Oncology Spotlight: M&A Trends & Optimizing Practice Revenue

In this episode, host and VMG Health Chief Commercial Officer Jen Johnson  sits down with Managing Director Kevin McDonough, CFA, and Director Debra Rossi, CCS, CCS-P, CPC, CPMA to discuss the oncology transaction environment, and to share tips on how to optimize revenue in the current, evolving reimbursement landscape.

Topics covered in this conversation include:

• How large high-profile cancer providers are expanding into new markets through partnerships and affiliations
• Tips for oncology practices being approached by buyers from a coding or operational excellence perspective
• In-depth insight into strategic affiliations within the oncology sector
• Affiliations and transactions that show industry participants are trying to benefit from these new value-based care payment models
• How oncology practice clients can maximize value-based care reimbursement

Want to learn more about this topic?

Read VMG Health Oncology strategic case study linked here: Strategic Case Study: Oncology Services Assessment

Read Rossi's full article about typical reimbursement concerns for oncology practices linked here: Managing Oncology Practice Revenue in the Face of Rising Healthcare Costs and Regulatory Burden

Learn more here about VMG Health's service offerings for Oncology and click here to access the 2023 Healthcare M&A Report.

Transcript

Intro 0:06 Welcome to the Healthcare Download with VMG Health. We are the leaders in strategy and transaction advisory dedicated to finding solutions for the healthcare industry. In each episode, we will leverage our expertise to provide trends and timely updates about what is happening on the business side of healthcare so you can move your strategy forward.

Jen Johnson 0:32 In this episode, “Oncology Spotlight: M&A Trends and Optimizing Practice Revenue,” we will be interviewing two leaders and VMG Health’s Oncology Affinity Group. Kevin McDonough is a managing director in VMG Health's Valuation & Transaction Advisory division and will provide an overview of the transaction environment and insight into strategic affiliations he's seen in this space. Debra Rossi is a director of VMG Health’s Coding, Compliance, and Operational Excellence division, and will walk us through some valuable guidance on how oncology practices can optimize their revenue in today's reimbursement environment. And I'm Jen Johnson, VMG Health's Chief Commercial Officer, and I'm ready to get us started with a dose of some practical insight on the business side of healthcare. So, Debra and Kevin welcome. And we've got Kevin in the Dallas office with me, and Debra is calling in from New York. So, I'm especially excited for this podcast, because we get to bring together two of our service lines, Kevin's from transactions, and Debra's from coding and compliance. So, you guys do some work together, don't you?

Kevin McDonough 1:36 Yeah, you know, Jen, I've got to say I'm particularly excited to participate in this podcast where we've been able to bring thought leaders from our legacy transaction-oriented VMG Health, ie me, with Deb from CCOE that has a wealth of operational-specific expertise, which really historically is an area that our firm really lacked. So, agreed I think it's fantastic to come together.

Jen Johnson 1:59 Yeah, me too. And Debra, how's it going over there in New York?

Debra Rossi  2:03 Well, it's been great to be a part of VMG Health, and to add that portion of coding and compliance that wasn't there before and to see what happens before we get brought on board as well. It's been quite an experience. And, both from a learning aspect and from a client aspect, to see what their needs are.

Jen Johnson 2:23 Yep, I know, they've been super appreciative of the combined service lines, and more and more clients are seeing the benefits that we're bringing together. So, it's really great to have you guys both here, what I'd like to do is first just set the stage for this podcast, I'm going to start with some statistics here. We've got the 2022 Oncology Market Report by Precedence Research, and they're showing that the global oncology market is expected to experience an 8.2% growth rate through 2030. So, we've got a really high growth sector here. And then we've got the American Society of Clinical Oncology, projecting a shortage of nearly 22 oncologists by 2025. So, this is going to make this high-growth industry a little tricky for this sector. And we all know that physician alignment is going to play a huge part in this. So, now let's add to the complexity- we have medical oncology, radiation oncology, and emerging models among proton therapy centers. So, we've got a whole lot going on here. So, what I'd like to do is go ahead and start with Kevin and get a little bit on what's happening in the transaction environment. And then we'll move to Deb, get some tips on maximizing reimbursement through coding guidance. And we're gonna go ahead and end this with some value-based care discussion. So, Kevin, could you give us some examples of the recent trend we're seeing with large high-profile cancer providers that are expanding their reach into new markets through partnerships and affiliations?

Kevin McDonough 3:45 Yeah, you betcha. So in some respects, this represents not really a new trend, but one that's developed over the last decade, however, has perhaps accelerated here most recently. And just to kind of set the stage a little bit, what I'm referencing here is, is really your mainstay, your prominent cancer providers, typically, these are large, academic focus. You've got NCI-designated cancer hospitals among them. These entities have continued to expand their presence out of their core markets, but certainly in a very measured way. So this isn't a massive expansion or mass growth strategy that we're seeing with some of the, you know, PE-backed entities that are rapidly gaining scale, you know, what they're looking at is picking the right partners, or right affiliations, and growing in a very methodical manner. You know, the question is why this strategy? Well, at the end of the day, really protecting the brand is of utmost importance to these groups and to these entities. They aren't going to pursue any type of growth that jeopardizes their position as kind of “the place to go for complex cancer care.” And as a result, we've seen affiliations such as MD Anderson, has the MD Anderson Cancer Network. The first partner with that was Banner Health, now several years old. That's now expanded to include Baptist in Florida, Ochsner, the honor system in Louisiana, Scripps in California, and most recently Community Health Network in Indiana. Sloan Kettering, there on the East Coast, has the Memorial Sloan Kettering Cancer Alliance. So, this now includes Lehigh Valley, Hartford HealthCare, and Baptist in South Florida. You've got Dana-Farber Cancer Institute has what they call “collaborative members.” Again, generally the same strategic idea, they allow access to expanded clinical trials, research, education, programmatic support to their kind of “collaborative members.” You know, with these affiliations, you also come co-branding opportunities. So then, as you might imagine, in exchange the benefit of these prominent cancer programs is they're able to receive long-term compensation from these affiliates that are able to leverage their expertise and their brand. And then, of course, the additional benefit to these large prominent cancer programs is that these affiliates serve as really a feeder system for your highly complex cancers into their main hospitals. You also had City of Hope, acquired Cancer Treatment Centers of America, which expanded their presence outside of Southern California into the middle American markets of Arizona, Illinois, and Georgia. So again, to sort of round out this topic, what you've got is your highly prominent academic and research-focused oncology systems that have certainly flexed their muscles that relate to expansion, however, they have done so, you know, not through kind of traditional acquisition or new development, but really leveraging the right partners with their own local, established patient population basis through this kind of affiliation model, as opposed to acquisition or development.

Jen Johnson 6:50 Okay, thank you, Kevin. So, it looks like these high-profile cancer providers are really very methodical about their process. So, this is a good time to ask Debra, if you were to advise an oncology practice on how to prepare to be approached by one of these buyers, what are some tips you would give them from a coding or operational excellence perspective?

Debra Rossi 7:10 That's an interesting question. And I think that my answer here would not be any different whether there was an acquisition in place or possible acquisition, I would advise that both coding and operations will be a significant focus of any acquisition or transaction so practices should be prepared for careful and sometimes intense scrutiny by the potential buyer. And from a coding standpoint, I would advise as I would, regardless of an acquisition, for the practice or organization to, first of all, ensure that all medical coding resources include the most up-to-date ICD-10, CPT, and HCPCS codes that allow for current and accurate coding of all the services that are being provided. Inaccurate coding, as we all know, can lead not only to compliance issues but contribute to revenue loss as well. If coding is done internally, there should be training on regulatory and code changes that occur on an annual basis. CPT codes are in January and ICD-10 is in October of every year, make sure that you have a quality assurance program in place to identify coding inaccuracies. If your coding is done externally, you want to be sure to understand what processes your coding source has in place to make sure accurate coding of your services is being done, and obtain regular reporting from your coding source which includes a report of their QA process. I would also recommend that regular audits be conducted of coding practices and documentation to identify any potential discrepancies or areas for improvement. Practice operations will also be an area of interest and particular areas of interest will be the financial performance and monitoring, front-end operations, and clinical workflows. In order to assess the practice's financial health, key performance indicators will identify any areas of deficiency in the revenue cycle. Make sure you're aware of industry standards for KPIs relevant to the oncology specialties, and that you produce and review these reports with all impacted stakeholders on a regular basis. Identify areas for improvement and have processes in place to achieve those improvements, also optimize operational efficiency by analyzing workflows, identifying areas for improvement, implement systems that can streamline patient scheduling, check-in, insurance verification, pre-authorizations, billing, and administrative tasks. These can all impact your workflows and your revenue streams as well. And following HIPAA rules for patient records and data management can be problematic for practices if not compliant. Ensure all your patient records are properly organized, accurate, current, and easily accessible. Data management is crucial for the continuity of patient care and make sure that you have implemented robust data security measures to safeguard patient information and all staff is trained on and following these measures. Lastly, I always recommend that you consult with a team that is experienced in healthcare, mergers and acquisitions, to ensure that the practice’s interests are well represented and protected throughout the whole process.

Jen Johnson 10:43 Perfect all very, very helpful. I love that your team is always just so keen on the compliance aspect with anything we do, which is, you know, you get down to the nuts and bolts for the operations at the practice level, which is something everyone needs to look at, especially if they're looking to acquire a practice. So, very helpful information. You know, I'd like to add that having the focus on the quality of revenue, which you all do an amazing job at, is really important for any buyers. So, very informative, thanks very much. Now, you know, a lot of these affiliations that Kevin talked about had to do with health systems. But we have health systems doing other things that aren't part of these larger initiatives. So, I want to talk just a little bit about what they're doing in the space, many, of course, are looking to offer a wider breadth of cancer care for their patient populations. So, in addition to going through a transaction, this often means strategic affiliations, and a lot of tactical work. Some of the areas we're seeing our clients look at are our capacity planning, retail pharmacies, ACO waiver eligibility, and of course, 340 B cost savings, just to name a few. So, I wanted to point out at this time that we have a really great case study on our website for health systems interested in these areas. So, that's something you can check out on our oncology sector page, I just want to drop that little tidbit in case someone was interested in those areas. But what I'm going to do now is switch over to a different buyer type, which is private equity. So, Kevin, can you comment on what these guys are doing out there? And is it really any different than the other players from a strategy perspective?

Kevin McDonough 12:17 Yeah, absolutely. Jen, before we delve into it it probably makes sense just to lay a little historical backdrop here as well. So, if we think about it, prior to about 2018, PE involvement in the oncology space was realistically pretty non-existent. Outside of your health systems and your academic institutions, you had certain companies, very few companies, like US Oncology or Alliance Oncology, but realistically, that was it. So, when you think about it, PE's absence from oncology is actually pretty intuitive when you think about their progression and their involvement in healthcare. PE’s involvement in the practice space began with, generally, you're talking low complexity, retail-focused practice verticals, so think, dental, dermatology, pain, GI, ophthalmology, and that's really gradually progressed to more complex, higher acuity practice verticals. And so when you're thinking about practice complexity, and patient acuity, as we get out to the last rung of that, it is realistically oncology. So, while PE’s expansion into oncology was absolutely inevitable, given all the money that's flowing into generally healthcare, from the private equity space, it did take time, and its penetration in the market still is quite low. It gets reported that still at sub 10% of oncology providers that are affiliated with PE-backed platforms. So, then the question really is what is their strategy? I think, realistically, it follows a similar blueprint, as you've seen in other healthcare practice verticals, you acquire an initial platform with a decent level of size and sophistication, then you pursue tuck-ins and similar markets or adjacent markets to kind of scale up the platform, they will provide these groups, certainly with back office support. And then as you're talking about oncology, very, very important, access and purchasing power as it relates to expensive drugs, which is very, very key in oncology. So, these groups aren't really competing necessarily for practice acquisitions with your kind of large, prominent academic providers necessarily, however, they are competing with your local health systems for community-based oncology groups. Just a quick plug, I know groups, and our strategy group in particular has done increasing levels of work with health systems as they kind of try to compete really with the PE-backed acquisition model with these practices. And so that is something that if we think about 5,7,8 years ago, health systems didn't have that level of competition, especially for high acuity practices, but they do now. So, our group has done a lot of work with them specifically. So, you know, the question being who are the players? So we'll just kind of do a little bit of a rundown here. This isn't intended to be all-encompassing, but you've got OneOncology, I believe this is the largest PE-backed platform. They're approaching 1,000 doctors overall. Historically it was owned by General Atlantic. However, they just recently got purchased by TPG and AmerisourceBergen, interesting seeing when you're talking about AmerisourceBergen involvement, you see Big Pharma get involved with an oncology platform. Again, given the importance of pharmaceuticals in oncology care, it is intuitive that they would potentially get involved here. We also saw this about a decade ago when McKesson originally purchased US oncology, again, kind of Big Pharma, getting involved with oncology platforms, you've got ION, so Integrated Oncology Network, smaller, owned by Silver Oak, about 50 locations. You've got American Oncology Network, which is about 200 providers. It's not PE-backed directly, but it did receive growth capital funding from AEA investors. Then you've got smaller platforms, an example there being Verdi Oncology that's owned by Pharos Capital here out of Dallas. And then lastly, you do have a kind of a smattering of urology platforms, which most oftentimes these urology platforms do have significant oncology components because of the prevalence of urological cancers. So, some of the largest ones there are United Urology Group and Solaris Health. And I know we'll talk a little bit about value-based care here coming up, but the most recent PE-backed platforms that have come on the scene, you've got Oncology Care Partners, which is backed by Welsh, Carson, Anderson & Stowe, and then The Oncology Institute, which that one's been around for a little bit longer. But again, just kind of their sole, or at least the majority focus is on value-based care overall.

Jen Johnson 17:04 Well, that's actually quite a lot of activity for just being 10%. So, that was a really good recap of it. And I know that PE has a ton of dry powder. So, I think this is going to continue to be an active sector for them, it's probably going to continue to grow as they do with every sector, it seems, every time we look into it. And just looking at overall M&A with oncology, whether it's PE or health system, I did want to let everyone know that our Annual M&A Report is out and we have a whole dedicated section on the oncology sector. So, if you want to check it out, it's got acquisition activity, notable transactions, so a lot more information there because it is a pretty robust report if you really want to walk through all these players. So, now I'm going to switch over, staying on PE though, but Debra, what I'd like to ask you is would you advise an oncology practice client to think through anything different if they were approached by a PE buyer versus some of the other buyers we've discussed?

Debra Rossi 18:00 So Jen, as far as coding and compliance goes, I don't think I would recommend a different approach based on the buyer. Coding and compliance is always an inherent part of any practice and should be monitored on a regular basis. Adhering to those coding and compliance regulations ensures that the organization operates ethically and legally, which can prevent potential issues from occurring in respect to coding, billing, and compliance guidelines. As we all know, proper coding practices prevent overbilling and fraudulent activities, it safeguards the health care organization and the provider from financial losses, and potential repercussions associated with billing inaccuracies. Coding and compliance accuracy does have far-reaching effects and benefits that can impact patient care, financial stability, practice and provider reputation, and legal standing. Every group, as my recommendation, should have a comprehensive compliance program in place and that should include annual provider reviews and education as a monitoring method for coding and billing accuracy. Healthcare practices that prioritize these aspects usually create a foundation for success, ensuring the best possible outcomes for both patients and the organization as a whole, and are attractive acquisitions to any buyer, regardless of the source.

Jen Johnson 19:31 Very, very helpful, Debra, I think this is true for any sector and I know it's quite complicated in the oncology sector. So, we appreciate all that you do for our clients in this space, and you have taught us coding and compliance is very important to any practice on a lot of levels. So, thank you for that. What I'd like to do is move over to the topic of value-based care because it is big in oncology, and I want to see what you're seeing in the space. I know that Kevin has seen this trend with transactions and Debra has seen it in coding and reimbursement work. So, I'm going to just start by providing a little bit of background, the value-based care models have really gained traction within the oncology space recently. Now we've got the federally launched Enhancing Oncology Model, and this recently replaced the Oncology Care Model. So, what this is, just super briefly, it's a five-year voluntary episode-based model aiming to lower costs, improve quality, and it's tied to better reimbursement. So, this is of course driving new affiliations and physician compensation models. So, with all that said, I would like to ask Kevin, what are you seeing as it relates to affiliations and transactions that show industry participants are trying to benefit from these new value-based care payment models?

Kevin McDonough 20:44 Yeah, you bet, Jen. So, we touched on this a little bit earlier. However, just to expand a bit here, what we've recently observed is nearly all of these PE-backed platforms have expanded their value-based offerings through strategic partnerships, and through investments. In recent public announcements, I know OneOncology leadership has communicated that they're actively assisting their practices that are seeking to participate in the new model, the Enhancing Oncology Model, Jen, that you just referenced, as well as pursuing other risk-bearing arrangements with, not only on the governmental side, but also on the commercial insurance side. So, at its core, value-based care in oncology really comes down at the end of the day to the management of pharmaceutical expense and drug margins. So, when you're talking about medical oncology, the single greatest expense is, of course, your pharmaceutical expense. So, managing that is really paramount to generating profits, and doing and managing value-based care, right. You also have several new platforms, and I touched on these a little bit, but they have expressed specific strategies of pursuing value-based models with their affiliated practices. So, that's kind of the differentiator in the market, you've got the Oncology Institute. So TOI for short, 50+ office platform that operates in four states, it's headquartered in Los Angeles, it was actually a not-for-profit that then went public, being the first pureplay oncology platform to be listed on a public stock market. It went public, now a little bit over two years ago, actually, during kind of that SPAC craze that happened in the late and kind of fall of 2021. Important to note, they've communicated TOI manages north of 1.5 million patients under value-based arrangements, so fairly significant scale there. We mentioned too, American Oncology Network, so AON discussed earlier announced plans to also go public through a merger and acquisition by an existing SPAC. So, this occurred more recently here in the fall of 2022. At my heart I’m a valuation guy, so that deal, we were able to glean some information from as it relates to valuation multiples. That valued AON at an enterprise value of $500 million, which equated to an approximate EBITDA multiple, just shy of 14x. So, again, you're talking about, you know, garnering significant relative valuations for these oncology platforms. And then finally, Welsh Carson, it's almost like any vertical is not complete unless Welsh Carson gets into the mix. So, you've got their backing of Oncology Care Partners, too. So, that's as far as kind of pure-play value-based, not pure-play but those that are focused on it.

Jen Johnson 23:32 More than I thought, so a whole lot of activity. Obviously, this is where things are going and I know from my division in the compensation world, we're seeing a lot of reworking of physician compensation models, where physicians are being incentivized to lower costs and improve quality. So, this trend is obviously here to stay. So, what I'd like to do is gain some insight from Debra on this, like, how do you guys guide your oncology practice clients to maximize value-based care reimbursement?

Debra Rossi 23:58 Well, as you noted, Jen, value-based care reimbursement as a healthcare model that focuses on the quality and outcomes of patient care rather than that traditional fee-for-service approach, where reimbursement is contingent on the volume of services a practice delivers, rather than the quality of care and the costs associated with that care. In the value-based care, reimbursement is tied to the effectiveness and efficiency of the care provided with the aim of treating the person, rather than the disease. This is where that accuracy of diagnosis coding is crucial to communicating the acuity of your patient conditions to payers, and we recommend providers be familiar with coding rules and regulations to guide their choice of the appropriate codes and to establish the medical necessity of the services provided. The new Enhancing Oncology Model is intended to transform care for cancer patients and it's incentivizing providers to deliver high-quality, evidence-based care while controlling costs and their goal is promoting better health outcomes, patient satisfaction, and cost-effectiveness. Participation in this model is voluntary, it is national in scope, and if you're not participating, more information on the program is available on the cms.gov website. And we do recommend that you check it out and maybe get involved in this program. A quote directly from CMS is, “The ultimate goal of this model is to make cancer care more affordable.” And therefore, the way the future is moving for all types of specialties, not just cancer. So, become familiar with these new value-based care models and how you can make sure that you are delivering that quality care and minimizing costs, and that will be advantageous for your practice. But it does all come down to that diagnosis coding and how you’re reporting and understanding how to report and be most accurate when you're submitting your claims. We recommend that you have education on risk-based coding, and understand how that will impact you as a practice, and especially if you are participating in these models. Anytime anyone needs assistance with that, that is one of our specialties. We do have risk coders on board as far as our Coding & Compliance team, and we are happy to provide that type of education for any practice that would require it.

Jen Johnson 26:46 Perfect. Thank you, Debra. I know that these models and the coding guidance are changing regularly. So, we really appreciate your team continuing to be on top of this and helping our clients both maximize reimbursement and stay compliant, it's a lot. And I'm going to go ahead and plug, I know this is something you've recently published, which I think is fitting for this topic called, “Managing Oncology Practice Revenue in the Face of Rising Healthcare Costs and Regulatory Burden.” So, this outlines some really priceless information for any oncology practice that I just wanted to point out for listeners. So, you know, overall, I think we've really covered what I was hoping for, you know, Kevin, I appreciate the thorough overview and your expertise in the transaction space. Debra, I know listeners will be able to benefit from all that you've provided with your coding guidance. So, what I always like to do is recap our episodes. So, first, we've got oncology, obviously, a complex high-growth healthcare sector, and I imagine it will continue to be for at least the next 10 years. Second, PE's involvement in this sector will continue to grow. And third, if you are in the oncology space, you want to understand the ins and outs of the value-based care models, especially as it relates to coding guidance. So, Debra and Kevin again, we appreciate you both for the excellent insight and want to make sure listeners know they can reach out to either of you anytime with questions, and be sure to check out our oncology page on VMG Health's website for more resources on this sector. Everybody, take care.

Outro 28:15 Thank you for listening to the Healthcare Download with VMG Health. Make sure you subscribe to the show wherever you listen to podcasts to receive new episodes when they release the first Wednesday of each month. You can also go to vmghealth.com or visit the episode notes to follow VMG Health’s monthly newsletter and to learn more about this conversation.