Following a multiyear trend in which oncology practices merged with hospitals to achieve savings and improved care, it appeared as though the pendulum was going to swing the other way.
Teri U. Guidi, MBA
Following a multiyear trend in which oncology practices merged with hospitals to achieve savings and improved care, it appeared as though the pendulum was going to swing the other way. The Centers for Medicare & Medicaid Services (CMS) in early 2018 changed the 340B Drug Pricing Program and reduced the outpatient drug purchasing advantage many hospitals had enjoyed over independents.
The result was that many formerly independent oncologists and their hospital partners began to rethink their joint agreements. Then, in December, District Court Judge Rudolph Contreras ruled that CMS had exceeded its statutory authority and overturned the payment reduction, restoring 340B payment to its previous format. Nevertheless, some industry insiders said many oncologists are now leaning away from hospital partnerships and that the trend toward alternative professional arrangements will continue.
The 340B provision in flux was a change in what CMS would pay for drugs acquired through the 340B drug discount program, which subsidizes the charitable care that hospitals provide. Through the program, hospitals have been able to acquire drugs from manufacturers at discounts of up to 50% and receive payment for more than 100% of the average sales price (ASP) of those drugs. Starting in early 2018, CMS began paying average sales price (ASP) minus 22.5%, which hospital groups contended was disruptive to the success of their programs. Contreras reversed the change on December 27, and this was the latest development in a long-running effort to control the growth and improve management of 340B (Figure).
Oncology management consultant Teri U. Guidi, MBA, said the CMS payment cut, while it lasted, caused a great deal of trepidation in the industry. Her firm, Oncology Management Consulting Group, of Pipersville, Pennsylvania, had hospital clients who told her, “If this happens, we won’t be able to pay the doctors what we guaranteed.” Meanwhile, the doctors worried, “They’ll want to cut my pay. They’ll want me to leave.” It became very difficult to make spending and facilities expansion decisions. One of her hospital clients spent weeks doing financial projections of whether it would be better to open an off-campus infusion center or expand the one already on campus.
During that tumultuous period, some oncologists reevaluated their hospital professional services agreements (PSAs) and ended or decided not to renew them. And although the 340B discount adjustments were a huge factor, there were other reasons why oncologists began to rethink their hospital partnerships. They may not have been happy with the status quo or wanted more decision-making authority, Guidi said. Culture and relationships between the hospital and the group may not have been aligned.
Regardless of 340B and the drug purchasing discounts it provides to hospitals, conditions have become much more difficult for independent practices in recent years. Oncology practice has grown more sophisticated, complicated, and costly, requiring more staff, technology, investment, and patients to stabilize cash flows.
Over the past decade, 1249 community oncology practices and clinics have been acquired, merged, or closed, according to the 2018 Community Oncology Alliance [COA] Practice Impact Report. In that same period, 359 practices reported that at one time or another they were struggling financially, and 45 sent their Medicare patients to other treatment centers. COA reported that from 2016 to 2018, there was an 11.3% increase in the number of community cancer center closings and an 8.0% increase in consolidations with hospitals. However, it said the number of those struggling financially was down 7.9%, which was proportionate to the number of centers acquired or moved into the hospital setting.1
Various types of conglomerates of independent practices and other organizations have formed to provide efficiencies of care to rival those that hospitals have long enjoyed. These constitute increasing lures for some oncologists looking for arrangements that agree better with their own style of practice.
This was the case for West Cancer Center of Memphis, Tennessee, said Lee Schwartzberg, MD, executive director of the group, which last year decided to not renew their PSA with Methodist Le Bonheur Healthcare, also of Memphis. That ended a 7-year affiliation. In their case, it was not 340B that prompted the split but a hospital leadership change and a feeling that their partnership was no longer aligned with the management’s philosophy. Schwartzberg’s clinic joined with Tennessee Oncology and New York Cancer & Blood Specialists to form OneOncology. The group has partnered with Flatiron Health and will codevelop clinical and administrative tools. They have a financial partner, as well, that provides access to capital.
Some practices are reestablishing their inde-pendence while maintaining their hospital affiliations. The higher cost of care for patients in the hospital setting was a factor in the decision of Hematology/Oncology Clinic in Baton Rouge, Louisiana, to separate from Baton Rouge General Medical Center in September 2018. An amicable separation was arranged, designed to minimize disruption and ensure that a symbiotic relation-ship between the 2 entities would continue.
“I suspect that the day we signed the deal, the patients saw a 40% reduction in their bills,” said Steven Winkler, the group’s administrator. They had signed a PSA with Baton Rouge General (BRG) in 2016, after their clinic margins shrank and it became difficult to operate. However, the oncologists tried to negotiate with BRG for a rate increase. The hospital declined but told them there were opportunities to increase returns if they became employees. “[The physicians] wanted to maintain their independence and did not want to work under a hospital-employed scenario,” Winkler said. Instead they chose to become employees of American Oncology Network (AON), of Fort Myers, Florida.
AON includes the Zangmeister Cancer Center of Columbus, Ohio, with 2 locations; Genesis Cancer Center of Hot Springs, Arkansas, with 8 locations; and Oncology/Hematology of Loudoun and Reston, of Leesburg, Virginia, which has 3 locations. AON, formed in 2017, is a business extension of Florida Cancer Specialists & Research Institute (FCS), a conglomerate of 230 independent oncologists with close to 100 locations across the state of Florida.2 According to FCS CEO Brad Prechtl, the goal is to capitalize on efficiencies of scale and make AON as big as or bigger than FCS by 2024.
“Their buying power is tremendous,” said Winkler. “They buy drugs at a better price than I’d ever get [as an independent practice],” although the discount would not be as low as what the 340B program makes possible. AON will also negotiate more effectively with payers than an independent could, and under a shared services model, they can purchase computer equipment and other supplies at better prices than an individual practice, Winkler said.
However, the advantages go beyond improving revenue margins. The group can participate in an oncology medical home and have a team of supporting nurses. The staff can be more directly involved with patients, potentially reducing hospitalizations and improving outcomes and value of care. The pathologists are specialized and work with only oncology and hematology specimens. The group can participate in more research studies. “I had a research staff of 1.3 full-time equivalents, and now it’s a much larger research group, which can open up new studies for us,” Winkler said. All billing is centralized and handled in the Florida office.During 2018, some oncologists working at 340B hospitals had contracts up for renewal. They had decisions to make. Although those who talked to OncologyLive® did not leave specifically because of the 340B upheavals, the financial repercussions were discussed. Other reasons that may be prompting a move back to independent practice or to nonhospital PSAs include unhappiness with the status quo and a desire for more decision-making authority, Guidi said. A “grass is greener” perception is also likely at work, she added.
Schwartzberg believes that oncologists as a breed may not be ideally suited for hospital work. “I do believe the shift is going to be out of the hospital,” he said. “Oncologists have a way of approaching patient care that doesn’t always fit into the culture of the hospital.” In addition, if the financial benefits disappear, the rationale for staying will disappear as well. Hospital oncology treatment is more expensive for payers and sometimes for patients, too, and this can chafe with oncologists, Winkler said.
What has not changed in recent years is the impracticality of practicing medical oncology in a small group. “The 1-to-3-person practices are virtually gone except in cases where the hospital subsidizes practices or employs the physicians. It’s impossible to keep small independents open because the acquisition cost of drugs is so expensive. Any slight change in payment can render the practice vulnerable,” Schwartzberg said.
Increasingly, practices are adding staff to track required quality metrics and provide patients with financial analyses, prior authorizations, and other assistance, Schwartzberg said. “In my own practice over the past 5 years, much more is being asked of us for every patient. The practice has to hire people who are not in reimbursable positions. The margins have shrunk,” he said. Ironically, some of these features are what drove oncologists to the hospitals in the first place, he said.The 340B drug discount resolution has eased some of the tension, but program reforms are still a goal for CMS. It is widely held that 340B has fueled enormous hospital expansion without a proportionate increase in charitable care spending, and CMS may eventually find a viable way to rein in payments. “Someone will eventually decide to overhaul the 340B program, which is long overdue,” Guidi said.
Winkler said hospitals may have become too dependent on 340B drug discounts and the revenue those provide, and the next reform effort could represent a substantial setback for them. “We keep hearing that 340B will be cleaned up. We continue to see hospitals not being smart, not paying attention to where things are going,” he said. Although the court ruled against the CMS payment cut, which was imposed for the duration of 2018, it did not order CMS to make restitution to the 340B hospitals. The entire episode has had its repercussions, Schwartzberg noted. “If your practice is 50% Medicare, as many are, [you experienced] a substantial hit to 340B reimbursement, as well as uncertainty about what will happen with 340B in the future,” he said.For oncologists contemplating a move back to a more independent format, the process will not be easy, Winkler said. For his practice, “without the backing of American Oncology, it would be very difficult,” he noted. They had to buy their assets back from Baton Rouge General Medical Center and negotiate a lease to continue using hospital space. These changes required access to capital, which AON loaned them. It will take time to get credentialed with all the insurance companies and restore collections and billing to where they were before leaving the hospital. Fortunately, the oncology practice did not need to learn or transition to a new electronic records management system because AON employs a different version of the system they were using.
They had a more challenging transition, though, with their satellite office in a neighboring town and a different hospital system. “The hospital wanted us out of there immediately,” Winkler said. The group had to purchase new furniture and equipment and find a new office.
Both Hematology/Oncology Clinic and West Cancer Center operated under PSAs. “Many practices…have far less latitude to get out of their contracts because of noncompetes. In states that enforce those, they can be rigorous,” Schwartzberg said. If oncologists sold their assets to the hospital when entering an agreement, they may start with nothing when they leave. “We had our own space, so it was not as severe as it could [have been] if moving to a professional building,” he said.
Guidi said over the past few years, she has spoken with clinicians who have told her their hospitals said they would support them if they separated, whether returning equipment acquired in a merger, buying oncologists new equipment, or helping them with rent. In these situations, the hospitals realize that they are caring for the same community and want to maintain a good relationship with the doctors.
The Baton Rouge clinic had similar goodwill with Baton Rouge General, even though the hospital lost a multimillion-dollar piece of their bottom line in the separation, Winkler said. “If I were sitting in their chair, would I want to go out and find a new set of oncologists to have under my umbrella? It will take time to build that practice,” he said, adding that hospitals might be thinking about future issues with 340B funding. In his case, the hospital owns the radiation therapy practice and gets referrals from Hematology/Oncology Clinic. The hospital may not want to risk losing imaging or in-patient referrals, and Winkler’s group is happy to continue making referrals. “We’re still bringing in lots of patients and revenue from those patients. When we have to admit them, we’ll admit them there,” he added.
Each entity remains vital for the other, Winkler said. “We are their cancer program.”