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The economics of running an oncology practice is forcing physicians to consider whether they should stay in private practice, join a large network or hospital, or become hospital employees.
The economics of running an oncology practice is forcing physicians to consider their options. Do they stay in private practice, join a large network or hospital, or become hospital employees? Each of the three oncologists interviewed by Oncology Business News for this story took a different path for their practices. Their choices were influenced not only by national trends in oncology, but also by local issues.
Thomas L. Whittaker, MD
“Oncologists are a pretty resourceful group,” said Thomas L. Whittaker, MD, FACP, president of the Association of Community Cancer Centers (ACCC).
Whittaker’s group of 17 medical and radiation oncologists in Central Indiana was an independent practice that was part of a large oncology network. “We had this great national base, but we didn’t have a local partner.”
That lack of a local partner became troublesome when the local hospitals began to see the practice as a competitor, rather than a collaborator. “We were squeezed out of all the local hospital systems, and it became an issue because our referrals and business were down,” he said.
This scenario—a large hospital pressuring oncologists to be part of its system— is being played out across the country.
“Because of all these local pressures, and the fact that health care was changing and the business environment was changing, we felt that we needed a local partner to survive.” They collaborated with Indiana University Health, a health system that is closely associated with the IU School of Medicine, he said, because of its reputation, research, and state-of-the-art facilities. “We felt that our practice patterns and our goal of evidence-based medicine were reflected by the same goals and care that is given at IU.”
The practice, Central Indiana Cancer Centers, has a professional service arrangement (PSA), so that physicians are affiliated with the university and can take advantage of its business systems, but are not employees of IU.
Dean H. Gesme, Jr, MD
Dean H. Gesme, MD, FACP, FACPE, moved from a small Iowa practice six years ago. The practice did not have a strong business leader and eventually merged with a hospital.
“They didn’t want to be burdened with having to deal with the business side of the equation,” he said. Some oncologists like the security of working in a hospital. Lifework balance is an important issue to many of today’s oncologists, and working for a hospital enables them to have more personal time. For instance, a hospital oncologist can take three months after the birth of a child without affecting the practice.
“In private practice, it is hard to guarantee that type of rich benefit. In the hospital environment, it is standard. If you are not there, it is the vice president of Medical Affairs’ problem. In a small practice, it is very much your problem.”
Gesme went to Minnesota Oncology, which is part of the US Oncology Network, a 60-physician practice. For a piece of the practice revenue, the network provides a building, electronic medical records, equipment, nurses, and administrative staff. “My office manager is a US Oncology employee, but on a day-to-day basis, she works with me. There may be some divided loyalties, but it works out incredibly well.”
He said the advantage of being part of a large network is the ability to leverage pricing for drugs and other contracts. With the network taking care of the business side, Gesme and his partners can focus on the practice of medicine.
In most instances, the groups work well together, and there are surprisingly few situations where the attitude is “us versus them.”
“If we wanted them to put an extra $50,000 into something like electronic medical records, they would probably be willing to do that. If we say, ‘we need a $10 million cancer center with golden faucets and marble floors because we would really like that,’ they probably won’t go along with that request. We agree to do what is financially prudent, and medically and politically appropriate for our environment,” he said.
Gesme said that the network provides more tools and better negotiating and purchasing power for his practice.
Jeffery C. Ward, MD
In addition to the ASP + n formula, which seems to decrease every year, Jeffery C. Ward, MD, and his group in Edmonds, Washington, faced a business and operations tax on all of the drugs they purchased, which decreased their margins even more.
They had joined a large oncology management network in 1995, but over time their nine-doctor medical oncology practice did not have the economies of scale or income stream diversification to make the partnership work. “We really didn’t fit into the national network’s vision for the future, and our incentives were no longer well aligned,” he said.
“We would have had to meld our practice with a larger group, and then add radiation oncology and imaging in direct competition to our hospitals. We were never able to make that happen in our community, and neither did we want to. The hospitals already owned some medical oncology and all of the radiation oncology here.”
Changing from a private practice to a hospital practice is not necessarily an overnight feat. Their cancer center was not a hospital-compliant facility, necessitating major remodeling or a new cancer center to make the ultimate transition. They struggled to keep their practice viable, before coming up with an interim solution— they became a nonprofit and are developing an affiliation with the Swedish Cancer Institute. Swedish is also a member of the new nonprofit, and is building a new cancer center and providing much of the business support on the practice’s way to full integration between the nonprofit and the Swedish Cancer Institute.
“An arrangement like this requires a multi-year commitment and the foresight of the hospital,” Ward said. “We have a good partner whom we can trust.”