Management of Pathology Practices

Posted 10 March 2005


The Paradigm Shift in Pathology

By Bernie Ness, B J Ness Consulting Group, LLC


The OIG (U.S. Office of Inspector General) has issued their legal opinion on the so called pod labs. Most pathologists think that they will be soon shut down and put out of business. The fact could not be farther from the truth. Several strategies are now unfolding in the marketplace with specialty physicians in urology and gastroenterology.


Why is this happening? Almost every specialty group I talk to these days is looking for lost revenue. The urologists have just lost Lupron injection revenues in January. In many of the large group practices, the amount lost is in the hundreds of thousands of dollars. About 2 years ago the GIs took a 25% pay cut from Medicare on their clinical services. No clinician can see another 25% caseload increase without endangering patient health and safety.


When the GIs first got hit they started looking at opening endoscopy centers that were free standing of their hospitals to pick up the technical fees. Sometimes this meant setting up their own facility at a cost of several million dollars. Other times, and especially in CON (certificate of need) states, they converted a suite in an existing surgery center to an endoscopy suite for their patients. Now they are looking at setting up their own anatomic pathology laboratories. I have had several groups contact me in the last few weeks to inquire if I knew anyone who could help them do this for their partners. I referred them on to a fellow consultant with that special expertise.


Now that the urologists are in the crosshairs of Medicare, they are facing the same economic challenges that their GI brethren have endured. Their problem is that they are already doing prostate biopsies in their offices and several other procedures. They are looking at any and all types of procedures or services to help them recapture the lost revenues from Lupron. They too have been active in contacting me about setting up their own anatomic pathology laboratory in their practice.


This is no different from what dermatologists have been doing for decades with their patient biopsies. I recently attended a telephone conference call regarding pod labs. Enduing 90 minutes of parsing of words by two attorneys was not as enlightening as knowing that there are now 47 pod labs in existence in six locations just in the past 18 months. That should help anyone quantify the magnitude and speed of this movement.


What should pathologists do? This shift in the market dynamics demands a strategy. Most pathology groups are relying on some kind of state or Federal legislation to solve this issue for them. This may happen but not anytime soon. If the specialists set up their own anatomic labs in their offices with a pathologist and histotechnologist on site, there is nothing the law will be able to do about it. It will fall under the in office laboratory provisions of the current laws. I have seen the spreadsheets and the economics are very compelling to set up an anatomic pathology laboratory. In fact, recently I was doing sales training in Florida for a large multi-specialty pathology group sales force. The issue of pod labs came up and the practice manager of the pathology group admitted that if he were the manager of a large GI or urology group he would set up his own anatomic pathology laboratory. I also understand from a trusted source that saw one of the pod lab locations that the laboratory was top notch, with state of the art equipment and fully staffed with technical personnel.


Between direct billing, pod labs, hiring a pathologist, and setting up your own in office AP laboratory, the pathology profession is under intense fire. Pathologists are becoming the sub-contractors of laboratory medicine. In any business, subcontractors are always under pressure to reduce costs (your fees), increase quality, and improve service. Without being subcontractors, pathologists have struggled to meet the needs of the specialty physicians in their markets. How many of you have color digital reports for urology and GI? How many of you have the capability to send those reports as emails to fit into EMRs in the specialists office? How many of you have bar coded requisitions specific for urology and GI to reduce time and increase quality for the specialty office? How many of you have electronic order taking ability? How many of you have patient education materials available specific for urology and GI patients on a website? How many of you even have a website?


By not providing the services your customers require to be competitive in their markets, the shift away from local hospital-based pathologists will continue to erode the outpatient business. I probably talk to more specialty physicians than any executive in the country each month. They are not real pleased with the pathology services they receive locally. Their feeling is that they have given the pathology laboratory lots of money over the years and they see no improvements in the services provided to them. Every business has to stay competitive to stay in business. That means there are investments that must be made to that business each and every year. I have to do investments in my consulting practice each year and pathology groups are no exception. If you do not invest in your customer base you can expect one thing for certain, you will lose clients because their loyalty has waned.


What should you do? Develop a strategy to be competitive. Do not stand by idle! Those that stand on the sidelines and wait to react to what happens next will be doomed. Here is a new concept. Why not take the time to visit one of your busy urology and/or GI clients and actually meet the office staff and find out how well you are doing in their eyes. It is called MBWA (management by walking around). You might also want to sit and talk to the MDs of the group and ask them the same questions about your services to their office. This is what good companies do all the time. You might learn something about your own business.


Bernie Ness is the President and CEO of B. J. Ness Consulting Group, whose goal is to provide the finest in innovative and cost effective solutions to management, sales, and marketing problems in the medical laboratory industry.  You can contact him at, toll free at 800-280-3785