PathSOURCE Is Newest Pathology Consolidator

Company’s strategy is to use regional hubs to preserve pathologist practice autonomy

CEO SUMMARY: Based in New York, PathSOURCE becomes the newest pathology network and services company to hit the market. PathSOURCE’s organizers want to link “best in class” dermatopathologists and academic pathology subspecialists to compete for outreach pathology specimens. PathSOURCE is further marketplace evidence that pathologists must innovate or find themselves underutilized.

WITH THE GOAL OF CONTROLLING their own destiny, a group of academic-oriented pathologists recently formed their own pathology network and services company.

Called PathSOURCE, Inc., the company will compete for pathology specimens by creating regional pathology hubs. Each hub is to be developed using a combination of pathology practice acquisitions, strategic alliances, and networks incorporating existing pathology practices. The company is based in Port Chester, New York.

Doctor-Directed Company

“Our business objectives are simple,” stated Robert J. Friedman, M.D., Chairman and CEO of PathSOURCE. “We want to operate a doctor-directed company which uses regionally-based pathologists to provide a ‘best medicine’ level of dermatopathology and anatomic pathology services.

“We believe that anatomic pathology can play an important role in the healthcare world of the future,” continued Dr. Friedman. “But unless pathologists change the way they deliver pathology services, many will find themselves shut off from the specimens they need to practice their profession.”

Two pathology practices formed PathSOURCE. Dermpath, Inc. of Port Chester, New York and the Institute for Dermatopathology in Philadelphia, Pennsylvania developed the idea and incorporated the company.

PathSource’s founding pathologists have an interesting resource aiding them in this business venture. “Dan Lufkin, a co-founder of Donaldson, Lufkin & Jenrette (DLJ), serves on our board of Directors,” noted Dr. Friedman. “He is currently a principal of Questor Partners Fund. Questor made a $25 million equity investment in PathSOURCE.

“Lufkin has personal experience with dermatopathology,” commented Dr. Friedman. “As various pathology PPMs approached us with acquisition offers, my colleagues and I would ask his advice. You could say that he became an informal mentor, guiding us through the process of evaluating the acquisition offers and business strategies of these various pathology PPMs.

“Like many other pathologists, we did not like the idea of being bought out by business people who weren’t physicians,” recalled Dr. Friedman. “Working as an employee was not an attractive option. Giving up our autonomy as doctors was equally unacceptable.”

Academic Pathologists

“It took about two years for all these events to transpire. During this time, Dan Lufkin became increasingly interested in the business potential of a pathology network and services company,” he continued. “For our part, we noticed that many academic pathologists were beginning to realize that their services were increasingly underutilized.

“The reasons are obvious,” observed Dr. Friedman. “Academic programs are getting cut back. Managed care is taking reimbursement away from academic and teaching centers. In the outreach market, managed care companies want to limit pathology providers to a select panel. This denies academic and non-provider pathologists access to AP specimens.”

PathSOURCE co-founder Richard Jacoby, M.D. added another important point. “As managed care grows, the accession curve for inpatient AP specimens declines. Plus, AP specimens are transportable. The vast majority of AP specimens in the United States could be done in regional centers.”

Experience With Dermpath

“This is a threat to local pathologists,” observed Dr. Jacoby. “We recognized that if we did not respond to these market trends, we would lose access to specimens and control over the way we practice medicine and relate to clinicians and patients.

“The pathologists who organized PathSOURCE realized that businessmen were going to control medicine,” he continued. “Any pathologist who doubts this fact need only look at the representatives sent by pathology PPMs to discuss acquiring their practice. Seldom is it a doctor, and seldom do doctors play the major role in the boards and executive management of the pathology PPM.”

“That is why, during this two-year period of evaluating the various PPM opportunities which were shown us, we decided to create a doctor-driven pathology network company,” he added.

“Our goals are basic. First, we want PathSOURCE to be outpatient-focused. Dermatopathology is our specialty and we understand that market,” said Dr. Friedman. “We want to develop as a regional resource. This will be accomplished by creating strategic alliances with the anatomic pathology departments of recognized academic sources.

“As pathologists, we want PathSOURCE to be a brand name to doctors, patients, employers and MCOs. Branding takes, first and foremost, a quality product, then time, money, and people who know how to build a brand.”
Robert Friedman, M.D.
Chairman & CEO, PathSOURCE, Inc.

“This alliance of dermpath and AP in a regional setting is the platform which allows us to pursue managed care contracts,” he noted. “Our initial efforts will be to establish regional organizations along the Northeast corridor.”

According to Dr. Friedman, serious negotiations are under way with a number of pathology practices who are interested in affiliating with PathSOURCE. “Because our emphasis is on quality clinical services, we will only add about four to five partner practices per year,” he concluded. “We want PathSOURCE to be the highest quality diagnostic pathology in the marketplace.”

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