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Clinical Laboratories and Pathology Groups

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Another example of clinical pathology laboratory testing treated as a commodity

In-office anatomic pathology laboratories owned by specialist physicians have sparked a troubling trend for the pathology profession in recent years. In the United States, growing numbers of urologists, gastroenterologists, and dermatologists have taken steps to build out and operate their own in-office surgical pathology testing laboratories.

Specialist physicians took steps to open their own in-clinic medical laboratories as a way to generate revenue to offset reimbursement declines in their professional compensation. And, yes, it is true that an in-office anatomic pathology laboratory may have other benefits, such as reducing the turnaround time from specimen collection to reported result.

(Chart showing the potential profit for a single test performed in a POL. Sourced from Medical Laboratory Observer.)

(Chart showing the potential profit for a single test performed in a POL. Sourced from Medical Laboratory Observer.)

Given the continuing decline in physician income, it should not surprise pathologists and clinical laboratory managers that oncologists are being advised to open their own physician office laboratories (POL). The potential revenues are no small change, and independent clinical laboratories and pathology groups could see a measurable reduction in revenue if a significant number of oncology group practices take the plunge.

In an article on the Medscape Today website titled “Business of Oncology: An Office Lab Can Turn a Tidy Profit,” Tim Dumas, a Clinical Laboratory Scientist and POL consultant, notes that a three-doctor oncology practice in Raleigh, North Carolina, currently generates $400,000 per year in revenue with its own POL.

“A 10-12 doctor oncology practice with a POL is easily looking at $700,000 to $800,000 a year in revenue,” said Dumas in the Medscape Today article. “I tell doctors, ‘someone is going to run and get paid for those tests, why not you?’”

According to Dumas, most oncology practices that run their own CBC tests in-office bring in roughly $5,000 per month in revenue. After subtracting the costs, Dumas calculates the profit at $2,000 per month.

Dumas provided oncologists with a basic road map for how to profit from a physician office laboratory. “Say you lease a CBC analyzer for five years at $600 a month,” noted Dumas. “Figure you pay $2,000 a month for a tech, $80 in federal regulatory fees, and $20 for a service contract. Say all that comes to $3,000 a month. You still net $2,000 a month,” he concluded.

Dumas contends that it’s a serious waste of potential revenue anytime an oncology practice decides not to install their own POL. He explained why he believes this to be true.

“Some oncology practices that have 10-12 doctors are easily looking at earning $700,000 to $800,000 a year in gross revenue by doing their [medical laboratory] tests in-house,” Dumas said. “One of my clients is a three-doctor oncology practice. They do $400,000 a year in revenue from their POL. You could easily save $100,000 to $1 million a year in gross revenue by not sending your tests out.”

Dumas’ logic has appeal to cash-strapped oncologists. However, as private health insurance companies and Medicare continue to reduce reimbursement rates—both on physician services and clinical laboratory tests—some physician’s offices with long standing POLs advise that revenues from medical laboratory tests are not what they once were.

“Many physicians in my area have given up their in-office [medical] labs because of reimbursement and regulatory concerns. They don’t want to put up with the headaches,” said Michael Sanders, M.D., in a Clinical Lab Products article. Sanders is a family practitioner in St. Augustine, Florida, who has operated a POL in his sole-practitioner practice since 1988.

“Revenue from the [medical] lab is not as large as it used to be,” said Sanders. “In the beginning, lab [test] reimbursements from insurance companies and the government were very good and certainly defrayed more of the costs. It would pick up the slack, especially when I was seeing ‘free’ patients.

“However, the government has been ratcheting down reimbursements, and the insurance companies have followed suit. Reimbursements are dropping every year. So the lab does not defray as much as it used to,” he concluded.

The editors of Medscape Today ran this story about how oncologists could profit from establishing a physician office laboratory (POL) because they recognize that oncologists—like many other physician specialties—are actively looking for ancillary revenue sources. The tone of the Medscape Today article is about how the POL is a source of revenue. But the article fails to address the potential for a poorly-run POL to produce inaccurate lab test results that can adversely affect patient care.

This Medscape Today article is completely focused on the profit potential of an in-clinic medical laboratory, while never mentioning any aspect of how the POL might improve patient care. That makes it one more public example of how the clinical community looks upon medical laboratory testing more as a commodity—to be accessed at the cheapest price—and not a value-added clinical resource that directly contributes to improved patient outcomes, and helps lower the overall cost of the healthcare encounter.

—Michael McBride

Related Information:

Business of Oncology: An Office Lab Can Turn a Tidy Profit (Medscape)

POCT for POLs: A POL Consultant’s View (Medical Laboratory Observer)

Physician’s Office Laboratories: How Viable Are They? (Clinical Lab Products)