PAML’s Well-Traveled CEO Pushes the Company Forward

Pathology Associates Medical Laboratory—better known as PAML—is the biggest laboratory in the Pacific Northwest, and one of the civic fixtures of Spokane, Wash., where it’s headquartered.

An affiliate of not-for-profit hospital operator Providence Health & Services, PAML is also one of the oldest continuously operating lab enterprises in the western U.S., founded in 1957 and growing fairly steadily since. In recent years, it is not only branching into other parts of the country but into personalized health and the direct-to-consumer markets.

Altogether, PAML has more than 1,800 employees. It serves more than 14,000 individual clients, including more than 130 hospitals. Test volumes are more than 11 million annually (the company does not release exact figures or data on revenue). They have been growing at around a 5 percent clip in recent years, although they grew nearly 10 percent between 2012 and 2013.

That was the first year in the tenure of PAML’s Chief Executive Officer, Francisco “Frank” Velázquez, M.D. He is in some ways the exact opposite of PAML’s steady-as-it goes ethos of its operational approach. He arrived at the position after working in clinical and management jobs in pretty much every region of the continental United States. He is also a relative rarity at the reins of a lab PAML’s size: A pathologist by training with many years of clinical practice under his belt before turning to the management suite.

But industry observers say he’s a great fit for managing a large lab business.

“Frank has done a lot with PAML to continue their growth,” said Alan Mertz, president of the American Clinical Laboratory Association, of which PAML is a member. “He’s been able to diversify their business, and introduce more consumer- oriented products. It’s a very contemporary business model.”

A native of Spain, Velázquez was sent to Puerto Rico at a young age to be raised by his maternal grandparents—both of his parents were in medical school at the time. They later moved to Puerto Rico and practiced medicine there; Velázquez attended both undergraduate and medical school on the island.

Velázquez moved to the mainland U.S. after medical school to train as a pathologist, with residencies and an internship at the University Hospital Medical Center and the Veterans Administration Medical Center in Boston.

Although Velázquez professes a deep fondness for Boston—he spent more than a decade in the area after finishing medical school—it seems he has also worked just about everywhere else. His 19-page résumé includes a stint as medical director of the Detroit Medical Center University Laboratories; chief pathologist at Kaleida Health in Buffalo, N.Y.; chief of the pathology department at the Parkland Health and Hospital System in Dallas; and managing director at the Quest Diagnostics’ Nichols Institute in Southern California, among others. Along with that last post, Velázquez held a senior position at the Quest affiliate Focus Diagnostics.

Bill McGuire, who noted he had “parachuted” into Kaleida Health as CEO to perform an operational turnaround in 2006, said Velázquez was among the few star managers he had inherited. The laboratory business was among the few moneymakers within the 10-hospital system at the time of his appointment.

“He’s broadly knowledgeable, clearly understood health care and the hospital sector, and where the industry was going,” McGuire said. “Frank was the best in my career experience in terms of running a clinical lab operation.” He also gave credit to Velázquez for being able to spot and nurture talented managers and delegating tasks while ensuring they were still executed effectively.

Velázquez had been at Quest in the senior ranks for three years when he was recruited by PAML. Although he foresaw promising opportunities at Quest, “I wanted to be able to lead my own company,” he said.

Under Velázquez’ tenure, high-margin esoteric testing has grown significantly, and the equipment and infrastructure at PAML’s main lab in Spokane have been significantly upgraded. Looking forward, Velázquez has been focused on expanding PAML’s presence on several fronts, gradually expanding it from a large regional lab to one with a presence in multiple regions of the U.S. Growth outside of Washington State has been primarily through joint ventures in relatively close California, Utah and Colorado. But it also has a small book of business in Kentucky, and is targeting much of the Southern and Northeast U.S. for future growth.

Some of this expansion had been planned prior to Velázquez joining PAML, but there were some growing pains. He placed a temporary moratorium on joint ventures after issues developed in the Colorado market that had led to lower client retainment than projected. But those issues were quickly resolved and that region actually exceeded sales and retainment projections last year.

“We hadn’t really standardized the metrics; our general managers they all reported to someone different,” Velázquez recalled. “A lot of that has to do with having the right people and right tools and the right processes in place.”

All five of Velázquez’s top managers are women, although he said this was coincidental to his recruiting the top people available. He describes himself as a demanding manager who values loyalty and honesty but prefers hiring people who do not think like him.

Clarissa Willett, who had worked briefly with Velázquez at Nichols before being recruited as PAML’s chief financial officer in 2013, said she took the position partly because of his ability to properly align goals and management structure to pursue new opportunities. “That vision is really one of the main reasons I started working with PAML. He’s really excellent at it,” she said. It also helped Willett impose more discipline on capital expenditures after her arrival.

“It seemed whoever screamed the loudest got what they were looking for. There wasn’t a lot of coordination between the departments,” Willett recalled of what she found when she arrived. That resulted in “side-loaded initiatives” that were not properly integrated into PAML’s long-term planning and execution.

Nowadays, Wilett noted that capital expenditures and improvements are pursued knowing how the specific market functions, if the processing capacity is available, and whether providers and patients have the appropriate access through online portals and other means. She likened the rationale to an ATM machine: Pretty much any card issued by any bank will work in any ATM. Such accessibility should also be part of health care delivery.

Another way PAML is meeting that challenge is by the launch of more consumer- friendly products. Cinch, introduced in 2014, provides a menu of basic direct- to-consumer tests with clear pricing. Patients are notified of their results by email or text, and are provided an easy-to-use chart to determine how their results compare to the normal range.

Last year, it launched AION Laboratories, which focuses on Baby Boomers, many of whom are expected to pay cash for test panels that are intended to assist in aging management. Patients can have their blood drawn by mobile phlebotomists. That division is already profitable, according to Velázquez.

Both divisions represent a tiny proportion of PAML’s overall revenue, but Velázquez is heartened by what he has seen. Cinch, for example, experienced double-digit sales growth last year.

“It’s quite remarkable,” he said, adding an observation that suggests where the lab sector is heading: “We don’t advertise, but we are on Facebook.”

Takeaway: PAML is forging its way forward in the 21st century while still retaining the stability that has kept it in business for nearly 60 years.