs, we work out of the laboratories in other facilities, such as hospitals,” he explained. “Spectrum also has relationships with third-party labs where our pathologists serve as medical directors and we have several joint-venture business relationships with third-party labs.”
At this time, most of the pathology services Spectrum provides to its client hospitals are done in a traditional arrangement. But Spectrum—because of its regional coverage and its subspecialist pathologists, is already in the early stages of operating a distributed, regional pathology service. Regardless of where the tissue is processed, the glass slides or images will be sent to the appropriate subspecialist-pathologists, wherever they are located.
“Yes, in a traditional arrangement, our client hospitals outsource the physicians staffing to us, and we deliver that service,” noted Landry. “However, we have multiple value propositions for our clients.
“For example, if it is a smaller hospital, Spectrum will offer to put someone onsite a couple days a week to be the medical director of the lab and to manage the clinical laboratory,” he explained. “We can then send the anatomic pathology work originating at that hospital to our subspecialist-pathologists wherever they are around the state.
Specimens Shipped Out
“We ship pathology specimens everywhere—depending on the site of service and the specific subspecialist pathologist who will to review those specimens,” added Landry. “That way we can leverage our subspecialty physicians to best advantage.
“If it’s a dermatopathology case, it goes to our dermpath,” he continued. “If it’s a breast case, it goes to our breast pathologist, and so on. We have coverage in most of the major subspecialty areas: gynecology, genitourinary, gastroenterology, and breast. Plus, we have five hematopathologists. In terms of subspecialties, we are well diversified.
“As a result of having these subspecialists, we can deliver high quality specimen review and better turnaround time than any other group and we can do it at a lower price than others can do it,” he said.
“In Maine, our pathology group is the largest,” added Landry. “We compete against one other group, Dahl-Chase Pathology Associates, in Bangor.”
Dahl-Chase has 13 pathologists. It provides anatomic and clinical pathology and subspecialists in breast pathology, cytopathology, dermatopathology, gastrointestinal pathology, genitourinary pathology, hematopathology, molecular pathology, and transfusion medicine.
“Here in Maine, there are still hospitals that employ pathologists directly and there are a few small pathology groups that still work with hospitals as we do,” observed Landry. “But no other arrangements like ours can be found in Maine.
“As a group, Spectrum is completely specialist driven. In that way, we are different from other multi-specialty groups—in part because we have no primary care physicians,” he stated. “Instead, we have both the traditional hospital-based physician groups as well as outpatient practice groups.
“Each group of specialists is an operating division and produces its own profit and loss statement every year,” added Landry. “Also, each group has autonomy over the usual issues that concern physicians.
Physicians Have Autonomy
“In pathology, for instance, pathologists make the decisions about staffing, compensation and call schedule,” he stated. “If the pathologists want to contract or provide certain services to a hospital, they make that decision. In those cases, we will facilitate the execution of the contract from the corporate perspective.
“In some hospitals, we just have one of our physician specialties and in other hospitals we have multiple specialties,” observed Landry. “It should be noted that, when we have multiple specialties in one hospital, Spectrum will have a single contract with that hospital.
“One competitive advantage to having many different types of specialists is that we can offer a variety of services to any hospital,” he said. “About 10 years ago, Spectrum was invited to provide radiology services to a hospital with which we had no previous affiliation. After some time, the administration was pleased with our work and invited us to solve a problem the hospital had in the pathology lab. That was easy for us to do.
“Many times since then, we have seen this happen: We provide one specialty service to a hospital and then the hospital asks about other services we provide,” noted Landry. “As a strategy, the more services we can deliver to each hospital, the more stickiness it creates for us. And that’s one key to our ongoing success.”
Model of Integrated Services
Pathologists should not overlook the clinical and financial success of Spectrum Medical Group over its 18-year life. At a time when healthcare is evolving away from the traditional clinical silos and toward various models of integrated clinical care, Spectrum is offering multiple clinical services via its own integrated organization.
Private pathology group practices, particularly those with just a handful of physicians, will find it increasingly difficult to offer ever-more sophisticated diagnostic services while maintaining financial stability. One viable strategy is for pathology groups to consolidate into larger regional groups or find new collaborators, such as the specialist physicians have done at Spectrum Medical Group.
Various Settings for Pathology Work Require Spectrum to Use Different Payment Structures
FOR SPECTRUM MEDICAL GROUP, payment for its speciality physician services is as varied as the types of contracting arrangements it has, says CEO David Landry.
“By working in different settings, such as hospitals, ACOs, patient-centered medical homes, and others, the question of how we get paid needs to be addressed each time,” he said. “Like most other groups, we contract directly with Medicare, Medicaid, and with commercial health plans. In those contracts, we have a whole range of payment arrangements. These include traditional fee-for-service payment and various forms of risk-based contracting with health plans.
“In pathology, our typical hospital-based relationship involves a services agreement contract to provide the pathology services or to be the medical director of the clinical lab or both,” explained Landry. “We also provide other services to these hospitals as needed. For example, our pathologists offer teaching services to residents in certain hospitals.
“For all of the clinical services, which are primarily anatomical pathology services, we bill directly to patients and to third-party payers,” he stated. “The hospital might provide some compensation for certain services we provide that are not related to patient care and, of course, the hospital pays us if we serve as the medical director of the clinical laboratory.
“In most of the reimbursement arrangements we have, we pay our physicians on a fee-for-service model,” Landry noted. “We also do earn capitated reimbursement from certain health plans. We track the utilization of various services, whether it’s pathology or other specialty physician services.
“We then distribute the payment using fee-for-service combined with some type of relative value measurement and a factor that recognizes quality improvement or utilization management,” he continued. “We also compensate pathologists for their work in developing algorithms in the clinical lab or for conserving blood if they work in the blood bank. Those fees are pulled out of the capitated payments that are made to Spectrum.”
Specialty Physicians in Maine First Came Together in 1996
FOR DAVID LANDRY, marketplace defensiveness and serendipity were behind the 1996 formation of Spectrum Medical Group.
“When Spectrum first launched in the 1990s, that was during the first wave of managed care,” recalled Landry, who is Spectrum’s CEO. “All of our physicians saw what was happening in the nearby Boston market. They noticed that traditional health insurance was giving way to managed care.
“At that point, our specialty physicians realized that—if they were going to be relevant in a managed healthcare marketplace—they had to either negotiate with managed care companies or establish their own systems and just get bigger,” he explained. “At the time, there were two independent conversations going on simultaneously about mergers involving two radiology groups and two anesthesia groups.
“When they discovered those conversations were occurring independently, the physicians decided to all join together as a collaborative,” continued Landry. “That was the serendipitous spark that formed Spectrum. Later a pathology group joined our group.
“Today we see similar arrangements starting to pop up in other regions,” he said. “We know of specialist physician organizations like ours that are in talks about forming in New Hampshire, Philadelphia and Chicago.
“When asked to explain our business model, I describe it as either a collaborative specialty care organization or as plug-and-play specialty physician services firm that is available to a range of customers, including hospitals, health systems, health plans, and primary care groups,” concluded Landry.
Spectrum’s 180 physicians include specialists in the following areas: anesthesiology, medical rehabilitation, neurology, pain management, pathology, radiology, radiation oncology, and surgery.