Results Positive

CellNetix histology lab technicians Karen Pilarc and Victor Atencio scan surgical tissue blocks to create bar-coded slides. A recent study says the use of bar codes reduces overall lab misidentification cases by 62 percent.

Amid todays fevered discussions about health care, there is
much debate about HMOs and flexible spending accounts. However, little is
mentioned about the nuts and bolts of the vast laboratory systems that help
determine a patients diagnosis.

In Washington state, two laboratory organizationsCellNetix
Pathology & Laboratories in Seattle and Pathology Associates Medical
Laboratories (PAML) in Spokaneare using economies of scale and new technology
to streamline the testing process and produce more accurate results.

Formed in 2005 through a merger of three different pathology
groupsBlack Hills Pathology (Olympia), Associated Pathology (Everett) and
Washington Pathology Consultants (Seattle)CellNetix is a network of 44
board-certified pathologists who are trained in 29 areas of sub-specialty
expertise. The companyactually two entities, an LLC that serves as the lab and
a PLLC partnership of pathologists working for CellNetixfocuses on anatomic
pathology, or testing of tissue samples, such as biopsies, to check for cancer.

The companys depth of experience allows CellNetix to
provide faster, more accurate diagnoses than conventional national labs. Saving
time can dramatically reduce overall costs of care, as well as administrative
and physician workload, says Dr. Don Howard, chairman of CellNetix.

Labs costs are only about 10 to 15 percent of a hospitals
budget, Howard explains. But these tests have a multiplying effect and can
affect about 60 to 70 percent of future health care decisions down the road.
Malpractice costs have also been driven down under the CellNetix system, he
adds, and litigation is now extremely rare for their clients.

In 2007, CellNetix opened a 48,000-square-foot pathology and
laboratory facility in downtown Seattle, where most of the testing is conducted
for nine hospitals across western Washington. The networks instant electronic
records access and automated bar-coding tracking systems help reduce errors,
making it easier for physicians to serve patients quickly, Howard says.

On the other side of the state, Spokanes PAML has adopted a
similar regional approach to its clinical pathology testing, which mostly
involves blood tests. As the largest reference lab in the Northwest, PAML is
able to make quick turnarounds and faster diagnoses, thus decreasing the price
of care through increased volume, says Rosalee Allan, senior vice president and
chief operating officer of PAML.

Hospitals have labs now that have to operate 24/7 to serve
their patients, Allan says. Theyre considered a cost center. PAMLs
solution, she notes, is to form joint partnerships with hospitals for greater
efficiency. So far, PAML has developed five hospital partnerships: PacLab in
the Puget Sound region; Tri-Cities Laboratory in central Washington; Alpha
Medical in Coeur dAlene; Treasure Valley in Boise; and last year, MountainStar
in Salt Lake City.

These hospital networks, Howard of CellNetix says, also help
prevent the spread of self-referential labs, in which doctors use their own
unregulated in-house clinics to conduct lab testing. Under such arrangements,
where physicians get paid at multiple points, there is an economic incentive to
order unnecessary tests, which can drive up costs.

Howard has assumed the duties of CEO at CellNetix on an
interim basis since late March, when the laboratorys previous CEO, Caitlin
Cameron, stepped down suddenly due to personal reasons. Howard says the
shake-up has nothing do to with the financial health of CellNetix, which he
says is strong. A permanent replacement for Cameron will most likely take place
in the next six to 12 months, he adds.

In fact, both CellNetix and PAML are proving remarkably
recession-resistant.

Weve had to modify our growth rate downward, but theres
still definite growth expected in 2009, Howard says. This year, CellNetix will
add molecular diagnostics and flow cytometry to its testing menu, as well as
expand its immunohistory and papiloma virus testing.

Compared with the same period last year, Allan says, the
number of test requests at PAML are up by 10 percent. The Puget Sound regions
PacLab, she adds, will be hiring 30 to 40 people this spring. Everything is
telling us we should see less business, Allan says. But were still breaking
records.