CEO SUMMARY: Big changes ahead during the next decade. Among the predictions: the number of two and three-pathologist group practices will radically diminish; pathology centers of excellence will achieve new market dominance; and…ever more intense competition for anatomic pathology specimens! At the same time, expect this decade to bolster the professional status of pathologists.
IF THE 1990S WERE A ROLLER-COASTER ride for the pathology profession, then expect the first decade of the new century to be more like a rocket trip into space!
Most changes to the pathology profession will be directly stimulated by new technologies in informatics, communications, and genetics. The industry-wide “reorganization” of the American healthcare system will be ongoing, continually shaped and influenced by new technologies.
All of this is good news for both anatomic pathologists and clinical pathologists. After a decade of declining clinical influence and shrinking compensation, those trends will reverse during the upcoming decade, to the benefit of pathology.
But radical change does have a consequence. It creates new classes of winners and losers. Within the pathology profession, there will be highly prosperous pathology group practices.
Common to the success of these pathology winners will be at least two factors. First, they understand the need for professional management in the areas of administration, finance, sales, and marketing and include these skills within their practice.
Second, winning pathology practices in the next decade will be market- perceptive. They recognize shifts in how healthcare is organized. They anticipate how new clinical procedures alter traditional patterns of care and shrewdly reposition their pathology group practice to benefit from these developments.
In short, the pathology profession’s winners during the next market cycle will be open-minded and willing to change how they organize and deliver pathology services. They will be ever ready to adopt new clinical procedures and offer them to clinicians.
Obviously, pathology’s losers during the next market cycle will be those group practices which clung to traditional ways and habits. As their ossified view of the healthcare marketplace inhibits their ability to change, these pathology practices will lose their independence.
Effectively, the “losing” group of pathology practices will find themselves acquired or merged into larger group practice companies which have demonstrated their market responsiveness.
In this “state of the pathology profession” analysis, THE DARK REPORT identifies six major themes to the early years of this new decade. Pathologists will find themselves dealing with a wide range of influences on how medicine is organized and practiced.
Moreover, this pathology “state of the profession” should be evaluated in conjunction with all the factors highlighted in our overview of the clinical laboratory industry. (See TDR, January 3, 2000.) The specific market drivers acting upon the clinical lab industry will also have some influence upon the pathology profession.
But the pace of change in pathology is somewhat slower than with the clinical laboratory industry. That is partly because pathology is deeply rooted in professional skills, whereas clinical laboratories can more easily replace humans with machines and computers to generate test results.
For that reason, THE DARK REPORT’s list of prime trends in pathology has many key differences from the list prepared for the clinical laboratory industry.
There is one fascinating aspect about this year’s pathology “state of the profession” overview. Each major trend is closely linked to the others on this list. The emergence of national pathology firms contributes to increased regionalization of pathology services. Branding of pathology services supports the success of pathology centers of excellence, as does the expected increase in molecular and genetics-based pathology.
E-Commerce Is Wild Card
If there is any wild card in our list of major trends, it is the growth of healthcare e-commerce. THE DARK REPORT predicts that the Internet and the World Wide Web will stimulate a transformation of healthcare in ways beyond our comprehension today.
The Internet makes it easy for businesses and customers to connect with each other. The cost of access and the cost of transacting business over the Internet is falling at a rate that exceeds Moore’s Law for Semiconductors (computing capacity on a chip doubles every 24 months).
No one fully comprehends how the Internet, and related technologies, will change the way humans conduct every aspect of their personal and business affairs. But there is consensus among the experts that the Internet, and all that it unleashes, will be a boon to human society.
Given that remarkable prediction, pathologists should keep a watchful eye on healthcare e-commerce. More than any other major trend presented here, healthcare e-commerce represents the biggest opportunity for success, as well as the greatest threat of failure!
State of the Pathology Profession-Key Trend #1
DURING THE NEXT FIVE YEARS, healthcare e-commerce will be the single most transformational force that reshapes the pathology profession as we know it today.
It is too early to predict exactly how e-commerce will change healthcare and the profession of pathology. The concept of e-commerce is too new and enabling technologies are rapidly evolving.
Despite these facts, the expected explosion in healthcare e-commerce rests upon an undeniable fact: the Internet makes it economically feasible to move information between companies at continuously-decreasing costs. Ongoing improvements to hardware and software make it possible to collect and analyze data in ways heretofore impossible.
Better information, generated at lower cost, will unlock new ways to provide healthcare services. Moreover, enhanced information capabilities have immense potential to increase productivity within the American healthcare system, because, during the last 30 years, spending by American healthcare organizations on information management lagged behind other industries by a significant amount.
For pathologists, enhanced and lower cost information capabilities are precisely the tools they need. After all, the basic function of a pathologist is to create data, analyze it, and report the resulting knowledge to clinicians. Unlike other clinicians, pathologists do not see patients. Instead, pathologists use specimens to create information and knowledge which is put to use by other segments of the integrated healthcare environment.
E-commerce will transform healthcare, as it is now transforming other industries. For pathologists, the arrival of e-commerce services will give them a new way to provide value-added services to clinicians, hospitals, payers, and patients.
Pathologists should view healthcare e-commerce as a tool which reduces the cost to gather data, create useful information, and communicate that information to interested parties. For example, instead of sending a report just to the physician, e-commerce will make it possible for the pathologist to simultaneously send appropriate versions of this report to the patient and his health insurer.
As noted above, one impact of healthcare e-commerce will be to disrupt the traditional relationships pathologists have with hospitals and physicians. Because of the lower cost of processing data and trans- mitting it, new types of relationships will develop between the pathologists and non-physicians.
For example, the baby-boomer generation is already demanding a greater role in their own healthcare. It is logical to expect that they will want to interact with any pathologists who are referred specimens by the attending physician.
Thus, pathologists should embrace healthcare e-commerce as a useful tool for providing new added-value services to the healthcare community. It is the kind of positive change that will bring welcome benefits to the pathology profession.
State of the Pathology Profession-Key Trend #2
National Pathology Firms
EXPECT THE FINANCIAL SUCCESS of the first group of national anatomic pathology companies to spawn a host of competitors during the next several years.
The age of national pathology companies has arrived. It is heralded by the accomplishments of DIANON Systems, Inc., IMPATH, Inc., and UroCor, Inc. throughout the 1990s.
Each of these companies sells to a very different niche within the marketplace. But each offers some form of anatomic pathology services to the national market.
During the second half of the 1990s, all three firms maintained a steady growth in the volume of anatomic pathology specimens flowing into their companies. More importantly, these anatomic pathology specimens generated significant revenues and operating profits to the three companies listed above.
Even if this experience has gone unrecognized by the pathology profession, it has not been overlooked by Wall Street investors and venture capitalists. They’ve spotted a good way to make money, and they want to invest in more anatomic pathology-based firms.
It will be outside investors, not pathologists, who fund the next crop of national anatomic pathology companies. THE DARK REPORT predicts that these companies, utilizing the capabilities of such technologies as healthcare e-commerce, will bring about a national market for anatomic pathology services. In the process, pathology as a clubby profession will disappear forever.
What replaces it will bring greater recognition and income for anatomic pathologists who are accomplished at their craft. The reason is simple. Pathology’s most gifted practitioners will have a national reputation. They will be referred specimens from across the nation and the globe.
However, as the market demand for national anatomic pathology services develops, it will cause problems for local pathology groups wanting to capture specimens from physician offices. Since local pathology group practices are reluctant to hire sales and marketing people, they will find their physician accounts slipping away to sales reps employed by the national AP companies.
For hospital-based pathology group practices, the arrival of national anatomic pathology companies will not trigger much change, at least in the short-term. The initial goal of the national AP companies will be to generate specimens from physician offices.
But at some point, the national AP companies will want to acquire hospital contracts. It is the same sales pattern seen by the national laboratories. From about 1985-1995, their emphasis was on physician office business. But once they scooped up most of that business, they began approaching hospital labs to pitch joint ventures, contract management contracts, and similar arrangements.
The arrival of national anatomic pathology service firms will occur in tandem with most of the other trends listed in this intelligence briefing. It is a trend that will be unstoppable.
State of the Pathology Profession-Key Trend #3
Branding Path Services
COMPARED TO OTHER PHYSICIAN specialties, pathologists have mostly avoided the public eye, both inside and outside the healthcare community.
Marketplace forces to change this situation are already under way. During the past six months, two anatomic pathology companies have publicized their relationships with noted pathologists.
In July, AmeriPath, Inc. announced that A. Bernard Ackerman, M.D. would participate with the company in creating a dermatopathology center of excellence. That was followed in December by IMPATH, Inc.’s press release touting its contract relationship with Juan Rosai, M.D. the pathologist now affiliated with National Cancer Institute in Milan, Italy.
THE DARK REPORT interprets these actions, along with other forces now visible in the marketplace, as evidence that “branding” of pathology services is about to occur on a larger scale. In order to gain competitive advantage, certain anatomic pathology companies and group practices will begin to advertise the talents of their most skilled anatomic pathologists.
The movement to brand anatomic pathology services is a direct result of the emergence of professionally-managed companies which are profit driven. These companies must differentiate themselves from competing anatomic pathology providers. To gain competitive advantage over other pathology providers, they will invest in advertising to convince clinicians that their company is the best source for AP services.
Community hospital-based pathology practices have already been the victims of this branding strategy. During the 1990s, national AP providers such as DIANON Systems, Inc. and UroCor, Inc. sent hordes of sales people into doctors’ offices around the country.
These sales people were successful. A steady and ever-increasing flow of biopsies was diverted away from the local pathology practice and sent instead to national labs in Connecticut (DIANON) and Oklahoma (UroCor).
THE DARK REPORT sees compelling evidence that the sales com- petition for anatomic pathology specimens from local physicians’ offices will increase during the next 24 months. Local pathology groups will be unprepared to respond to this competition.
The two blood brothers, Quest Diagnostics Incorporated and Laboratory Corporation of America, have also realized that there is profit in anatomic pathology. Expect them to devote more sales resources into this market niche.
AmeriPath has already told the investment community that it wants to increase its national AP business. With its $250 million in annual revenues, it has the financial strength to pursue this goal.
All of this sales competition will focus around “branded” anatomic pathology services. It may soon be that some pathologists become as renowned as the most famous cardiologists and sports orthopedists!
State of the Pathology Profession-Key Trend #4
Path Centers of Excellence
SPECIALIZATION IS A CONSTANT theme in both industry and healthcare during the past four decades.
Evidence of increased specialization can be seen in the variety of medical specialties and subspecialties that exist today, compared to those of 1960. Pathologists have seen this same dynamic at work. Over the years, a variety of pathology subspecialties has emerged. These new subspecialties are a direct result of increased knowledge about certain disease states, along with improved technologies.
As specialization increases, its logical consequence are specialized skill centers. In the medical world, these have come to be called “centers of excellence.” To accept the premise of increased specialization of anatomic pathology services it is necessary to accept the development and growth of anatomic pathology centers of excellence.
It is the belief of THE DARK REPORT that the decade of the 2000s will see the flowering of AP centers of excellence. However, it cannot be assumed that such centers will emerge only from well-capitalized, national AP companies.
To the contrary, new communications technology, such as the Internet and healthcare e-commerce tools, will make it possible for any community hospital-based pathology group to develop its own unique anatomic pathology center of excellence.
Internet technology makes it easy for any size of healthcare provider to enter the marketplace and provide clinical services. The Internet will prove to be the great equalizer, but only for those pathologists who recognize its potential and actively strive to take advantage of its capabilities.
Against the background of increased specialization of medicine in general, and pathology in particular, centers of excellence will be the expected consequence. Internet technology will make it possible for even small, local pathology group practices to offer specialized anatomic pathology services on a national, even international, basis.
Further, this view of anatomic pathology centers of excellence still permits practicing pathologists to operate a “dual” practice. On one level, they can continue to live in the community of their choice and practice in a small hospital setting.
But on another level, they can take their particular area of specialized pathology expertise and offer it, via the Internet and other methods, to a national marketplace.
The trend toward anatomic pathology centers of excellence is reinforced by other trends listed in this “state of the pathology profession” briefing. Branding, emergence of national anatomic pathology companies, and regionalization of anatomic pathology services are all trends which support and encourage the creation of AP centers of excellence.
What will determine whether community hospitals-based pathologists can make a successful center of excellence is their ability to implement professional management and sales and marketing into their group practice.
State of the Pathology Profession-Key Trend #5
ADVANCES IN MOLECULAR and genetic science during the next decade will provide the pathology profession with its most powerful clinical tools.
One consequence of this development will be the diminishing importance of the microscope to anatomic pathologists. Better knowledge about the genetic make-up of different diseases will allow for a more precise diagnosis using tests based upon genetics and molecular science.
Pharmaceutical firms will be the driving force in developing genetic and molecular knowledge. Each year, these companies pour greater amounts of money into primary research. Their goal is to understand the genetic and molecular operation of the human body.
The word “pharmacogenomics” was coined to describe this emerging field of study. (See TDR, September 8, 1998.) At its simplest, pharmacogenomics refers to the process of using genetics-based technology to evaluate the effects of pharmaceutical compounds on the body.
On one level, pharmacogenomics describes how drug companies use genomic information to discover and identify effective drugs. This is the process of creating new pharmaceutical compounds.
On another level, pharmacogenomics describes its clinical use for diagnosis and prognosis. The clinician uses pharmacognomics to identify specific ways that an individual might react to a drug.
As the human genome project identifies genes, and their functions, there will be a cascade of new tests and procedures for both diagnosis and prognosis.
For the pathology profession, this scientific revolution will increase the value of pathologists to clinicians. Just as the arrival of MRIs, PETs, and other sophisticated scanning technologies made radiologists essential partners with clinicians, so also will new genetic and molecular-based procedures do the same for pathologists.
THE DARK REPORT explored these trends in earlier stories. For example, 20 years ago, lymphomas represented a more serious disease than it does today. Now tests can distinguish between Hodgkin’s, non-Hodgkin’s, B-cell, T-cell and other types of lymphomas. These tests allow pathologists to present a patient with biological specificity. Treatment is then targeted to that specific patient.
On pages 13-14 of this issue, we report on Digene Corporation’s HPV test, which uses antibodies to detect DNA:RNA hybrids. New clinical studies suggest that, with further improvements, this HPV test might someday equal or exceed the specificity and sensitivity of the traditional Pap smear in screening for cervical cancer. Should that occur, the microscope could yield to a genetic-based assay as the preferred method for this type of screening.
As genetic and molecular-based medicine expands its scope, pathologists will be provided with new opportunities to add value. This will enhance compensation for pathology procedures. It will also foster the increased specialization that supports pathology centers of excellence.
State of the Pathology Profession-Key Trend #6
REGIONALIZATION of anatomic pathology services is an inexorable trend. Nothing will stop the ongoing consolidation of small group practices into regionalized pathology provider organizations.
The concentration of hospital ownership and control is the prime mover. Now that 604 integrated healthcare systems (IHS) control 3,760 of the nation’s 4,800 non- government, acute care hospitals (See TDR, April 5, 1999), consolidation of the individual pathology practices serving an IHS is almost a forgone conclusion.
A separate market phenomenon is the growth of single-specialty physician practice management companies focused on anatomic pathology. Among the better known are AmeriPath, Pathology Consultants of America, PathSOURCE, PathGroup, Pathology Partners, and USLABS.
None of these firms are reported to be in financial difficulty and the best of them are prospering. Each company has a different strategy for growth, but they all need to achieve this growth by consolidating small pathology groups into larger, regionalized clusters.
Another source of pathology regionalization is the growing number of statewide pathology networks. For the most part, these are organized under the banner of Pathology Service Associates (more than 80 pathology practices and 400 pathologists in at least eight states).
The need to offer pathology services across a specified geographical area is the common thread which links each of these three distinct categories of pathology practice regionalization. This movement is a reaction to the consolidation of all segments of the healthcare community.
The days of a profession dominated by pathology groups of 2-5 physicians are ending. Over the next five years, the pathology profession will increasingly be marked by larger pathology group practices, averaging more than ten physicians, and serving multiple hospitals and multiple hospital systems in a metropolitan area.
Most big cities will have several of these regionalized pathology group practices. Competition for hospital contracts will become more intense. The need to diversify revenue sources will cause these pathology groups to compete earnestly for specimens from physicians’ offices.
Perceptive pathologists understand why the cumulative impact of all the forces now acting upon health- care makes it inevitable that regionalization of anatomic pathology must occur. Those pathologists who act proactively to position themselves, and their group, will tend to control events in their community.
Those pathologists adopting a “wait and see” strategy will generally find themselves offered less generous opportunities. After all, reward is commensurate with risk. Pathologists willing to be first to drive the regionalization process first are taking the most risk. They will see the greatest return.
Regionalization of anatomic pathology services is probably the game with the highest stakes during the next five years. That is why every pathology group should have a regionalization strategy.