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Community oncology practices turn to mergers, private equity to avoid hospital acquisition

Dive Brief:

  • Roughly 1,750 independent community oncology clinics and practices have closed, been acquired by hospitals, merged or reported significant financial struggles since 2008 as financial pressures continue to drive consolidation in the industry at large.
  • The number of practices merging or being acquired by another community oncology practice or corporate entity like private equity firms has increased almost 21% in the last two years, according to a new report from the Community Oncology Alliance, as practices seek to avoid hospital buy-out.
  • And, despite many independent clinics keeping their doors open to provide chemotherapy and other cancer treatments during the pandemic, the coronavirus is hitting oncology practices’ bottom lines hard, early data shows. 

Dive Insight:

Behemoth health systems have gobbled up small practices over the past decade to shore up their financial footing amid persistent headwinds like lowering reimbursement and volume. Provider lobbies maintain consolidation lowers costs while improving quality of care, contrary to numerous reports.

One study in the Quarterly Journal of Economics found prices rose 6% after hospitals were acquired, partially due to limiting market competition, and another in the New England Journal of Medicine funded by HHS found acquired providers had worse patient experience, along with no change in 30-day mortality or readmission rates.

But the rate of hospitals acquiring community oncology practices has marched along, increasing almost 10% between 2018 and 2020 due to financial incentives built into the 340B Drug Discount Program and higher payments to hospitals for cancer care, COA found.

Over the last twelve years, an average of 9 practices per month have closed, been acquired by a hospital, or merged, with the largest number of practice closures in Florida (47), followed by Texas (44) and Michigan (36)

“Policymakers in Washington are still not doing enough to preserve the independent, community oncology system,” COA Executive Director Ted Okon said in a statement, saying the 340B program is “runaway” and disparate site-of-service payments “basically mint money for hospitals.”

The 28-year-old 340B program allows certain providers to purchase prescription drugs at highly discounted rates. It’s the subject of perennial controversy, with the pharmaceutical industry arguing it costs patients more in the long run by moving care to hospital outpatient settings while providers maintain it’s necessary to help safety net hospitals access affordable medications.

The Trump administration instituted a 30% payment cut for 2019. Though a federal court struck down the rate adjustment in May as unlawful, a January report from watchdog Government Accountability Office in January suggested 340B may need more oversight on how savings are spent.

“Over 80% of community oncology mergers with hospitals were into hospitals with existing 340B programs,” Okon told Healthcare Dive, noting hospitals receive the steepest program discount on the priciest drugs, which include oncology treatments. Medicare also pays more outpatient services performed in hospital facilities than in physician offices or ambulatory surgery centers, creating a market imbalance that incentivizes consolidation.

Groups like the Center for American Progress have called for increased antitrust scrutiny from regulators as a result of rampant consolidation, but there’s been little change in antitrust laws since the 1980s, despite snowballing healthcare M&A.

“These are troubling trends and dangerous for patients battling cancer,” Michael Diaz, COA president and director of patient advocacy at Florida Cancer Specialists & Research Institute, said.

Additionally, community oncology practices are reporting steep decreases in visits, treatments and new patients due to COVID-19, mirroring the financial crisis faced by other independent practices and providers in general. The Trump administration this week rolled out the second wave of funding from the $100 billion for providers apportioned in March’s Coronavirus Aid, Relief and Economic Security Act.

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