Partnerships: All Together Now

During his 25-year career as a radiation oncologist, Leslie Botnick has learned one thing: there is strength in numbers.

The one-time medical director of radiation oncology at Beth Israel Hospital in Boston teamed up with three other cancer specialists in 1991 to open Valley Radiation Oncology Center in Tarzana, Calif. The freestanding treatment and research center, which offers a cadre of high-tech therapy services normally found only at university hospitals, is one of 12 radiation centers operated by Valley Radiotherapy Associates, where Botnick is CEO.

He explains that it was a partner, oncologist Chris Rose, who “had the idea of bringing to community practice the level of cancer care equivalent to the best hospitals in the country. That’s what brought us to California. We didn’t believe it had to be at an academic setting.”

On the heels of the group’s success, Botnick then helped found Vantage Oncology in 2002, a management company that creates joint venture ownership opportunities for physicians looking to partner with a larger network without surrendering control of their own practices.

Today, the Vantage Oncology network has grown to 31 radiation centers across the country. Each is a joint venture allowing (but not requiring) the physicians to own up to half of the centers they run. Valley Radiotherapy Associates, Botnick’s medical group, is affiliated with eight centers; of these, it has an ownership stake in four. “In the field of oncology you have to reinvest capital [in costly new equipment] very often, so this model allows us to leverage” the resources of a larger network, he says. “I feel that I now have the ability to deliver the best service and care to my patients anywhere in the country, and it’s at my practice.”

Botnick is not alone. Like many other specialties, cancer providers are partnering with hospitals and larger medical groups in a variety of models to improve patient care and boost their bottom lines. Indeed, the recent reduction in Medicare drug reimbursement rates have hit oncology practices particularly hard, forcing them to create new business alliances to survive.

“Their business model has been shot out from under them,” says Alice G. Gosfield, a healthcare attorney in Philadelphia. “As their money gets ratcheted back they are left with a situation where they don’t get paid for much of what they do, so oncologists are very interested in finding ways to maximize reimbursement through other channels.”

Past failures

Physician partnership models, however, have a long and checkered past. In the 1980s and early 90s, the answer to the industry’s escalating costs appeared to be hospital employment. Community hospitals were buying up primary-care practices at breakneck speed, hoping to solidify physician referrals and use their management expertise to improve profit margins. A decade later, however, most hospitals concluded that they had overpaid for the practices they purchased. Moreover, they were ill-equipped to manage smaller practices, and the physicians they employed were less productive without a vested stake in the practice’s success.

Physician practice management companies (PPMCs), meanwhile, were another passing fad. Designed to offer physicians economies of scale, access to capital, and better bargaining power with payers, they, too, failed to account for the complexities of managing a large network of smaller practices. In the end, thousands of physicians who bought into the concept were forced to repurchase their practice assets.

Since then, of course, new federal regulations - including Stark, which restricts doctors from profiting from referrals or limiting care to patients to reduce costs - have severely limited the number of arrangements that are legal today. Yet, from the ashes of earlier integration models, a new lineup of partnership strategies has emerged that better serves physicians, hospitals, and the patients they serve.

Larger group practices

Like Botnick, for example, many doctors are leaving their solo practices behind to form single-specialty groups of six to 50 physicians. According to the Center for Studying Health System Change, the number of solo and two-physician practices decreased significantly from 41 percent to 33 percent between 1996-97 and 2004-05, the latest years for which data are available. It notes that certain subspecialties, including oncology, “are moving to larger practices more than others.”

Though solo practitioners often bemoan the loss of autonomy in a large group setting, such integration provides greater bargaining power with payers and helps diversify financial risk. By pooling their resources, it also creates opportunity to broaden their ancillary service offerings (such as medical imaging, diagnostic testing, laboratory and pharmacy services) or open ambulatory care centers to perform a larger volume of more profitable same-day procedures - once the exclusive domain of hospitals.

Hospital partnerships

Though the creation of large group practices and physician-owned joint ventures have been largely successful, however, it’s partnerships between doctors and hospitals that are driving the trend today. Faced with growing competition from outpatient centers, hospitals are increasingly motivated to align themselves with specialists before they encroach further on market share. Physicians, meanwhile, are looking to partner with hospitals that can help them deliver higher quality products and services to their patients.

“All of these partnership trends are moving towards a more integrated delivery model,” says Brett Hickman, partner and leader of strategy and planning practice with New York-based consulting firm PricewaterhouseCoopers. “By working together, hospitals and physicians can increase quality by 20 percent to 30 percent and reduce costs by up to 40 percent.”

Employment model

In many cases, hospitals are simply hiring physicians as employees. Where previous employment relationships between hospitals and primary-care practices largely failed, however, hospitals today are targeting individual specialists, a strategy that has proven more successful. “A direct master-servant employment relationship can be easier to manage, and performance metrics can determine productivity bonuses,” says Gosfield, “Hospitals are buying and employing neurosurgeons, hospitalists, orthopedists, cardiothoracic surgeons, and radiation therapists across the country and I am starting to see that happen in oncology.” How successful the employment model is depends upon physician productivity and a common vision among the parties, Gosfield says.

Not all physicians, of course, have embraced the concept of direct employment. As a result, many hospitals have developed business models that give physicians more flexibility in the extent to which they align themselves with the institution - some offering physicians financial rewards for quality improvement, others creating joint venture facilities that the doctors then manage, and still others that simply grant physicians more decision-making power over staff and capital expenditure decisions.

Let’s have a look at these models:

Comanagement. This model describes a variety of partnership arrangements. Under one common scenario, the hospital and physicians create a joint venture, such as an ambulatory care center or hospital-affiliated freestanding cancer center. The physicians manage the facility as well as staff it, receiving financial incentives based on quality outcomes (rather than cost savings, which could violate Stark).That includes meeting certain national benchmarks for operating efficiencies or creating better access or new programs for the community.

Typically, says Hickman, the physicians maintain their own private practice and work on a contractual basis for the hospital - though hybrid structures also exist, in which the physicians who help manage the center are a combination of private practitioners and employed physicians. In many cases, the physicians and hospital invest in the facility together, though some hospitals assume full financial responsibility for setting it up and pay the physicians to keep it running.

Under another comanagement scenario, the hospital turns over to a private practice the responsibility of managing one of its product lines.

Medical directorships are somewhat similar to comanagement arrangements, but on a smaller scale: Hospitals simply hire a single physician to administer a particular program, such as oncology infusion services. Often, this is intended to solidify the hospital’s position in the healthcare community as the go-to destination for that service line.

Under this model, physicians are reimbursed not as an employee, but as a consultant, based on their ability to make the program profitable and to provide clinical and quality-improvement initiatives.

Gainsharing arrangements, in which physicians receive cash payments for reducing hospital expenditures, have been severely restricted by the Stark regulations and civil monetary penalty statute. A few such arrangements, however, which compensate doctors for providing cost effective care have been approved by the Office of Inspector General (OIG). “You have to walk a very fine line with gainsharing programs, but there are a lot of dollars that physicians can help save,” says Joanne Goodroe, founder of Goodroe Healthcare Solutions in Norcross, Ga., a VHA-owned company which developed a handful of OIG-approved gainsharing programs.

Hospitals that participate in gainsharing models typically pay physicians based on a percentage of savings. Quality must be maintained at acceptable levels. Thus far, says Goodroe, gainsharing models are most common among cardiac surgeons, cardiologists, anesthesiologists, orthopedists, and neurosurgeons.

The reinvestment model provides no monetary incentive for the physicians at all. Instead, they help determine how the savings they generate are spent - from the purchase of new equipment to new hires. “This is a very good model because hospitals have very limited resources to use,” says Goodroe. “It is the physicians who can determine how best to benefit patient care with those dollars.”

As the least formal version of hospital alliance, the reinvestment model is not a binding relationship, she adds: “It’s a working relationship in which everyone is heading toward the same goal and that includes cost savings.”

Making it work

Determining which model is right for your practice depends on multiple factors, including your willingness to relinquish autonomy, your long-term goals for your practice, and the financial position of both parties. Whatever partnership strategy you pursue, however, be sure it’s not driven by economic benefits alone.

“In this day and age, that would be incredibly shortsighted,” says Gosfield, noting that the current pay-for-performance environment demands that quality care gets an equal billing. “In a value-purchasing environment, who’s going to buy what you’re selling?” she asks. The most successful partnerships, she notes, are achieved through a shared commitment to quality care.

Be sure, too, that you know what you’re getting into - including how you, as a physician, may benefit, how it will affect your patients, and what you’ll need to contribute to make the partnership succeed. “Financial health is important,” notes Gosfield. After all, you can’t continue to practice without it. Ask whether any other physicians have entered into this arrangement with the medical group or hospital. Find out who will manage you and what measures of performance will be used. And always inquire about previous partnerships with physicians, says Gosfield. How successful were they? What affected the success or failure?

Hickman agrees, noting any steps you take to become more aligned with larger providers today will help ease the transition to tomorrow’s more integrated care delivery system. “There’s no one model fits all, but it’s increasingly important to learn to work together collaboratively so that as the economics change it will make more sense to work as one,” he says. “We can build a better healthcare system with limited dollars. We just have to do it together.”

Shelly K. Schwartz, a freelance writer in Maplewood, N.J., has covered personal finance, technology, and healthcare for 12 years. Her work has appeared on CNNMoney.com, Bankrate.com, and Healthy Family magazine. She can be reached via editor@physicianspractice.com.

This article originally appeared in the September 2008 issue of Your Best Practice.