Bostwick Labs Founder Starts Anew in Pathology Testing

Although there is no clinical pathologist considered a household name, David G. Bostwick, M.D., may be the closest found in the laboratory sector.

Bostwick founded Bostwick Laboratories in 1999. Within a decade, the company operated testing facilities in Virginia, New York, Texas and Florida and had about 750 employees and revenue topping $100 million a year in 2007—more than triple its 2005 numbers.

The lab announced in 2008 that it was going public, although it never did so. Three years later, a majority share in the company was purchased by private equity firm Metalmark Capital LLC for an undisclosed amount. Five years later, Bostwick's non-compete clause that was part of the Metalmark deal has expired. He has just settled federal civil charges of improper testing that dogged him for nearly a decade. And, at age 61, he does not have plans to retire.

In other words, it's the perfect time to try another lab business. Bostwick announced late last year that he had started up another eponymous business venture, Granger Laboratories (that's his middle name; the business rights to his last name went with the sale of his former lab).

Based in North Chesterfield, Va., just 25 miles south of Bostwick Laboratory's headquarters, Granger consists of himself and one other doctor— former Bostwick pathologist Jun Ma, M.D., and a total of six employees. Granger is focusing specifically on urological and gynecological pathology, niches where Bostwick believes some success may be found.

Indeed, Bostwick is optimistic Granger will grow to a half-dozen pathologists and 25 employees by the end of the year. He is even planning on adding a second lab space near his home in Orlando.

Known to be closed-mouthed on his business numbers, Bostwick said he had financial backers, but aside from calling them "qualified investors" would say nothing specific about who they are. But he was clear as to why he was starting up another company.

"I'm a pathologist, and this is what I do," he said.

Bostwick's skills as a pathologist are unquestioned. He has written more than a dozen texts in the field, including the renowned "Urologic Surgical Pathology." Even after leaving Bostwick he has had a thriving practice rendering second opinions for pathology cases.

"He was always seen as a really good pathologist," said Dennis Weissman, a Washington, D.C.-based laboratory consultant and co-founder of G2 Intelligence.

But whether this is the right time to start up a pathology practice or lab is another question altogether. Bostwick said that Granger would focus on quick turnaround times and customer service and developing novel assays.

Bostwick has some traction in that last area. Another company he founded, American International Biotechnology (AIB), has developed several molecular tests that will fit into Granger's service line.

They include a recently developed next-generation sequencing (NGS) assay for vaginosis. That test, known as GynecoloGene, is far more effective at picking up infections than urine culturing, according to Bostwick. Granger also plans NGS tests for urology patients as well, although Bostwick declined to provide specific details.

"The combination of excellence and state of-the-art for anatomical pathology and reimbursable and medically necessary genetic tests should be a winning combination," he said.

Genetic tests tend to command far higher prices than older assays, and Bostwick sees that as a way his lab can overcome the recent deep reimbursement cuts for pathology services. A decision by the Centers for Medicare & Medicaid Services to reduce reimbursement on the technical component of CPT code 88305 for tissue pathology work drove some practices out of business and devalued others to the point that prices fell by a third or more, industry observers say. And while Bostwick agrees that the reimbursement environment for pathology is rough, he has seen what he claims are far worse blows to the sector.

"The government allowing insourcing of lab tests by urologists consumed more than 30 percent of the market," he said. "And by my reckoning, that was patently illegal." Another development that hurt the space was allowing donations by labs of electronic medical record systems to physician practices, another instance of government intervention—Congress passed a law allowing the practice—that Bostwick considered illegal.

To say that Bostwick's relationship with the federal government is freighted would be a judicious understatement. Just 10 days after he officially announced the Granger startup, the U.S. Justice Department issued a statement saying he had settled a qui tam lawsuit connected to his tenure at Bostwick Labs.

The suit, which had been filed in 2008 by former Bostwick Labs employee Michael Daugherty, had accused both Bostwick and his lab of ordering FISH tests that were neither medically necessary nor ordered by physicians between 2006 and 2011. FISH reimbursement under Medicare during that period ranged from $456 to $966. Bostwick Laboratory was also accused of improperly inducing physicians to enroll patients into a prostate cancer study, a separate whistleblower action brought by a New York City urologist.

Although the U.S. Attorney General's office declined to intervene in the FISH suit, Bostwick Labs attorneys could not get the case dismissed. It settled the matter with the feds in 2014 for $6 million. It also settled the prostate cancer whistleblower action—in which the feds did intervene—for little more than $500,000.

Bostwick himself settled the FISH whistleblower case for $3.75 million. That included a $2.6 million upfront payment and another $1.13 million over the next five years if certain undisclosed financial contingencies are reached. Daugherty will receive more than $2.5 million of the total settlement, the Justice Department said—somewhat higher than the standard 15 percent contingency most qui tam relators receive.

"This case shows that the Justice Department will not hesitate to hold accountable both the companies and the individuals who order or perform excessive, non-patient specific tests and provide inducements to physicians that lead to unnecessary costs being imposed upon our nation's health care programs," said Benjamin C. Mizer, head of the Justice Department's Civil Division, in a statement.

Weissman remembers the case well. "There is no doubt that the company got involved in some shady practices," he said, although he could not say if Bostwick himself was directly involved.

Bostwick sees it a little differently. He noted that in over eight years of litigation, his case never even reached the discovery phase—which his attorneys said would have cost as much as $2 million to slog through. "The relator decided to proceed hoping that Bostwick Labs and I would concede and capitulate," he said. Some of his settlement was paid by his insurance company. Bostwick would not say how much, but observed that he was "very grateful" for its contribution.

Bostwick did not completely deny wrongdoing. "I am not saying we didn't do anything wrong," he said, but was upset that he was never given an opportunity to put on a viable defense that would not have been financially ruinous. Having put those legal issues behind him, Bostwick is now focused on making Granger Laboratories a success.

"I am proud of being affiliated with it as a physician and a pathologist by putting my name on it. I have a personal commitment to doing the best job I can," he said.

Takeaway: David G. Bostwick is attempting his own style of pathology practice management in the laboratory space.