RECENT DEALS INVOLVING PRIVATE EQUITY FIRMS and several of the nation's larger pathology groups hint at a major transformation soon to come to the pathology profession. No one should be surprised that pathologists of the baby boomer generation will be an important trigger in this transformation.

It is the coming wave of retirements by baby boomer pathologists that will provide the momentum for these changes to the profession. As you will read on pages 13-14, our editor observes that many pathology group practices will soon need money to cash out their retiring partner-pathologists. In response to this need, a growing number of pathology groups will either allow themselves to be acquired or will sell significant equity to outside investors. In both cases, some of the money raised by these methods will be used to purchase back the equity owned by the retiring partners.

I can see this having two direct consequences to the pathology profession. First, it is likely to signal the end of the pre-eminence of the private pathology group practice, usually anchored by one or more contracts with community hospitals. Because of either outright sale of the practice or the sale of significant equity to outside investors, private pathology practices-professional corporations (PCs)-will begin to decline in numbers and influence.That's because the buyers or new investors of these private practice groups will operate themusing a different business model than the professional corporation.

Second, each time a private pathology group either sells itself to a buyer or sells a significant share of equity to outside investors, these investors will insist on one major change in the pathology group's business activity. That change will be to increase the rate of growth in specimens and revenue. To achieve this, these pathology groups will initiate their first-ever sales and marketing programs or expand and intensify existing sales efforts.

Thus, the rather collegial pathology profession we see today, dominated by private pathology group practices (often smaller groups serving community hospitals and not funding a professional sales program) is about to undergo a gradual transformation. If professional investors change anatomic pathology in a similar fashion to how the clinical laboratory was changed between 1985 and the present, then we should expect a fundamental restructuring of the anatomic pathology sector. This may take more than 10 years to accomplish, due to the pace of retirement by baby boomer pathologists.

Ireland Is Restructuring National Lab Test System

Government health program plans to integrate, consolidate, and regionalize lab testing services

CEO SUMMARY: Working from a consultant's report and recommendations based on studies dating back to 2006 and 2007, Ireland's Health Service Executive is moving forward to effect a comprehensive reconfiguration of clinical laboratory testing across the nation. This may be the first time that the government health program of a developed nation has attempted to consolidate, regionalize, and integrate all the laboratory testing services within its borders.

Predict 60,000 Doctors To Adopt EMRs Each Year

Expanding EMR use by physicians creates opportunity for clinical labs & pathology groups

CEO SUMMARY: Only about 180,000 U.S. physicians have adopted electronic medical record (EMR) systems over the past 14 years-mostly in largermedical groups. Now experts believe asmany as 60,000 physicians per year will begin to adopt EMRs because of new federal incentives funded by the stimulus bill passed early last year. This is amajor development and requires a response by every clinical lab and pathology group practice, since physicians will need their lab provider to enable electronic lab test ordering and lab test reporting for their EMRs.

Health Market Update: Rate of Health Spend Increase in 2008 Was Lowest Since 1960

Centers for Medicare and Medicaid Services report says a total of $2.3 trillion was spent on health during 2008, which is an increase of 4.4%

Two Big Pathology Groups Tap Investors for Capital

Each deal infuses new capital in the group, while leaving pathologists with significant control

CEO SUMMARY: Pathology supergroups in California and Tennessee have each announced major recapitalizations. Both groups will use some of the money to cash out retiring partners. The balance of the new capital will be used to expand their businesses. With so many baby boomer pathologists approaching retirement, these two transactions are likely to be studied by many pathology groups and should be considered early examples of a trend that is soon to become more prominent.

Pathology Inc. Sells Equity to Raise Capital

Pathology group accesses growth capital by selling shares to professional investors

CEO SUMMARY: In looking how to propel its business to the next level, the partners at Pathology Inc. opted not to sell their pathology group practice. Instead, they chose to raise capital by selling equity in their company to a group of investors. In this exclusive interview, executives from Pathology Inc. share their business strategy. Among the priorities are expansion of the sales and marketing program, possible acquisitions of other lab companies, and acquiring sophisticated information technology.

INTELLIGENCE: Late & Latent

ADVAMED CREATES NEW DIAGNOSTICS ADVOCACY EFFORT

MORE ON: NeoGenomics, Inc., of Ft. Myers, Florida,

Call us today if you have Charter Membership questions at 800-560-6363 or 512-264-7103
The Dark Report intelligence briefing is delivered to your mailbox every 3 weeks!