Consolidation Leaves Just Two Major Oncology Players in Salt Lake Market

Oncology Business News, January 2016, Volume 5, Issue 1

Competition, consolidation and attrition have reduced the number of oncology players in the Salt Lake City region, but business has never been better at Utah Cancer Specialists.

Walt Moyer

Competition, consolidation and attrition have reduced the number of oncology players in the Salt Lake City region, but business has never been better at Utah Cancer Specialists (UCS). The very strategies that helped it outlive other independents in the region have enabled the organization to thrive in what has become a metropolis with just two medical oncology providers.

The only major competition comes from Huntsman Cancer Institute, which enjoys all the usual advantages of a large, academic healthcare system. Its far deeper pockets afford it larger facilities, more equipment and enough advertising to achieve nearly universal recognition among potential patients. It also operates as part of the University of Utah and therefore participates in that institution’s ongoing research and shares in its general prestige.

Like other successful independents, UCS has countered at least some of the advantages that come with Huntsman’s academic ties by making its own connections with pharmaceutical research companies and participating in clinical trials of everything from new medications to genomic testing. UCS has also embraced the strategy of offering patients a more convenient and intimate experience than large cancer centers typically can. Rather than requiring patients to drive to a large central location, the practice’s oncologists provide care in 10 satellite offices, each placed in a strategic sector of a region that stretches more than 60 miles across.

Unlike independents in many regions, however, UCS makes no effort to advertise such advantages directly to the general public. It could never match the competition’s advertising budget, so it doesn’t even try. Instead, it focuses all its outreach efforts on referring physicians and hospitals.

“In the course of building those relationships with doctors across the region, we have proven ourselves to them time and again, and we have established the sort of trust that leads them to recommend us to their patients,” said UCS CEO Walt Moyer.

“We have also developed relationships that effectively make us the medical oncology department for all the local hospital systems in the Salt Lake City area with the exception of the University of Utah. None of those hospital systems currently employ medical oncologists in the Salt Lake Valley, and we are very happy to partner with them by opening offices on their campuses and providing close-to-home care to patients. What’s more, we are currently exploring collaborations with the University of Utah as well.”

UCS began its current life 18 years ago, with two oncologists at an office in St. Mark’s Hospital and two others in two different locations. It was one of a number of independent oncology practices in the region and had total annual revenues of $4 million.

The practice brought a number of oncologists together over the years that followed, but retirements actually contributed more than mergers to the dramatic consolidation of the market. Older oncologists who had built reputations continued to operate on their own until they were ready to call it a day, but the difficulty of opening and operating a solo practice (or very small partnerships) dissuaded young oncologists from replacing them.

UCS succeeded in part because it grew enough to enjoy significant economies of scale. The practice, though small in comparison to some big-state in-dependents with more than 100 doctors, was big enough to get better pricing on the ever-growing number of tools needed to provide first-class treatment, and it was big enough for specialization, both among its physicians and its management staff.

Moyer credits this last factor—specialized management staff—and innovative practices, cost reductions and productivity gains for having made UCS dramatically more efficient in recent years.

“The first step is to get big enough that you don’t have medical people doing nonmedical things, but you really need to go beyond that,” he said. “Each area of this business is complex, and someone who tries to manage all areas will struggle to master any of them. Specialized staffers aren’t just more productive. They’re also better suited to suggest and implement improvements to business practices. Plus, they know enough to negotiate better deals with companies that supply us with everything from medicine, to stationary to professional services.”

UCS did not need dozens of staffers to achieve these efficiencies. A handful of specialists—one for each of the practice’s key business functions—has produced a level of efficiency that Moyer thinks is roughly comparable to anything achieved by larger businesses elsewhere. The size of the business also seems sufficient to get best prices from most vendors, though Moyer does suspect he might be able to get bigger discounts from drug suppliers if his practice had many more doctors.

The drive for greater efficiency has, for the most part, been a response to changing payment policies among payers. Medicare began a trend when it started capping drug payments based on an average sales price model, and nearly all payers in the Salt Lake City area followed with similar payment models, all of which significantly reduced oncology reimbursement.

Even before that, insurers paid private practices like UCS less than they paid hospitals to provide the same cancer treatments. This discrepancy has long been a significant disadvantage for private practices, but among independents like UCS, which has become efficient enough to make do with lower payments, the two-tiered reimbursement structure is starting to look like a competitive advantage.

“Payers have been paying us less for just about everything for many years now. They never really pressured patients to use the less expensive service, though, until quite recently, when they suddenly realized they could save significant amounts of money by using copays and other tools to direct patients to the lower cost provider,” said William Nibley, MD, who joined UCS 18 years ago. “As a result, insurers are beginning to feel like our allies, which is a big change.”

Better still, Nibley says that he and his partners perceive the local market for cancer care to be something that most markets haven’t been in many years: stable. Existing pressures toward consolidation appear to have reached their natural limit, and both of the local providers have competitive advantages that allow them to prosper. UCS and Huntsman are increasing that stability, moreover, by working together when opportunities present themselves.

Should oncologists in other parts of the country view Salt Lake City as the light at the end of the tunnel—a definitive proof that independent practices that keep adapting and improving will eventually achieve long-term security? Moyer and Nibley both doubt it.

“There is no security in any business that is so prone to major disruption. A breakthrough category of new treatments or a single new law could immediately shift the competitive landscape to favor major institutions or independents,” said Moyer. “Anyone who has been doing this for any time has seen it happen again and again. Every few years, some new law or regulation forces everyone to change the way they do things.”

Moyer thinks the most important change in the long term will probably be the shift from fee-for-service reimbursements to outcome-based payments that give providers a financial incentive to keep costs down while maintaining or improving quality. UCS is already taking part in programs designed to reduce costs while improving the quality of cancer care through “Medical Homes “and “Accountable Care Organizations” and Moyer is working to prepare the practice for a future where pay-for-performance becomes the norm.

Drug costs are another key variable. UCS spent $60 million of its $100 million in annual revenue on chemotherapy medications last year, so any change in costs or compensation could transform its business overnight. There is, in other words, no foreseeable end to the constant flux in business conditions. UCS can’t even put an end to its quest for a long-term provider of electronic medical records. The practice is currently preparing for its third EMR system in less than a decade.

UCS also faces the threat of new competition on a relatively frequent basis. “It’s certainly possible that a handful of oncologists will decide to set up another independent practice at some point, but the bigger worry is institutional. Every few years, one of the hospital systems that we work with will consider hiring their own medical oncologists, so we need to continue to support them, provide value and demonstrate that they’re better off working with us,” said Nibley.

“There is no point where you’ve got the business in such a good place that you can just relax and take care of the patients. It doesn’t matter how efficient you are or how much your patients recommend you, you’ve always got to keep improving, and that’s what we try to do."