Rich niche: AP outreach
  blossoming

August 2005
Feature Story

Partnering with the hospital
Beating the bushes
Forging and nurturing relationships
Focusing on specialized services
Packaging with a purpose
Pitching to the public
Consolidation of services

Today, many anatomic pathology practices face a stark choice: boost outreach business or wither on the vine.

Over the last decade, more and more anatomic pathology has been gravitating from the hospital setting, says Bruce Dziura, MD, chief of pathology and cytopathology for New England Pathology Associates at Mercy Medical Center, Springfield, Mass.

"In gynecology, endometrial samplings and colposcopies were initially done in the hospital. Now, pretty much everyone has their own colposcope, and tons of endometrial and cervical biopsies are being done in outreach."

"Endoscopic and prostate specimens are the same way," he adds. "When that’s coupled with increased reimbursement for liquid-based cytology, and HPV and GC/chlamydia testing tacked on, AP outreach presents a great opportunity for anatomic pathologists."

It’s also a double-edged sword—because pathologists aren’t alone. "Suddenly the large commercial laboratories are jumping into the AP market and challenging hospital-based pathology groups for their bread and butter," Dr. Dziura says.

Laboratory Corporation of America (which recently purchased Dianon) and Quest Diagnostics have sought market share, mainly through acquisitions, as has Ameripath, which pushed hard starting about five years ago to buy up AP practices. "They’re doing their best to put the small community pathologists out of business," says Edward Catalano, MD, CEO of Professional Pathology Services, Columbia, SC.

But pathology practices from Columbia to Sioux Falls to Los Angeles are finding anatomic pathology outreach to be not only a healthy niche and a means of leveraging new laboratory business, but even an evolving profit center and, in some cases, the linchpin of their practices.

These practices draw their lessons from classic marketing precepts: Innovate. Differentiate. Advertise. Package. Partner. As interviews with pathologists in private laboratories, academic institutions, and hospital-based programs reveal, AP outreach programs can thrive on traditional sound business management—mixed with a little uncommon sense.

Partnering with the hospital

The seven pathologists of New England Pathology came together three and a half years ago to bid on a contract with Mercy Medical Center. But the group had to get into outreach testing immediately to survive. "The hospital business would only have supported three of us," Dr. Dziura says.

Nevertheless, the practice was able to use the hospital in its quest to thrive while remaining professionally owned and operated. "One of the key elements of our success has hinged on our association with Mercy," he says. "Most hospitals own their histology and cytology laboratories, and the pathologists sign out cases and bill for the professional component. But hospitals do a poor job of running those labs, they don’t understand anatomic pathology, and they see them as cost rather than revenue centers."

"So what we did was talk to the hospital about making the histology and cytology laboratory a joint venture."

With a 50/50 ownership split, the pathologists have day-to-day control over both laboratories, and if they see a problem and a solution, they can implement the solution immediately.

"If there’s an opportunity to get 10,000 more surgicals," Dr. Dziura says, "we can immediately hire and get the equipment to do it because we’re very nimble. And for outreach, we bill globally, so we can tap into the technical component, which now actually pays more than the professional."

It’s not a common arrangement and has even raised a lot of eyebrows across the country, but the hospital is not losing revenue because it wasn’t doing significant outreach work before. In fact, in three and a half years the quality of histology and cytology has dramatically improved. "We’re happy to see our slides go anywhere in the world for review because the preparations are superb," Dr. Dziura says.

Specimen volume has risen from 10,000 to 20,000 accessions in histology and from 5,000 to 50,000 in cytology. Yet "Mercy last year paid $200,000 less in histology and cytology than the year before we got there, and they have no administrative headaches anymore. It’s really been a winner for them, and it’s a natural model for other pathology practices," he says.

The group has just hired a full-time salesperson. "As a group, we had a footprint in this area; we’re well known and it was easy for us to sell. We’d call Doctors X, Y, and Z and say we’ve started a new practice, can you send us specimens, and they’d say, ’Of course.’

"Once outside the footprint, suddenly you’re a total unknown, and the question is how to differentiate yourself to catch clinicians’ eyes," Dr. Dziura says.

His group is of the view that they’re most successful not in selling a product but in selling people. "All of our marketing materials are geared to getting faces out there, not showing pictures of instruments, test tubes, and microscopes, but putting faces behind the laboratory."

"You want to instill the feeling that if I’m sending specimens to that laboratory, I know the people care, they have the expertise, and I trust them."

"To 99 percent of the physicians in this country, the laboratory is an unknown. It’s a total black box and they feel that every test is alike."

"We hand out CVs and bios, but they aren’t necessarily limited to medical education, publications, etc. They include personal things like hobbies—for example, if one of us is a fly fisherman or a stamp collector, we try to make a personal link to the people we are selling to. Our couriers are the same: We hire personable people who present a good image and can interact with office personnel."

The group offers biopsy turnaround of 24 hours and average Pap test turnaround of three to five days, which is faster than the commercial laboratories can offer routinely. "We also try to differentiate ourselves by jumping on new technology. We were the first in New England to implement the ThinPrep Pap imaging system in December 2003, and we use our experience with ThinPrep as a selling point."

Beating the bushes

It was six years of anemic growth that convinced Dr. Catalano and the pathologists in his group in Columbia, SC, to get active in the outreach area. "In 1995, we were growing at an average of 1.6 percent per year and were feeling the increase in competition," says Dr. Catalano.

"We started focusing on subspecialty certification in AP, we hired client service reps, we started our own cytology laboratory, and we acquired our histology laboratory."

The practice started expanding from five to its current 15 pathologists, with two more in the recruitment stage, and the next six-year lookback showed a tenfold leap in growth rate—an average of 16 percent each year.

The proportion of outreach also swelled to the point that the practice’s main income sources flipped. In 1995 Professional Pathology Services’ work was 95 percent hospital-based and five percent outreach. "Today we are 40 percent hospital-based and 60 percent outreach-based. Even though we are based in two large hospitals, our real growth is in this outreach area."

Surgical centers and doctors’ offices are forcing the big areas of growth for AP outside the fixed walls of the hospital, Dr. Catalano says. "Dermatopathology, gastrointestinal pathology, uropathology, and gynecologic pathology—that’s where the volume is."

"These commercial laboratories used not to be interested in AP, but they became focused on it because they feel like the margins have gotten so small on routine clinical laboratory work, and often AP also opens opportunities for more esoteric tests that do have high dollar revenues."

Sustaining several years of double-digit growth may make his practice exceptionally successful, but he says the keys are not that mysterious.

His practice joined Pathology Service Associates, an organization of 70 practices throughout the country, which provides members with support in billing, coding, compliance, recruiting, and training client service representatives, and a purchasing network that gives them preferential pricing with hardware and software vendors.

Along with a high-quality client services team, "we had a very active marketing group who went out and beat the bushes, just like the Quest and LabCorp reps out there," Dr. Catalano says.

Ten years ago, the practice had only one marketing person. "Today we have four client service reps and three people providing the infrastructure for them. They’re out calling on doctors’ offices, going to current clients on a regular basis to make sure everything is fine, and calling on clients we don’t have any relationship with, either LabCorp’s or Quest’s clients, trying to get their business."

Information technology advances have made it possible for his practice to place color photomicrographs on pathology reports routinely and to add other client service elements. "The gynecologists expect us to provide an automated answering system for their patients, so rather than call the practitioner, patients can call a separate phone number, provide their unique identifying number, and get an automated result on their Pap test."

A bidding war with the big commercial laboratories can’t be won, "so you’ve got to be focused on a high level of quality service," he insists. One-day turnaround, in his view, is critically important.

"The commercial laboratories, since they’re not local, have a little longer turnaround, most often two days, and we’re shorter. If our client needs a rush process, we can pick it up in the morning and have an answer that afternoon. We’re also able to correlate their biopsies outside the hospital with the surgical procedures done in the hospital, so we make sure everything matches appropriately."

Clinicians are assured their specimens will be read by a subspecialist, and new tumors always have an automatic second read, so the patient doesn’t have to send out for a second opinion, he adds.

"We tell clinicians we can give them an optimum anatomic pathology product, and once they start using us, if they’re unhappy for any reason, they can switch the next day. We don’t want to hold somebody to us by contract if they’re not happy."

What helps to differentiate their practice from that of others, Dr. Catalano says, is that they’re committed to allocating resources to keep the practice competitive. "We commit resources not only in the short term but also as a long-term strategy. If you try to extract all the revenue from your practice, you compromise your growth."

Admittedly, that’s easier for large practices. "If I have 15 people to go to and say I need a monthly contribution to our infrastructure, on a per-unit basis that’s much less to each of them than it would be to a three-person group.

"Whether you have to buy computer systems or hire couriers, marketing people, IT people, and accounting people, it’s just true that the larger you are, you get more economies of scale," he says.

"But what we see is it’s the entrepreneurial practitioners, willing to invest in their practice and put that infrastructure in place, who are competitive in the marketplace."

Forging and nurturing relationships

Wes Bernhardt, vice president of Bernhardt Laboratories, Jacksonville, Fla., says relationships are what make a small laboratory function well, and that’s what he and his colleagues have concentrated on over the years.

"We’re strictly independent. We do not do any work for big hospitals, and unlike most other outfits in the area, which are hooked to hospitals, our specimens come from physician offices and surgical centers. So we aren’t guaranteed any business; we get no capitation payments from insurance companies. We have to go out and earn everything we get to do," Bernhardt says.

Being smaller does offer advantages. "With the big laboratories, different physicians may look at their specimens on different days. But the physicians know we’re looking at biopsies today and tomorrow."

"We also find innovative ways of providing exceptional service to the offices we work with. Our TAT is three to five days on Pap tests, and two to three days on tissues, depending on whether you need special stains."

So far, that hasn’t included technology upgrades like digital photographs or electronic reporting, but that will come inevitably, he says. "I think electronic reports are going to be pretty much the norm in five years," he predicts.

The Mayo Clinic in Jacksonville, he notes, is already paperless. "But their laboratory results are all from Mayo, and all points are controlled by them so they don’t have to worry about incorporating laboratory results from Quest or CT scans from an imaging center. That gives them a big advantage."

"Most of the work Ameripath does in this area is actually done in Orlando, not in Jacksonville, and we do everything here on our own site. Because we don’t have contracts, we have to do 500 percent better than our competitors in turnaround time and customer service."

Cost is an issue, Bernhardt agrees, but it’s not the biggest one. "The reason is most everybody has some form of insurance, and if you’re a provider it doesn’t matter what you bill—you’re going to get what they pay."

More important is personal contact with clients. "Most of the time the way we contact groups is part of our marketing—we meet them face-to-face at a breakfast or lunch meeting, have a PowerPoint presentation, and sit down and simply converse about the benefits of using Bernhardt."

Focusing on specialized services

Cutting-edge tests are a selling point for UCLA Pathology Outreach marketing, says sales director Jim Witmer. He came on board about four years ago when the group decided to beef up its outreach, especially in GI and dermatopathology, by sending a salesperson into the field.

"There was a very low level of outreach work when I got there," says Scott W. Binder, MD, chief of dermatopathology and director of pathology outreach services at UCLA Medical Center. "I decided the goal was to develop a vigorous outreach program because, frankly, the hospital work was stagnant."

"We needed to find other ways to generate revenue—and also acquire materials for translational research and training of residents."

That initiative drove the outpatient AP biopsies UCLA was receiving from 1,500 a year to its current level of 23,000. The program’s service area now extends over a 60-mile radius from the San Fernando Valley to parts of Orange County.

Unlike the clinical laboratory, which the medical center owns, UCLA’s pathology outreach program is part of the School of Medicine. "They support it because it’s a revenue producer and it’s very well respected. To my knowledge, it’s the most successful outreach program the medical school has."

The AP laboratory receives 100 to 120 specimens a day, most for tissue biopsies and some for slide consults. More than half of them are in dermatopathology and GI, others in immunohistochemistry, flow cytometry, bone marrow, and FISH studies in cytogenetics, as well as molecular pathology, which Dr. Binder expects to increase substantially.

In the last few months, the program has been marketing a new test for hereditary colon cancer, microsatellite instability. "It measures a microsatellite strand of DNA to see how stable or unstable it is," Witmer explains. "The DNA in patients with hereditary nonpolyposis colorectal cancer is unstable and cells can’t repair themselves in the normal way, and this may be a marker for cancers that may have a better prognosis."

"It’s a brand-new test, it’s reimbursable, and the GI doctors in the field are very excited about it."

The large commercial laboratories are able to offer tissue biopsies at a lower price, but "it’s more or less mass production," Witmer says. While some doctors think they are getting sufficient quality, UCLA’s pathology program offers to go the extra mile. For example, "Dr. Binder will offer help with therapeutic options in dermatology for doctors who seek consultation on the treatment of unusual cases," he says.

Not every clinician is sensitive to price, Witmer notes. "We have some pretty high-profile doctors in Beverly Hills, who see patients where price is not the major issue. It does come up and it’s definitely sometimes an obstacle, but it’s not something that holds back the growth of our business. Because UCLA is a great hospital and our pathologists are really respected, we get lots of business through networks and referrals."

Client service, quality work, and the personableness of the pathologist are selling points, but turnaround time is also important. "We do 24-hour turnaround for tissue biopsy, 24 to 48 for immunohistochemistry and almost all our other tests."

Test ordering is not online, but because the program has its own IT department, it was able to set up direct, secure interfaces with clients who can log on and receive results online via the Web or by fax.

Collaboration is a key element of Dr. Binder’s marketing strategy, one that de-emphasizes competition. "Most people view the big laboratories as a competitive threat, but in a real sense they aren’t because we’ve managed to differentiate ourselves on our expertise in several specialized areas," Dr. Binder says.

"Our biomarker R&D is unique, and they can’t offer the kind of professional pathology opinions we can, nor can they offer the new tests we develop unless they purchase them."

UCLA’s program has made strategic alliances with larger labs, in part to avoid competing where it can’t prevail. "They have expertise in marketing and sales and an international scope I can’t possibly duplicate," Dr. Binder says.

"So from the very first, our strategy was not to get embroiled in competition with the big laboratories and other competitors that would probably have a lower overhead and greater off-site clinical laboratory capability."

"We’re not heading so much toward developing routine business; we’re much more into developing specialized services—second opinions, expert consults, and new biomarkers for diagnosis and prognosis of tumors."

"I’m not focusing on the market for Pap tests or PSAs or CBCs. Of course we do them, but they’re not part of our strategic plan," Dr. Binder adds. "Larger labs send us cases for second opinion consults, and we benefit by getting the most interesting and challenging cases for research and educational purposes."

He says UCLA can do digital images but de-emphasizes it. "We have that capability, and we do it in particular cases like kidney, but I’m not a great advocate of it."

He stresses the importance of finding areas where pathologists can differentiate themselves—not competing with the big laboratories on tests where their prices can’t be matched.

"The truth is you can differentiate yourself in several ways, and one is service. Doctors like to deal with other doctors, and increasingly they’re ordering very complex tests that they don’t know how to interpret. A pathologist who can communicate with clinicians on the phone is really value added to the product."

The other key is to find areas of strength and to build on them. "Whether it’s expertise in Pap smears, or breast core biopsies, or an area like renal pathology, pick them, build, and differentiate—that’s the only way to survive."

Packaging with a purpose

Not all pathologists find anatomic pathology outreach lucrative on its own.

"Traditionally, AP either loses money or just barely breaks even because of the salary size, whereas clinical laboratory testing, because of automation and volume, is usually a moneymaker. Over the years the clinical laboratory here has always been extremely profitable," says Stephen Gray, MD, director of pathology at Greenwich Hospital, Greenwich, Conn.

Although the outreach program is a separate division with its own director, "We don’t aggressively market anatomic pathology, except in dermatopathology. We take whatever opportunities we can, but I find it’s much more difficult to market because physicians already have established allegiances."

"I decided just to try to market AP would be futile. If I were Johns Hopkins that would be a different story, but the average small community hospital really doesn’t have that capability."

As a result, he offers a comprehensive service to draw the more profitable "wetwork" or clinical laboratory testing. "We offer AP as a quality adjunct to a very profitable clinical laboratory, as part of a whole package including clinical cytology and clinical laboratory testing."

Even though the pathology department does about 23,000 surgical specimens a year—up from 9,000 in 1990—"the clinical laboratory makes the vast majority of the profit, probably 85 to 90 percent of the business."

Vicki Altmeyer, MD, associate director of pathology, says the patients of the physicians they market themselves to come from a variety of insurance companies, and the doctors want to be sure they can accept them. "The important thing in getting a physician account in AP work or in the clinical laboratory is to be able to offer all insurances, so the doctor’s office doesn’t have to parcel things out."

"If we were just doing AP, we found with trying to market a private cytology laboratory that insurance companies didn’t want to deal with us," she says. Indeed, one of the department’s chief services includes AP in the capitation rate. "Because we collect money on the wetwork, we can afford to do AP as a loss leader, and it gives us leverage when we go to the doctor’s office."

Pitching to the public

Watching hospital and pharmaceutical marketing directed to the public led Henry Travers, MD, to an intriguing question: Could an ad prompt a woman, for example, to ask her physician whether her Pap test will include HPV typing by PCR, or even which laboratory is performing the test?

It’s the subject of a $42,000 experiment for Dr. Travers’ practice, Physicians Laboratory Ltd., in Sioux Falls, SD. His 14-member pathology practice covers areas in northeast Nebraska, northwest Iowa, southwest Minnesota, and eastern South Dakota.

Confronted with the need to do more outreach, "We asked, what is it about our practice that distinguishes us from everybody else?" Dr. Travers told CAP TODAY. "We came up with breadth of service and personalized service, but also a number of technological things like ThinPrep use and computer screening and using PCR technique to do HPV typing."

The practice members agreed they wanted more communication to physician clients about how good they are and what services they offer. "We wanted to make that clear to them on a gentle and nonintrusive, but continuous, basis," he says.

"We decided that a positive, honest advertising message, not comparing us to anybody else but stressing our quality, would be ethical, so we set out to develop an ad program and integrate our Web site with it to make it the primary point of contact for the general public and for physician practices."

The one-year program, now about halfway finished, includes print materials distributed to physicians and the public, as well as TV commercials and newspaper and magazine ads.

"Now that our competitors have switched to ThinPrep, we no longer say we are the only ones doing it, but we put details of the HPV technology on the Web site, and we have had inquiries through the Web site from as far away as Michigan."

Most of the laboratory’s clients use the Web site to order supplies, and once security issues have been addressed, Physicians Laboratory expects to add online test ordering.

Like many others conducting outreach programs, Dr. Travers stresses the personal element. "Cost is a big deal for our clients, and one thing we say is, ’Yes, we’re more expensive. But when it’s 3:00 in the morning and you need a pathologist at the end of the telephone, we’re around, and we’re not a salesperson.’"

He agrees that practices must invest in their own growth. "We looked at three or four tiers of spending and ended up opting for the highest tier. To start, we maybe didn’t get the Ferrari, but we bought the Cadillac. We thought if we just do a little bit and outcome measures show it was totally ineffective, we would always wonder whether we should have spent a little more money. So we tended to be pretty generous." Members of the practice will determine in March of next year whether the campaign is working.

Consolidation of services

To respond flexibly to competitive challenges, anatomic pathology practices must adapt, Dr. Binder says. "You need to think outside the box and come up with ways to work together with other pathology groups."

While ego conflicts, secretiveness, and protectiveness of clients can be obstacles, "The truth is as we move forward there has to be more and more consolidation of pathology services, and it works in everybody’s interest."

The acquisition binge has had many anatomic pathologists worried that a traditional private enterprise would evolve to strictly salaried pathology. "It’s created a real question whether private pathology can survive in the long term," Dr. Dziura says.

But provided pathology practices take the right direction, he is optimistic about their potential. "I still see AP as a medical specialty, not a technical job or employee-type model, and I think laboratories operate much better in that mode."

The model Dr. Dziura envisions as ideal for hospital-based pathologists is a regionally oriented laboratory, large enough to offer a complete product. And it’s a model that stands a good chance of besting the competition.

"A well-run, customer friendly, collaborative, regionally oriented private pathology service in anatomic pathology can still run circles around a large commercial laboratory," he says.