Florida Practices Band Together for Strength

Oncology Business News®, June 2016,

In Partnership With:

Partner | Oncology Network Providers | <b>Florida Cancer Specialists</b>

Florida Cancer Specialists has honed its merger strategy into a finely tuned regimen that goes from due diligence to planning to implementation and follow-up, all in a period as short as 120 days.

Brad Prechtl

The Art of the Deal is a book that could have been written by the folks at Florida Cancer Specialists (FCS). The group has acquired 37 practices in its history and 27 since 2009, said Brad Prechtl, CEO of the operation, which over its 32 year history has expanded from Naples and Tampa to Central Florida, Orlando, the Gulf Coast, and most recently, the Panhandle. “In 2009, we had 45 doctors and 17 locations,” Prechtl said in a discussion of FCS’s merger trajectory at the 2016 Community Oncology Conference in April. FCS now has 93 locations, around 200 physicians, and many nurse around 200 physicians, and many nurse practitioners and other providers. “It’s not that we had a specific strategy for growth,” Prechtl said of the early days of expansion, “but we knew that bringing physicians together was going to benefit the patient and ultimately keep community oncology together.”

FCS has honed its merger strategy into a finely tuned regimen that goes from due diligence to planning to implementation and follow-up, all in a period as short as 120 days. Not every practice makes the cut, but for those that do, the advantages in terms of economies of scale and enhanced patient offerings and compensation can be “incredible,” Prechtl said, posting many numbers on the screen for the benefit of an audience of numerous industry professionals. One byproduct of FCS’s expansion is that group malpractice premiums have declined 64% on average since 2009, dropping to $7300 from $22,000 per physician for up to $3 million of lifetime coverage.

Prechtl’s presentation could have been a sales pitch for joining his organization; and doubtless, there are many reasons for oncology practices to be thinking about mergers or sales of their operations these days. Prechtl explained that the revenue efficiencies FCS has been able to achieve have given his partner oncologists enormous reason to feel more confident about their competitive standing in their communities. “We’ll see 60,000 new patients this year alone. We’ll have over 1 million follow-up visits. We’re trying in the state of Florida to bring practices together to keep independent oncology alive and well,” Prechtl said.

Based on modeling of independent practices considering joining FCS. Source: FCS

The typical merger begins with senior management going out to meet with a prospective group of physicians, Prechtl said. “There has to be a lot of diligence on the front end. We also do a compliance review.” Physicians are told what will happen to their practice when they join, how their employees will be affected, how the electronic health record (EHR) conversion will be managed, and what will happen to legacy benefits and accounts receivable. Prechtl said FCS aims for a high degree of transparency in its dealings, though appropriate levels of confidentiality are maintained: “We don’t share what groups we’re talking to or what groups are coming in.” Similarly, FCS wants to be careful it has all relevant data before making a decision about bringing a practice into the fold. “It’s very important to do due diligence so that we’re not going to put the FCS reputation at risk by bringing in somebody who’s not going to meet the standards that we have,” Prechtl said.

Physicians are presented with a range of compensation models, and compensation can start right away, beginning with a $25,000 monthly draw per physician to tide them over until the practice under the group umbrella breaks even. In addition, prospective merger partners are given an income assessment that compares what their practice made in the previous year with what they would have earned as full partners in the business during the same period, Prechtl said.

Physicians still manage their own call schedules and vacation time, as long as FCS has appropriate staffing for its patient flow. The extensive, centralized back-office functions liberate many physicians from having to spend as many hours on management as before. Overall governance of the operation is handled by a board of directors who are geographically distributed to represent a fair cross-section of the practices. FCS will buy drug inventory but will not assume accounts receivable or purchase real estate.

A lot of emphasis is placed on appropriate training of physicians and other employees coming into the practice, Prechtl said. For physicians, there is often a period of personal adjustment as they get used to the way FCS does business. FCS does a lot of its own lab testing in centralized facilities to achieve efficiencies, and physicians sometimes don’t like not being able to get these tests done in their own locations until they discover how quickly and well the tests are done by FCS, Prechtl said.

Figure 2: Combined FCS Revenue Distribution

Source: FCS

Everybody is on the same electronic management system, and practices are rigorously benchmarked to ensure proper performance. Prechtl said they look closely at collections, drug cost ratios, total overhead, staffing levels, and quality of care. “It allows us to manage our sites as effectively as we can, and I think size and scope allow you to do these things in a unique way.” The payoffs of large-scale integration are not to be denied. Prechtl noted that FCS has been able to diversify its revenue stream in a way that lowers its reliance on chemotherapy and broadens its footing in oncology pharmacy, which is of increasing importance as oral drugs become more important in the treatment of cancer (Figures 1,2). Reducing dependence on chemotherapy is especially important given that potential changes in Medicare Part B compensation could diminish earnings in that regard, Prechtl said. “The typical community oncology practice would have 81% of their collection base in the chemotherapy bucket. Think about 81 cents of every dollar you collect in chemo. Talk about the Medicare ‘Experiment’! What a devastating effect that would have on a practice—probably causing many to be under water from a reimbursement standpoint on chemotherapy.” By developing alternative sources of revenue, FCS has managed to reduce its chemotherapy income to 63 cents of every dollar, Prechtl said.

Similarly, through its in-house pharmacy, Rx To Go, FCS now fills 85% of the scripts generated by its own staff, “which I think most people in specialty pharmacy would agree, that’s a pretty high percentage,” Prechtl said. “We purchased over $1 billion worth of drugs in 2015.” Prescription fills average 2 to 4 days, a turnaround time that Prechtl boasted is of great significance to physicians and also to patients, who sometimes wait up to two weeks for a specialty pharmacy to package and deliver. “The difference between 4 days versus 14 days can have an incredible impact on a patient’s health and well-being.”

Other measures of practice efficiency shared with the COA crowd included a comparison of compensation as a percentage of collections. In 2009, compensation and benefits measured 9.42% of collections. That figure has since dropped to 8.01%, and the money saved has enabled FCS to invest in new facilities and operations, Prechtl said. Another measure shown was the cost of centralized services as a percentage of collections, and that figure has dropped from 3.55% in 2010 to 2.99% in 2015. One additional measure of business efficiency given was the average number of days an unpaid invoice remains in accounts receivable, and in 2014 that figure averaged around 30 days, versus an industry average of 35 days, Prechtl said. Bad debt is less than 1% of receivables, and this is achieved by “proper patient counseling on the front end,” he said. “We meet with every single new patient. We verify insurance benefits. We talk about what their responsibility is versus what their insurance benefits cover, to make sure they understand what co-pays they’re going to cover when they come into the practice. Clearly, not every patient can pay for their services, so we access a lot of foundations. We also provide a lot of free care for our patients, but our goal is to treat 100% of the patients who walk in the door at FCS.”