CEO SUMMARY: It’s a trend as yet invisible to the radar screens of most pathology groups. A new crop of specialty AP companies is targeting gastroenterology. In the past 36 months, several have posted phenomenal growth in both specimen volume and revenue. The heightened competition for GI biopsies mirrors that seen last decade for urology biopsies. It confirms that national specialty labs are here to stay.
IT’S A MARKET SHARE BATTLE that’s received little recognition within the pathology profession. National anatomic pathology (AP) companies are steadily capturing business from the nation’s gastroenterology (GI) clinics.
With this intelligence briefing, THE DARK REPORT is first to recognize this trend and describe its characteristics. In every battle for market share, there are winners and losers. To date, the winners are a handful of specialty AP companies. Collectively, the losers are local pathology group practices. It is their long-time GI clients who are opting to use a national AP laboratory.
As Goes Urology, So Goes GI
The story behind this development is instructive. In many ways, competitive changes now unfolding in the GI biopsy market mirror changes that occurred to the urology biopsy marketplace during the 1990s.
The theme is similar. National AP companies develop an enriched menu of lab tests and customer services to differentiate themselves from local anatomic pathology groups. Specialty physicians, whether urologists or gastroenterologists, are then visited repeatedly by sales reps from the national AP companies. Before long, these physicians decide to switch their business from the local pathology group to the national AP lab.
That decision to switch is made easier by the fact that most local pathology groups are either “asleep at the switch”—oblivious to the impending loss of a client—or because they refuse to invest to match the “better” services offered by the sales reps of the national lab company.
Who are the primary national competitors for gastroenterology business? Certainly Quest Diagnostics Incorporated and Laboratory Corporation of America (with its DIANON Systems subsidiary), are big players. As well, AmeriPath, Inc. has a large presence. However, CBL Path, Inc., based in Mamaroneck, New York and Ocala, Florida, and Pathology Partners, Inc. of Dallas, Texas are making steady inroads in the gastroenterology marketplace. In San Diego, Prometheus Laboratories, Inc. also offers GI testing services nationally.
One attribute shared by all these companies is a willingness to invest substantial resources into a profession- al sales and marketing campaign. That is how local GI clinics learn that there are other lab testing options besides the local pathology group practice to which they’ve referred specimens for many years.
More National Competition
National competition for GI biopsy business is following the same path of market evolution in the 1990s that unfolded with urology biopsy business. During that decade, Urocor, Inc. and DIANON Systems, Inc. were the first national lab companies specifically organized to market anatomic pathology services to office-based urologists.
By 1999, UroCor alone claimed to be doing business with more than 50% of the nation’s board-certified urologists. In competing for the biopsy business generated by urologists, it was local pathology groups which lost market share.
In gastroenterology, national AP labs are using another customer benefit to raise the competitive bar.
These national companies differentiated themselves from local pathology groups by offering enhanced services. Remember a past debate within the pathology profession? It centered around whether or not color pictures of the relevant tissue on the pathology report did add value to the referring physician. UroCor and DIANON made millions on that simple feature—and stimulated growing numbers of local pathology groups to add similar photos to their own reports.
That’s how the competitive bar is raised. In gastroenterology, national AP labs are using another customer benefit to raise the competitive bar. They differentiate themselves from local pathology groups by offering integrated informatics capability to GI clients.
The market shift to informatics integration is best illustrated by relation- ships many national AP labs have with a company called gMED Corporation, based in Weston, Florida. gMed sells “an advanced electronic medical record and procedure reporting application” to gastroenterology groups.
In less than two years, gMed has signed contracts with a number of AP lab companies and pathology group practices. Among them are: Ameripath (October, 2002), CBLPath (January 2004), Pathology Partners (January 2004), and Palm Beach Pathology of Palm Beach, Florida (June 2004).
“To remain competitive in our market, we saw the affiliation with gMed as a necessary step,” stated Gary Onofry, Practice Administrator at Palm Beach Pathology. “For GI clinics and endoscopy centers, gMed offers a report writer and a tracking log feature. Gastroenterologists like it because it eliminates dictation and transcription. It also replaces their handwritten case tracking logs with an electronic case tracking capability.
IT Interface With Clients
“By building an interface between our pathology group’s software system and gMed, the GI can electronically complete and transmit test requisitions. Our pathology reports transmit electronically into the patient EMR at the GI’s office,” explained Onofry.
Another major GI information systems is ProVation™ MD, offered by ProVation Medical Systems, Inc. (formerly cMore Medical Solutions), of Minneapolis, Minnesota. But it is gMed which successfully entered into strategic relationships with several national AP firms focused on the GI biopsy market.
Reading The Tea Leaves
THE DARK REPORT considers the competitive evolution of the GI biopsy marketplace to be a significant event. During the 1990s, urologists were wooed by the first generation of AP- based national lab companies, including UroCor, Inc. and DIANON Systems, Inc. (See sidebar below) These companies forever changed the expectations, and lab testing relationships, for most of the nation’s urologists.
The interest of national AP companies in forming strategic alliances with gMed is a good indication that the longstanding status quo between gastroenterologists and local pathology group practices is about to undergo a similar transformation. Several years from now, it will probably take a more complete menu of laboratory tests and enhanced services to win—and keep—the lab testing business of gastroenterologists.
Local Path Groups
For local pathology group practices, this is not a welcome development. They are already beleaguered, under siege on a variety of fronts. Now local pathology groups will have to devote resources and time into protecting their best gastroenterology customers from the national AP companies.
The intensified competition for GI biopsies must also be viewed in a greater context. It is one more sign that the entire healthcare system is increasingly willing to consider a non-local solution to meet its needs. Local pathology groups need to craft a strategy to cope with this change.
UroCor Pointed the Way To Specialty AP Firms
MOST PEOPLE IN THE PATHOLOGY PROFESSION under-appreciate the strategic business lessons to be learned from UroCor, Inc., the urology-based specialty laboratory company that once operated throughout the 1990s in Oklahoma City, Oklahoma.
It was 1997 when THE DARK REPORT visited UroCor. In the proceeding seven years, UroCor had grown from annual revenues of less than $1 million to $36 million. It had a multi-year ranking on Inc. Magazine’s “Fastest Growing Companies” list. It billed itself as a “disease management company” focused on urology. But its primary revenues came from anatomic pathology services, supplemented by clinical lab testing.
At the time of THE DARK REPORT’S site visit, UroCor was literally an unknown company within the clinical laboratory industry. That changed following our intelligence briefing on June 23, 1997. We recognized that UroCor was successfully selling anatomic pathology services to one group of office-based physicians: Urologists.
It was our assessment that specialty physicians liked the concept of a national laboratory organized specifically to provide them the full menu of laboratory tests tailored to their practice needs. We used the headline “Future Laboratory Model Found in Oklahoma City” to indicate that this business model was likely to be copied.
Although UroCor was later acquired by DIANON Systems, Inc. in 2000 (and DIANON itself acquired by Laboratory Corporation of America in 2002), the idea of a national anatomic pathology company organized to serve a single medical specialty caught on. For example, Prometheus Laboratories, Inc. in San Diego was formed by some UroCor alumni to target gastroenterology.