Apr 16, 2007 | Laboratory News, Laboratory Sales and Marketing
Here’s the latest shake-up to the laboratory testing marketplace. Quest Diagnostics Incorporated announced this morning that it will acquire AmeriPath, Inc. in a transaction valued at $2 billion.
Both parties expect the deal to close before June 30, 2007. AmeriPath’s annual revenues are in excess of $800 million. Quest will pay $1.23 billion in cash and assume about $770 million of debt when the transaction closes.
With its purchase of AmeriPath, Quest Diagnostics picks up three diverse businesses in laboratory testing. First, it acquires Specialty Laboratories, Inc., based in Valencia, California. Specialty Labs provides reference and esoteric testing services to hospital and certain physician specialists.
Second, it will own AmeriPath Dermatopathology. This business division employs 80 pathologists located in offices across the United States. This business line is fast-growing and very attractive to Quest Diagnostics.
Third, it will come into ownership of the remaining anatomic pathology assets owned by AmeriPath. The largest component of this business division is the hospital-based pathology group practices that AmeriPath acquired over the past 10 years. There are also several pathology subspecialty centers in areas such as gastroenterology, oncology, women’s health, and urology.
For Quest Diagnostics, the timing of this acquisition allows it to shift the attention of Wall Street away from the UnitedHealth contract. The AmeriPath acquisition also allows it to gain lab testing revenues that will more than offset expected losses from the UnitedHealth contract. AmeriPath’s revenues will keep Quest Diagnostics on a growth track for 2007.
But with every laboratory acquisition comes with its own set of unique challenges. It has long been known that AmeriPath has struggled to find the right key to unlock financial success from its multiple business models. In buying AmeriPath, Quest Diagnostics will need to move carefully to integrate AmeriPath’s laboratory testing assets into its existing national laboratory network to maximize the benefits from this acquisition. These issues will be explored in the upcoming issue of The Dark Report.
Finally, one particularly happy party to AmeriPath’s sale is Welsh, Carson, Anderson and Stowe, AmeriPath’s majority shareholder. In March 2003, it paid approximately $840 million to buy the public stock of AmeriPath and take the company private. Then, in January 2006, AmeriPath paid an estimated total of $314.7 million to buy all the public shares of Specialty Laboratories. The impending sale to Quest Diagnostics comes only four years after Welsh Carson acquired AmeriPath and allows the private equity company to cash out its investment.
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Mar 13, 2007 | Laboratory Management and Operations, Laboratory Pathology, News From Dark Daily
With each new advance in molecular diagnostics, local laboratories and pathology group practices find it easier to set up and offer molecular assays to their own clientele. That’s because newer generations of instruments automate steps and make it feasible to support this testing with a relatively small volume of specimens.
Challenges still remain, however. Payer coverage and reimbursement for many molecular assays remain inconsistent and unpredictable. In some cases, laboratories need technical skills which are either difficult to recruit or expensive to hire. Yet, where a molecular assay has clear clinical value, physicians want access to this test, particularly from a laboratory in their own community. It is this value added dimension to a molecular testing program which has helped a number of progressive pathology groups expand market share and revenue.
One such pathology group is ProPath of Dallas, Texas. With 30 pathologists, a cornerstone of its business strategy is to have subspecialist pathologists to serve its clients. Since the inception of molecular pathology, ProPath has reviewed new technologies and assays. It is willing to invest in three dimensions to bring up and offer specific molecular tests. It will acquire the instruments and equipment, it will hire or develop the technical expertise needed to run these tests and consult with physicians, and it will put money into a sales and marketing program to educate physicans and help them use these tests to the advantage of their patients. ProPath’s Executive Director, Krista Cruse, will present a case study at the upcoming Executive War College on Laboratory and Pathology Management and discuss ProPath’s success secrets in building a profitable molecular testing program.
To help both clinical laboratories and pathology group practices identify the best molecular testing opportunities for the marketplace they serve, Mary Steele Williams, COO & Director of Scientific Programs at the Association for Molecular Pathology, Bethesda, Maryland, will speak at the Executive War College specifically on the topic of which molecular assays are heading to market and likely to be both clinically useful to physicians and financially lucrative to the laboratories which offer such tests. In her role at the Association of Molecular Pathology, Williams gets a privileged look at emerging molecular assays, so her advice and insight can be invaluable for any laboratory wanting an insider’s view of today’s market for molecular testing.
Of course, The Dark Report has often written about the emerging business model in anatomic pathology that is now competing with local pathology groups for specimens. That is the specialty esoteric testing company. One of the most recent entrants into this category is RedPath Integrated Pathology of Pittsburgh, Pennsylvania. In the first 24 months of its business launch, it has grown to $5 million per year in revenues. RedPath’s innovation is patented technology that allows it to support both the diagnosis of cancer and the planning of treatment across multiple organ systems. The technology allows RedPath to work from a range of specimens, including traditional chemically-fixed slides, fluid aspirates, and cytology smears. Sydney F. Finkelstein, M.D., the pathologist who developed this technology and became RedPath’s founder, will be at the Executive War College to discuss how RedPath is giving community-hospital pathology groups additional molecular tools that they can use to add value to their client physicians.
As these examples demonstrate, molecular diagnostics and molecular pathology each can offer plenty of upside and opportunity for local laboratories and pathology groups. But there is also risk, because of unpredictable reimbursement and other factors. What is common to the laboratory case studies described above is that these pathology labs did careful market research. Lab directors and pathologists interested in developing a profitable, thriving molecular testing program should reserve a place at the upcoming Executive War College on May 10-11, 2007 in Miami. It’s an opportunity to meet Cruse, Williams, and Finkelstein and get first-hand access to their insights, advice, and recommendations.
PS: To get the latest news and effective strategies dealing with new trends, join us in Miami on May 10-11, 2007 for the 12th Annual Executive War College. You can access the full details using the links below. Take action today to reserve your place.
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Jan 31, 2007 | Laboratory Management and Operations, Laboratory Pathology
Here’s another use of the Internet to lower the cost of laboratory operations. Now hospital laboratories can have blood utilization reviews performed via a Web-based service. The goal of the new company is to provide laboratories with dramatically lower blood supply costs by providing hospital laboratory clients the information they need to improve blood transfusion services.
David Jadwin, a pathologist at Kern Medical Center in Bakersfield, CA, recently launched a new business venture performing blood transfusion utilization review over the Web. The name of the company is Columbia Healthcare Analytics. Columbia Healthcare Analytics uses the Web to deliver its primary service and also uses the Web to market itself by making an informational video available at its Web site. Columbia Healthcare Analytics has also applied for a patent to cover its unique technology and intellectual property.
Columbia Healthcare Analytics can benchmark physician and institutional performance against regional, national, and international standards through the use of objective, rules-based techniques. Traditional compliance review models require external reviewers to travel to the laboratory site to access data. Columbia Healthcare Analytics will use new informatics technology to dynamically deliver electronic patient care data to qualified reviewers outside the institution. All HIPAA-sensitive patient information is carefully redacted to provide only clinically pertinent data. The hospital lab client transmits this data to off-site data servers. There it is reformatted and processed through algorithms that assess the appropriateness and effectiveness of patient care. This enables the reviewer to make a rapid qualitative and quantitative analysis and report the utilization review results immediately back to the client.
Columbia Healthcare Analytics provides case study examples that demonstrate the potential savings from an effective review of blood transfusion utilization. In one case, the review process triggered a reduction of packed red blood cell transfusions by more than 30%, a reduction in PRBC blood usage of 1,146 units with a corresponding savings of $223,000 in blood supply costs. Fresh frozen plasma use dropped 45%. Substantial reductions in nursing time and costs for treating adverse reactions to unnecessary blood transfusions were also realized as a consequence of implementing the review recommendations. By contrast, during this same time, other hospitals in the same community saw their blood utilization increase by 21% for packed red blood cells and 79% for fresh frozen plasma.
According to Jadwin, “At most hospitals, traditional blood usage committees are inefficient. There is often poor medical staff participation and members are reluctant to criticize a colleague’s performance. Consequently, many medically unnecessary or ineffective transfusions go without notice. Review comments, when made, are often so far after the fact that little improvement of physician performance occurs. These are important reasons why current hospital utilization review processes rarely result in better transfusion practices or lower costs. Additionally, hospitals may also lack staff trained or interested in current transfusion practices.”
Blood costs are a major expense, often exceeding $1 million per year in moderately-sized hospitals and costing millions of dollars per year in large health systems. That is motivation for hospital laboratories to identify ways to reduce unnecessary blood usage and improve the expense and quality of blood transfusion services. For that reason, Columbia Healthcare Analytics has a major business opportunity once it demonstrates to hospitals that it can deliver effective utilization reviews of blood transfusion services over the Web -and that its recommendations consistently unlock improvements in quality and worthwhile reductions unnecessary use of blood units and the costs related to this service. Dark Daily observes that laboratories are likely to see other compliance services offered via Web-based arrangements. Such services, which lower a laboratory’s cost of compliance while improving compliance effectiveness, are likely to be successful.
Oct 20, 2006 | Laboratory News, Laboratory Pathology
It may be a good news/bad news development for the anatomic pathology profession. This week a new anatomic pathology company made itself official and announced that it had already signed letters of intent to purchase five pathology laboratories. Aurora Diagnostics, Inc. is the new firm. Based in Palm Beach, Gardens, Florida, it was launched by four lab industry veterans.
Aurora Diagnostics represents good news in anatomic pathology because it wants to buy anatomic pathology groups and laboratories that meet certain criteria. It has $300 million in funding to execute those acquisitions. For pathologists looking to realize cash from their practice, as well as tap a new source of growth capital and management resources, the newly-formed Aurora Diagnostics may be an interested acquirer.
Aurora Diagnostics represents bad news in anatomic pathology because it means a new competitor will soon be putting sales reps on the street to compete for referrals from office-based physicians. For pathologists already facing sustained competition from national AP companies in the market, Aurora Diagnostics may soon be a competitive threat in their market.
The executive line-up at Aurora Diagnostics is comprised of familiar names. Founders of Aurora Diagnostics are James New, Chairman and CEO; Martin Stefanelli, Chief Operating Officer; Chris Jahnle, Business Development; and Kirk Rebane, Business Development. Aurora launched operations in July 2006 and has lined up $300 million of funding from Summit Partners and GSO Capital Partners, LP.
All four individuals are well-known to the laboratory profession. New is the former Chairman and CEO of AmeriPath. In that role, he built the company into a $500 million enterprise before it was sold to Welsh Carson Anderson & Stowe in early 2003. Stefanelli was COO at AmeriPath. Jahnle and Rebane are principals with Haverford Healthcare Advisors in Paoli, Pennsylvania. For more than a decade, Haverford has done business valuations and helped laboratories and pathology group practices in merger and acquisition negotiations.
There are several intriguing aspects to the business plan of Aurora Diagnostics. Expect a more detailed assessment on this nascent company in upcoming issues of The Dark Report. Should you have information or questions about Aurora Diagnostics, e-mail Robert at rmichel@darkdaily.com
Oct 16, 2006 | Laboratory Management and Operations, Laboratory Pathology
Pay-for-Performance programs are not limited to the United States. In 2004, the National Health Service (NHS) of the United Kingdom introduced a pay-for-performance program for family practitioners with much acclaim. A study called Pay for-Performance Programs in Family Practices in the United Kingdom published in the New England Journal of Medicine in July of this year reported findings on the success of the program in its first year.
The National Health Service in the UK committed £1.8 billion ($3.2 billion) in additional funding over a period of three years for the pay-for-performance program for family practitioners. The program would increase practitioners’ income by up to 25%. Incentives were based on practitioners’ performance with respect to 146 indicators covering clinical care for 10 chronic diseases, organization of care, and patient experiences.
It was reported that in the first year of the new pay-for-performance program, 95.5% of practices scored highly, earning them an average of £76,200 ($133,200) each. The pay-for-performance program increased the gross income of the average family practitioner by £23,000 ($40,200), but this was partially offset by the fact that practitioners were responsible for both the nursing and the administrative costs of meeting the targets.
It cannot be denied that the UK pay-for-performance program improved quality of patient care in its first year. Doctors in the UK were awarded a significant bonus and could justify the cost of improving their practices with equipment, training, and additional staff to achieve high quality scores. Unfortunately, this may not be the case with Medicare and Medicaid pay-for-performance programs in the United States.
Federal legislation directed the pay-for-performance model to be adopted in the U.S. by mid-2006. The Centers for Medicare and Medicaid (CMS) will then begin rewarding high-performing doctors, hospitals, health plans, and other providers. Unfortunately, according to another study in the New England Journal of Medicine – Paying for Performance in the United States and Abroad – the U.S. budget will only allow for bonuses of 1 to 2%, while the United Kingdom was able to provide 5 to 10%. These smaller bonuses might not be enough incentive for US physicians to meet high performance standards because the cost of upgrading their practices may eat up the entire bonus.
Already the number of pay-for-performance programs offered by private payers is increasing each year. As grades and rewards are directed to doctors based on their performance, it increases the likelihood is high that they will select labs based on reputation and quality. Furthermore, the CMS may adopt pay-for-performance programs for laboratories that provide them with incentives based on their turnaround time, the accuracy of their results, and other performance factors. Laboratories should be tracking the pay-for-performance trend to understand what indicators are likely to be used to evaluate and reward clinical labs.
