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  Minding the business end of pathology

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August 2006
Cover Story

Karen Titus

To outsiders, business opportunities in the lab industry must look like a land grab. All those tests, all that billing, just sitting there in an easy-to-streamline production model. What could be easier than racing in, staking a claim, then picking off the profit?

In this worldview, pathologists are the reluctant pioneers who just can’t seem to get their wagons rolling. They want to check the wheels one more time, maybe look around to see if there isn’t some better map of the territories west. And, hmmm, perhaps expansion isn’t such a good idea after all.

Pathologists aren’t dumb. They know the lay of the land better than most. If anyone can pull value from laboratories, creating worthwhile products and services, it’s them. But whether they have the stomach or even the incentive to do so may be another matter.

Pathologists have a reputation, deserved or not, for snubbing the business side of their field. S. Victor Savino, MD, is a notable exception to that perception. In his world, the opportunities come but they don’t go, at least not without Dr. Savino latching on for a good long ride. Dr. Savino, currently a pathologist and laboratory director at tiny (33-bed) Miners’ Colfax Medical Center, Raton, NM, was formerly the director of laboratories for St. Joseph Healthcare System, Albuquerque, as well as president of SED Medical Laboratories, also in Albuquerque, a private laboratory he helped found in the early 1970s.

He’s already retired once, though it obviously didn’t stick. And he says he’s retiring again at the end of the year, though that announcement is immediately followed by a disclosure, in the next sentence, that he’s been considering a couple of intriguing offers in medical administration. “So who knows?” he says, laughing. “I might be doing something completely different a year from now, or even six months from now.” (CAP TODAY learned at press time that Dr. Savino became vice president of medical affairs, Lovelace Hospital, Albuquerque, effective Aug. 7.)

Dr. Savino possesses a strong entrepreneurial streak, but he’s not sure it’s shared by many others in the profession, at least not to the extent it was in years past.

Newly minted pathologists appear to be more oriented than previous generations toward set work hours, maxing out at 40 to 50 hours spread over a five-day workweek—a far cry, Dr. Savino says, from the typical schedule that once defined pathologists’ lives: a cancer conference at 6 a.m. at the hospital by 7 a.m. to perform frozen sections, and a workday that often stretched to 8 p.m. Colleagues regularly worked on Saturdays, to read Friday’s surgicals and phone clinicians with results. “Most people don’t believe that pathologists would work 12 hours a day, but we would,” says Dr. Savino.

Such is not the case with younger physicians, says Dr. Savino. “I think they’re probably much more oriented to spending time with family,” he says. “And I must admit, when I was early in my practice, I didn’t spend a lot of time with my family.”

For those who do possess an entrepreneurial spirit, however, he says his current practice situation offers a marvelous opportunity.

“We’re really out in the middle of nowhere,” he says. The closest hospitals in the area are a good 100 miles away. “These little hospitals have come to me and said, ‘How about coming over to our place and doing frozens, and we’ll send you our specimens,’” Dr. Savino says. He says he’s not interested. But certainly a young, energetic pathologist could pick up several hospitals “easily,” he says, serving as a roving laboratory director.

Dr. Savino has been down that road before, literally. He recalls his days with SED, when the lab’s contracts with small hospitals and Indian Health Service kept him in constant motion. “I was hustling!” he says. “I’m not sure many young pathologists want to do that. They’re not as oriented toward developing a business, making it successful, producing a system whereby you can service a lot of places from a central location. But there are a lot of things that could be done that would bring these little hospitals into the 21st century.”

Most appealing, he says, would be the opportunity “to run your own show.” But do pathologists want to do that?

Dr. Savino doesn’t think so, and he suspects that when he retires (again) at year’s end, Miners’ will simply contract with a larger group in the area.

He’s not alone in suggesting that younger physicians—pathologists among them—may not want to take on more than just a job. “There is definitely a generational change in newly trained pathologists, but the changes are much more subtle than might be expressed by the glib generalization, ‘They don't make them like they used to,’” says Alfred Lui, MD, medical director, Pathology Inc., a pathologist-owned anatomic pathology laboratory in Torrance, Calif. Some new pathologists expend tremendous energy and put in long hours at work, he says, but for others pathology and medicine is a job, not an all-consuming way of life, as it often was for previous generations. “And for those whose efforts are extraordinary,” he says, “that energy is often directed toward other areas, rather than building the business side of their pathology practice.” There’s another rap out there, one grounded in the personality-as-destiny school of thought. The classic—and insulting—example is the pathologist who sits behind closed doors reading slides “and reeling in horror when someone actually mentions a living patient,” says Pete Travers, MD, a vice president at Physicians Laboratory and chairman of pathology at Avera McKennan Hospital & University Health Center, Sioux Falls, SD.

“I’ve never actually bought that stereotype,” he continues. “There are weird people in medicine in any specialty—I don’t think we are particularly blessed with more than our share.”

What does make sense to Dr. Travers is this: Pathologists are engaged in an investigational, analytical kind of practice. This requires them to gather as much data as possible, to be methodical, and to be nearly certain before rendering a decision.

Dr. Lui concurs. “Your training as a pathologist teaches you that the most important thing is not to make a mistake, and particularly not to make a false-positive diagnosis,” he says. “You don’t want to tell someone they have cancer when they don’t. It makes you very averse to risk. You can’t pull the trigger easily and make decisions with incomplete information.” That thought process, he adds, makes pathologists more likely to constantly search for more data, rather than make a decision.

That’s good for pathology, but there’s no quicker way to bury a business, says Tom Hirsch, president of Laboratory Billing Solutions, Portsmouth, NH. He sees medical professionals in general—not just pathologists—as living in the black and white world of science. “Clearly there’s gray, too—but in business, everything is gray. And I notice that people who are black and white technically are not good at the gray area of managing people and making business decisions,” says Hirsch, who for nearly 20 years headed a large regional laboratory that LabCorp has since purchased.

Still, pathologists strike some as being even more conservative than most. If physicians were musicians, clinicians would be the orchestral percussionists, spreading their bunglesome instruments all over the stage and pounding away. Says Dr. Savino, “Let’s face it, if you’re going into medicine and you’re going to be a family practitioner, you know damn well you’ve got to get out there, open an office, staff the office, get the equipment for the office, make an investment, borrow money from the bank.” It’s a gamble, in other words, though Dr. Savino claims he’s yet to see a family practitioner fail. Pathologists are, by contrast, strumming folk songs in coffeehouses on their acoustic guitars. “You just come in, you’ve got a microscope, and you go to work. There’s no investment, there’s no financial challenge, there’s no risk involved,” Dr. Savino says.

This tidy explanation—young physicians, in tandem with all pathologists’ meticulous minds, are driving the profession to punch a timecard—works well, except when it doesn’t. “If you’re wondering why pathologists don’t start MetPath, well, they did,” says Robert DeCresce, MD, chair, Department of Pathology, Rush Medical College, Chicago, in recalling Quest’s predecessor.

Pathology lacks its own Domesday Book, but it’s safe to say that in years past there was no shortage of pathologists running their own large labs. When those pathologists retired or slowed down, few of the labs continued as pathologist-owned. They were a victim of their own success, in a sense, whose high selling prices put the labs out of the reach of most pathologists. When ownership switched outside the profession, it was controversial—and may have helped give rise to the notion that pathologists are reluctant entrepreneurs. “But the fact is, oftentimes the owners had to sell to somebody who had enough cash,” says Dr. Lui. “And that turned out to not be their junior, younger partners, who were either unable or unwilling to take on that financial risk.”

If previous generations were more entrepreneurial, it’s only fair to point out most launched themselves in a more congenial business environment. Until the advent of DRGs, hospitals had little incentive to enter into the competitive lab field, which made it much easier for pathologists who did.

Pathologists in decades past also enjoyed percentage contracts, which gave hospital pathologists a piece of every in-house lab test. Once the federal government pulled the plug on those arrangements, a not inconsiderable number of pathologists who’d been doing quite well for themselves no longer felt quite so comfortable as lab business leaders. Dr. Savino, who began his career as a medical technologist, recalls one boss from decades ago, an anatomic pathologist who enjoyed a healthy income from percentage contracts. “If he ever had to walk in the laboratory, he probably wouldn’t know what door to walk through.”

None of this explains why many pathology groups seem to have a hard time merging or otherwise expanding their practices today. Here’s where the true personality tripwire might lie, if pathologists do indeed have one: a desire for control. Most pathologists practice in small businesses set in one or a handful of hospitals, says Stephen Bauer, MD, where “they have complete control over what’s going on.” That omnipotence is hard to give up. “I guess we’re all control freaks,” says Dr. Bauer, laboratory director at Mercy San Juan Medical Center, Carmichael, Calif., and Mercy Hospital of Folsom.

Pathologists hate to give up control of their own destinies, agrees Dr. DeCresce. If entrepreneurialism isn’t a stylemark of pathology, individualism certainly is. Furthermore, when a group does become a high-octane business, someone’s usually out of a job. “Which one of my colleagues is leaving to make it more efficient?” Dr. DeCresce asks.

A darker reason is the idea that professional jealousy prevents pathologists from merging, even if it’s in their best interests. As Dr. Savino puts it, “There’s a certain amount of ego that you have to get through.” That may be true of other physicians as well, but Dr. Savino suggests pathologists lead the pack in this regard. “Pathologists tend to be much more conservative. I’ve always had the feeling that when it came time for pathology groups to talk about mergers, there was a strong reluctance.” That’s in marked contrast to other specialties, he says, noting he’s seen two fairly large gastroenterology groups in Albuquerque merge without any difficulty, “and it worked out quite well.” What’s more, he notes, the group may soon pose a real threat to local pathologists by processing their own specimens.

Ironically, that’s just what it may take for pathologists to become more hard-nosed. Though Hirsch is one of pathology’s biggest boosters, he acknowledges, “No one has to pass around a hat for pathologists.” Since the bottom line in business is money, until pathologists stop making it, there may be little incentive to change.

Dr. DeCresce sees this happening in other medical specialties. Surgeons who rush to set up surgicenters aren’t innately more entrepreneurial, he says. Rather, a drop in their income level has given them good financial reason to move beyond the hospital OR. Likewise, he notes, urologists have lost what was once a huge source of their income: injectible medicines. Little wonder, he says, the landscape is now littered with large urology groups, who’ve discovered they can be paid to work up anatomic pathology services. Even radiologists, long considered among medicine’s most entrepreneurial members, are simply taking advantage of favorable technical component payments.

Until recently, says Dr. DeCresce, pathologists had little nudging them to expand. “The technical/professional split was not so great, and so there wasn’t a huge amount of money to be made on the technical side.” That’s changed, of course. His group has started its own private lab to take advantage of the widening TC/PC gap, and he says he knows of three other colleagues in the Chicago area who have started or plan to start similar operations. Pathologists may need to address another split—the gap between their training and the real-world savvy needed to run an enterprise. Entrepreneurship is more or a less a foreign concept to pathologists, Dr. Lui says, and any business education they pick up in training won’t help. “It’s almost like they try to teach you to be a middle manager,” he says of the few business classes that are offered during residency.

Once they enter the field, other hurdles pop up. The group tradition in pathology, in which younger pathologists become equal partners fairly rapidly, does little to develop business skills or create financial hunger. Moreover, those just entering the field accept as standard wisdom that large, publicly traded laboratories control the majority of nonhospital clinical labs, as well as much of the AP work. “Residents aren’t oriented to any other options,” and they lack role models who can show them another path, Dr. Lui says. Given that, it’s not surprising that younger pathologists so easily adopt the work-your-shift-and-go-home approach.

The answer is not to pile on business courses during training. Business courses won’t mold a personality, or leap a generational gap or the idiosyncrasies of medicine. But mentors might.

Dr. Lui credits his group’s early interactions with a nonpathologist-owned laboratory, the Nichols Institute, with exposing them to the business side of pathology and teaching them that the value of an enterprise should be measured by more than monthly income. It’s a lesson that’s often overlooked by pathologists, who, like many physicians, may be reluctant to defer compensation and reinvest in their businesses. “Cash in your pocket is easy to count,” Dr. Lui concedes.

Dr. Bauer recalls having a general interest in business when he joined his first practice. It really took root, however, several years later, when a senior pathologist at his hospital encouraged Dr. Bauer to explore emerging areas in the profession—in this case, flow cytometry. Another senior partner pushed him to become involved in organized medicine in pathology, which, he says, exposed him to different practice environments and situations around the country. Both helped bolster his first major entrepreneurial response in the mid-1980s, when he helped set up what he says was one of the first big multihospital regional laboratories in the country. “I was concerned about the threat of large clinical laboratories coming and taking over labs in our community-based hospitals,” he explains.

The threat never fully materialized, he says. “But I think ultimately, as we were setting up the laboratory in what I initially viewed as a defensive measure, it pretty rapidly became apparent that it was potentially a good position to be in from a business standpoint.”

Hirsch is bullish on the lab business, and not only as a defensive strategy. But first he lays down some tough, start-by-looking-in-the-mirror guidelines. “Pathologists have got to have some humility!” he says. “Which may not come in large quantities all the time.” Hirsch blames the medical education system, which, as he sees it, traditionally puts physicians at the top of the heap, with everyone else at their beck and call. That’s hardly conducive to business success. “People who think they’re always right, who don’t listen well, and don’t encourage people to speak their mind are more destined to fail than others who are open-minded about the best way to do things, who’s the best person for the job—who aren’t pig-headed,” he says.

Business savvy, however, “can take you only so far in health care,” Hirsch says. While the sheer size of the sector makes it attractive to outsiders, he makes no bones about the difficulty of working in the field. “It’s a quagmire.”

Health care is shot through with inertia, he says. “People say this sector can change, and intellectually I agree, but in reality, the interests are so entrenched, it’s hard to change. All things considered, it’s easier to work in an environment that isn’t so regulated, where you don’t have doctors and regulatory agencies dictating a lot of what goes on, versus a normal business. And you have a lot of volunteer boards, which will drive you crazy.” It’s no wonder, he says, that many of the private equity firms he works with don’t have the patience for this, even though on paper the opportunities look endless.

Pathologists enjoy what MBAs don’t: an insider’s knowledge. They realize, to an extent business executives don’t, what can and can’t be done. While outsiders can challenge the conventional wisdom, that works only up to a point. “We joked that when Corning took over MetPath, we thought they were going to start warehousing results, the way they do products to be shipped,” says Hirsch.

Pathologists can best compete on service, he contends, particularly against those labs that are arguably most successful as businesses. “LabCorp and Quest don’t execute very well,” he insists. “They’re big companies, burdened by bureaucracy and a lack of passion about service. There are phenomenal opportunities because people have overconsolidated in this business. But it’s not the sexy stuff—it’s caring about your customers, hiring people who care, who are doing quality work, on time, and making sure the reports get delivered and the bill goes out—all the innate details that basically define a service.” Since federal regulation—what Hirsch calls “the idiot rules Medicare comes up with”—and fixed pricing further limit competitive business parameters, laboratories may have very little choice but to compete on service.

That could force pathologists—particularly those in hospital-based practices—to extend their notions of service, suggests Joanne Trout, MBA, MT(ASCP), executive director, Integrated Regional Laboratories, Fort Lauderdale, Fla. “You’ve got to compete for it every day,” she says, a concept that may be lost on those used to a captive hospital audience, where “you might have 75 percent of the doctors who are really satisfied with you and 25 who aren’t. There’s certainly some tipping point where the dynamic changes and you may lose the business, but it takes a lot longer for that to happen than it does in a commercial setting.”

A well-heeled pathology practice doesn’t necessarily reflect superior skills or savvy, says Dr. Lui. “It’s not because the pathology practice was built like a successful law firm, with a history of expertise. It’s often just because it’s part of the dominant hospital in an area with a wonderful payer mix.

“Pathologists with hospital contract exclusivity sometimes develop a sense of entitlement,” he says, “rather than believe it is necessary to develop competitive skills. It’s like being born rich.”

Businesspeople wake up worrying about their business. Pathologists lay awake at night worrying about a false-positive. Succeeding in the business of pathology appears to call for round-the-clock worry.

Is it worth it? Good business isn’t necessarily better medicine, and better medicine is the bottom line pathologists worry about most. While it’s nice to point to laboratories that are founded and run by pathologists, there’s no proof that patients suffer when outsiders are in charge.

What might get lost is a little less tangible. Those interviewed for this article, successful businesspeople all, speak with a level of enthusiasm that’s hard to ignore. They like to end their sentences with exclamation points, and their dispatches from the frontier are glowing.

“One of the things I enjoyed about putting together a large laboratory practice was it enabled us to be in the forefront of lab medicine,” says Dr. Savino. “We were able to do a lot of things that we couldn’t have done if we were just functioning out of a single hospital. We got into special stains, we got into some really great stuff in microbiology, we were doing a lot of new things in laboratory medicine because we had grown to a size where we had the people, we had the expertise, we had the money to be able to do the fun stuff. There is so much more excitement when you’re in the position to do a lot of new things and keep up with what’s happening. It’s much better than a plain old job.”


Karen Titus is CAP TODAY contributing editor and co-managing editor.
 
 
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