September 2011

Stephen N. Bauer, MD

Survival skills for small practices

Many of us fail as managers for the simple reason that we are not interested….we would much rather be doing something else. After all, we were trained as physicians and this is still our primary interest.

Dennis B. Dorsey, MD
CAP President, 1975–1977
From Administration in the Pathology Laboratory

This fall marks the kickoff of the CAP Laboratory Accreditation Program 50th anniversary celebration, and I’ve been reading about the early history. The stories about its beginnings are interesting; they say a lot about our roots, roots that still sustain us today.

The late Dennis Dorsey, MD, was an early chair of the Commission on Inspection and Accreditation (as it was then called). In 1965, the new accreditation program needed an annotated checklist for uniform inspections, so Dr. Dorsey sat down and wrote one. When we needed someone to teach personnel management and accounting procedures, he wrote the book on those as well.

Pathologists are comfortable with initiative, and the Laboratory Accreditation Program founders were pragmatists. They did the necessary research and exercised good judgment, then summoned the energy and agility to build a lasting solution. Dr. Dorsey was known to say that he liked to rely upon Stewart’s Law of Retroaction, which says it is easier to get forgiveness than permission.

Today, the program accredits more than 7,000 laboratories worldwide and calls upon more than 2,500 member inspectors. Dr. Dorsey’s 10-page checklist has grown to 3,300 items. The program is moving into digital imaging and molecular and personalized medicine. We recently released the first-ever checklist for clinical biochemical genetics and are developing another one for genome analysis. The program’s founders clearly knew what they were doing.

Stewart’s Law of Retroaction can be useful in today’s small group practices, where the ability to evaluate local trends and act quickly in response to market forces is an increasingly critical survival skill. Most small groups are probably thinking about making changes, and those that are not working on a plan B (C, and D) for their practices most likely should.

Small groups have many good options. The possibilities include selling a practice or merging with another, forming a pathology network, affiliating with a multispecialty physician group, becoming hospital employees, and finding a market niche that allows continued independent practice. Opportunities will vary by locale, but whatever the next step, the capabilities and inclinations that have enabled pathologists to flourish in small practices will enable them to navigate the next phase.

We continue to monitor trends in the market for pathology services. Venture capitalists, private equity firms, payers, and large reference laboratories seeking more market share are driving consolidation. Specialized laboratories are also consolidating, in part because esoteric laboratory tests require more capitalization. Physicians entering practice today are more likely to see a large or multispecialty group as the preferred practice setting. In some areas, demand for subspecialists may require that we practice in larger groups.

Member responses to the practice characteristics survey have enriched our understanding of market trends. Preliminary results show that 60 percent of respondents are in small practices (defined as 10 or fewer pathologists) and another 15 percent are in groups of 11 to 16 pathologists. Among the 60 percent of respondents reporting that they provide services at a hospital, 70 percent work in a group owned by pathologists. Among the 30 percent responding that they provide services at an academic medical center, 70 percent do so as employees.

The American Hospital Association reports that 58 percent of community hospitals are now associated with a hospital system. At the same time, hospitals continue to acquire physician practices. According to the Medical Group Management Association, the percentage of hospital-owned physician practices in the U.S. increased from about 20 percent to 55 percent between 2002 and 2009.

In 1961, the accreditation program was the logical national solution to a national problem. Today, absent adoption of a monolithic government health system, the challenges vary geographically so solutions will be local or regional. Pathologists in each practice will need to take the initiative, balancing what only they know about local needs and local market pressures to identify next steps.

The College will continue to look for ways to help small groups adapt, consolidate, and otherwise evolve to accommodate the greater environment. The Practice Management Resources page on the CAP Web site (www.cap.org/practicemanagement) is a good place to start. The last category on that page (Finance/Governance/Business Operations) presents a wealth of information on consolidation and evaluation of your practice’s strengths and weaknesses.

When my term as CAP president ends this month, I will return to full-time small group practice, where we will try to puzzle this out. While I do not think small group practices will disappear, we are endangered. I would not want our practice to become an entity that is viable only in limited circumstances and will continue to evaluate what is on the horizon and talk to local physicians and others in our health care market about the opportunities at hand.

It has been a great privilege to be your president. Over the past two years, I have been consistently impressed by the intelligence, generosity, resilience, and competence of our members, and I know that pathologists will continue to press forward. An optimal outcome for our specialty and our patients will require great energy and agility, and both are in excellent supply.

Dr. Dorsey was correct in observing that most of us would rather focus on our work as physicians than the business of practice management, but as he clearly understood, we cannot have one without the other. In every practice setting, we will flourish when we do what we have always done: identify what is needed and act without hesitation to secure it.