Operating margins for community oncology practices are decreasing, although the trend seems to be slowing, buying some time for practices to adjust their business models and perhaps survive.
Operating margins for community oncology practices are decreasing, although the trend seems to be slowing, according to the results from the 2012 National Practice Benchmark (NPB), reported in the September 2011 issue of the Journal of Oncology Practice.
There are also indications that the narrowing difference between operating cost and total medical revenue has also eased, buying some time for practices to adjust their business models and perhaps survive.1
Matthew Farber, MA, director of Provider Economics and Public Policy, at the Association of Community Cancer Centers in Rockville, Md., thinks that overall authors Thomas R. Barr, MBA, and Elaine Towle, CMPE, from Oncology Metrics in Los Altos, Calif., did a good job of looking at work output, physician efficiencies and extrapolating these and other measures out to the viability of the practice.
“While it has been a hectic last couple of years with consolidation, there has been stabilization in this area as practices have adapted to new payment methodologies, types of oral drugs, and some have done things like establishing dispensing pharmacies in their offices,” he noted. “This has really helped the business model and allowed them to continue ahead.”
Roughly 1,400 medical oncologists, practice administrators and other key staff from more than 900 practices were invited to participate. The invitations were emailed and the survey was completed entirely online. Only one survey per practice was included in the data analysis. The instrument reflects data from calendar year 2011 or the most recently completed 12-month period.
A total of 114 responses were returned with 11 discarded because they were duplicates. Just over half (52%) were practice administrators or office managers, 16% were chief financial officers/directors of finance and 8% were physicians. The rest were made of miscellaneous titles. There were responses from 42 states.
“In 2011, we completed the first trend analysis of six years of data from the NPB report and, on the basis of that analysis, made four predictions about what we would see when we completed the 2012 report on 2011 data,” Barr and Towle wrote. “These were (1) the squeeze on operating margins would persist; (2) no new efficiency gains would be evident; (3) service delivery measures would remain at 2010 levels; and (4) labor costs would rise faster than revenue.”
The prediction from a year ago that the decrease in the difference between costs and revenues would continue in 2011 was not found. However, most of the “ease of the squeeze,” as termed by the authors, was from stability in income and a very slight decrease in operating costs from one year to the next.
When efficiency is reported as patient visits per full-time equivalent (FTE) hematologist/oncologist (HemOnc), the researchers saw no change in the number visits per doctor and predict no significant differences in 2013’s review of 2012 outcomes. However, when work achieved by doctors is seen using work relative value units (wRVU) per FTE HemOnc, there are suggestions that further productivity gains are possible.
Glimmers of hope
The report also sees some glimmers of hope in the area of labor, cost and revenue. Last year, the authors predicted that the amount of positive difference between practice cost and revenue per staff FTE would shrink in 2011 and they would cross when the 2012 information was obtained. However, this year a much more favorable future is predicted and they don’t see the difference shrinking as much as predicted by the 2010 data.
Business structure change is still seen as an important variable. Barr and Towle note that “cautious optimism” appears to be the mood of those responding to the survey. Although the number of respondents who said they were currently involved in a structure change increased 5% year over year, the authors continue to predict a continued slow and steady change in business structure instead of a wholesale shift nationally. For the most part, the responses in 2011 weren't much changed from 2010's results with a high number of respondents remaining confident that their business structure will be viable and unchanged for at least three to five years, according to the report.
“Readers of the 2012 survey may reasonably have a sense of optimism as they reflect on the amazing resiliency and adaptability that allow this system to positively respond to stress,” wrote Barr and Towle. “Time and again, spanning back to our first survey in 2005, we have quantified the results of oncology practices getting the job done when the rules change.”
The difficult part going forward is to know what happens if payers start to require more use of specialty pharmacies or do not allow in-office dispensing of drugs. This may take away from operating revenue and change the bottom line picture yet again.
“Another interesting question is will offices be able handle an increase in the number of Medicaid patients and will it drive them further to the negative side?” Farber pointed out. “Overall I think most practices will remain viable, as this report suggests, even with these changes.”
1Barr TR, Towle EL. Oncology Practice Trends From the National Practice Benchmark. J Oncol Pract. 2012; 8:292-297.