Profiles of 15 Leading AP Labs

Laboratory Corporation of America (LabCorp)
Corporation Headquarters
430 South Spring Street
Burlington, NC 27215
336-584-5171

Chief Executive Officer: David P. King
Executive Vice President, Esoteric Businesses: William B. Haas
Senior Vice President, Corporate Communications: Pamela Sherry
Phone: 336-436-4855
Fax: 336-436-1205
sherryp@labcorp.com
www.labcorp.com

Total Predicted* Annual Anatomic Pathology Test Volume (2007): 12.7 million
Laboratory Corporation of America (LabCorp) is a publicly held corporation and one of the world’s largest clinical laboratories. They perform approximately 239 million tests annually (based on 2.5 billable tests per requisition and 95.5 million requisitions in 2006) for over 220,000 clients across the United States. In 2006 LabCorp’s annual revenue was $3.6 billion. They employ approximately 25,000 people. With 36 primary testing locations, over 1,700 patient service centers, and seven Centers of Excellence, LabCorp is the second largest independent laboratory in the United States.
*Because of a major contract with United Healthcare that began January 1, 2007, LabCorp believes that its anatomic pathology business will increase. Based on 2007 Q1 results, Washington G-2 Reports estimates that LabCorp’s anatomic pathology segment will look like this:

• Histology: $320 million in revenue based on 2.672 million specimens.

• Pap: $280 million in revenue based on 10 million samples (LabCorp does not break down Pap testing by revenue, counting it as part of their core laboratory testing revenue; however, the national average Pap is $28 per specimen).

LabCorp’s 2007 guidance for revenue growth is 12-14%. In 2007, reasonable projections based on Q1 2007 numbers indicate that anatomic pathology testing will account for 8.6% of revenue and 12% of test volumes.

LabCorp’s seven Centers of Excellence have a certain amount of overlap when it comes to anatomic pathology testing. The company’s primary centers for anatomic pathology testing are DIANON Systems, US Labs, and Esoterix. The seven Centers of Excellence are:

• The Center for Esoteric Testing (CET): The CET is made up of eight departments—Allergy, Diagnostic Immunology, Hemostasis and Thrombosis, Esoteric Immunoassay, the Kidney Stone Management Program, Microbiology, Special Chemistry, and Clinical Toxicology.

• The Center for Molecular Biology and Pathology (CMBP): Located in Research Triangle Park, North Carolina, the CMBP focuses on PCR (polymerase chain reaction) technology.

• DIANON Systems: DIANON is LabCorp’s Anatomic Pathology Center of Excellence, providing full-service, outpatient anatomic pathology and genetic services.

• Esoterix and its Colorado Coagulation and Endocrine Sciences laboratories.

• National Genetics Institute (NGI): Located in Los Angeles, California, NGI focuses on developing PCR methods for hepatitis C and other infectious disease testing, as well as HIV testing and plasma screening.

• US Labs: US Labs focuses on esoteric anatomic pathology laboratory tests, especially in providing cancer screening, diagnosis, prognosis, and genetic analysis. Cancer screening is performed utilizing histology and cytology testing. In addition, they also perform immunohistochemistry, flow cytometry, and molecular genetic tests.

• ViroMed Inc.: Located in Minneapolis, Minnesota, ViroMed focuses on molecular microbial testing utilizing real-time PCR platforms, as well as other molecular infectious disease testing.

Effective January 1, 2007, LabCorp began a 10-year exclusive service contract with United Healthcare (Minnetonka, Minnesota). United Healthcare previously had a long-term contract with Quest Diagnostics. LabCorp expects to gain more than $3 billion in business from United Healthcare over the decade-long deal. In addition, LabCorp committed to reimburse United up to $200 million to cover transition costs related to developing expanded networks in certain areas over the first three years of the contract. United Healthcare has approximately 28 million health plan members.

In an earlier interview for Washington G-2 Reports’ Laboratory Industry Report (January 2007), LabCorp CEO David P. King said, “We think women’s health will continue to be an area of interest. As I mentioned earlier, with image-guided Pap, with HPV, with the continuing advances in test menu and test offering, we look to women’s health as an area of continuous growth. … Our pathology and tissue capabilities and our cancer recurrence testing will continue to be growth areas.”

As part of the United Healthcare deal, LabCorp increased the number of patient service centers and employees to handle the influx of tests. Because of the expected increase, LabCorp believes their anatomic pathology numbers will be far larger in 2007 and beyond than they were in 2006. Based on their 2007 first quarter results, they predict they will perform 12.7 million anatomic pathology tests annually.

Professional Pathology Services PC
1 Science Court
Columbia, SC 29203
Phone: 803-434-6405
Edward W. Catalano, MD, Group President
Edward.catalano@palmettohealth.org

Professional Pathology Services is a large pathology group operating in Columbia, South Carolina. It was formed in 2002 as a merger of two smaller pathology groups, one of which had an active outreach program, and the other, which did not. They currently employ 20 board-certified pathologists and an additional 60 FTEs. They provide pathology services for two hospitals in Columbia, South Carolina: Palmetto Health Baptist Hospital and Palmetto Health Richland Hospital. Clients also include local surgery centers, endoscopy centers, and physician’s offices. In addition to the anatomic pathology services, they operate a private, freestanding laboratory. Professional Pathology Services is the largest pathology group in the state of South Carolina and employs a state-wide courier network as well as a sophisticated Web-based IT system. Their annual revenue is approximately $15 million.

PPS indicates their overall test totals are 295,700. However, their anatomic pathology test volumes break down this way:

• Surgical pathology specimens: 70,000 annually
• Pap smears/GYN cytology: 70,000 annually
• Non-GYN cytology: 7,000 annually

Group President Edward Catalano, MD, notes that their biggest competition are in-house specialty laboratories. “We’ve probably lost the most business to the in-house specialty labs such as dermatology bringing that work in-house. You see a lot of specialty groups such as dermatology, urology, or gastroenterology that will start their own histology lab and hire a pathologist. We’ve actually lost more business to that scenario than any other. We still have major competition from the national commercial labs such as AmeriPath, Quest, and LabCorp. We also have some of these ‘specialty boutique condo labs’ that have taken a bit of business. Over the last dozen or so years we’ve probably lost 40,000 accessions to just the dermatology specialty labs.”

Catalano thinks that specialty labs of this type will continue to be the competition, noting that in recent years there has been a lot of pressure to commoditize all of medicine. “What you’re seeing is a group looking at a whole variety of options to increase their bottom line. In recent years the PC (professional component reimbursement) has been ratcheted down, but the TC (technical component reimbursement) has increased. Unfortunately, what that’s done is create an incentive for commercial labs to get into the anatomic pathology business. In the past that was really something they weren’t interested in, but now they look at the increasing TC reimbursement and look at genetic testing—much of which originates in the tissue—as an entrée into esoteric testing, so there’s much more focus on it.”

In addition, Catalano notes that reimbursement is a business issue they need to pay attention to. “Two things: The commoditization of our work product; that is, physicians in the past tended to view us (pathologists) as a colleague and a consultant. Now they view pathology as a commodity and they are looking to buy it at the lowest bid price. The other thing that I think has been a big obstacle is you get the large national labs like LabCorp who initiate an exclusive contract with predatory pricing, such as they’ve recently done with United Healthcare. They have United Healthcare physicians who are monetarily penalized if they send anything out of network and it’s LabCorp who has the multi-billion dollar national exclusive contract.”

Catalano also notes that the United Healthcare deal with LabCorp essentially amounts to a contract for 50% of Medicare laboratory business. “That essentially lowers the bar and makes it extremely difficult for local operations to compete in that price milieu.”

Catalano sees a trend for larger anatomic pathology practices as a result. “I think in order to be competitive, practices are going to have to have a fairly sophisticated infrastructure and that includes couriers, a very robust information system, and marketing people. And the only way they’re going to get that in place is through the larger groups. IT connectivity is also going to be an increasingly important part of a pathology practice’s ability to be competitive.”

At-A-Glance

• Professional Pathology Services PC is the largest pathology group practice in the state of South Carolina

• PPS employs 20 board-certified pathologists and an additional 60 FTEs.

• In addition to offering services throughout the state, they serve Palmetto Health Baptist Hospital and Palmetto Health Richland Hospital in Columbia, South Carolina.

• PPS also runs a private, freestanding laboratory.

• PPS performs a total of 295,700 tests annually. Their anatomic pathology tests break down as:

    - Surgical pathology: 70,000 cases annually

    - Pap/GYN cytology: 70,000 cases annually

    - Non-GYN cytology: 7,000 cases annually

    - Annual revenue: Approximately $15 million.

Quest Diagnostics, Inc.
Corporate Headquarters:
1290 Wall Street West
Lyndhurst, NJ 07071
Phone: 800-222-0446
www.questdiagnostics.com

Surya N. Mohapatra, PhD, President, Chair, Chief Executive Officer
Robert A. Hagemann, Senior Vice President and Chief Financial Officer
Michael E. Prevoznik, Senior Vice President and General Counsel
W. Thomas Grant II, Senior Vice President, Insurance and Employer Services
Robert E. Peters, Vice President, Sales and Marketing
David M. Zewe, Senior Vice President, Diagnostic Testing Operations
Laure Park, Corporate Vice President, Investor Relations; Phone: 201-393-5030
Nancy Fitzsimmons, Director, Media Relations; Phone: 201-729-8550

Quest Diagnostics is the largest provider of clinical laboratory services in the United States, and the largest provider of anatomic pathology testing in the United States. In 2006, Quest reported $6,268 million in revenue. Their combined anatomic pathology and cytology business accounted for 10% of net revenue. In 2006 they reportedly performed 13 million Pap tests, making them the largest provider of Pap tests in the United States.

In late 2006, Quest Diagnostics lost their exclusive contract with United Healthcare. The contract went to Quest’s competitor, LabCorp, effective January 1, 2007. At the time, it was estimated this would result in a drop of approximately 7% of Quest’s revenue. In the first quarter 2007, Quest reported revenues of $1.5 billion, a decrease of 1.7% from the prior year, same period. Clinical testing revenue decreased by 3.2% and clinical testing volume, measured by requisition numbers, dropped 7.3%, with revenue per requisition increasing 4.4%.

On May 31, 2007, Quest Diagnostics acquired AmeriPath (Palm Beach Gardens, Florida) from private equity firm Welsh, Carson, Anderson, and Stowe IX (New York, New York) for $2 billion. AmeriPath is one of the nation’s leaders in anatomic pathology and dermatopathology. AmeriPath has 2,900 employees, including 400 pathologists. In 2006 AmeriPath reported $760 million in revenue, 75% (approximately $570 million) of which is anatomic pathology testing. In 2006, AmeriPath performed 1.5 million Pap smears.

Although 2007 will undoubtedly be a shake-out year for the combined companies, in terms of anatomic pathology, this acquisition will further cement Quest’s dominance of the anatomic pathology and cytology market. A number of observers have noted that AmeriPath has long-term provider contracts with United Healthcare, and Quest’s acquisition of AmeriPath may serve as a “back door” to United Healthcare business. Washington G-2 Reports estimates that the acquisition will result in annual anatomic and cytology revenue to reach approximately $1.2 billion, with approximately 13.6 million Paps performed yearly.

Quest Diagnostics and AmeriPath have indicated there will be no change in AmeriPath management:
Donald E. Steen, Chairman, Chief Executive Officer
Jeffrey A. Mossler, MD, Vice Chairman
David L. Redmond, Executive Vice President and Chief Financial Officer
R. Keith Laughman, President for Esoteric Services
Steven E. Casper, President of Dermatopathology Services
Combined Quest Diagnostics and AmeriPath At-A-Glance:
Annual Revenue (2007 projected): $6,721 million
FTEs: 44,400
Annual Pap Tests (projected): 13.6 million
Anatomic Pathology and Cytology Revenue (Projected): $1.2 billion
Annual histology test volumes (projected): 30-40 million

Rex Pathology Associates
4420 Lake Boone Trail, Suite 1400
Raleigh, NC 27607
Stephen V. Chiavetta, MD, President
Stephen.Chiavetta@rexhealth.com
Phone: 919-784-3100

Rex Pathology Associates is a seven-pathologist group practice in Raleigh, North Carolina. They were formed in 1978 under the name Comprehensive Laboratory Services. At that time there were four pathologists: Albert L. Chasson, Robert E. Kanich, Joan M. Milner, and Stephen V. Chiavetta.

Chiavetta says, “The reason for forming a corporation was to take advantage of hospital pension and profit-sharing plans and to unify the group. The corporate entity allowed the group to contract with the hospital for pathology services and replaced a letter of agreement that was in place with Dr. Chasson, the senior member. The hospital did the billing for the pathology and we received a percentage of the revenue from the anatomic and clinical pathology work.”

In 2004 they changed their name to Rex Pathology Associates to clarify their role for patients. Their primary client is Rex Healthcare, whose flagship is Rex Hospital, a 394-bed acute-care hospital serving Wake County, North Carolina. Rex Hospital is affiliated with the University of North Carolina Medical School. In addition, they serve local practices and patients.

Rex Pathology Associates has expanded to six-and-a-half pathologist FTEs, with seven pathologists:
Stephen V. Chiavetta, MD
John P. Sorge, MD
John D. Benson, MD
Timothy R. Carter, MD
Keith V. Nance, MD
Vincent C. Smith, MD
F. Catrina Reading, MD

In addition Emily Sundloft is a full-time pathologist assistant, and Rhonda Humphrey is a full-time office assistant.

The total test volume in the clinical laboratory is greater than 1 million tests. In 2006 they performed 36,000 surgical pathology tests, 48,000 Pap tests using the SurePath liquid-based method, and 3,300 non-gynecology cytology samples. They have shown a large jump in surgical pathology in the last year. In 2004 they performed 27,000 surgical pathology tests; in 2005 they performed 28,000 surgical path tests; and in 2006 they stepped up to 36,000.

Dr. Chiavetta notes that their outpatient volumes from physician offices account for 20% of their surgical pathology volume and 100% of the Pap test volumes. He says that annual revenue is variable and ranges between Medicare rates to 150% of Medicare.

Rex Pathology Associates’ biggest competitor is LabCorp and other national labs. Chiavetta notes that there are no POD labs in their area currently, although local urologists have shown interest. The biggest obstacle, he says, is “decreasing reimbursement from third-party payers and fee-splitting arrangements (client billing rather than direct billing by the pathologist) between national labs and physician practices for surgical pathology specimens.”

Rex Pathology Associates focuses on personal relationships made easier by physical proximity to clients and fast turnaround times.

At-A-Glance
• Rex Pathology Associates is a seven-pathologist group practice in Raleigh, North Carolina.
• Primary client is Rex Hospital, part of the Rex Healthcare System in Wade County, North Carolina.
• The clinical laboratory performs more than 1 million wet lab tests annually.
• Anatomic test volume breakdown is:
    - Surgical pathology cases: 36,000 annually
    - GYN cytology (Pap): 48,000 SurePath liquid-based tests
    - Non-GYN cytology: 3,300 cases

ADL, Inc.
Providence Alaska Medical Center
3200 Providence Drive
Anchorage AK 99508
907-261-3098
Thomas Mego, MD, Laboratory Medical Director

ADL, Inc., is a pathology group based in the Providence Alaska Medical Center in Anchorage, Alaska. Based at the hospital, they are contracted with the hospital to perform anatomic pathology services, and they oversee and act as medical directors over the laboratory. The clinical laboratory itself is owned and managed by the hospital. Providence Alaska Medical Center is one of only three hospitals in Anchorage and has 364 beds.

ADL, Inc., employs 4.2 pathologists with another coming on board soon. Dr. Thomas Mego, MD, Laboratory Medical Director at the Providence Alaska Medical Center and partner in ADL, notes that their revenue comes from their professional billing plus a Medicare stipend they receive from the hospital. They do not own the histology laboratory, which is owned by the hospital. The anatomic pathology test volume breakdown is:

• Annual surgical pathology specimens: approximately 13,000
• Annual Pap smears: 7,000
• Annual non-GYN cytology cases: 1,100
• Annual bone marrow specimens: 225

Mego notes that their biggest competition for anatomic pathology is that many of the larger physician offices in the area are sending biopsies out of state. “Part of federal regulation that is trying to promote information technology in the medical field allows vendors to come in and provide software to a medical practice at what I believe is 15 percent of its cost. That entices that practice to use all of that company’s services. We’ve lost a significant number of specimens to a practice here in Anchorage where a company came in with their practice-management software. Part of that software incorporated anatomic pathology results, and now all those specimens are going to that laboratory, which I believe is in Texas. All of the results were integrated into this group’s practice-management software.”

Because they are hospital-based, they still maintain all hospital in-patient work. Mego says, however, that the clinical market in the area is dominated by Quest Diagnostics, which has about 40 percent of the area’s clinical lab market. “I wonder about the major labs, Quest and LabCorp, whether they’re going to get into anatomic pathology. I know Quest acquired AmeriPath, but they’re not doing much AP business here yet, but I’m concerned about it.”

Mego is also concerned about the Medicare competitive bidding demonstration project. “That has the potential to really put practices in smaller markets like ours out of business. So many hospitals have opened outreach labs to make money, and they’re not going to be able to compete with the big two labs in a competitive bidding situation.”

At-A-Glance
• ADL, Inc., is pathology group practice based in the Providence Alaska Medical Center in Anchorage, Alaska.
• They employ 4.2 pathologists with another joining soon.
• Their anatomic pathology breakdown is:
    - Annual surgical pathology specimens: approximately 13,000
    - Annual Pap smears: 7,000
    - Annual non-GYN cytology cases: 1,100
    - Annual bone marrow specimens: 225

Caris Diagnostics
8400 Esters Boulevard, Suite 190
Irving, TX 75063
800-979-8292
Fax: 214-596-2280
www.pathologypartners.com

Gail B. Marcus, President, Chief Executive Officer
Stephen J. McMindes, Senior Vice President of Business Development
Margaret E. Bedgood, Chief Financial Officer
Richard H. Lash, MD, Senior Vice President, Chief Medical Officer
Russell O. Farr, Senior Vice President, General Counsel

Caris Diagnostics in Irving, Texas, is a sub-specialty pathology laboratory focused on gastrointestinal pathology. In 2007 they opened a new facility in Phoenix, Arizona, and merged with Cohen Dermatopathology in Newton, Massachusetts, branching out into dematopathology. It’s all part of a strategy for strong growth based on what President and Chief Executive Officer Gail B. Marcus says is a three-pronged strategy: quality, technology, and service.

Caris Diagnostics has historically focused on GI pathology. “We are a sub-specialty-focused leader in anatomic pathology,” says Marcus. “In the GI market most other pathology organizations will use general pathologists. Ours are either sub-specialty trained in a fellowship program or are trained by us here in the equivalent of a fellowship program.” The merger with Cohen Dermatopathology will broaden Caris’s market reach, as well as deepen their geographic penetration on the East Coast.

Caris Diagnostics employs 350 people and in 2006 reported $64.9 million in revenue. According to CLIA records, Caris performed 210,000 tests in 2005 and Cohen Dermatopathology performed 124,900 in 2006. Although unwilling to commit to current test volumes, Caris Diagnostics suggests that the 2005 numbers are out-of-date. In light of the merger and Caris opening a 24,000-square-foot laboratory in Phoenix, it’s not unreasonable to predict their test volumes will exceed 500,000 in the near future.

Despite competition from the major players such as the recently merged Quest Diagnostics and AmeriPath, as well as LabCorp and other regional pathology groups and laboratories, Marcus says, “We feel like the package we have is unmatched in the industry. The first area of focus is quality. Our pathologists have very high quality-assurance processes. On the GI side for example, our pathologists will see cases that are unique or unusual with a much greater frequency. But because they see them at much greater frequency they won’t seem that unique or unusual.” They also have daily internal consultations, leveraging the broad expertise of the group.

The second area Marcus cites is technology. “We believe in partnering with the physicians that work with us to help make them more effective and efficient. We work with them to install technology that helps in interfacing with us, but also helps their workflow and office operationss.”
And finally, the third way Marcus feels that Caris distinguishes itself is service, including fast turnaround times. “We feel very strongly about having a local service presence and having the people who help them visit them. Part of that is the technology we’ve installed with them and the partnership that creates.”

Marcus emphasizes that Caris goes out of its way to employ the best and the brightest. In that vein, they have begun their own GI pathology fellowship affiliated with the University of Texas Southwestern Medical School in Dallas, which begins this year and is already filling up for 2008. Marcus says, “Caris Diagnostics is creating academic quality pathology combined with all the very best of the commercial environment. You have that top-quality pathology, but then you can invest in the commercial environment and systems and people, so it’s really bringing those things together. What our pathologists find is it’s a fairly unique environment.”

Despite its fast growth and expansion, Marcus insists Caris Diagnostics focus on their primary goal. “Our commitment is to health improvement. Basically it starts from a foundation of health improvement, which is the best quality of care at a low cost. We don’t see that as an either/or proposition. When you think about diagnostics, a lot of the power of diagnostics is getting it right the first time. And by being a really high-quality diagnostic provider you’re able to help deliver improved care at the most effective cost.”

At-A-Glance
• Irving, Texas-based GI anatomic pathology laboratory, which has recently expanded into dermatopathology.
• In addition to the Texas facility, they are completing a new 24,000 square-foot facility in Phoenix, Arizona, and have merged with Cohen Dermatopathology in Newton, Massachusetts.
• Reported $64.9 million in revenue in 2006.
• Employs 350 people.
• Recently began a pathology fellow program affiliated with the University of Texas Southwestern Medical School.

Pathology Specialists, PA
1814 Bellevue Avenue
Orlando, FL 32806
407-925-3884
info@pathologyspecialists.com
www.pathologyspecialists.com

Lizardo Cerezo, MD
Darcy Duncan, MD
Ray Franklin, MD, PhD
Orlando Gonzalez, MD
Thomas Hegert, MD
David Allan Katz, MD
Shuan Li, MD
Stephanie Schreiner, MD
Henry J. Norris, MD
Gary Pearl, MD, PhD
Andrew Sloman, MD

Pathology Specialists, PA, is an 11-pathologist group practice operating in Orlando, Florida. Their predominant clientele is for the hospitals that are part of the Orlando Regional Healthcare System. The ORHS includes 1,780 beds and in addition to partial ownership in South Lake Hospital and St. Cloud

Regional Medical Center, includes:
• Arnold Palmer Hospital for Children
• Winnie Palmer Hospital for Women & Babies
• M.D. Anderson Cancer Center Orlando
• Orlando Regional Medical Center
• Orlando Regional Lucerne Hospital
• Dr. P. Phillips Hospital (formerly Orlando Regional Sand Lake Hospital)
• Orlando Regional South Seminole Hospital
• Orlando Regional Healthcare Foundation
• Cancer Research Institute
• Graduate Medical Education
• Orlando Regional Visiting Nurse Association

Of their 11 pathologists, Pathology Specialists, PA, has seven full-time and four part-time pathologists providing eight-and-a-half FTEs. In addition, they have one pathology assistant and additional billing personnel. One of the unique factors of Pathology Specialists, PA, is that they have an Accreditation Council for Graduate Medical Education (ACGME)-accredited pathology residency program, one of the oldest in the state of Florida.

Pathology Specialists breaks down their specimens as follows:
• Annual surgical specimens: 50,000
• Annual Pap smears: 6,000
• Annual autopsies: 140
• Annual frozen sections: 5,000
• Annual electron microscopy cases: 400
• Annual muscle biopsies: 100
• Annual fine needle aspirates (FNA): 1,000
In addition, they perform approximately 1,000 leukemia/lymphoma flow cytometry workups and approximately 750 bone marrows.

Although Gary Pearl, MD, PhD, declined to give specific revenue numbers, he broke down their annual revenue this way:
• 52% from inpatient/outpatient anatomic pathology
• 30% outreach anatomic pathology
• 18% clinical pathology

Pearl noted that AmeriPath—now a part of Quest Diagnostics—has been the largest competitor for their outreach business. As for roadblocks, he says, “I think the biggest obstacle is obviously insurance contracts. Physicians don’t like splitting their work. Let’s say 25% of their patients have to go to Quest Diagnostics and we can do 75%, but Quest can do 100%. So a lot of physicians say they’ll just send them to Quest.”

Pearl says their strength, and what allows them to stay competitive, is their service. “We give 24-hour turnaround times, physicians know they can call us on anything, and we handle special requests. If some of them want digital images on reports, we can do that. If some want their reports sent online, we can do that. Anything they ask for. We can provide the service, and we have specialists in every area of pathology, so our clients know who’s reading their biopsy.”

At-A-Glance
• Pathology Specialists, PA, is an 11-pathologist group practice operating in Orlando, Florida.
• Although they have an outreach program, their primary client is the Orlando Healthcare System.
• Their test volume breakdown is:
    - Annual surgical specimens: 50,000
    - Annual Pap smears: 6,000
    - Annual autopsies: 140
    - Annual frozen sections: 5,000
    - Annual electron microscopy cases: 400
    - muscle biopsies: 100
    - Annual fine needle aspirates (FNA): 1,000
• They run an ACGME-accredited pathology residency program.
• Their revenue breakdown is:
    - 52% in-patient/outpatient anatomic pathology
    - 30% outreach anatomic pathology
    - 18% clinical pathology.

Sentara Reference Laboratory
6015 Poplar Hall Drive
Norfolk, VA 23502
757-388-3621

Dennis A. Rowley, MD, Medical Director
Stephanie Spingarn, MD, Director of Clinical Pathology
Scott J. Stanley, MD, Medical Director of Autopsy Service
Beth Deaton, Director, Consolidated Laboratory Services
Virginia Hinson, Director, Hospital Laboratory Services

Sentara Reference Laboratory is part of Sentara Healthcare in the Norfolk, Virginia, area and operates six hospital-based laboratories, one ambulatory care center lab, as well as dedicated Patient Service Centers. They employ 21 pathologists. For pathology services Sentara Reference Laboratory contracts with Pathology Sciences Medical Group (PSMG) and General Hospital Pathologists, Ltd. (GHPL). Sentara also partners with General Hospital Pathologists, Ltd., to perform anatomic pathology services at Sentara Virginia Beach General Hospital. In terms of anatomic pathology, Sentara includes:

• Surgical
• Pathology
• Cytopathology
• Neuropathology
• Autopsy
• Transfusion Medicine
• Hematology
• Microbiology
• Serology
• Chemistry
• DNA/Image Analysis
• Flow Cytometry
• Molecular Diagnostic Studies
• Immunodiagnostics

Sentara Reference Laboratory performs approximately 6 million tests annually. Their anatomic pathology breakdown is:
• Annual cytology samples: 87,437
• Annual Pap samples: 51,033
• Annual surgical pathology specimens: 19,000

Dennis A. Rowley, MD, Medical Director of Sentara Reference Laboratory, breaks down samples by type and institution, noting that because of Sentara’s far-flung laboratories, it can be difficult to separate out anatomic pathology services.
• Sentara Bayside Hospital: 3,808 AP samples
• Sentara Leigh Hospital: 7,873 AP samples
• Sentara Norfolk General Hospital: 35,010 AP samples
• Sentara CarePlex Hospital: 12,879 AP samples
• Sentara Virginia Beach General Hospital: 14,679 AP samples
• Sentara Virginia Beach General Hospital Cytology Laboratory: 1,710 samples
• Sentara Williamsburg Regional Medical Center: 4,790
• Bone Marrows: 789 specimens
• Cytology: 5,881 specimens

At-A-Glance
• Sentara Reference Laboratory is the only full-service reference laboratory in the Norfolk, Virginia, area.
• Sentara Reference Laboratory is part of Sentara Healthcare.
• They operate six hospital-based laboratories, one ambulatory care center lab, as well as dedicated Patient Service Centers.
• Reference Laboratory contracts with Pathology Sciences Medical Group and General Hospital Pathologists, Ltd., for pathology services.
• Employ 21 pathologists
• Their anatomic pathology breakdown is:
    - 87,437 cytology specimens annually
    - 51,033 Pap smears annually
    - 19,000 surgical pathology specimens annually

St. John Hospital and Medical Center Department of Pathology
22101 Moross Road
Detroit, MI 48236
Martha Higgins, MD, Chief, Department of Pathology
313-343-3520
Martha.higgins@stjohn.org

St. John Hospital and Medical Center’s Department of Pathology is the core laboratory for St. John Health, which operates eight hospitals (with an additional one planned) and 125 medical facilities throughout southeastern Michigan and the Detroit metropolitan area. St. John Health includes:

• Brighton Hospital
• Detroit Riverview
• Macomb Hospital
• North Shores Hospital
• Oakland Hospital
• Providence Hospital
• River District Hospital
• St. John Hospital
• Novi Hospital (planned)

The SJHMC Pathology Department is also the faculty for the anatomic/clinical pathology residency program. It employs 13 pathologists (12.6 FTEs). Its total annual test volume is:
• Annual surgical pathology specimens: 40,000
• Annual cytology specimens: 100,000
• Annual bone marrow specimens: 500
• Total clinical laboratory annual volume: 5 million to 6 million specimens

Like many hospital-based pathology labs, their biggest competitors are the national laboratories such as Quest Diagnostics and LabCorp. Martha Higgins, MD, Chief of the Department of Pathology, says, “One large obstacle we face is competition with the national-based laboratories that can devote more resources to maximizing business and operations, including those geared specifically for the anatomic pathology market. As a hospital-based laboratory, we are more limited in those ventures.”

Higgins further notes that hospital-based laboratories, unlike national laboratories, are obligated to provide the full range of laboratory services required by their institution. “We are not able to cherry-pick the more profitable services. But generally speaking, those of us in hospital-based laboratories have a great satisfaction knowing that as professionals we provide comprehensive patient-centric services to support physicians’ care of their patients.”

Like many in all corners of the industry, the SJHMC Pathology Department is being hit by decreased professional component reimbursement. Higgins says, “Another important challenge to note is the currently deteriorating reimbursement for the professional component of anatomic pathology services. While the technical component schedule has seen some increases, the professional component is trending down. In our hospital-based laboratory, we do not bill globally as other business models can, which would serve to maintain revenue.”

At-A-Glance
• St. John Hospital and Medical Center’s Department of Pathology is the core laboratory for St. John Health, which operates eight hospitals (with an additional one planned) and 125 medical facilities throughout southeastern Michigan and the Detroit metropolitan area.
• It employs 13 pathologists (12.6 FTEs)
• The SJHMC Pathology Department performs approximately 5 million to 6 million clinical laboratory specimens annually. Their anatomic pathology breakdown is:
    - Annual surgical pathology specimens: 40,000
    - Annual cytology specimens: 100,000
    - Annual bone marrow specimens: 500

University of Alabama at Birmingham
UAB Hospital
Department of Pathology
WP 220; 619 South 19th
Birmingham, AL 35223
205-934-4303
Alexander@path.uab.edu

Jay McDonald, MD, Chair, Department of Pathology
John A. Smith, MD, PhD, Director, Division of Laboratory Medicine
Kevin A. Roth, MD, PhD, Director of Neuropathology
Bruce C. Alexander, MD, Vice Chair, Department of Pathology; Laboratory Medical Director, Kirklin Clinic Laboratory
Gene P. Siegal, MD, PhD, Director of Anatomic Pathology
Isam-Eldin Eltoum, MD, Director of Cytopathology

The University of Alabama at Birmingham Department of Pathology is affiliated with the University of Alabama at Birmingham Hospital, which is part of the UAB Health System. The UAB Health

System includes:
• University of Alabama at Birmingham Hospital
• The Kirklin Clinic
• The Kirklin Clinic at Acton Road
• University of Alabama at Birmingham Health Centers
• Callahan Eye Foundation Hospital
• UAB Highlands
• The University of Alabama Health Services Foundation, PC
• The University of Alabama School of Medicine

It is also affiliated with:
• UAB Medical West
• Baptist Health Montgomery

The UAB Department of Pathology employs 85 pathologists. In addition to their laboratory at the UAB Hospital, they operate the UAB Laboratory and Pathology Services, which is the outreach area of the University Hospital, and services the outlying UAB Clinics in the Birmingham and Huntsville, Alabama, area. In 2005 the Cytopathology Section was named a Center of Excellence—one of only five—by the American Society of Cytopathology.

The UAB Department of Pathology performs over 6 million laboratory tests annually and reports an extramural research funding and clinical services budget of $23 million. Their AP test breakdown is:
• Surgical pathology: 32,000 specimens annually
• Biopsies: 12,500 annually
• Immunohistochemistry: 3,000 annually
• Fluorescent in situ hybridization (FISH): 250 annually
• Cytopathology: 25,000 annually
• Liquid Pap: 20,000 annually
• Other: 18,500 annually

At-A-Glance
• A university hospital-based pathology department with an outreach program.
• Employs 85 pathologists and has an extramural research funding and clinical services budget of $23 million.
• Performs over 6 million clinical pathology tests annually.
• Anatomic pathology test breakdown is:
    - Surgical pathology: 32,000 specimens annually
    - Biopsies: 12,500 annually
    - Immunohistochemistry: 3,000 annually
    - Fluorescent in situ hybridization (FISH): 250 annually
    - Cytopathology: 25,000 annually
    - Liquid Pap: 20,000 annually
    - Other: 18,500 annually

CPA Lab
4001 Dutchman’s Lane
Louisville, KY 40207
Phone: 888-750-0085
Fax: 502-736-4440
www.cpalab.com

Emma Coronel, MD, Laboratory Medical Director
Linda Korfhage, MD, Medical Director for Norton Audubon Hospital Laboratory
Michael Nowacki, MD, Medical Director CPA Lab
Bennie Slucher, MD, Cytopathology Medical Director, Norton Suburban Laboratory
Mabel Scherzer, Assistant General Manager
Phone: 502-736-4340
E-mail: mscherzer@cpalab.com

Founded in 1972 by Dr. Jerry Clanton, Clinical Pathology Associates (CPA) is an anatomic pathology group practice and laboratory serving an approximately 50-mile radius around Louisville, Kentucky. Prior to 2005, it also owned Laboratory Physicians, a clinical pathology laboratory. In 2006, the two companies were acquired by Norton Healthcare (Louisville, Kentucky) under the CPA Lab heading. Norton Healthcare is the leading hospital and healthcare system in the Louisville area with 45 percent of the market. It is also the area’s second-largest employer.

CPA Lab employs 15 pathologists, eight cytopathologists, two hematopathlogists, one dermatopathologist, and one pediatric pathologist. It also employs 17 cytologists. It performed more than 150,000 Paps and 58,000 surgical pathology tests in 2006. In 2006, it billed for over 366,646 units with annual gross patient revenue of $31 million.

CPA pathologists also serve as laboratory medical directors at six hospitals:
• Norton Downtown Hospital (Louisville, Kentucky)
• Norton Suburban Hospital (Louisville, Kentucky)
• Norton Audubon Hospital (Louisville, Kentucky)
• Kindred Hospital (Louisville, Kentucky)
• St. Catherine Regional Medical Center (Charlestown, Indiana)
• Scott Memorial Hospital (Scottsburg, Indiana)

In addition to technical staff, CPA has its own billing department (separate from that of Norton Healthcare) with a staff of 21. It reports an average of 45 days for in-house collections.

Mabel Scherzer, CPA Lab’s assistant general manager, notes that prior to 2003 CPA was able to compete effectively with both SmithKline and LabCorp in the Louisville market, capturing more than 80 percent of the OB/GYN physician market. At that point it had 18 pathologists and over 200 physician offices. “But we saw continued growth as a niche laboratory begin to plateau in 2003. Our main competitors during this time were LabCorp, SmithKline/Quest, and two local pathology groups.”

It was about this time that its sales team began to focus on family practice and internal medicine clinicians for new growth. These offices, however, were reluctant to divide their work between a clinical test lab for blood samples and CPA for Pap smears and tissues. The introduction of the liquid Pap, however, resulted in new revenue streams, as well as the introduction of chlamydia/gonorrhea and human Papilloma virus (HPV) testing.

Under the new ownership of Norton Healthcare, CPA, already a leader in Pap tests and tissue services in the area, is expanding into the clinical testing arena. Scherzer says, “CPA Lab, in conjunction with Norton Hospital Downtown, will bring clinical testing from Norton-owned physician practices to the downtown laboratory for analysis, thus recovering the tests that were previously sent to our competitors. This offers significant benefits to our patients by maintaining all their records from hospital encounters, physician office visits, and laboratory testing within one integrated record. The benefits to the Norton Healthcare System include better utilization of our scarce medical laboratory professionals and existing laboratory instrumentation and decreased unit costs.”

CPA also employs seven couriers with a fleet of eight cars and now offers an Internet ordering and result system, 4medica, and its own Internet reporting system, MyCPALab. Scherzer says, “CPA strongly supports our clients as they move to electronic medical patient records and actively work with physician office staff and its practice software vendors to build patient demographic bridges and return patient results directly to the physician office EMR.”

At-A-Glance
• In 2006, CPA and Laboratory Physician were acquired by Norton Healthcare, in Louisville, Kentucky, to operate jointly under the CPA Lab title.
• Its employs 15 pathologists, eight cytopathologists, two hematopathologists, one dermatopathologist, and one pediatric pathologist.
• CPA also employs 17 cytologists.
• Performs 150,000 Pap smears annually.
• Performs 58,000 anatomic surgical specimens annually.
• Reports $31 million in annual gross patient revenue.

Eastern Carolina Pathology
PO Box 3898
Wilson, NC 27895
Phone: 252-399-8157
Jim.cash@wilmed.org

James Cash, MD
Eddie Lewis, MD
Cheryl Thorne, MD

Eastern Carolina Pathology is a pathology group that provides services to the Wilson Medical Center in Wilson, North Carolina, located about 30 miles east of Raleigh, North Carolina.

In addition, it alsos runs an independent pathology laboratory that provides services to other hospitals, physicians groups, and outpatient services.

Eastern Carolina Pathology was founded in 1992 and has three equal partners, James Cash, MD, Eddie Lewis, MD, and Cheryl Thorne, MD. In addition, it employs a part-time pathologist, three cytotechnologists, a client-service representative, two histotechnologists, and a cytotechnology technician. It also employs a secretary and a part-time histotechnologist, and offers courier service with several part-time couriers. Approximately two-thirds of its business comes from outside the Wilson Medical Center. Its anatomic pathology breakdown is:

• Annual GYN cytology specimens: approximately 30,000
• Annual surgical pathology specimens: approximately 15,000
• Annual Non-GYN cytology specimens: approximately 2,000

James Cash, MD, president of Eastern Carolina Pathology, notes that who its major competitors are depends on what aspect of its practice you consider. “Other hospitals and other pathology groups would be our competitors for our hospital work. Most of our competition for our physicians’ office work would be other regional or national laboratories. In North Carolina, that’s primarily LabCorp and Spectrum Laboratories.”

Cash says that its most significant business obstacle is information technology, primarily the cost to hook up to all its various clients. “For a group our size, the amount of money needed to direct toward information technology when we’re requested to hook up to a physician’s EMR or practice management software can rapidly deplete our entire IT budget.”

Still, Cash believes it stays competitive by leveraging its personal relationships with physicians and through service. “We pride ourselves on not allowing ourselves to be out-serviced. We feel we can provide better service to any of our clients and any of our competitors.”

Cash also notes that, as opposed to pathology groups that are solely hospital-based, its independent laboratory has allowed it to be more flexible. “We’ve been able to follow the specimens as more and more procedures are being performed outside the hospital. And I would say that for most community-based groups, if they don’t have an independent lab, they’re going to be at a disadvantage as healthcare goes forward.”

At-A Glance
• Eastern Carolina Pathology is a pathology group practice located in Wilson, North Carolina, approximately 30 miles east of Raleigh, North Carolina.
• It employs three full-time pathologists, a part-time pathologist, three cytotechnologists, a client-service representative, two histotechnologists, and a cytotechnology technician.
• Performs approximately 30,000 GYN cytology specimens annually, 15,000 surgical pathology specimens annually, and approximately 2,000 non-GYN cytology specimens annually.

Meditrend Group
2030 West McNab Road, Suite #2
Fort Lauderdale, FL 33309
Phone: 954-633-1000 or 888-477-8445
Fax: 954-633-1024
www.meditrendgroup.com

Alan D. Pierce, MD, President
Thomas Stern, Chief Executive Officer
Rick Voyles, CT (ASCP), Director of Cytology Services

The Meditrend Group began its existence in 1984 as a full-service independent clinical laboratory providing clinical pathology as well as anatomic pathology testing. Around 1991, in the face of stiff competition in the south Florida area, as well as the adoption by managed care of Medicare’s reimbursement policies, it dropped everything except its clinical pathology and cytopathology services. It performs 20,000 Pap smears annually and approximately 11,000 surgical pathology specimens. In addition, it has a contract to process all the tissue blocks of an HCA hospital facility (unnamed) in Florida. It reports approximately $2 million in annual revenue.

Although Meditrend Group employs a total of 20 FTEs, its relationship with its six pathologists is slightly unusual, basically representing a pathology group within a pathology group. Thomas Stern, CEO of Meditrend, says, “The pathologists are hospital-based, but they also read the specimens that the laboratory gets, which is under its own tax identification number. They’re not employees of Meditrend, but they provide the services.”

Stern notes that Meditrend’s biggest competitors are LabCorp and Quest Diagnostics, which have a very large presence in south Florida. Since the rise of the big commercial labs, Meditrend has found its market eroding. Earlier, it had service accounts in Dade County and the Miami area, as well as the west coast of Florida in the Naples area. Now it finds that its service is primarily limited to the Broward and Palm Beach areas surrounding Fort Lauderdale.

When asked what Meditrend’s biggest obstacle is, he says, “Undoubtedly, unequivocally, it’s managed care contracting. I don’t mean from the reimbursement end. It’s just that we’re foreclosed from participating because LabCorp and Quest have national contracts with just about every carrier, and what we do is part of the capitation rate that they enjoy, and therefore we can’t get contracts.”
Meditrend seems to be digging a niche, however. One of its bigger market segments is ambulatory surgery centers. Stern says, “We provide frozen section services and histology services at ambulatory service centers. That’s important to surgeons who are performing procedures on skin or breast or colons, and they want to know right at the moment, while the pathologists are doing operating room consults, whether or not they’ve gotten all of the tissue, whether it’s neoplastic, etc. So we’ll perform some frozen section analysis right on the spot to confirm that and we’ll do the full workup of the tissue later.”

Stern also notes that being in south Florida, there are a number of Latin Americans who come into Florida with their own insurance or cash services. He says that Meditrend’s strengths are next-day turnaround times and accessible pathologists, noting that although it has voice mail if it gets backed up, it takes pride in being accessible and answering phone calls personally.

Stern says, “A lot of small labs do a good service and could certainly survive if they just had the opportunity to participate and get a contract, even at the lowball rates that LabCorp and Quest will offer in order to keep you out of the business. Physicians’ offices like the turnaround times and the personal services. We’ve been adding Internet reporting capability. It’s a big undertaking—six months—but we think it will help us move right along with EMR, even though we find physicians in the community aren’t ready for it. But we are.”

At-A-Glance
• Meditrend Group is a small anatomic and cytopathology laboratory operating out of Fort Lauderdale, Florida.
• Six hospital-based pathologists provide pathology services under their own tax identification number.
• Has a total of 20 FTEs.
• Performs 20,000 Pap smears annually.
• Performs 11,000 surgical pathology tests annually.
• Reports approximately $2 million in annual revenue.

University of Pittsburgh Medical Center
Presbyterian Hospital
200 Lothrop Street
Pittsburgh, PA 15213
George K. Michalopoulos, MD, PhD
Maude Menten, Professor and Chairman, Department of Pathology
University of Pittsburgh School of Medicine
michalopoulosgk@upmc.edu
Phone: 412-648-9466

The University of Pittsburgh Medical Center’s Department of Pathology is large and sprawling, with a complex mission involving diagnostic services in the anatomic pathology and clinical pathology areas, teaching, and research. In addition to the main Department of Pathology, faculty are present in five separate University of Pittsburgh-related institutes:
• Cancer Center
• Transfusion Institute
• Blood Bank
• McGowan Institute for Regenerative Medicine
• Institute

The main department faculty is dispersed over 11 hospitals. There are 170 faculty members in the Department of Pathology; 120 are involved in anatomic pathology. Combining all 11 hospitals, they perform approximately 250,000 accessions in surgical pathology and approximately 150,000 cytology specimens. In 2006 the University of Pittsburgh Medical Center employed 43,000 people, served 4 million patients, and reported $6.1 billion in revenue.

Dr. George Michalopoulos, MD, PhD, chair of the Department of Pathology, indicates that it does not perform outreach, per se. “Our faculty receives thousands of consult cases per year, based on the individual faculty member’s expertise and reputation in his or her field.”

However, UPMC has a joint venture with Quest Diagnostics, begun in October 1998, with the intention of providing greater access to laboratory services for doctors and patients in the expanded Pittsburgh area. The UP School of Medicine supplies medical oversight for the joint venture. Michalopoulos notes that this is primarily for hospital laboratory samples that originate from physician’s offices in the proximity of the UPMC hospitals. “The department and the UPMC hospital laboratories cover all samples originating from the inpatient and outpatient facilities of every hospital.”
As a result, Michalopoulos does not view the large independent commercial laboratories as competitors. Their customers are the medical staff of each of the individual hospitals.

So, barring competition as an obstacle, Michalopoulos cites three issues that the UPMC Department of Pathology must contend with: “Availability of funds to hire a sufficient number of pathologists to provide the diagnostic and academic mission. Replenishing and renewing capital infrastructure. Restrictive patents that force outsourcing of tissue specimens.”

At-A-Glance
• A major university medical system’s department of pathology located in Pittsburgh, Pennsylvania.
• Spread over 11 hospitals and five institutes, there are 170 total faculty with 120 involved in anatomic pathology.
• Annual surgical pathology volume: approximately 250,000 accessions.
• Annual cytology volume: approximately 150,000 specimens.
• Although it has no specific outreach program, its pathologists frequently perform consults.
• Since 1998 the University of Pennsylvania Medical Center has had a joint venture operation with Quest Diagnostics to perform laboratory tests for samples originating from physicians’ offices near the UPMC hospitals. The UPMC provides medical directorship.

University of Texas Southwestern Medical Center
5323 Harry Hines Boulevard
Dallas, TX 75390
214-648-2148
The University of Texas Southwestern Medical Center Department of Pathology runs its reference laboratory services under the name Veripath Laboratories.

Veripath Laboratories
2110 Research Row, Suite 221
Dallas, TX 75235
214-645-7057
877-887-8136

Robert W. McKenna, MD, Medical Director, Veripath Laboratories
M. Qasim Ansari, MD, Medical Director, Veripath Laboratories
Charles L. White III MD, Laboratory Director, Neuropathology, Histology and Immunohistochemistry, Veripath Laboratories
Dennis K. Burns, MD, Associate Director, Neuropathology, Veripath Laboratories
Kyle Molberg, MD, Laboratory Director, Surgical Pathology, Veripath Laboratories
Tunc Gokaslan, MD, Associate Director, Surgical Pathology, Veripath Laboratories

The University of Texas Southwestern Medical Center, in Dallas, Texas, is part of The University of Texas System. The medical center includes three degree-granting institutions: UT Southwestern Medical School, UT Southwestern Graduate School of Biomedical Sciences, and UT Southwestern Allied Health Sciences School. The UT Southwestern Medical Center sees approximately 1.7 million outpatients annually and 92,000 inpatients. The Medical Center includes:
• University of Texas Southwestern University Hospitals
• Parkland Health & Hospital System
• Children’s Medical Center Dallas
• VA North Texas Health Care System
• The Aston Clinical Building
• Harold C. Simmons Comprehensive Cancer Center

As an academic pathology department, the UT Southwestern Department of Pathology is focused on teaching and research, as well as patient care. The department includes 100 total faculty members and employs a total of 307 FTEs. Of these, 72 are pathologists. The laboratory performs 9.4 million clinical lab results annually. In terms of anatomic pathology, they are broken down as:
• 280 hospital autopsies
• 3,000 forensic autopsies
• 41,000 surgical pathology tests
• 2,500 fine needle aspirates
• 61,000 cytology specimens

Dr. Charles L. White III MD, laboratory director of Neuropathology, Histology and Immunohistochemistry at Veripath Laboratories, the Department of Pathologies’ reference lab, says, “Our biggest competitors are other academically based national reference laboratories, including ARUP and Mayo Medical Laboratories. But our biggest obstacle to our outreach business is information technology, specifically interfacing our laboratory systems with customers’ systems for order entry and result reporting.”

White notes that its clients, besides the UT Southwestern Hospitals’ various facilities, are large and small community hospitals and general pathology practices that don’t have sufficient volume or expertise to set up specialized or esoteric testing. This includes physicians’ offices and other outpatient facilities, as well as forensic pathology practices.

At-A-Glance
• A university-based medical system’s department of pathology, which also operates a reference laboratory under the name Veripath Laboratories.
• The system in total performs 9.4 million clinical laboratory tests annually.
• Anatomic pathology tests break down as:
    - 280 hospital autopsies
    - 3,000 forensic autopsies
    - 41,000 anatomic surgical pathology tests
    - 2,500 fine needle aspirates
    - 61,000 cytology samples