College of American Pathologists
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Staying ahead of the AP pack—three key steps

April 2004
Karen Southwick

A strong information technology infrastructure is one of the most important ingredients to building a successful anatomic pathology practice.

Any anatomic pathology practice has to compete against the national laboratory chains and AP companies, which increasingly are offering the same services. Consequently, "you must be in the same ballpark with what they offer," which includes sophisticated billing and IT, says Edward W. Catalano, MD, manager of Professional Pathology Services, Columbia, SC, and chairman of the board of Pathology Service Associates, which provides business solutions to 70 pathology practices.

This will push the trend toward larger pathology groups because it's difficult for small organizations to provide the needed infrastructure cost-effectively, he notes, especially on the IT side. "You need IT people, marketing people, a courier network. You need the ability to go paperless with online order entry and results reporting."

After that comes having enough geographical reach to offer managed care organizations a reasonably sized network. "We have networked with other practices so we have a geographic critical mass," Dr. Catalano says. "You can't do that with a one- or two-person practice."

"It takes more than just professional expertise in AP to be competitive," he says. "You must have the ability to evaluate new technology and decide when to add services."

Practices also must be able to do market analyses and blend that with an accurate business plan to tap into the market with required services at reasonably competitive pricing. You need to know Medicare and private-payer reimbursement rates in your area, and your own cost structure, Dr. Catalano says.

On the billing side, "you must have a mechanism for handling all the coding and compliance with regulations like HIPAA," he adds. All of this requires underlying information technology that is up-to-date and well maintained. Thus, supporting staff for an AP practice must consist of IT professionals.

Yes, competing today in anatomic pathology is a tall order. And it's not going to get any easier.

Take Web-based reporting and order entry, for example. That has proved to be a stumbling block for anatomic pathology laboratories because of the complexity of the tests.

"Clinical lab work has higher volume and is more straightforward," says Tricia Hughey, chief operating officer for UniPath, a privately owned, for-profit laboratory in Denver. By contrast, the volume of AP ordering is lower and far more specialized, and there has been a dearth of software to handle it, she says.

Nonetheless, the market is moving in that direction. Since late summer of 2003, UniPath has been offering Web-based reporting to all of its referring clinicians, Hughey says. Clinicians who are most interested are those working toward electronic medical records in their own offices or those who require faster turnaround times, including rural hospitals, ambulatory surgery centers, and some specialty offices.

"Many customers find the electronic report superior to a faxed or delivered hard copy," Hughey says. Increasingly, "customers with a keen focus on technology are embracing Web-reporting of pathology and find the associated security measures easily managed."

Still to be implemented is Web-based order entry. UniPath is currently evaluating vendors to provide that service, she says, because clients want it and because regional laboratories must stay competitive with the national laboratories. "We hope to have the vendor chosen and the protocols [for Web ordering] implemented by the third quarter this year," Hughey says.

Innovative Pathology Services, Knoxville, Tenn., is on roughly the same time frame to implement a Web solution for online reporting and order entry. Clients now receive reports electronically or by fax or hard copy. "We recognize that we have to be prepared to do online order entry and Web reporting," says chief executive officer Paul Johnson, DBA.

He adds that Innovative Pathology Services' predecessor, Knoxville Pathology Group, experimented with Web-based reporting several years ago. "We were an early adopter," he says, acting as an alpha and beta site for one product in 2000 and 2001. Although clients had expressed an interest in Web-based reporting, few used it after the system was rolled out. "The system was expensive and didn't meet organizational and client needs," Dr. Johnson says. "We scrapped it and delayed Web-based reporting until we could develop a better program and client demand was high enough to warrant implementation."

However, in the face of competition from national laboratories, which are offering Web-based reporting and order entry or preparing to do so, Innovative Pathology Services has decided it must get on board. "We now see customer demand, and we are in the process of evaluating various products to accomplish both Web reporting and order entry," Dr. Johnson says.

The products they're evaluating are for order entry and reporting for anatomic pathology and cytology, as well as for molecular diagnostics. He says vendors are working with Innovative Pathology Services to tailor their products to anatomic pathology. IPS expects to roll out the new services by the third quarter.

Professional Pathology Services in South Carolina already has Web reporting and is planning to have online order entry by mid-year, according to Dr. Catalano, whose Pathology Service Associates provides practice support services to Innovative Pathology Services, Professional Pathology Services, and UniPath. He points to PPS' Web site,, as a helpful tool for outreach. "It gives both physicians and patients an indication that we're staying up with technology."

US Labs, based in Irvine, Calif., is a for-profit company started in 1997 that now specializes in cancer diagnostics and molecular genetics. Dan Forche, director of marketing, says the company has been offering Web-based reporting for about two years through its Web site called US LinX. He estimates that a third of US Labs' customer base uses online reporting, "and that number continues to grow."

Like the others, US Labs is evaluating several vendors' systems for online ordering of AP tests. "The biggest issue is connecting into a hospital system," Forche says. Physician offices are not a problem because they'll use the interface that US Labs provides, "but hospitals pose a problem because they want to order out of their IT system," he says. "This means you have to integrate your system to the hospital system, which is not easy to do."

Despite the problems, US Labs plans to implement online ordering this year. "It's where the market is moving," Forche says.

Of course, information technology is not enough. Another ingredient in successful anatomic pathology practices is building relationships with clinicians and hospitals.

Innovative Pathology Services got its start several decades ago when its predecessor pathology group started a small independent lab to provide specialized services for a handful of clients. Today, it is a large regional for-profit operation providing AP services to nine hospitals—including a pediatric facility and a cancer survival center, a half-dozen surgery centers, and numerous physician offices. The staff consists of 11 pathologists and 75 associates.

IPS pathologists direct the clinical labs in all the facilities IPS serves. As a stand-alone laboratory, IPS provides services separately, including anatomic pathology, cytology, and special procedures. IPS has exclusive contracts with its nine hospitals. "They send us all their AP and cytology, and we third-party bill for both technical and professional services," Dr. Johnson says.

Although IPS is for-profit, it is privately held by participating pathologists. Some proceeds "are invested back into making the practice better," he says. It wouldn't be easy to duplicate IPS starting from scratch, he adds, because of the need to build infrastructure and relationships. Besides the pathologist-owners, IPS has an administrative structure that includes operational executives such as Dr. Johnson and human resources and financial personnel. It also does marketing, client services, and sales.

Professional Pathology Services is a 16-member, for-profit pathology group that serves two hospitals—Palmetto Health Hospitals—in South Carolina. The hospitals own their labs, "but we provide professional direction," with a staff of 40, says Dr. Catalano.

Anatomic pathology and other services are provided through the hospital labs as well as stand-alone histology and cytology labs. The histology laboratory handles about 30,000 specimens annually, and cytology about 70,000, he says. The majority of outreach AP work encompasses dermatopathology and gynecologic, gastrointestinal, and genitourinary pathology. "These are the four main areas where you've got to have high-level expertise," Dr. Catalano says.

The next requirement is to have client service representatives that market to and service clients. At Professional Pathology Services, "we have five reps who do nothing but interact with medical practices to make sure every transaction is as easy as possible," he says.

Generally, that effort must be directed toward physician offices. Local pathologists usually already have a good relationship with their hospitals, but for physician offices, "you need people out there on the street just like the commercial labs do."

If all the required infrastructure is in place, a regional practice can offer advantages that a commercial laboratory can't match, Dr. Catalano maintains. "Your turnaround time can be quicker because you'll be competing on a regional rather than national basis," he says.

Another advantage is personal involvement with local physicians, who will get to know you and appreciate the professional interaction. To that end, Dr. Catalano recommends joining the local medical society or hospital community group, which "will help foster contacts with your referral base."

These advantages help to offset the rock-bottom pricing that commercial labs can offer. "We can't win a pricing war with commercial labs," he says. "We have to have these extras that don't make that a necessity." With those extras, "you can probably get away with a 10 to 15 percent [price] differential," Dr. Catalano advises.

In addition, many providers want to contract with pathology groups to get one-stop shopping for clinical and anatomic pathology work. "If you can't do that, you may want to partner in what you need," such as a hospital laboratory or core lab venture with other pathology practices.

By offering inpatient and outpatient work, "you get a little leverage," Dr. Catalano says. For example, "in our own practice we're able to give the payers a reduced rate on inpatient work like breast biopsies if they'll also use us on outpatient work."

Dr. Catalano says Professional Pathology Services offers an example of how regional groups can evolve with their market. In 1990 "our practice was 100 percent hospital-based," he says. About the mid-1990s, "we decided we needed to broaden our base and we started moving into outpatient." By early 2002, 75 percent of PPS' business was outreach.

UniPath, which combined three pathology practices, has contracts with 12 hospitals to provide anatomic pathology and operates five histology labs at hospitals in the Denver area. "We do have an independent lab of our own," Hughey says, where histology processing is centralized. The independent lab also performs flow cytometry, cytology, immunohistochemistry, and molecular procedures.

"We serve physician offices within a 60-mile radius," Hughey says. Visibility, she notes, is important in reaching out to local physicians. "We are heavily involved in community health affairs and sponsor things on wellness," she says. UniPath has also been able to woo managed care, which represents 85 percent of its outreach business, through a combination of high-quality service, physician contacts, and price negotiation.

AmeriPath, based in Riviera Beach, Fla., is a for-profit, formerly public company that went private in a leveraged buyout early last year. AmeriPath employs more than 400 pathologists and doctorate-level scientists nationwide, both hospital-based groups and independent labs, according to Martin J. Stefanelli, executive vice president and chief operating officer. It serves about 220 hospitals across the country.

"We don't focus on CP services," says Stefanelli. "We are the pathology arm for local physicians, subspecializing in AP and molecular diagnostics. Along with local pathology, we have centers of excellence for dermatopathology, gastrointestinal and genitourinary pathology, women's health, and hematopathology."

"The heart of our company is having the right people," he says, high-quality pathologists and employees who have good relationships with local physicians and hospitals. Stefanelli says in AP, service and quality can still command premium prices, unlike CP work, which is all about price. "That's not a game we want to play," he says.

US Labs decided to partner with rather than buy the pathology groups. "Some pathologists really prefer to keep control," Forche says. US Labs does the technology portion of the AP work and its partners perform the professional services.

This model allowed US Labs to expand relatively rapidly—it now performs about 80,000 tests a month and expects to exceed $70 million in net revenue this year, compared with just $5 million in 2000. The pathology partnerships, which now number more than 1,000, also helped US Labs bring in clients, including oncology clinics and hospitals.

"The community-based pathologist is the sweet spot of our customer base," says US Labs' Dennis Walsh, vice president of sales and marketing. "Eighty-five percent of what we do is to support those practices."

Acting as a cancer reference laboratory helps to broaden what local pathologists can offer, he adds. "If they don't have good access to all the technology needed to serve oncology practices and they want to offer that, we can help." US Labs can perform the laboratory work and leave the professional interpretation to the pathologist, or it can do the interpretation as well, Walsh says.

Either way, the pathologist is the one who works directly with the referring clinician. "It's very important to community-based pathology practices that they stay involved in local health care delivery," he says, "even though they may not be able to perform all the technical work on their own."

The third leg of successful AP is to stay on top of new tests and services. "To be successful in competing against the commercial labs [for AP] you must have superior quality, with subspecialty expertise in areas like dermatopathology," Dr. Catalano notes.

Despite the expense, you need to look at new technologies such as digital imaging, he adds. "Our practice was very divided on that because of the significant cost," several hundred thousand dollars, he says. "When we decided to start doing it, our referring doctors told us it was a significant value added for them." The reports were of more use to the referring physician and helpful in explaining the diagnosis to patients.

At Innovative Pathology Services, specialized procedures include molecular diagnostics, immunohistochemistry, flow cytometry, serum protein electrophoresis, and five procedures from a single thin-layer Pap vial marketed collectively by IPS as IPap5. Recently, IPS hired a PhD molecular biologist to help it develop new molecular procedures. "The future of all AP is dependent on molecular biology, genomics, proteomics, and other developing technologies," Dr. Johnson says. "We have to position ourselves to be innovators and leaders there."

Among US Labs' offerings are fluorescence in situ hybridization testing and flow cytometry. "Most of the other places that do FISH are university settings that can take up to seven to 10 days," Forche says. "We can do it in three days."

Flow cytometry requires expensive equipment and resources, "and based on the low volume of testing in a community-based hospital, this becomes very cost-prohibitive," Forche says. "But US Labs' VirtualFlow program provides hematopathologists with a cost-effective alternative to running the technical portion of the flow in-house. If we have a flow cytometry sample picked up on Monday, we get it on Tuesday, and we'll run the flow and have the results out by the evening for online viewing," he says, so there's a 24- to 36-hour turnaround.

The company is rolling out new product initiatives such as cancer genomic profiling that will assist pathologists and oncologists with additional diagnostic, prognostic, and therapeutic information.

Dr. Catalano agrees there will be heightened interest in specialized tests such as circulating tumor markers, helping oncologists track not only the progress of the tumor but what agents it might be susceptible to. He says, "You will lose your client base if you don't have the flexibility and resources to stay current with these kinds of trends."

Karen Southwick is a writer in San Francisco.