In the context of these changes, providers are weighing the value of leaving their practices to align to dominant healthcare systems, effectively giving up control to the system.
In a 2016 survey conducted by Navigant among oncologists and hematologist-oncologists, 55% of oncologists reported that they are already employed by either a hospital or a health system or a group practice. A significant minority (45%) considered themselves independent, or “not employed,” by a health system or group practice. However, at least one-quarter of the independent group plan to either integrate with a hospital or combine with another practice in the next 2-3 years.
Chart 1: Current and future employment structure of US oncologists (n=79)
The trend in employment seems to be driven by two complementary forces:
• Health systems’ desire to employ oncologists
• Oncologists desire to be employed
Health systems, especially large integrated delivery networks (IDNs), have a financial incentive to employ more oncologists. Typically, the 900+ IDNs have a dominant share of patient lives within their markets and the ability leverage discounted 340B pricing on commonly used drugs in chemotherapy. As has been well debated since the expansion of the 340B program, institutions are able to realize substantial margins on infusion drug therapies. More oncologists allows the system to diagnose more patients and expand the volume of oncology patients their system is treating.
Oncologists in independent practices are finding their practices to be challenged by the high cost of care associated with their patients. They are demonstrating an increasing preference to be employed by health systems. Community oncologists reported a decline in income between 2014 and 2013, according to a recent survey conducted by Genentech. In that survey, 39% of surveyed independent oncologists expected further declines in their income. In contrast, a greater proportion of hospital-based and academic/medical center based oncologists reported an increase in net income between 2014 and 2013.
The trend toward employment has been developing over the past decade. The Community Oncology Alliance (COA) also conducted a study showing that between 2008 and 2010 there was a 22% increase in practices struggling financially. Over that period, there was 46% increase in practices that had merged, while the number of practices that were acquired increased by more than 140%. Nearly three-quarters of those acquisitions were by hospitals with 340B drug discount pricing.
Medicare implemented the Modernization Act that changed reimbursement from Average Wholesale Price to Average Sales Price (ASP) plus 6% in 2005, all practices experienced a significant narrowing of margins. Independent practices were especially challenged due to their cost structure and overhead. Independent oncology practices found it difficult to maintain the high margins they once had under buy-and-bill. Recent proposals by CMS have suggested reimbursement for common chemotherapy treatments to be revised downward to ASP plus 2%, starting in 2017.
Independent practices are finding it difficult to compete with large, consolidating health systems. One example of that lack of competition is the growth disparity in Part B drug reimbursement rates between 340B and non-340B entities. COA observed that total Part B drug reimbursements for oncology drugs to 340B hospitals more than doubled (123% increase) from 2010 to 2013 while increasing only a third (31%) to non-340B hospitals. Community oncology clinics reimbursement from 340B declined by 5% over the same time period.
The movement toward employed models in oncology has several implications for health systems including the potential for greater management of oncology care. When asked about the areas of control that systems are likely to exert on their practices, more than 50% of oncologists believe that formularies and pathways are going to be the most common mechanisms of control. Other factors, like shared financial risk and visibility into total cost of care are still expected by more than 40% of oncologists to drive greater management of oncology.
As health systems and oncologists look together toward the future, they likely are seeing a world where value-based care will drive community practices to be acquired by larger systems. The acquisition or affiliation will, in turn, drive greater management of the total cost of care for the cancer patient. However, we may expect that the timing of the transition will be metered by the current benefits that systems are getting from increased oncology patient volume and the attractive reimbursement rates that come from 340B drug pricing.
Over time, it will become more critical for systems to develop, implement, and enforce cost-effective evidence-based clinical protocols and pathways. Enforcing pathway adherence will help reduce treatment inefficiencies and variability among physicians, thereby decreasing costs. The employed model enables systems to more easily align physician incentives to outcomes. As a result, these systems will have greater capabilities to take on risk based models in oncology. Two such programs have already been announced by CMS in 2015 and 2016.
Sources:
1) Community Oncology Alliance (COA). Community Oncology Practice Impact Report, Oct 2014.
2) Genentech. The 2015 Genentech Oncology Trend Report.
3) BRG Healthcare. 340 growth and the Impact on the Oncology Marketplace, Sep 2015.
The views, opinions and positions expressed within these guest posts are those of the author alone and do not represent those of Becker’s Hospital Review/Becker’s Healthcare. The accuracy, completeness and validity of any statements made within this article are not guaranteed. We accept no liability for any errors, omissions or representations. The copyright of this content belongs to the author and any liability with regards to infringement of intellectual property rights remains with them.
