Pathology Salaries and the Big Picture.

I recently read where Sonic has purchased CBL Path.  This is a nice entry point for Sonic and will give them a larger foot print in the anatomic pathology world.   This sale prompted me to think about how companies like Sonic, Quest or Labcorp make a margin on their anatomic pathology cases. 

Over the past 15 years, the big labs in the United States have worked hard to gain market share in anatomic pathology.  At first, their thoughts must have been to come in and make money from the technical component of anatomic pathology work.  It is common knowledge that the technical side of the billing has risen steadily, while the professional side has been slowing declining.  (Please note it is the increase in the technical component that has allowed so many pathologists to outsource the histology work from their community hospitals and start their own anatomic pathology labs.)

Let’s assume that theses companies enjoy a fair profit margin from the technical work.  But how do they profit on the professional side of the market?  It has been rumored that they are getting 65% of Medicare from their national payer contracts.  How do you make a profit at 65% of Medicare? The answer came to me when I attended the recent CAP and ASCP shows.  I had the opportunity to speak with many pathologists from around the nation.  I often asked what they thought the average pathologists made for a year.  The answers stunned me.  Many of these “commercial” pathologists told me the average salary was $180,000 to $220,000.  I found this interesting as this range is usually the starting point for pathologists coming out of school, not someone with 10 years of experience.  (My database shows that the average pathologist makes around $537,000 per year. This data includes more than 1,600 pathologists working nationwide in private practice.)

Look closely and the answer is simple.  If these labs get paid 65% of Medicare they have to make a profit somewhere.  Obviously, they are making this margin by paying these pathologists below the industry norm.  In fact, if they paid only 65% of the industry norm (i.e. 65% of $537,000) they would have to pay $349,050 for each pathologist.  Now you can argue that pathologists working in these labs have other non-salary benefits like 401(k) plans, health benefits, etc.  But even if you add 20% for employee benefits, these pathologists are still being paid only $418,860 per year.  Still a substantial decrease from the industry norm. 

My gut feeling is that these wonderful, qualified pathologists are being paid considerably less then their private practice peers.  Just something to think about…