A recent post focused on the possibility of mergers of smaller hospital-based pathology groups into larger multi-speciality practices, precipitated by a comment from Barry Portugal (see: Big Pathology, Multi-Specialty Groups Versus Small; Which Way in the Future?) Here is his comment in which he predicts an increasing tempo of such mergers:
I believe that there will be a significant number of pathology group mergers over the next few years. According to industry information, the majority of pathologists working in hospitals practice in groups of five or less. Smaller pathology groups are unable to negotiate effectively with managed care plans, and are often excluded from performing outreach work from plans offered by large insurance companies. Larger pathology groups with substantive sub-specialization and with more geographical diversity will be able to leverage multiple hospital contracts to be included in those networks and compete with national reference laboratories. Additionally, larger pathology groups can compete more strategically relative to the outsourcing of outpatient histology and pathology services to office-based practices.
Joe Plandowski sent me an email in which he disagrees with Barry's prediction. Here is the full text of his email:
I just had an opportunity to read this posting and do not concur with the assertion that there will be an upsurge in pathology group mergers in the next few years. It would take a monumental turnaround in the thinking of pathologists for mergers to happen. Pathologists have heard that drumcall for at least the past 20 years that I have been involved in the business of pathology. All to no avail, even though as pathologists look around at other medical specialists at their hospitals they see larger and larger specialty groups forming.
One big stumbling block, the agreements hospital-based pathology groups have with their hospitals will prevent them for working at another hospital. Most of those agreements are very restrictive. Merging, in most cases, will mean fewer pathologists in the larger entity. Two merged groups of five pathologists each will probably need a total of nine pathologists. Consider the senior pathologist in a group is usually the individual who manages the practice. A merged group only needs one of these "managers." At that larger merged size, the group ought to hire an experienced practice manager and drop another pathologist from the group.
Today, even the commercial pathology companies, such as AmeriPath and Aurora Diagnostics, have little interest in hospital-based practices because they have no real growth. Specialists, such as urologists and gastroenterologists, have abandoned hospitals wherever possible taking their anatomic pathology specimens along with them to off-site facilities and putting hospital-based pathologists in a further squeeze (see: Corrected Definition for a Pod Lab and a Look at In-Office Labs). Even larger hospital-based pathology groups are going to have a tough time competing against the specialty pathology commercial laboratories with their sales forces, courier networks, sophisticated computer systems for data entry and results reporting, flexible billing systems, and most importantly, restrictive contracts with third-party payers.
There obviously are exceptions, especially where hospital administration decided to move into the outreach testing market and pathologists went along for the ride. There are also the few groups that got the message big-is-good early and merged aggressively to build mass. Examples are PathGroup (TN), ProPath (TX) and Pathology Inc. (CA), among others. However, the majority of pathologists will wind up as employees of the healthcare systems, particulary if ACOs become a reality. Otherwise, they will plod along in groups of 3 to 4 pathologists inwardly focused on "their' hospital.
I tend to agree with Joe on this topic. The majority of most hospital-based pathology groups are highly constrained by their hospital contracts. If such mergers would take place, there would also be a potential loss of positions which tends to act as a brake. I also think that the majority of pathologists are relatively satisfied with the status quo. To quote Joe, they have been resistant in the past to following the pattern other clinical specialty groups such as urology to build mega-groups (see: Many Big Urology Practices Now Utilize an In-Office Histology Lab and Their Own Pathologist). A point worth noting is that some of these clinical groups are now returning to the hospital fold (see: The Increasing Tempo of Physician Practice Purchases by Hospitals).
In a previous note, I raised the possibility of the development of closed lab networks that would connect the various hospitals comprising a health system (see: The Development of Health-System-Owned Lab Network). With such networks, one or two of the larger hospitals could be designated as "lab centers of excellence" and esoteric testing for the whole health system could be performed in such centers. Using such lab networks, the smaller pathologist groups in the individual hospitals could function as "virtual" multispecialty groups while remaining in-situ in their home hospitals.
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