State of Digital Pathology Today – Part 2

In my post about a month ago on the “State of Digital Pathology Today – Part 1” I mentioned “In part 2 I will review true market valuation and why the recent cuts to the biopsy billing code and the death of the immunohistochemistry billing code will necessitate the need for digital pathology.” 

If you were to try to answer the question “How many pathology groups and/or pathology laboratories are there in the United States?” you would get several answers and some of them might be correct. How do you count a group or a lab?  What constitutes these entities in terms of who owns them, how they operate and what their market is.  How do you measure laboratories in large academic medical centers with dozens of “laboratories” or “core laboratories” that provide histology, immunohistochemistry, electron microscopy, special stains, molecular pathology, FISH, cytogenetics, etc… you get the point.  Do you count by the number of CAP accreditations or CLIA licenses? And where do in-office laboratories, federal facilities, point of care testing centers, direct to consumer laboratories, small esoteric laboratories and the hundreds of part-time and/or locum tenem pathologists that play a key role in staffing these laboratories come into the equation? How do you count large commercial laboratory companies that have a presence in many states with numerous facilities, perhaps each with there own tests they provide unique to the others. And where do large mega-groups or large subspecialty groups that receive specimens from many states fall into the equations in terms of the overall pathology market to sell to?

Years ago a survey was conducted and it seems to me the number that folks use from that data is around 3300 “pathology groups” with 60% having 5 or fewer pathologists at the time the study was conducted.  Laboratories consisted of somewhere around 5000 to 5500 depending on how you counted a “clinical laboratory”.

Regardless of whether the number of groups is 2300 or 3300, this is going to change.  It has started already.  Dark Daily had a recent write-up on this and brief review with “More consolidation in the clinical laboratory industry as Quest Diagnostics agrees to pay 570 million to acquire Solstas Lab Partners”.

Additional cuts, consolidation and restructuring are taking place at other laboratories, such as Bostwick Labs, Aurora Diagnostics and Clarient. 

It will also continue on a more local level with solo-practioners and small pathology groups. 

The days of the independent solo pathologist or small hospital-based groups and pathologist owned laboratories are numbered. 

This creates the perfect environment for digital pathology.  No longer will many of us enjoy histology labs we own, operate or use within our laboratories or hospitals.  Consolidation of laboratories will create new business models that will require technical services performed off-site while recognizing that care is best practiced locally, requiring new paradigms for workflow and namely, digital pathology to enable “local” pathologists to serve their markets.

Pathology groups will need to be large enough to serve a broad geographic area, likely multiple hospital systems or as part of an integrated health care delivery system that can consolidate redundant testing, facilities, personnel and recognize economies of scale for reagents, personnel, couriers, transcription, billing, management and physical overhead.

This will likely mean your histology laboratory is no longer across the hall, across campus or down the street.  The killer app for digital pathology – the need to scan slides for efficient processing, diagnosis, turn around time and report delivery has been created in the wake of accountable care, ACOs, sequestration, reimbursement cuts to the most commonly used histology codes – biopsies and immunohistochemistry will require digital pathology and start to enable pathologists to work better, faster and more accurately rather than doing more for less. 

The business model for digital pathology is now here largely due to external pressures and government/regulatory issues.  The “killer app” has been identified – centralized technical services with decentralized professional services and image analysis algorithms designed to analyze a whole slide image and guide the pathologist to a more accurate and reproducible analysis of the case.

The need and impact for larger laboratories, integrated health care delivery systems and cancer care networks will be addressed in an upcoming post (Part 3).