Management of Pathology Practices

December 2008

Management Home Page


Staying in the Game: 

Operating Your Practice as a HealthCare Business

Randal Sanderson, National Director of Business Development

PSA, LLC – A MED3OOO Company


The healthcare industry continues to be faced with many challenges and economic pressures, which require pathology practices to become more business oriented, and often have led them to seek the advice of experts in practice management and healthcare informatics to face these challenges and convert them into opportunities, where possible.  Declining reimbursement, an increasingly complex regulatory environment, and intense competition are among the biggest challenges facing independent pathology practices today.  Unfortunately, in many cases, the quality of diagnostic services provided by skilled pathologists is no longer the most important factor considered by clinicians when determining where to refer their patients’ cases.


Investors have been drawn to the pathology industry’s strong growth rates and have been investing significant resources in acquiring independent labs and community-based pathology practices to access healthcare markets with strong growth trends that have been notably absent in many other sectors.  These trends may continue as the economy faces a potential recession and healthcare appears to be a sector that is relatively recession-proof, at least by historical standards. 


To maintain their competitive advantage, pathology practices must be able to respond to these challenges and changing dynamics, by operating their practices as healthcare businesses, by employing long-term planning strategies and by investing resources to grow and maintain their market share.


Key Strategies for Success and Survival:


Quality Revenue Cycle Management- Get paid for what you do.

At a time when declining reimbursement and other competitive market forces threaten the viability and prosperity of pathology practices, it is more important than ever to have effective billing and coding processes in place designed to maximize practice revenues.  The most important by-product of the billing process, aside from cash in the bank, is the creation of management information to both monitor the effectiveness of billing efforts and the information needed to make strategic decisions necessary to create and sustain a healthy practice. 


For instance, this management information can be used to determine:  What will be the impact of participating with a particular insurance company at proposed rates?  Should we offer additional testing menus through our lab or offer these services through an arrangement with a reference laboratory?  How much can my practice bring in by participating in the CMS Physician Quality Reporting Initiative?  These questions, and many more like them, are much easier to answer when the quality of billing reports is superior and your billing service provider has first rate systems to generate additional management information reports you may need for the real questions that come up in the management of your practice.   


Without proper reporting tools, a practice cannot effectively evaluate adherence of payors to contract terms or understand referral patterns that are vitally important in appropriately marketing your practice and serving existing clients’ needs.


The success of a pathology practice, no matter what the size, is directly impacted by the effectiveness of the revenue cycle management.  At least annually, a practice should endeavor to evaluate the effectiveness of the billing and collection efforts.


 How can you evaluate whether your current solutions are effective? Have a review performed by CPA firm or consultant specializing in providing such reviews.  Review key ratios such as Net Collection Percentage, Bad Debt Percentage, Days in A/R and A/R greater than 120 days.   Benchmarks certainly vary by practice geographics/demographics and payor mix, but a downward trend year over year is generally a sign that improvement is needed.  In pathology, we see net collections ratios from 85%-95%, with the average around 90%, based on the 75+ pathology practices for whom PSA provides services in 29 states.  Bad debt is the inverse at 5-15%.  Days in A/R averages under 45, and A/R greater than 120 days should not exceed 10-15%.


What should you do if you are considering a change?

Look for providers with a significant concentration of pathology work.  They will understand the nuances and be able to help maximize the outcomes associated with their efforts.  Always call references, including newly implemented accounts and former clients to get a feel for quality and culture of the service provider.  Review websites and make a site visit to see the operations and technology employed to make sure that the company you select is investing in technology to monitor quality effectively and maximize efficiency.  Yes - efficiency is important.  If the provider you select is efficient, you can be better assured you will receive competitive pricing, and that the resources employed are spent maximizing return to the practice, not pushing paper.  Be a partner in this endeavor.  The practice is the winner, the collection cycle is shorter and the outcomes are better when a team approach is employed between client and service provider.


Relationship Building on Multiple Levels - An Essential Cost Effective Marketing Tool.

Relationship building with physicians and office staff remains a huge opportunity for community-based pathologists and is the underpinnings of success in the pathology industry.  Pathology practices should take advantage of this opportunity by employing a marketing/sales representative to interact with current and potential clients on a routine basis.  Frequent interaction will allow a pathology practice to identify and promote the services which referring physicians value and take on the role as peer medical consultants as opposed to laboratory technicians.  


Relationship-building is no longer just a sales and marketing function.  Couriers, technicians, pathologists and marketing/sales representatives each interact with referring physician practices and therefore are essential in maintaining competitive advantage in the market.  Pathologists should get involved with the marketing efforts by having bi-weekly meetings with the marketing representative(s) to remain connected and informed on what is transpiring in your market.  Take time to go with the marketing representative when visiting clients and prospects.  Having the pathologists participate in the visit will demonstrate the kind of personal support the client will be receiving.  Eat lunch in the physician lounge and interact with your colleagues so as to reinforce pathologists as peer physicians and to develop and strengthen personal relationships which often drive referrals.  Often a pathologist can accomplish more in 30 minutes during this physician to physician contact than a marketing representative can accomplish in 30 days.


A pathology practice may lose a client due to their inability to make timely business decisions on services which are valued by their clients.  What clients value may be as simple as printing reports on colored paper, reliable courier pickup, results turnaround time, or providing normal pap smear notifications to something as complex as offering subspecialty expertise and specialized testing, web-based reporting/ordering, or electronic medical record interfaces.  Lagging behind in technology or your practice’s inability to respond to the market in a timely manner could be costing your practice valuable business. 


Developing a practice culture which emphasizes client service and business development, at all levels, will allow the practice to ensure growth and guard against market erosion.  Find out what your clients value and what their needs are and address them; if you don’t, your competitors will.


Invest in Resources-Work Smarter Not Harder

While pathologists need to focus more on the business side of their practice, they still need to be able to practice medicine first and foremost.  Therefore, pathologists must consistently look for ways to handle their workloads more productively.  The best way for pathologists to handle their workloads more productively is to invest in personnel and technology resources which allow them and their staff to be utilized efficiently.  A pathology practice can improve their efficiency by hiring a physician assistant or practice manager.  A practice should be able to analyze the amount of time the pathologists or a technician is spending on non-medical related work such as answering the phone and evaluate that cost compared to hiring someone else to do those administrative duties.  In addition, hiring a marketing representative may also reap large benefits for a practice that is looking to grow their business.


Many physician groups have made the decision to outsource billing functions which allow them more time to focus their efforts on the clinical aspects of their businesses.  The complexity and technology required to conduct these activities is increasingly out of reach for most organizations. Without strong technical expertise in both billing and information technology (“IT”), providers run the risk of costly errors.  Even with such in-house expertise, the risk of turnover in key personnel can devastate short-term cash flow.


Information technology is an expensive but essential piece of laboratory infrastructure.  Pathology practices should have dedicated IT personnel to assist with the evaluation and implementation of technology.  In an industry where Electronic Medical Records (“EMR”) are quickly becoming status quo, it is essential that your practice discuss the options for offering this service to referring physicians.  The marketplace demands that we have electronic alternatives to traditional ordering and resulting such as EMR interfaces and web-based reporting/ordering.  


To remain competitive, pathology practices of all sizes need to be able to offer the same tests and subspecialty expertise as their national competitors, who have much larger volumes and budgets.  This can often be difficult due to the limited resources and volume of some local pathology groups and the rising cost of technology.  Smaller pathology practices with limited budgets need to continually evaluate their resources to determine which services or products should be performed in-house or outsourced. Smaller pathology practices should align themselves with non-competitive organizations that can provide them access to products and resources that are currently unavailable to them.   


Consider affiliating your group with a professional organization that can promote networking among affiliated practices.  Independent pathology groups have been able to develop arrangements with other pathology practices that offer subspecialty expertise.  Because of limited resources and volume, this may be an avenue to enhance your technology and diagnostic procedures.   


Next Decade

Personalized medicine and genetics are leading clinicians away from traditional trial and error treatment and providing patients with better quality healthcare deliverables.  Pathologists have the opportunity to be the developers and deliverers of these new testing protocols and must market their capabilities to clinicians.  Remaining local and hospital-based is a huge advantage due to the close relationships which can be formed with referring physicians who are ordering these tests.  Local presence improves turnaround time in terms of results, and also ensures a continuity of patient care within the local healthcare delivery system.


For more information, please contact PSA at 800-832-5270 or  PSA provides billing, marketing, and business solutions to pathologists nationwide.