According to oncology experts who spoke on a panel at the 15th annual Healthcare Life Sciences Private Equity and Finance Conference in Chicago on February 21, 2019, the oncology space is growing and its pool of patients is expanding, but the industry is also undergoing significant changes from an operational perspective. Practices, investors, and other financial players in the oncology space should be prepared to see significant modifications to certain oncology treatment and payment norms that have been in existence for an extended period of time.
The panel of experts was moderated by McGuireWoods LLP partner Gretchen Heinze Townshend. The presenting experts included Sam Cappellanti, Principal at Bellweather Group, and Jaganmohan Maturi, a pharmacy economist and MBA candidate at the University of Chicago Booth School of Business. Here are five key takeaways from the panel’s discussion.
1. Oncology practices are growing and becoming more specialized. Oncology practice patient volume is on the rise, with a 20% increase in the number of total oncology patients in America since 2013, with significant growth in specific areas, including breast cancer, lung cancer, colon cancer, and leukemia. There is a parallel trend of practices no longer treating a wide variety of tumors and instead choosing to specialize in a smaller subspecialties within oncology. As would be expected, the market has also seen a trend in physicians who are increasingly interested in becoming specialists instead of generalists. These trends have energized the oncology market, and 2019 should see continued growth and specialization.
2. Practices are diversifying their methods of delivering service to patients. Recent years have seen a rise in use of patient care management techniques, telemedicine to administer care, and other ancillary services that extend a practice’s capabilities beyond standard inpatient or outpatient infusion care. Managed care organizations are increasingly willing to reimburse for these ancillary services. Practices would be wise to investigate the revenue-generating opportunities the ancillary services provide, which in many cases take little effort for a practice to add to its current patient care models.
3. Biosimilars/generics will make a big impact in this space in the near future, but their impact won’t last forever. Due to the unique way in which oncology providers obtain, stock, and order drugs, practices may be able to transition between name brand and biosimilar treatments without interrupting operations or patient care. Right now, reimbursement pricing (both from commercial and governmental payor programs) for biosimilars creates efficiencies for practices relative to the pricing for name brand treatments. Eventually, the market will catch up with this phenomenon, so practices should focus on taking advantage of this pricing differential as soon as possible.
4. Changes are coming to the space that should help low-income patients better manage out of pocket costs, thus creating better patient outcomes and better revenue maximization for practices. Unsurprisingly, as costs per patient in the oncology space have increased, so have patients’ out of pocket costs. Around a quarter of US oncology practices have a patient population that consists of at least 50% individuals/households with an income of less than $40,000 per year. This means that practices need to get creative to ensure the availability of various treatments to all patients. There are a number of trends on the rise, including practices increasingly intervening in disputes between patients and payors, the usage of payment plans for out of pocket costs, and working with drug manufacturers that have robust drug replacement programs for low income patients. These can take effort on the part of practices, but hiring an extra employee who is charged with focusing on these strategies can pay big dividends.
5. Finally, practices and investors need to be flexible about developments in reimbursement in the mid-term future. CMS is pushing both commercial and governmental payors away from fee for service models and towards alternative payment models (APMs). In 2018, around 50% of oncology practices received significant reimbursement from APMs, and that percentage should continue to rise. All players in the market should be prepared to see fee for service models fall out of favor, and evaluate strategies to thrive in an APM marketplace.