Second Partnership Was the Charm for Seattle Oncology Practice

Oncology Business News®, February 2016, Volume 5, Issue 2

For one group of physicians in Seattle, hooking up with US Oncology seemed like a good idea at first, until circumstances changed and the deal no longer was a benefit for any of the partners.

Jeffrey Ward, MD

Choosing the right partner in a merger or an affiliation is not a process that is guaranteed to work out the first time. For one group of physicians in Seattle, hooking up with US Oncology seemed like a good idea at first, until circumstances changed and the deal no longer was a benefit for any of the partners. Jeffrey Ward, MD, a specialist in hematology/ oncology and a member of ASCO’s government relations committee, said that going back to complete independence in the Seattle market would not have been a good move, as rising costs would have overtaken the physicians’ ability to pay themselves.

A much more satisfying solution was found in a merger with what is now the Swedish Cancer Institute. Ward and his partners severed their ties with US Oncology, and after a period of fine-tuning and special arrangements to make the partnership a success, the deal began to mature into the more fruitful large-institution practice that Ward had hoped for, providing opportunities for career development along new lines, and a chance to practice higher level oncology with more sophisticated resources.

What follows is a question and answer interview with Ward about the transition from life as an independent practitioner and the trial and error process of finding a new business arrangement, leading to the eventual absorption by Swedish.

OBM: Describe the early years that led up to the merger.

Ward: I entered private practice in 1993 and was in a small group with two other physicians for a few years, at which time we merged with another private practice group down the road, becoming a group of seven and then quickly eight physicians; at the same time, we became a US Oncology national practice. We were with US Oncology for 15 years. We still owned and ran the practice and they were a consultant, so from our vantage point, it felt very much like private practice except we shared part of our income with our consultant.

What were some of the payment issues?

It reached a point where two things became clear to us. One was that our practice and US Oncology no longer shared the same incentives. We were a medical oncology-only practice. We had not grown into the prototypical US Oncology model of one-stop shopping cancer care with imaging, radiation oncology, gynecologic and maybe surgical oncology. That’s what works for them: a midsize metropolitan community in which you can have a large enough presence that you cannot be ignored by insurers. The Seattle market, for a variety of reasons, including cost of property as well as the fact that the hospitals were well entrenched, was never going to work with that kind of model. I think the other thing is we probably didn’t have the right personalities in place to create the cohesion among the medical oncology community that would have allowed for that either.First off, there was the Medicare Modernization Act, which certainly changed the way chemotherapy was paid for by Medicare. Initially commercial insurers kind of looked and watched that. But over time, they slowly all changed to Average Sales Price (ASP) -based reimbursement for chemotherapy. And then in tight times and in trying to lower cost, they just kept ratcheting down little by little what they were going to pay for reimbursement and became much tighter in preauthorization and things that increased your overhead, until we reached a point where we could see the trajectory and said if we continue in our current model, we won’t be in practice in five more years.

What was US Oncology’s role in your arrangement?

What was your thinking process in seeking an exit?

What were your options for setting off differently?

Did you go in fully understanding what was involved or did you meet with some factors that perhaps were a surprise to you?

US Oncology initially wasn’t too happy about that. They had a long-term contract with us, but I think they could see the writing on the wall, as well. It doesn’t matter how big their percentage was—100% of zero would still be zero. So, we began looking for possible soft landing spots, and we had really three hospital systems at the time that we could look at and that we talked to in making a decision—because just leaving US Oncology wasn’t going to change anything. That probably would have made things worse.They had essentially rented the practice for 30 years, and we paid them a percentage; we paid them a fee that was based on what money they had put into our practice to begin with. And then we paid a percentage of our profits. So, when we first joined US Oncology, we were able to make that and more back simply by the fact that they were able to buy drugs at a whole lot cheaper price than we could on our own. But, with the Medicare Modernization Act, a very interesting thing began to happen to prices: any time a drug company would give US Oncology a deal, either their ASP would drop or they’d have to compensate for it by raising the prices to somebody else. And so what was initially about a 10% improvement on our margin, over time dropped to about maybe 2% better than you would get on the open market. And when you are paying them a hefty percent of your profits, they become a weight on your practice instead of a help.We needed a soft landing place that (1) would be willing to help us get out of our contract with US Oncology and (2) that we could live with and work with as oncologists, and still feel comfortable with the care that we gave and with our new bosses. And that was harder for some docs than for others.We had three potential suitors. We had Providence Health & Services that was north of us, and the University of Washington, and the Swedish system, and we talked to all of them. And it became clear to us fairly early on that philosophically and as far as just individual personalities go, we were much more comfortable with the Swedish Cancer Institute as a potential partner than our other options. And I think that’s the most critical thing for somebody who’s thinking about doing this: you have to have a partner, whether it’s a hospital or otherwise, that you can trust, that you feel comfortable is in alignment with the way you want to practice medicine and your vision. Swedish had, for a long time, been a big downtown hospital, but they had come to the realization that just as we weren’t going to be able to continue to exist as a community stand-alone medical practice, that a big downtown hospital wasn’t the future of medicine either and that they needed a large regional presence and that they needed to expand their footprint.One of the things we didn’t recognize until after we really got into discussions was that for a hospital to make this work for them, they need to have you practicing in a hospital facility. And so though we were on the hospital’s campus, we were not in office space that was hospital-compliant and that would allow the hospital to bill as a hospital. That meant they had to build a new cancer center, and that took a few years for a variety of reasons: environmental impact of impervious surfaces, parking easements, permit bureaucracy— that kind of stuff.

How has it worked out otherwise?

You had hoped to be doing more sophisticated work with US Oncology, but were unable to. Did that become possible once you joined Swedish?

So, we actually became a foundation for several years. We operated the same way we always had as if we were in private practice, but Swedish funded the foundation. That allowed us, in a protected way, to watch and see what would have happened if we had stayed in private practice for four more years; and the answer was that by the end of those four years we would have been working for nothing in order to pay the salaries of the rest of the folks in the clinic. And so it was a big eye-opener for us.We now have been in the new cancer center for two years. We’re part of a larger group. Swedish has actually since then merged with Providence, and the merging of the Swedish and Providence cultures has, I think, been a bigger stretch than our entry into Swedish. So, I think that when you give up control you have to understand that there may be mergers and other changes, and they may have impact on you, and that may, at times, make you somewhat uncomfortable. But there is no way to avoid the turmoil in healthcare by staying in private practice either. You still have to make sure that the people that you immediately work with are people you can trust to be transparent, open, and fair with you, and that’s been our case.Swedish already had radiation oncology on our campus, so we’ve now been able to integrate into a system that has all of those things that we had never had. So the Swedish Cancer Institute is actually an affiliate of practices, some employed and some actually in private practice, but the system includes surgical oncology, interventional oncology, and radiation oncology, plus a large clinical trials program that gives us more opportunities than we had within US Oncology. Swedish also has a philosophy that they will take care of anybody who walks in the door. That’s just part of their mission. Same for the Providence system.

So, one of the things that’s really different is when a patient comes to see me, I don’t have to worry about how caring for them will impact the bottom line. I don’t have to send patients with no insurance, Medicare without a supplement, or Medicaid to the hospital to avoid losing money. I don’t have to practice two different kinds of medicine, one for those who have insurance and one for those who don’t, because I’m now part of a hospital with charity care as a core mission. I’m sure it’s not that way with every hospital, but it is with the one that we chose to join.