For decades, lens suppliers have expanded their lab networks through acquisition, achieving a level of consolidation that independents can find hard to compete with. At the same time, private equity firms are consolidating formerly independent practices into ever-larger groups. Pacific Artisan Labs (PAL), an independent lab based in Portland, Ore., is bucking this trend toward top-down consolidation by reversing it—creating a grassroots consolidation that invites independent ECPs to become ownership partners in their growing lab network.

“For decades, we’ve watched as they tried and tried and tried to consolidate the independents completely out of the picture and have it just become a supplier-owned market,” said Brandon Butler, PAL’s president of lab operations. “If the optical industry consolidates down like other industries where there are only four or five suppliers left standing, the fewer options we have, the more it’s going to raise the competition for the remaining independents, and the fewer customers you can go after. It’s going to be a race to the bottom price. Labs that are just hanging on with 7 percent to 8 percent margins are not going to make it.”

When Butler and his business partner, Kevin Lewandowski, opened PAL in 2018, they recognized the challenges involved in competing with large supplier-owned lab networks, so they developed an innovative business model that would create a secure niche for the lab and their ECP partners in a tough market. Said Butler, “We thought the best way to be competitive is to have doctors who would be part owners of the laboratory, and we would have a certain level of business coming in that would keep the lab always moving forward. In return, those doctors would get a distribution on the lab’s net profits.

“This is true equity ownership where you have asset value, and you’re also getting a distribution on every job going through the laboratory, so it’s almost like a big for-profit co-op. The practices remain independent and still control their own destiny, but now they’re part of a lab network where they don’t have to worry about consolidation.”

Initially, the founders’ ambitions for this new model were fairly modest, according to Butler. “We really wanted to get to 300 to 400 jobs per day—that’s easy to manage, plenty profitable, and you can control your turn-time and your quality.” However, he saw a resurgence of interest in independent labs that opened the door for expansion. He attributes this to the Essilor-Luxottica merger in 2015.

“Had I told anyone in 2015 that I was opening an independent lab, they would have thought I was crazy. But once the merger was announced, people wanted independent options again, and I thought ‘this is my chance.’ The Walman merger [with EssilorLuxottica] only furthered our cause even more. [The proposed acquisition of Walman, the largest optical wholesaler in the U.S., by EssilorLuxottica is still awaiting international regulatory approval.] Not just my laboratory, but a lot of independents throughout the country are seeing that same influx of work, because people were looking for options.”

Additionally, PAL’s equity-ownership model has attracted a lot of attention among independent practice owners, and there is now a waiting list to join. Said Butler, “We have doctors from here and all the way to Florida who are interested in this model. We’re seeing a lot of consolidation there where it’s 8 to 10 ophthalmology/optometric practices falling under one umbrella, to leverage better deals with the supplier-owned labs. A lot of them want to build their own laboratory but they have no idea how to do it.”

For those doctors, equity partnership provides the right combination of better prices and more control, without the need to develop their own lab management expertise, Butler noted.

Of course, adding more ownership partners requires having more equity to sell. PAL is in the process of doubling the size of their Portland facility, and two new partners—OBG Lab Holdings in Edwards, Colo. and Colorado Ophthalmic Labs in Frederick, Colo., have recently joined the ownership group. Further expansion will come from the development of new labs.

“We’re planned outright now to 2025 in terms of build-out of laboratories,” according to Butler. These will include two additional full-service labs, one in the Midwest and one in the East, along with 8 to 10 satellite labs. Groundbreaking for the first satellite lab, in Colorado, is scheduled to begin in April, 2022, Butler said.

Ben Judson, OD, co-owner of Family Eye Center in Ontario, Ore., has been an owner-partner in PAL since its inception. “A small independent lab who can give us all the attention that we need, and be able to answer our questions immediately, and get our orders to our patients as quickly, was one of the big draws for joining this group,” he said.

In addition, as an owner of the lab, “you have that pride in the work that’s done from your office, and also feeling like you’re part of the process full-circle, and the benefits and revenue that can come from being part of the ownership are fantastic as well.”

While Butler’s initial plans for Pacific Artisan Labs were modest, the level of success they have achieved, along with the interest they have seen in their ownership model, has created new ambitions.

“Our slogan is ‘Join the Movement.’ It’s a movement away from consolidation and supplier control of our industry; a movement back to what has made our industry so great for so long, and that’s the independents. We’re continuing the movement that we started in 2018, and building what we hope will be the largest independent lab in the country—one that’s majority-owned by independent doctors.”