Two New Pathology Models Will Soon Be Tried in Dallas

Goal is to deeply integrate laboratory testing into healthcare continuum in ways that add value

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CEO SUMMARY: There are notable aspects to how and why four unlikely partners are banding together to invest $40 million and create the nation’s newest reference and esoteric testing laboratory. It was the pathologists at Baylor University Hospital in Dallas, Texas, who originated the vision and initiated conversations with the other three partners. This new business shows how pathologists can leverage their knowledge and play a greater role in advancing personalized medicine.

MAKE NO MISTAKE! Pathologists are the visionaries and initiators of the newly-created laboratory testing partnership in Dallas, Texas, that is expected to become operational this May.

Inside sources tell THE DARK REPORT that it was the pathologist leaders at Pathologists Bio-Medical Laboratories (PBL) in Dallas who initiated the conversations with Texas Oncology, Baylor Health Care System, and US Oncology that directly led to the formation of the nation’s most interesting new laboratory business. (See pages 3-6.)

It marks one of the few times in the past decade that a new pathology business has launched with tens of millions of business capital and with pathologists serving on the Board of Directors and in executive positions. A key figure in this effort has been Peter Dysert, II, M.D., a Managing Partner of Pathologists Biomedical. Dysert has kept a low profile in the news stories published about the newest laboratory competitor in Dallas.

The four-partner laboratory consortium is called MedFusion. It has a simple proposition. It wants to establish a clinical laboratory testing facility designed to provide the range of reference and esoteric tests that are commonly referred out by hospital laboratories, along with a sophisticated and highly-integrated informatics capability.

What gives MedFusion immediate market presence is that it will have access to the send out testing from the 2,500 beds in the hospitals that are part of the Baylor Health Care System.

New Territory For Lab Testing

On one level, this laboratory business model resembles a regional version of ARUP Laboratories and Mayo Medical Laboratories. What takes the MedFusion lbusiness model into new territory are several things.

First, two of the four partners are sizeable, profitable enterprises. Baylor Health Care System has $3.1 billion in revenue. US Oncology has $3.3 billion in revenue and ranks 646 on the Fortune 1,000. These two partners bring substantial financial resources to the new laboratory company. This financial strength is likely to be a source of competitive market advantage going forward.

Second, MedFusion intends to do more than just be a reference and esoteric laboratory for hospitals, health systems, and other types of clients. MedFusion CEO Keith Laughman stated that the new company plans to offer such services as site management, organization support, and a CRO (contract research organization).

 How The CRO Opens Doors

The CRO is an interesting twist. THE DARK REPORT believes this element is connected to MedFusion’s relationship with Baylor Health, US Oncology, and Texas Oncology (a business division of US Oncology). Given the growing importance of access to patients to enroll them in clinical studies and drug trials, MedFusion is shrewd to create a CRO.

After all, Baylor handles 102,000 inpatient admissions annually and has 88 pri- mary care centers and other health centers. Texas Oncology serves 68,000 cancer patients each year and its parent, US Oncology, serves 720,000 patients annually. Thus, MedFusion’s CRO would have the necessary access to patients to screen and qualify them for clinical trials.

Next, MedFusion will have the ability to provide all the laboratory testing needed by the CRO for diagnostic and patient monitoring purposes—along with access to a patient’s inpatient lab test data if it is held by Baylor Health. For clinical studies, it is an advantage to have one laboratory provide all the lab test data over the entire multi-year course of the study.

Electronic Interfaces

Another strategic element in MedFusion’s favor is its plans to develop a tightly-integrated information technology (IT) platform. This is important. It would make it possible for MedFusion to electronically interface with Baylor, Texas Oncology, and US Oncology’s (EHR) electronic health record systems.

But that is not all. MedFusion’s clinical and anatomic pathologists would likely also have electronic access to the full patient records held by each of these organizations. That would give pathologists the information they need to participate as full consultants with the referring physicians, possibly even in real time.

All of these attributes of MedFusion will be designed to serve the vision of personalized medicine, which includes a greater role for companion diagnostics. In all these respects, the organizers of MedFusion are designing a laboratory organization to serve the healthcare needs of tomorrow, while competing for business today.

But MedFusion is just one part of a more comprehensive business strategy that brings together Baylor Health, US Oncology, Texas Oncology, and Pathologists Bio-Medical Laboratories. This strategy centers on cancer.

Oncology Laboratory

It should be noted that, within the 172,000 square foot facility in Lewisville, Texas, leased by MedFusion for its laboratory, there will be a second laboratory, owned solely by US Oncology. As described by MedFusion principals, this laboratory will process tissue specimens and perform genetic and molecular testing in support of cancer patients under the care of Texas Oncology and US Oncology.

Because US Oncology serves 720,000 patients per year in the United States, this cancer laboratory is likely to quickly grow into one of the largest cancer testing laboratories in the United States. It also means that US Oncology will be generating substantial revenue from the technical component (TC) claims submitted for these cancer tests.

It can be expected that Pathologists Bio-Medical Laboratories—as one of the four partners in MedFusion—will provide the professional component (PC) services to US Oncology and Texas Oncology. PBL already has a wide range of subspecialty expertise in place and has considerable experience with the latest molecular and genetic test technologies.

Also, Baylor Health Care is opening a new cancer center. This gives the pathologists at PBL a unique opportunity to serve both Baylor and US Oncology. It positions these pathologists to possibly grow into one of the nation’s largest pathology group in coming years.

Unique Lab Testing Model

By any measure, the pathologists at Pathologists Bio-Medical Laboratories have participated in creating a unique new model for laboratory testing. One underlying theme among the four partners and the two separate laboratory organizations is the goal of using laboratory testing and pathology professional expertise to support integration of clinical care.

Timing may be in favor of this nascent laboratory venture. A host of developing technologies in genetics and molecular diagnostics will provide MedFusion with new opportunities to add value while supporting greater integration of patient care, even as the demographics of an aging population mean more cases of cancer and other diseases associated with aging.

THE DARK REPORT observes that the consolidation of healthcare in the United States continues. The partnership developing MedFusion shows how consolidated provider organizations, because of their size and scale, are capable of creating ancillary businesses that have immediate access to the volume of patients needed to ensure financial viability.

Pathology’s Future

The pathology profession should also consider this new laboratory partnership as a reminder that the heyday of the smaller, generalist pathology group practice is approaching its end. For that reason, most community hospital-based private pathology groups should be prepared to reassess current strategy. Large pathology super- groups will be the future, and Pathologists Bio-Medical Laboratories in Dallas is showing one way to prosper as healthcare transitions to personalized medicine.

Baylor’s Pathologists Have Key Role at MedFusion

FOR MORE THAN THREE DECADES, pathologists at 998-bed Baylor University Hospital, have been an active force in laboratory testing in the Dallas, Texas, healthcare marketplace.

These pathologists own Pathologists Bio-Medical Laboratories (PBL), an independent laboratory that has been affiliated with Baylor University Hospital since 1950. The pathologists in that group are on the faculty of the Baylor School of Medicine. They also own and operate an independent laboratory that serves the Baylor Health Care System and other hospitals in the Dallas area.

During the late 1980s, Baylor’s pathologists were involved in an attempt to create a new regional hospital reference and esoteric testing laboratory that included Nichols Institute as a partner. That project did not succeed.

During the 1990s, the Baylor pathologists were actively involved in long-running discussions among pathologists in the region to create what would have been one of the nation’s largest pathology IPAs (independent physician associations). This was a response to the contracting practices of HMOs and managed care companies. However, it proved difficult to gain the agreement of all the interested pathologists and the proposed IPA never came to fruition.

In recent years, it was the pathologists at PBL who initiated the discussions that eventually brought four partners together to invest $40 million and create MedFusion. The Baylor pathologists have thus positioned themselves to have a role in the development of personalized medicine, including the development and expanded use of companion diagnostics.

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