With the recent $715 million merger of Houston-based American Oncology Resources and the Dallas-based Physicians Reliance Network Inc., US Oncology a new for-profit cancer treatment management company is poised to become the largest single purveyor of cancer care in the United States.
The hybrid company is the newest player in an industry that saw the number of new U.S. outpatient cancer centers double to more than 800 in the last 3 years, and is the first to attempt to establish outpatient centers as a new model of physician-managed for-profit cancer care.
For some, the merger represents a natural evolution of health care delivery: expanded access through efficient, cost-effective, community-based care run by physicians who partner with hospital-based facilities. But for others, this approach represents profit-driven entrepreneurs skimming away only the most profitable patients from hospital-based centers and providing access to only the most lucrative clinical trials and other treatment services.
Treatment Giant
Some analysts predict US Oncology may become a cancer treatment heavyweight and that it could be successful in creating an entirely new and profitable cancer service delivery model.
"Creating a single entity with over a $1 billion in revenues and 140,000 new patients per year is an incredibly powerful combination," said Brooks G. O'Neil, managing director of the Minneapolis-based financial services group U.S. Bancorp Piper Jaffray. "This business model is clearly about changing and improving the way cancer care is delivered in this country."
At present, more than 85% of all cancer care is delivered in an outpatient setting, but with more than 700 physicians and a nationwide network of 306 service sites and 50 outpatient cancer centers in 25 states, US Oncology anticipates delivering treatment services to at least 13% of all newly diagnosed cancer patients. The merger has resulted in a $1.5 billion enterprise that stands to collect $868 million in annual revenues and holds assets worth more than $980 million.
To understand the magnitude of the merger, it is expected that US Oncology will be the single largest consumer of chemotherapeutic drugs in the nation, with more than $400 million in annual purchases; it will represent approximately 11% of all practicing U.S. oncologists; and it will employ about 6,500 health professionals and support staff.
According to O'Neil, the $40 billion cancer healthcare delivery sector is growing at about 5% to 8% annually.
Eventually, he predicts, networks of community-based for-profit outpatient treatment centers emphasizing quality, efficiency, and convenience will largely replace the existing hospital and academic-based outpatient treatment centers. The potential for US Oncology and other for-profit groups to flourish is considered significant if they are left to consumer choice and other market forces without increased regulatory intervention or dramatic changes in reimbursement.
Economic Viability
Many think not-for-profit and for-profit cancer treatment centers differ little when the bottom line is to remain economically viable. Still, convenient access to service and clinical trials along with a reputation for delivering quality care offers opportunities for US Oncology and other community-based centers.
Diane Blum, executive director of Cancer Care, Inc., a 55-year-old non-profit organization in New York that provides free professional support services to people with cancer and their families, said "our concern is the quality of care and the environment in which people are treated. Often there are more support staff and multidisciplinary care teams in place in academic centers, but the reality is that many people don't live near these centers and want to be treated close to home in a community setting."
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The Clinton administration's proposed changes to the Medicare reimbursement system for now limited only to hospital-based outpatient treatment may result in an estimated 32% reduction in Medicare reimbursement and skyrocketing copayments for program beneficiaries.
Under the proposal, the current Diagnosis-Related Groups payment scheme would be replaced with new prospective ambulatory payment classifications for chemotherapy drugs, eliminate reimbursement for supportive medications, and also alter payments for radiation therapy.
According to professional groups fighting the proposed changes, the newest and potentially more effective chemotherapeutic drugs such as Herceptin would be in the lowest reimbursement rate category while older drugs would be reimbursed at the highest rates, and hospitals would have to absorb the costs of antiemetics and hematopoietic growth factors.
"Money Losers"
"It would be obvious from the time a patient walks in whether they are going to be a `moneymaker' or a `money loser,' " said Laurie Lamar, a reimbursement specialist with the American Society of Clinical Oncology. "(Federal regulators) think that a few procedures will make money and a few will lose money so that in the end all will even out but hospitals will quickly figure things out and those that lose money are likely to be dropped."
According to Lee Mortenson, the executive director of the Association of Community Cancer Centers, Rockville, Md., ambulatory payment classifications have the potential to "shut down" outpatient care at some hospitals and jeopardize plans to upgrade aging hospital-based radiation treatment equipment and facilities to compete with better-reimbursed freestanding facilities.
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In addition, the new network is already well-established in research partnerships.
Many of US Oncology's physicians are already participating in NCI-and-industry-sponsored clinical trials. In fact, plans to enroll 5% of all new patients in clinical trials will put US Oncology at almost twice the national average but still far lower than participation claimed by many large academic-based cancer centers.
ACCC's 600 community and university-based member hospitals and affiliated physician practices manage approximately 50% of U.S. cancer patient care and about 2% of cancer patients involved in clinical trials, so Mortenson is optimistic that there is room for both for-profit outpatient centers as well as not-for-profit hospital and academic-based centers in the marketplace.
"Some communities have gone to war with [for-profits] and others have worked with them. That is probably an artifact of negotiations between the hospitals and companies; a lot of it stems from the way hospitals and physicians have traditionally tended to view each other," Mortenson said.
Access to a substantial patient base coupled with participation in clinical trials also provides US Oncology and other networks the potential for amassing more treatment outcomes data. Moreover, these networks claim that patients will also benefit from planned in-house sophisticated computerized trial databases matching eligible patients to appropriate trials.
According to Harmon J. Eyre, M.D., the American Cancer Society's executive vice president for medical affairs and research, clinical trial access and data collection and reporting may be a "mixed bag" with large for-profit networks having the ability to collect more outcomes data than smaller groups, but also having to cover the costs of these efforts.
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Eyre said treatment centers must often absorb the non-reimbursable costs of participating in cancer clinical trials administered by non-profit research concerns. ASCO recently estimated that the average per patient trial costs for practice groups is $2000 of which NCI reimburses about $750, while industry-sponsored sources return far more about $2500. Though attractive from a profitability standpoint, he believes over-reliance on pharmaceutical trials would raise serious ethical concerns.
A California-based cancer outpatient center network, Salick HealthCare, was purchased in 1997 by the multinational Zeneca Group, which also owns chemotherapy drug manufacturer Zeneca Pharmaceuticals of Wilmington, Del. Because pharmaceutical firms often target group practices for clinical trial participation due to their access to patients, some immediately predicted Salick would become a ready resource for Zenica trials; Salick has maintained there will be no such "mandates" from the new owners.
Advocacy Impact
Other concerns include how and whether these community networks will partner with advocacy groups and with larger national cancer data collection efforts efforts such as the NCI's Surveillance, Epidemiology, and End Results Program.
Non-profit patient advocacy groups often have close working relationships with academic medical centers in providing patient educational materials and community outreach while the SEER program and state registries depend on hospitals and physicians to report cancer incidence data for compiling national statistics that lead to important programmatic decisions.
"We have just begun to scratch the surface in interacting with them but they stand to have a major impact on our work," Eyre said. "It's clear that the cancer community needs to pay attention to this trend in consolidation and expansion because groups this size can have a tremendous impact not only on patient care but on other areas such as research. And much of the impact of this has yet to be learned."
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