Pathology As A Business: Experts Highlight Issues

DARK REPORT’s Pathologist Income Symposium triggers dialogue on profession’s dilemma

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CEO SUMMARY: A select group of business-minded pathologists broke new ground last week in Scottsdale, Arizona. Candid discussion about the profession’s most sensitive issues provoked a variety of strategies. Among the topics were declining reimbursement, arbitrary contract pricing for AP services, and the increasing vulnerability of small practices.

SOLUTIONS, NOT PROBLEMS, was the focus of an unusual pathology symposium held last week at the exclusive Sunburst Resort in Scottsdale, Arizona.

Pathologists from 24 states, representing a variety of practice settings, including academic, rural, suburban and metropolitan, convened in Scottsdale with one goal: to identify effective strategies for preserving and enhancing pathologist income.

“Healthcare is undergoing revolutionary change, with the most radical developments yet to occur,” said keynote speaker, Robert Michel, Editor of THE DARK REPORT. “For pathologists, the roller-coaster ride has not yet begun. Radical changes soon to hit the marketplace will totally transform the practice of pathology as we know it today.

“Unfortunately, pathologists are ill-prepared to meet this onslaught of change,” he continued. “Historically, pathologists tended to practice medicine in solo or 2-3 man practice settings. This historical fact now makes it more difficult for pathologists to band together to combat the challenges of declining reimbursement and managed care.”

“Contracting strategies will be a critical success factor in the healthcare system of the future,” said Jake Dougrey, M.B.A., who is an executive with Pathology Consultants and Associates, “It is essential for pathologists to do two things. First, they should bring somebody onto their business team who is skilled at contract negotiations. Second, they should develop an understanding of the structure and design of managed care contracts.

“For pathologists, the roller-coaster ride has not yet begun. Radical changes soon to hit the marketplace will totally transform the practice of pathology as we know it today.”

“It is difficult for pathologists to sit at the managed care table and attempt to negotiate a win-win contract if they are unaware of how that managed care contract is designed to reward payers, hospitals and providers,” Dougrey explained.

To illustrate his point,Dougrey dissected a typical Secure Horizons Medicare HMO contract. Pathologists at the symposium were surprised to discover how profitable such a contract could be for hospitals and providers. But the profits don’t come from the capitation payments. Rather, it is risk-pool sharing on the back-end which generates substantial bonuses if utilization stays below projected rates.

“The secret is to know where the dollars flow,” stated Dougrey. “If the pathologists are unaware of all the different ways that a provider can be compensated from a managed care contract, then they may accept only the capitation rate and miss out on income from the risk-sharing pools. This is just one example. The variety of contract twists is infinite.”

Financial Management

Financial management of money flowing through the pathology practice was another subject addressed by the symposium. Michael Rabin, M.D., M.B.A. and Chief Administrative Officer of Bayless-Pathmark Pathology, Inc., laid out a number of money management strategies.

One example was particularly compelling. “As we consolidated seven pathology practices into Bayless-Pathmark,” said Dr. Rabin, “we found that careful attention to billing gained us major dollars. One pathology practice was collecting $250,000 per month in revenue. When it joined Bayless-Pathmark, we took over its billing from the hospital. Our billing department, by careful tracking of ‘lost’ procedures and thorough billing practices, raised monthly collections to $350,000!”

For this pathology practice, having its existing work billed by individuals who understood anatomic pathology increased its revenues by 30%, without any change in the volume of specimens it was handling.

“These types of financial management techniques are critical if pathology practices are to protect and enhance their income,” declared Dr. Rabin. “As our use of these techniques became more sophisticated at Bayless-Pathmark, we saw commensurate improvement in our cash flow and operating profits.”

Legal Issues In Pathology

“Rapid changes in the structure of healthcare have complicated the legal issues confronting a pathology practice,” stated Gary Spradling, Partner at Dukor, Spradling and Metzger in San Diego, California. “Many of our clients are required to contract with a variety of new business entities offering healthcare services. Unlike the traditional roles in fee-for-service, physicians and pathologists are required to assume different roles. These roles convey new legal liability, but physicians often don’t understand the consequences until it is too late.”

Spradling also offered some practical “street-wise” techniques for changing the balance of power in contract negotiations. However, the sensitivity of the material and the confidential nature of the symposium make it inappropriate to present here.

Key Symposium Lessons

Probably the key lesson of the symposium came from the strategic assessments done by pathologists in attendance. Almost unanimously, they recognized that strategic alliances and critical mass among pathology practices in a region was essential to maintain a relevant seat at the negotiating table.

“It is interesting that, in a profession known for its independence, pathologists here in Scottsdale universally recognized that if they tried to negotiate independently, they were relatively powerless,” concluded Michel. “But teaming up with other pathologists is a necessity to conduct viable negotiations.”

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