PSA, MED3000 Merger Creates Opportunities

Rapid evolution in billing and collection is one factor in this consolidation action

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CEO SUMMARY: Pathology Service Associates, LLC, has found a merger partner that will allow it to offer more products to its pathology clients and to expand into new service areas. By merging with MED3000 of Pittsburgh, Pennsylvania, PSA also gains access to enhanced informatics capabilities that it can roll out to its pathology group clients. This merger is a sign that the cost of sustaining an effective billing/collections program is skyrocketing.

RAPID AND CONTINUAL CHANGES in billing and collection for anatomic pathology services is a significant development that caused Pathology Service Associates, LLC (PSA), to merge with MED3000, Inc., a healthcare management company based in Pittsburgh, Pennsylvania. The merger closed on July 31, 2007, and terms were not disclosed.

The merger is significant because PSA is the country’s largest single-specialty provider of pathology revenue cycle management (billing and collections), as well as a provider of services in practice management and marketing. It serves more than 75 independent pathology practices, representing 400 pathologists, in 27 states.

“Both parties benefit in this marriage,” stated Laura Chaney, PSA Vice President. “MED3OOO gains market presence for providing billing and business services to pathologists and a platform to do the same for other hospital-based specialty physicians. For its part, PSA now has access to the capital resources required: 1) to grow our core business; 2) to invest in state-of-the art technology; and, 3) to expand into new regional markets.

“One direct benefit for our pathology clients will be MED3OOO’s data warehouse,” she added. “We have long been interested in this capability. PSA has large amounts of pathology data and we continually use it to support political advocacy initiatives that benefit pathologists. PSA also uses this pathology data to provide information to payers as evidence in support of appropriate reimbursement for new and existing codes.”

Independent Division

“Post-merger, PSA’s management team and mission remain a constant,” said Al Sirmon, PSA President. “PSA will continue to operate under its name and as an independent division of MED3000. We remain committed to pathology. All our service lines will continue. To this established tradition of service will be added new capabilities and more sophisticated information technology. We are moving forward specifically so we can help our pathology clients access and use new technologies to support their own pathology practice.”

PSA’s decision to merge with MED3000 is a strategic response to rapid evolution in revenue cycle management across the healthcare system, as well as ongoing advancements in technology. “Over the past five to seven years, there has been a staggering pace of change in the billing industry,” noted Chaney. “There is continual change in the application and use of electronics and informatics in the process, both on the provider side and the payer side. This tends to create technology and capital barriers for pathology practices and small billing companies to be successful.”

“Recent trends include new NPI (National Provider Identifier) and efforts to implement pay-for-performance systems,” she continued. “These changes come on the heels of ANSI standards required by HIPAA and a number of other things, all of which proved time-consuming and costly to implement. Both the pace and scale of emerging trends make it extremely difficult, and capital-intensive, for pathology practices and billing companies to maintain the required infra- structure. While PSA handled these changes very well, we recognized the importance of our own access to capital and sophisticated expertise in information technology to maintain our service edge in the marketplace.”

Requirements And Mandates

“We hear this same story from our clients and other pathology groups around the country,” noted Sirmon. “Sustaining a high-performance billing and collection service is harder now than it has been at any time in the past. Each year brings more requirements and mandates. Each year, reimbursement for many clinical services declines.

“Just as pathologists are struggling with declining reimbursement, PSA and all billing companies experience a decline too—since our fees are directly related to what we collect for the physicians,” explained Sirmon, “When our clients get a 10% cut in reimbursement, PSA also gets a 10% drop in reimbursement. That squeezes every billing company, as well as the pathology groups that do their own billing.

“In this environment, smaller billing companies are hard pressed to stay in business. Moreover, 30% of the 3,300 pathology practices in the United States continue to do their billing in-house. These 1,200 pathology groups have shrinking financial resources to maintain and upgrade their billing and collections capability—even as they face the need and the pressure to buy new electronic systems and add capabilities required to meet new mandates,” explained Sirmon.

Looming EMR Deadline

“For example, there’s a deadline looming in coming years for physician practices to implement electronic medical record systems (EMRs). Also looming is the implementation and use of the new ICD-10 system,” he continued. “Each of these requirements means pathology practices will need new systems or major upgrades to sustain effective billing and collections.”

“And that can be expensive,” added Chaney. “Many groups have software systems that simply can’t accommodate the extra digit that ICD-10 will require. For these practices, it could cost as much as $250,000 or more for a new system or system enhancements required to meet ICD- 10 and other mandates. ”

PSA views this situation as an opportunity. “We can tap that market and serve it well because many pathologists and other physicians will not want to invest the resources to meet these new requirements,” noted Sirmon. “It will motivate them to consider outside billing solutions. The fact that PSA also offers practice management and marketing services differentiates us in the marketplace.”

Sophisticated Partner

In MED3OOO, PSA gains a sophisticated partner that is already involved in several sectors of healthcare. “MED3OOO focuses on advancing the performance of medical practices, health systems, physician networks, and EMS departments,” said Patrick Hampson, Chairman and CEO of MED3OOO. “We work with more than 9,000 physicians, hospitals, and health system clients to improve clinical outcomes, operational results, and financial returns through improving operations and technology resources. The addition of PSA will expand MED3OOO’s service offerings and broaden our presence in the hospital-based physician market.”

“In acquiring PSA, MED3OOO gains immediate access to pathologists and other hospital-based physicians,” explained Sirmon. “Hospital-based physicians have specific billing and collections needs, and PSA brings that experience and expertise to MED3OOO.”

Even as PSA helps MED3000 expand services to hospital-based physicians, PSA will gain capabilities that allow it to help its client pathologists interface with the EMRs of office-based physicians. “Their EMR product is called InteGreat Concepts, Inc., and we are ready to explore ways to link this system with PSA’s pathology clients and their referring physician base,” observed Sirmon.

Billing Industry Changes

THE DARK REPORT observes that this merger marks the second time in the past 12 months that one of the pathology profession’s largest national providers of billing and collection services has been acquired by a larger company. It demonstrates that professionals in billing and collections recognize that their own resources are inadequate to maintain pace with new payer requirements and a steady stream of statutory mandates.

Independent of these factors, information technology is undergoing radical improvements in shorter product cycles. New hardware and software must be acquired to maintain a state-of-the art billing and collection service.

Informed by the strategic decisions of PSA and Per Se Technologies (which sold itself to McKesson Corporation earlier this year), it is likely that many of the 1,200 independent pathology groups still using in-house billing and collection services will soon face a business dilemma: the effectiveness of their billing and collection efforts is declining because they have not invested in the necessary upgrades to maintain high efficiency—but the cost of the upgrades or new information systems cannot be recovered by the increase in percent of billed dollars that are collected.

From that perspective, a logical prediction is that pathologists will soon migrate away from in-house billing and collections, in favor of larger agencies capable of upgrading and investing regularly to sustain a high ratio of collected dollars in a cost-effective manner.

Founder Continues in New Role with PSA

FOR A FOUNDER OF Pathology Service Associates, LLC, of Florence, South Carolina, the merger with MED3000 will mean some changes.

It was 1995 when Louis D. Wright, Jr. M.D., and his pathologist-colleagues launched PSA as an organization to provide advanced business management services and expertise to private practice pathology groups. Now a leading voice for the profession, Wright is a member of the Board of Governors of the College of American Pathologists (CAP).

Wright will continue in a new capacity following PSA’s merger with MED3000. He will be an advisor. His particular vision is to help PSA and MED3000 integrate various information systems so that PSA’s 400 pathologists, the 30,000 physicians who refer them patients, and the 300 hospitals where they practice can pass data and information seamlessly in ways that enhance clinical service and operational efficiency.


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