Before 2005, the Centers for Medicare & Medicaid Services (CMS) reimbursed physicians for drugs administered in their offices at a percentage of the average wholesale price. In 2005, however, the payment basis was changed to a percentage of a newly created measure, the average sales price. This change resulted in a significant change to the bottom line for all physician practices that administered chemotherapy and other infused drugs.
Figure 1. Drug Revenue as a Percentage of Total Revenue, 2005-2010
According to the National Practice Benchmark, drug margins dropped from approximately 22% in 2005 to approximately 9% in 2010 (Figure 1).1 Because 65% of all practice revenue is generated by drugs (Figure 2),1 it is clear that this payment methodology change has had a major effect on the practice’s overall profitability. Still, physicians buckled down, reducing their expenses and improving efficiency to remain financially viable and able to deliver care to their patients.
Figure 2. Revenue Mix, by Service Line (37 Practices)
In 2008, CMS instituted a coverage policy change that effectively limited the clinical indications approved for payment for use of erythropoiesis-stimulating agents. These drugs had been prescribed heavily based on the labeled clinical indications, but their use dropped dramatically when the new policy was launched. This reduction in utilization resulted in a dramatic decline in the practice’s total revenue, once again challenging physicians in their efforts to remain open and able to serve patients. At that point, many practices began to seek alternate means of survival, including merging with other practices to gain economies of scale, expanding services to generate sufficient revenue to remain viable, and entering into new relationship models with other groups and with hospitals. But other practices have steadfastly held to the independent private practice model.
We have recently received a number of inquiries for consulting help from such independent practices as they continue to struggle to stay afloat. We have noted that these groups fall into 2 basic groups, which we characterize as (1) “We are being starved out by the new market alignments,” and (2) “We survived the rest, why are we still sinking?” In this article, we offer suggestions to these 2 groups on possible approaches to meet the challenges they now face.
Starved Out: Band Together or Join a Hospital
As the trend toward alternative alignment and integration models between office-based and hospitalbased oncology has grown, there are often political or other circumstances that have prevented such shifts from taking place. Many hospitals and health systems, however, have moved forward in acquiring physician practices of various disciplines, including those that refer directly to medical oncology, thereby gaining heavy influence on the referral patterns for cancer care.
In markets where there are multiple oncology practice options, the hospital often “chooses sides,” effectively squeezing the others out. Furthermore, in many markets, the hospital has decided to acquire or closely align with an existing oncology practice, or to directly employ competing medical oncologists. This clearly can result in a dramatic constriction of referrals to any medical oncologists who remain outside of the circle.
In these situations, the medical oncology group that finds itself on the outside has few options that offer a strong likelihood for success. In general, there are 2 basic approaches for oncology practices. One option is for the practice to band together with the remaining independent practices of referring and treating disciplines (likely expanding services to compete more effectively) to capture the market share that the hospital has not already gathered up. The second option is to knock on the hospital’s door and seek admission.
Still Sinking: Pay Attention to Details
We recently received an alarming number of calls from practices that are sinking. What they seem to have in common—assuming that they are not in the “starved-out” group—is a lapse in attention to details. The most frequent lapses are:
- Poor management of drug purchasing and inventory
- Failure to monitor key statistics
- Failure to remain attentive to providing customer service
- Poor management of staff
- Drug management.
Using a group purchasing organization (GPO) is the most common means of purchasing drugs, and there are many reputable GPOs to choose from. Select a GPO that offers tools to help manage your spending through analysis of use of the following elements:
- Which drugs are used in the greatest quantity or with the greatest frequency
- What vial and/or package sizes will minimize unbillable waste and outdated inventory
- Which therapeutic equivalents are options, which regimens offer comparable clinical performance with less financial risk, and the determination of whether there is a dangerous pattern of off-label use that could result in frequent denials.
It is generally inappropriate to expect nursing staff to monitor these things, and smaller practices usually do not have sufficient additional staff to do so effectively.
Everyone has heard of dashboards. Dashboards provide an at-a-glance view of key performance indicators that can help healthcare professionals identify and monitor the most important information needed to think, reason, and make informed healthcare decisions. Yet few practices actually use them in any manner, even though they need not be complicated to create and to monitor.
A regular review of some key statistics in looking for changes and trends over a 3- to 4-month period should include:
- The number of new patients monthly. If you note downward trends, dig deeper to see which referring physicians have changed, or what type of patients are on the decline
- Monthly billed charges and total receipts. Explore downward trends to be sure that charges are not being missed or delayed, and to check for changes in payer policy or other collection problems
- Monthly drug spending and drug revenue. As long as they keep pace, there is no problem
- Monthly operating costs. Most operating costs should be relatively stable unless there is significant growth. If you have had measurable declines in volume, review your expenses for reduction opportunities
- Customer service. It is only human to eventually slide into complacency. Remain attentive to the experience that is delivered to patients (eg, friendliness of staff, bedside manner, wait times, etc), as well as to the experience provided to referring physicians (eg, copies of notes, fast track phone lines for referral, helpful staff) clinical expectations (eg, all or specific levels of evidence from nationally accepted guidelines, such as produced by the NCCN), but also operational (ie, staffing, expertise, regulatory compliance) and service (ie, patient satisfaction, all types of patient assessments and counseling, financial transparency and counseling, and multidisciplinary patient assessment and support).
- Managing staff. All the items above involve some staffing issues that need to be monitored. With the economy being still somewhat weak, we have seen a rise in unethical staff behavior, such as minor theft and “creative” accounting. In addition, when staff members are under pressure or are unhappy, performance can suffer and result in poor customer service and failure to complete work in a timely fashion. The staff represents the practice, so it is important that staff members are projecting the image that the practice wants to maintain.
Whether a practice is facing market pressures from competitors or is struggling to keep heads above water, the wise keep an open mind and look carefully at the details. For practices looking to align with others, those details are as much quantitative (eg, market share and financial arrangements) as they are qualitative (eg, the right fit, control, quality of life). For those who are trying to stick it out, the same applies. The quantitative details (eg, volumes, dollars) must be carefully monitored, and the qualitative details (eg, customer service) influence not only the measurable results but also the physicians’ ability to remain happy in their work.
- Barr TR, Towle EL. National Oncology Practice Benchmark, 2011 Report on 2010 Data. J Oncol Pract. 2011;7(suppl 6S):67S-82S.