Oncologist Practice Consolidation Continues

Driven by reimbursement and changes in standards of care, independent community oncology practices continue to dwindle as smaller practices struggle to provide all the needed resources.

Over the last few years there has been a marked decrease in the number of independent oncology practices. A recently released study by the Community Oncology Alliance (COA) shows that 241 clinics have closed over a four-and-a-half-year time period ending in 2011.

“The key driver of consolidation in oncology is financial strain,” says David Eagle, MD, president of the COA. “While there are some concerns about business and professional changes, the key driver is almost purely financial. All of the others are secondary to payment issues.”

Impact of Medicare Modernization Act

The reimbursement changes began with Medicare Modernization Act (MMA) of 2003. Congress moved payments from a profit margin above the average wholesale price (AWP) to an average sales price (ASP). They hoped this would better match payments with the services provided by oncologists.

“The problem is that Congress overdid it,” Eagle says. “The money they took away from chemotherapy and supportive drugs was more than they put toward infusion services. In addition, Medicare has been cutting payments for infusion services every year since MMA was implemented.”

Since 2004 payments for infusion services declined by a total of 35% and by nearly half (47%) after medical inflation is factored in. An analysis of oncology practice expenses by COA and Avalere Health showed Medicare payments covered only 57% of the cost of providing these services.

“Over time, private payers have also begun migrating to the same system,” Eagle says. “That is one of the reasons that a law enacted in 2003 is just hitting its apex.”

Trend accelerating

The Practice Impact Report suggests the trend away from community practices may be accelerating. There was a 20% increase in the number of community oncology physician-owned practices impacted compared to twelve months earlier. There was a 21% year-over-year increase in clinics closed.

Passage of the Patient Protection and Affordable Care Act (ACA) may stimulate another round of consolidation in oncology practices. Although this time other specialties may be impacted, as well.

“When the ACA passed, it launched another increase in efforts to buy out physician practices,” says Vivian Ho, PhD, James A. Baker III Institute Chair in Health Economics at Rice University in Houston. “Some hospitals believe strongly that we are moving toward more accountable care, either the Medicare or other models. They are preparing by acquiring physician practices to bring as much care in house as they can.”

Another driver of oncology practice consolidation is that Medicare seems to be moving toward a payment model geared toward rewarding large organizations. Some of the programs require a minimum of 5,000 patients for entry.

Risk shifting

Both the federal programs and private insurers are looking to shift risks from them to the practicing physician. Thus, they move toward more bundling of treatment payments, episodic care, large Accountable Care Organizations and the like.

“There are many names for the changes being made, but the bottom line is a realignment of people and providers,” says Kenneth Hertz, FACMPE, a principal with the Medical Group Management Association Health Care Consulting Group. “These changes in who has the risk exposure tend to drive people to work together so they can reduce costs, provide better compensation to the providers, spread the risk over more people, and obtain more and easier access to financial resources.”

Governmental payers have already moved toward bundled payment for some cardiovascular disease codes to cover not only the hospitalization, but all services up to 30 days after discharge. The National Cancer Institute says that all cancer services cost around $125 billion dollars and are projected to go as high as $158 billion (in 2010 dollars) by 2020. Because of this “target-rich environment,” Medicare is looking at putting a target on the back of oncologists next.

One often overlooked change in the oncology landscape is how radically the definition of what constitutes good cancer care has evolved over the last two decades.

“Medical oncology, and to a degree radiation oncology, is very different than it was when I went into practice 20 years ago,” says Therese Mulvey, MD, physician chief, South Coast Center for Cancer Care, New Bedford, Mass. “At that time you basically saw a patient with cancer, you determined the correct treatment plan, administered that therapy, and then followed the patient for a period of time. Patients, and the entire health care industry, are now expecting that we will be able to provide far more services to the individual patient.”

Counseling and social work services, nutritional support, integrative medicine, patient navigation, outreach and support groups, and genetic screening are now part of what most consider standard care. Smaller practices have problems providing all of the needed resources in this environment.

“Some of the migration to hospital employment or to larger practice entities has to do with being able to provide all the services that we now believe to be part of high-quality care,” Mulvey says. “The expectations are completely different, yet reimbursement has only gone down during that time. This quality of care standard is hard for smaller practices to deliver unless there is some link to the resources of a larger organization.”

She stresses that although much of the talk on this subject focuses on how reimbursement changes are causing problems throughout oncology, a lot of the impact on the financial stability of practices are driven by the patient’s wants and needs.

“It has crossed the line where oncologists are no longer being asked to do the same with less, we are now being asked to do significantly more with less,” she says. “It is combining increasing responsibilities with lower reimbursements that really drove oncologists to look for partners. Those who could help them achieve high quality patient care in a way that did not bankrupt everybody.”