Four Approaches Oncology Practices Consider When Merging With Hospitals, Academic Medical Centers

With the uncertainty that accompanies health reform, a safe and secure alignment that integrates oncologists with a hospital or academic medical center can be seductive. A study by Ronald S. Barkely, MS, JD, of the Cancer Center Business Development Group based in Bedford, New Hampshire, suggests that there can be positive outcomes for the oncologist.

In the study entitled, “Oncologist-Hospital Alignment Models Built to Compensate Oncologists Fairly,” Barkely says “fragmented services can be consolidated and redundancies eliminated, oncologist incomes can be stabilized, truly comprehensive cancer care service lines can be organized, and communities can be better served.”

The key is structuring the relationship to fairly compensate oncologists for their professional contribution. Barkely et al outlines the basic approaches for oncologist employment, including: direct employment, a professional service agreement (PSA), a management service agreement (MSA), and a comanagement agreement (CMA).

In direct employment, the oncologist provides medical services to hospital patients, with the physician receiving a paycheck in return. Pay rates are negotiable, depending on local market economies, and subject to limitations to fair market value (FMV). Direct employment is subject to the laws of supply and demand, and compensation packages can include a fixed salary, productivity-based compensation, and performance-based bonuses.

Direct employment by hospitals leads to loss of professional autonomy, making many oncologists shy away from this methodology; a PSA approach preserves a modicum of private practice. In the PSA scenario, a hospital contracts with the oncologist or a group of oncologists to provide services to hospital patients. The oncology group views the hospital as a single payer, rather multiple health insurance contracts. It also allows the practice to stay intact. Practices can continue generating revenues as private billings, especially if the practice has multiple locations, while also servicing a hospital PSA in others.

In the third approach, the MSA, a hospital can purchase management services from a practice. These services might include oncology billing services, nonphysician staffing, service line development, and oncologist supervision/oversight of chemotherapy services.

In the CMA scenario, the hospital assumes all of the practice operating infrastructure (staff, facilities, equipment) and redeploys it in the operation of the hospital’s oncology service line, but the practice continues to provide and bill for professional medical services (evaluation and management) as an office-based service. Note that in this approach, billing for drug and drug administration services are no longer a revenue stream for the oncologist. This loss of revenue can be addressed in the CMA agreement. The practice is paid a fee for providing chemotherapy/infusion medical oversight and related services to the hospital program. In a CMA, both the hospital and oncologist are jointly responsible for managing a defined set of services and meeting defined performance targets, sharing in the financial results when performance targets are met.