Managing Oncology Practice Revenue in the Face of Rising Healthcare Costs and Regulatory Burden

May 17, 2023

Written by Debra Rossi, CCS, CCS-P, CPC, CPMA and Stephanie England, MBS

The following article was published by VMG Health’s Oncology Affinity Group

As healthcare costs continue to rise and the regulatory burden increases, oncology practices are facing significant challenges in managing their revenue cycle while delivering high-quality cancer care. In this discussion, VMG Health experts explore the typical reimbursement concerns for oncology practices, including managing the revenue cycle, proper Electronic Health Record (EHR) management, and policy concerns related to value-based care trends. We will also examine the unique concerns of clinical oncology and radiation oncology, including documentation integrity and quality improvement initiatives. By understanding these concerns and taking proactive steps to address them, oncology practices can navigate the complex healthcare landscape while providing the best possible care for their patients.

The cost to deliver high-quality cancer care is rising due to inflation, increasing regulatory burden, and increasing overhead costs—not the least of which is the need for additional personnel to meet payers’ administrative demands. An accumulating body of data suggests that patients are deferring treatment because of high out-of-pocket costs. Public and private payers are attempting to decrease these costs by reducing their reimbursements which leaves oncology practices trapped in the middle of looming overhead expenses and creeping payment decreases [1].

Monitoring and understanding reimbursement revenue and keeping track of patient outcomes can open the door to value-based care with a renewed focus on patients. Oncology practices need to take steps to mitigate revenue losses for services that are already being performed while also staying on top of an ever-changing landscape of policy, litigation, and guidelines. The little things add up and cutting corners can lead to problems down the line. Therefore, investing in staff and practice resources now helps limit the risk of audits and paybacks in the future.

Typical Reimbursement Concerns for Practices

Revenue Cycle

Optimizing the revenue cycle for an oncology practice can feel like troubleshooting countless small components to keep a larger, more complex system running smoothly. With significant investments in specialized equipment, treatment protocols, and drugs, as well as the challenge of decreasing reimbursement trends, managing revenue can be daunting. Unfortunately, audits and denials are a common reality that practices must prepare for since the most severe cases can result in significant losses.

To ensure revenue cycle optimization, oncology practices should ask themselves the following questions:

  • Is your staff collecting patient insurance, copays, and financial waivers at the time of service and verifying carrier requirements such as completing any prior authorizations required?
  • How is your revenue integrity system? Are there performance indicators protecting you from costly errors such as auditing claims for under-coded encounters or other missed opportunities for billing, charge capture, and charge lag?
  • Do you have the operational workflows in place to assign responsibility to staff such as following up on any aging A/R? Is there a clear point person with expertise in the requirements for denial resolution within time limitations?
  • Are there practice resources available to help staff maximize revenue, efficiency, and accuracy of claims and charge capture? Are your providers up to date on the latest regulatory changes?
  • Do you have established relationships with your payers and vendors (who often have carrier process insights) to ensure maximum reimbursement rates and the lowest costs for drugs, supplies, and equipment?
  • Are you up to date on changes and extensions for telehealth given the PHE which ended on May 11, 2023, and the Consolidated Appropriations Act (CAA) that was passed? (Note: The CAA extended many telehealth flexibilities authorized during the COVID-19 emergency and act in effect until December 31, 2024.)

The list of concerns may seem inexhaustive, but establishing clear, consistent policies and procedures for all staff members forms a concrete foundation for proper accountability, increased opportunities for education, and more effective feedback. And in the end, you could see better reimbursement by focusing on revenue integrity.

Electronic Health Record (EHR)

Proper management of electronic health records (EHRs) is crucial in today’s healthcare landscape since a high volume of information is recorded and demanded. If your practice happens to still use paper charts, transitioning to an electronic system is essential for optimizing workflow, integrating clinical support tools, and streamlining processes. With that said, it is essential to ensure that EHR templates and documentation are compliantly used to avoid increased audit risk and to avoid decreased chances of winning appeals. Additionally, the more time that is invested in setting up a good foundation increases the opportunities for employee efficiency which can result in increased revenue. Funding is also available for optimizing current healthcare systems using data gathered during encounters. This can lead to care-based contracts that improve both financial and patient outcomes.

Policy Concerns

There has been a movement in recent years to try out value-based care alternative payment models and to move away from fee-for-service schedules. Eventually, the goal is to shift from incentivizing the performance of as many procedures/diagnostics as possible, and instead to incentivizing the promotion of overall wellness through screening, prevention, and care management. Successful programs will not be tied to how many services are provided, but concordant screening and testing for increased prevention.

One of the most current models in use is the Enhancing Oncology Model (EOM), which comes right on the heels of the Oncology Care Model (OCM) and builds upon its principles. Moving toward more care management services and advanced care planning brings unique documentation requirements in-and-of themselves. Is your staff ready for any of these changes? To succeed with this kind of model, you would need more services that may not have been in place before such as:

  • Evidence-based screening tools
  • Electronic patient-reported outcomes
  • 24/7 patient access to a clinician;
  • Patient navigation services
  • Formalization of care plans and others

To achieve the goal of spending more time with patients, providers need to be properly compensated for their efforts. Proper alignment of compensation incentives can encourage providers to change routines and take advantage of discounts and payments available through federal programs. Therefore, designing progressive compensation models is an important step. It is important for practices to stay up to date with these programs and requirements, and to implement them as soon as possible to maximize their benefits. Additionally, payor agreements should be carefully reviewed to ensure that all available opportunities are being taken advantage of. Failing to do so could lead to outdated workflows and potential reimbursement issues in the future. It may not be the most exciting task, but reading the fine print can save practices from costly mistakes down the line. Lastly, it is important to pay attention to how you design compensation models to ensure they are consistent with fair market value.

Clinical Oncology & Radiation Oncology Concerns

Documentation Integrity

Every oncology specialty has unique needs and concerns due to its patient population and the demands inherent to pathology. The complexity level of these cases is particularly high since the median age of cancer diagnoses is 662 and cancer is the second leading cause of death in the U.S.3. Capturing this complexity can later pay dividends in the form of Hierarchical Conditions Categories (HCC) and Merit-based Incentive Payment Systems (MIPS). An example of this would be such as documenting comorbidities properly in the HER. These coding systems use chronic conditions and social determinants of health (SDH) to project costs of patient care and to provide financial incentives when opted in. It would make sense that a lung cancer patient with uncontrolled chronic kidney disease and obesity would require more services than a lung cancer patient who only has hypertension. However, if not documented, it is hard to make that case to payers. As a result, proper coding and documentation are incredibly strategic from a compliance and revenue perspective.

As mentioned previously, trends toward consolidation require rigorous practice evaluation and capacity planning. Evaluations can be great opportunities for auditing current standards along with new providers joining the system which ensures consistency. If there are any hiccups during this process, outsourcing the production coding in the interim can be utilized to keep revenue consistent. Growth is a great thing but without the proper due diligence in all areas, it can become a greater hassle than it is worth, and can eventually lead to a worse outcome than if the consolidation never happened to begin with.

Prior Authorizations

Ensuring maximal coverage for chemotherapy along with other cancer therapies is of the utmost importance with recent surveys reporting prior authorization as a significant concern that can lead to life-altering delays for critically ill patients [4]. What was once a tool for proper resource utilization has become a barrier to care that needs to be taken seriously to increase approvals. Prior authorization requirements tend to increase over time which can become a hurdle for patients due to the increase of experimental treatments used to combat cancer on average and the ever-moving goalposts.

Prior-authorization programs and denial resolution should be a priority investment for any oncology practice. Proper staff workflows and documentation are critical given that most times initiation of the prior authorization is not done by the oncologist but by office staff relying on the medical records available. Some ways to mitigate delays include ensuring the accurate and timely completion of charts, having education regarding guidelines, and the availability of peer-to-peer support. In many cases, practices lack education in this regard. Additionally, with movements toward “gold carding” providers that have a good history of prior authorization approval, there are possibilities for offices with a good track record to bypass the need for prior authorizations entirely in the future.

There are many ways to mitigate loss of reimbursement and ensure you receive the maximum possible even in an ever-changing healthcare landscape. Fortunately, you do not have to navigate this complex terrain alone. Whether it is an issue with coding, documentation, denials, reporting, operational workflows, payer contracts, staff, or Fair Market Value analysis and physician compensation model review, consultation services can be customized to address your current needs. Your work is too important not to receive optimal reimbursement for the services you provide, and if you’re unsure do not hesitate to seek assistance.


In conclusion, ensuring optimal reimbursement revenue and patient outcomes is crucial for the success of oncology practices in a rapidly evolving healthcare landscape. By monitoring and understanding reimbursement policies and patient outcomes, practices can transition toward value-based care and can prioritize the needs of their patients. This will require taking proactive steps to mitigate revenue losses, staying current with policy changes, and investing in staff and practice resources. To aid in this process, our experts at VMG Health encourage you to seek consultation services and resources that can help you navigate the complexities of reimbursement and regulatory compliance. With the right support and guidance, you can optimize your practice’s financial performance and deliver the highest quality of care to your patients.


  1. Marsland, T., et al. (2010). Reducing Cancer Costs and Improving Quality Through Collaboration with Payers: A Proposal from the Florida Society of Clinical Oncology. Journal of Oncology Practice, 6(5), 265–269.
  2. National Cancer Institute. (March 5, 2021). Age and Cancer Risk.
  3. National Center for Health Statistics. (January 18, 2023). Leading Causes of Death. Centers for Disease Control and Prevention.
  4. ASCO Board of Directors. (October 21, 2022). ASCO Position Statement: Prior Authorization. American Society of Clinical Oncology.
Categories: Uncategorized

Q3 2022 Snapshot: A Look Inside the Earnings Calls of Public Healthcare Operators

December 15, 2022

By: Madi Whyde, Savanna Ganyard, CFA, Jordan Tussy, and Madison Higgins

VMG Health reviewed the earnings calls of publicly traded healthcare operators that reported earnings for the third quarter that ended on September 30, 2022. By focusing on the major players in select subsectors defined below, we analyzed the frequency of certain keywords including inflation, COVID-19, interest rates, premium labor, and others. We used these keywords to identify which topics commanded the room this earnings season. Highlights from the calls are summarized in this article.

Companies Reviewed:

  • Acute Care Hospitals: Community Health Systems, Inc. (CYH), HCA Healthcare, Inc. (HCA), Tenet Healthcare Corporation (THC), Universal Health Services, Inc. (UHS)
  • Ambulatory Surgery Centers: Surgery Partners, Inc. (SRGY)
  • Diagnostic Imaging: RadNet, Inc. (RDNT)
  • Dialysis: DaVita Inc. (DVA)
  • Diversified Managed Care: Humana Inc. (HUM), UnitedHealth Group Incorporated (UNH)
  • Laboratory: Quest Diagnostics Incorporated (DGX)
  • Physician Services and Other: U.S. Physical Therapy, Inc. (USPH)
  • Post-Acute: Acadia Healthcare Company, Inc. (ACHC), Amedisys, Inc. (AMED), Chemed Corporation (CHE), Enhabit, Inc. (EHAB), Encompass Health Corporation (EHC), Select Medical Holdings Corporation (SEM)
  • Risk-Bearing Organizations: Agilon Health, Inc. (AGL), CareMax, Inc. (CMAX), Privia Health Group, Inc. (PRVA), The Oncology Institute, Inc. (TOI)

Key Takeaway: Volume

Volume: Although volume trends are unique to each industry sector nearly all operators remained focused on the impacts of COVID.

Poll: Did the earnings call mention COVID-19?

Acute Care Hospitals

On a same-facility basis, admission volumes declined as much as 5.0% from the comparable prior year quarter (Q3 2021) for acute care hospital operators. Despite the weakening of COVID-19, the decline in volumes was attributed to higher-than-average cancellation rates (THC), the migration of certain procedures to outpatient status (CYH and HCA), and capacity constraints (HCA). Inpatient volumes generally remained at or below pre-pandemic levels.

Ambulatory Surgery Centers

Ambulatory surgery center (ASC) operators reaped the benefits of the migration to the outpatient setting and reported positive volume trends when compared to Q3 2021. Surgical volumes were reported as consistent with 2019 pre-pandemic levels (THC), and one operator claimed the business did not experience any material direct impact related to COVID-19 during Q3 2022 (SGRY).


The post-acute sector reported mixed results in volume trends. One operator reported a year-over-year decline of 14.0% in hospice admissions, citing capacity constraints and reduced referrals from acute care hospitals (EHAB). However, another operator indicated that increases in admissions in the second half of the third quarter showed growth that they “haven’t experienced since the start of the pandemic” (CHE).

All Other

Volume trends among other industry players including dialysis providers, risk-bearing organizations, and physician services were also affected by COVID-19 in Q3 2022. Headwinds in dialysis volumes are expected to persist for the foreseeable future (DVA), and inpatient volumes for risk-bearing organizations remain below pre-pandemic levels (AGL). Notably, AGL also reported a rebound in physician office visits and outpatient volumes were in line with pre-pandemic levels.

Key Takeaway: Reimbursement

Reimbursement: Declining COVID-19 volumes mean less incremental government revenue for certain industry players who also now contend with an uncertain inflationary environment.

Poll: Did the earnings call mention inflation?

Acute Care Hospitals

Declining COVID-19 volumes resulted in lower acuity patients and reduced incremental government reimbursement. This softened the reimbursement per admission for the acute care hospital segment. Further exacerbated by inflation, these dynamics were evident in reported EBITDA margins which declined as much as 17.0% (CYH) over Q3 2021. In response, some acute care hospital operators are turning to commercial payor negotiations. Rate increases for the next year are anticipated to range from a minimum of 3.0% (THC) to upwards of 6.0% (CYH).


The post-acute sector did not release specific figures regarding contract rate hikes. However, the sector is optimistically looking for high single-digit rate increases (SEM) to provide relief in the current inflationary environment.

Key Takeaway: Labor

Labor: Unsurprisingly, management teams across the sector were faced with questions about labor trends and management techniques during their earnings calls. Contract labor remained pivotal for the operations of some, but premium labor appears to have softened during the quarter.

Poll: Did the earnings call mention premium or contract labor?

Acute Care Hospitals

The reliance on contract labor continued its downward trend in Q3 helping moderate expenses. HCA even indicated overall labor costs were stable due to targeted market adjustments. However, contract labor and premium pay remain at uncomfortably high levels for most acute care hospital operators. UHS revealed during their call it will be unlikely to reach pre-pandemic levels in the near future.


Staffing challenges persisted among the post-acute operators and directly impacted volume by as much as 60.0% (AMED). Increased indirect labor costs including orientation, training, and sign-on bonuses were the leading drivers of decreased EBITDA (AMED). Wage inflation, particularly for nursing positions, is expected to rise as much as 5.0% next year (SEM). However, several management teams are optimistic wages will stabilize to historical levels (SEM, EHC) in the near future.

All Other

Other industry players, including dialysis and physical therapy providers, also faced challenges with contract labor during the quarter. USPH reported labor costs were approximately 200 basis points higher than Q3 2021 levels, and DVA indicated such costs showed no improvement.

Key Takeaway: Go Forward Expectations and Guidance

Go Forward Expectations and Guidance: Considering the quarter’s performance, the companies we reviewed were divided relatively evenly in terms of revised FY 2022 revenue guidance, (i.e., raised, lowered, unchanged). In general, the quarter brought about a more pessimistic view of FY 2022 EBITDA, and the majority of public companies lowered their guidance for the year. Further, most stakeholders were left with no guidance for FY 2023.

Poll: Did the earnings call mention a recession? 

Acute Care Hospitals

FY 2022 revenue and EBITDA guidance among the acute care hospital operators was generally left unchanged except for THC which lowered EBITDA guidance. However, all companies that were reviewed declined to provide FY 2023 guidance during the call, and primarily cited economic uncertainty (HCA).


The post-acute sector appeared nearly unanimous in the outlook for the rest of 2022, and most operators lowered their revenue and EBITDA guidance. Unsurprisingly, no one offered FY 2023 guidance during the earnings calls.

Risk-Bearing Organizations

Interestingly, risk-bearing organizations mostly raised their revenue guidance for FY 2022 (AGL, CMAX, PRVA). However, EBITDA guidance was less predictable and was lowered (AGL, TOI), raised (PRVA), and unchanged (CMAX).

All Other

Most other healthcare operators followed similar patterns in terms of providing guidance for FY 2023. Of the companies we reviewed, only DVA revealed an outlook for the next year. The company anticipates revenue to be flat (driven by unfavorable volume trends) and margins to continue to feel the impact of labor market pressures.



Categories: Uncategorized

Utilizing Telehealth Services to Improve Access to Behavioral Healthcare

August 9, 2022

By: Mallorie Holguin, Preston Edison, and Dane Hansen



Over the past few years, trends and events have occurred that have led to increased and continuing demand for mental health care services. First, the Affordable Care Act (ACA) expanded coverage and access to mental health care services.[1] Then, more recently, the COVID-19 Public Health Emergency (“PHE”), and corresponding citywide shutdowns, brought about a spike in anxiety and depression with these conditions increasing to four times pre-COVID-19 levels.[2,3] Healthcare workers were among some of the most heavily impacted with one study finding that almost half of healthcare workers reported serious psychiatric symptoms, including suicidal ideation.[4] While demand for mental health services has continued to increase, the number of providers actively practice in the United States is estimated to have the capacity to meet only 28% of all mental healthcare needs.[5]

As the COVID-19 pandemic increased demand for mental health care services, the healthcare industry rapidly expanded its offering of telehealth services. Specifically, telehealth services grew to represent up to 40% of outpatient care at the peak of the COVID-19 pandemic (up from less than 1% of outpatient care in 2019).[6] This increase in service offerings and patient care in the telehealth space was made possible by relaxed regulations related to the provision of telehealth services.[7] In the following sections, we discuss how healthcare organizations can implement or continue to expand telehealth services to meet demand for mental health care services in the communities they serve.

Implementing Telehealth / Virtual Care Services to Expand Access

As discussed, the gap between the supply of mental health providers and the demand for mental health services is notably widening. As of June 30, 2022, Health Resources and Services Administration (HRSA) has designated 6,300 mental health provider shortage areas.[8]

These designated shortage areas collectively contain over 152 million Americans, approximately 46% of the total population. As health systems and hospitals attempt to navigate these challenges, telemedicine has emerged as a potential avenue for bridging the gap between the supply and demand for behavioral health services.

The American Telemedicine Association (“ATA”) describes telemedicine as the “natural evolution of healthcare in the digital world.” Precisely, telemedicine promotes and improves the quality, access and affordability of healthcare through the use of rapidly evolving technologies. Specifically, telemedicine refers to the use of medical information exchanged between parties via electronic communications to improve a patient’s clinical health status. Electronic communication including videoconferencing, streaming media, transmission of still images, remote patient monitoring devices and many other telecommunication methods allow(s) physicians to closely monitor and/or provide clinical services that would otherwise be unavailable for the patient. Oftentimes, the electronic information is combined with electronic medical records (“EMR”) to formulate a more accurate consultation or specialist opinion. Telehealth allows practitioners and patients to interact without the requirement to be face-to-face in a hospital or clinic setting.

At the same time, remote, or tele-, work was implemented across many industries to combat the challenges of the COVID-19 PHE shutdowns. As a greater percentage of the workforce had the option to participate in a remote work setting, 9 in 10 remote workers want to maintain remote work to some degree going forward.[9] One of the top reasons employees desire a hybrid or fully remote work arrangement is that it increases personal wellbeing. Given the well-documented physician burnout rates exacerbating provider shortages, it would be prudent for health systems, hospitals, and practitioners to consider using alternative coverage models, including employing the use of telemedicine. By leveraging virtual care offerings, practitioners can experience the same advantages that have led the majority of Americans to respond with resounding positivity to remote work, potentially alleviating some of the stressors that contribute to provider burnout.

Telemedicine offerings can also be used to redistribute the supply of practitioners. The hub and spoke model was one of the first practical telehealth models and is a common way to structure virtual care offerings while leveraging the existing practitioner base and extend care to facilities or communities in need. In this model, the hub facility is typically a larger facility that has the resources to provide specialized care that many smaller and/or rural facilities lack. By scaling the existing resources of the hub, the spoke sites are able to close gaps in care without incurring the costs associated with a full-time provider or locum tenens staffing. Behavioral health providers focused on increased access to care and better quality of care outcomes for their patients will find success in a virtual care-driven future.

Telemedicine is a tool for healthcare entities that, if embraced and properly utilized, can help bridge the behavioral health care gap. To effectively leverage virtual care services, it is important to understand the compliance and regulatory implications of these offerings and to establish equitable compensation models for providers that consider any limitations remote workplaces on of their scope of practice.

Financial & Operational Considerations for Behavioral Health Operators

As of July 15, 2022, the COVID-19 PHE was extended through October 2022 by the Department of Health and Human Services (HHS) and, along with it, continued flexibility around regulatory compliance regarding telehealth and reporting deadlines. VMG’s Coding, Compliance, and Operational Excellence (CCOE) division has compiled current documentation and coding requirements for telehealth services, which are listed below. This list is not intended to be exhaustive, but rather an overview of important considerations related to a compliant telehealth service line.

Documentation Requirements:

  • Patient’s Verbal Consent
  • Modality (Audio + Video, Audio Only)
  • Location of Patient
  • Location of Provider
  • Session Start and End Time
  • Total Session Time
  • Add appropriate billing modifiers:
    • 93: Synchronous Telemedicine Service Rendered Via Telephone or Other Real-Time Interactive Audio-Only Telecommunications System
    • 95: Telehealth Service
    • FQ: Behavioral health audio-only services

In addition, the following guidelines should be considered when submitting claims to Medicare for virtual mental health services:

  • If the service is performed via audio only, the practitioner must have the capacity for real-time audio and visual technology.
  • The face-to-face service may be with a clinician of the same specialty in the same group.
  • The patient must be seen in-person once every 12 months, unless it is determined that would be “inadvisable or impractical” for the patient.
  • If the patient is not seen in person once every 12 months, the reason for the exception must be documented in the medical record.
  • Initial evaluations, psychotherapy, and crisis psychotherapy may be performed via real-time audio and visual communication or audio only.
  • Evaluation and Management (E/M) services (office visits 99202–99215) require real-time audio and visual technology.
  • Telephone E/M Services (99441-99443) require audio only.

Additionally, in its CY 2023 Proposed Rule, CMS has proposed to make hospital outpatient behavioral telehealth services reimbursement permanent, which could increase access to behavioral health services in rural and other underserved communities.[11] It is important to note that after the PHE ends, additional behavioral health and telemedicine requirements will need to be met including:

  • The patient must have had a face-to-face service with the clinician within 6 months of starting telehealth (except for substance use disorders treatment and patients in a geographically underserved area).
  • The face-to-face service may be with a clinician of the same specialty in the same group.
  • The patient must be seen in person once every 12 months, unless it is determined that would be “inadvisable or impractical” for the beneficiary.
  • If the patient is not seen in person once every 12 months, the reason for the exception must be documented in the medical record.

As virtual services become more common through further regulatory shifts, healthcare organizations can expect increased scrutiny towards telehealth services arrangement by governmental enforcement bodies. The Office of Inspector General (OIG) and Department of Health and Human Services (HHS) released a Special Fraud Alert (Alert) on July 20, 2022, related to the inherent fraud and abuse risk associated with physicians or other health care professionals entering into arrangements with telemedicine companies, which specifically addresses fraud schemes related to telehealth, telemedicine, or telemarketing services based on dozens of civil and criminal investigations. The Alert identified seven characteristics that the OIG believes could suggest a given arrangement has potential risk for fraud and abuse. To learn more, reference this article and OIG’s statement.


By using telehealth, behavioral health providers can better fill the gap between growing demand and limited supply, providing quality and efficient services to those in need, particularly to underserved and isolated communities. Compliant telehealth arrangements can promote more efficient financial operations for health systems, provide increased access to care for patients, and improve the well-being of behavioral health providers.













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Categories: Uncategorized

Private Equity: Piqued Interest in Medical Physics

August 2, 2022

By: Maxwell Swan, Savanna Dinkel, CFA, & Vincent M. Kickirillo, CFA

The private equity (PE) space is breaking records as the world continues to emerge from the COVID-19
pandemic. PE fundraising surged almost 20 percent in 2021 as firms looked to jump back in after the
uncertain financial climate created by the pandemic. When looking to deploy this capital, PE firms have
continued to take an interest in the healthcare industry. (1) Recently within this industry, PE firms made
investments in the $4.47 billion medical physics industry that has maintained a 5.9 percent CAGR from
2013 through 2021. There are numerous reasons why PE firms have increasingly targeted the medical
physics industry, such as the current industry composition along with the growth in the need and use of
the specialty. (2) These characteristics set medical physics apart as a particularly interesting area for future

Medical Physics Industry Landscape

Medical physics is a healthcare specialization focused on the application of physics to the treatment and
diagnosis of disease. Most often, medical physics is seen in the form of nuclear medicine, diagnostic
imaging, and radiation oncology. The medical physics industry is made up of numerous small-scale
providers that operate in localized geographical areas. Only a handful of substantially sized enterprises
operate in the medical physics space, resulting in a highly fragmented industry ripe for acquisitions and
roll-ups into large-scale platforms. The fragmentation of the industry provides ample opportunities for PE
to enter and expand its foothold in the medical physics industry. (3)

In addition to the extreme fragmentation, the demand for medical physics is expected to grow
significantly over the next six years. Experts predict the medical physics market will grow at a healthy 6.2
percent CAGR through 2028, exceeding a $6 billion market valuation. This growth is driven by the
increasing adoption and widening horizons of nuclear medicine across the healthcare landscape. (2)
Additional growth is expected as hospital consolidation continues to increase the use of outsourced
medical services. Even medical tourism is expected to contribute to industry growth as revenue comes in
from those traveling to seek specialized medical care from countries like China, Brazil, or India. (4) This
multisource growth is an appealing attribute for PE capital looking for favorable returns.

Lastly, significant barriers to entry exist for new medical physics operations, including high capital
requirements for expensive machinery, increasing regulation required for the specialty, and most
notably, the shortage of skilled providers in the medical physics space. In 2014 a mandatory residency
was implemented to better prepare new medical physicists for the complex field. While the new program
has produced well-prepared providers, it has also created a bottleneck that has put a strain on the
industry’s ability to create new operations. (5) This shortage places established operators with experience
at a significant advantage, setting them up as a prime target for PE investment.

Private Equity Investment Considerations

PE firms can be beneficial collaborators and partners to medical physics practices. As PE interest in the
healthcare industry continues to increase, modern PE firms have gained the expertise to be effective
partners to healthcare practices. One of the most effective ways PE firms can enhance a medical physics
practice is through economies of scale. PE firms allow businesses to take advantage of efficiencies
created through economies of scale. By improving and centralizing back-office business operations and
providing greater access to technology, medical data, reporting and tracking systems, consolidated purchasing power, and marketing, private equity partners can create a more efficient business
structure and free up providers to focus on patient care.

Similarly, continued hospital consolidation may require other providers within their spheres of
influence to meet the greater demands and specialization needed in the industry. Some of
these demands include the growing regulation required of medical physics practices. (6)
Increasing regulatory demands may put monetary and staffing pressure on smaller
operations. The resources offered by PE investment could help alleviate some of these
pressures. (7) Furthermore, these resources could potentially improve the negotiating power
of businesses, resulting in better commercial payor rates and increased earnings.

Finally, PE investors could provide exit opportunities for retirement-age providers. PE
investment offers an exit strategy that enables these providers to monetize the business they
have built while also allowing the business to remain as an employer and provider of needed
care in its respective community. Based on an examination of the industry, as well as
discussions with industry professionals, sellers of a medical physics practice may be able to
expect a middle single-digit multiple on a given transaction. (4) For platform transactions, high
single-digit or low double-digit multiples may be warranted in the market.

Major Players and Recent Activity

As PE groups increase their interest in the medical physics industry, there have already been
several notable deals. Below is a summary of a few recent acquisitions, partnerships, and

Blue Sea Capital, a PE firm based in Florida with over $750 million in assets, partnered with
mid-Atlantic firm Krueger-Gilbert Health Physics, LLC in April 2019 to form the platform
company Apex Physics Partners. Soon after, Apex entered partnerships with Ohio Medical
Physics Consulting, National Physics Consultants, Radiological Physics, and ZapIT! QA to
enter the Ohio, Texas, and New Mexico markets. (8) In 2021 Apex added several new
partnerships including Texas-based D. Harris Consulting, Indiana-based Advance Medical
Physics, Indiana-based INphysics, and Pacific Island-based Gamma Corporation to its
partnerships as the firm continued its expansion into new markets. (10, 11, 12, 13, 14)

L2 Capital, a PE firm based in Pennsylvania with over $100 million under management,
acquired Associates in Medical Physics, LLC and Radiation Management Associates, LLC in
May of 2017. L2 combined the medical physics service companies to create the platform
company Aspekt Solutions in April of 2021. In May of 2021, Aspekt Solutions acquired Nordic
Medical Physics to expand its geographical reach. (15, 16, 17)

LNC Partners, a PE firm with $500 million under management, completed a recapitalization
of West Physics Consulting, LLC in May 2018. West Physics has since acquired Phoenix
Technology Corporation and Radiological Physics Consultants, Inc. to become the largest
diagnostic medical physics practice in the US. (18) West Physics operates in all 50 US states,
its federal territories, the Caribbean, and the Middle East. (19, 20)

Fortive Corporation is a publicly traded, diversified industrial technology conglomerate
company. Landauer provides outsourced medical physics services worldwide. Previously
involved with Gilead Capital and T. Rowe Price Associates, Landauer was acquired by Fortive
Corporation in October 2017. (21)

The Future of Investment in the Medical Physics Industry

The medical physics industry is increasingly becoming a hot target of PE investment. Although a
few major players are emerging and consolidation is increasing, there are plenty of
opportunities for PE partnerships to gain size and industry leverage due to the sheer number of
small operators in the medical physics space. The benefits and resources brought by PE firms
may be increasingly enticing to medical physics operators as the healthcare industry evolves. (6)
The spread of usage, science, treatment, and understanding of the industry will continue to
increase the demand for the care that these medical physics specialists provide.


1. “McKinsey’s Private Markets Annual Review.” McKinsey & Company. March 24, 2022.

2. “Medical Physics Market Report.” Future Market Insights. March 2022.

3. “Increased M&A in Medical Physics—What It Means to Business Owners.” SC&H Group. June 13, 2018.

4. “Medical Physics Market Size Worth US $6 Billion During 2018 to 2028.” Future Market Insights. April 1, 2019.

5. “Where Have All the Medical Physicists Gone?” Aspekt Solutions. April 12, 2022.

6. “Medical Physics M&A: Industry Consolidation Outlook.” SC&H Group. July 2, 2019.

7. “Increased M&A in Medical Physics–What It Means to Business Owners.” SC&H Group. June 13, 2018.

8. “Apex Physics Partners Announces Growth Investment.” Blue Sea Capital. May 7, 2019.

9. “Apex Physics Partners Enters Ohio, Texas and New Mexico Markets through Partnerships with Ohio Medical Physics Consulting, National Physics Consultants, Radiological Physics and ZapIT! QA.” Blue Sea Capital. August 23, 2019.

10. “Apex Physics Partners Completes 2nd Add-on Acquisition in 7 Months, Entering Texas Market.” Blue Sea Capital. November 13, 2019.

11. “Apex Physics Partners Expands its Texas Medical Physics Network in Partnership with D. Harris Consulting.” Blue Sea Capital. April 27, 2021.

12. “Apex Physics Partners Continues Midwest Expansion through Partnership with Advanced Medical Physics.” PR Newswire. February 11, 2021.

13. “Indiana’s Leading Therapy Medical Physics Group, INphysics, joins Apex Physician Partners.” Apex Physics. September 15, 2021. Press Release.

14. “Apex Physics Partners Expands Into Hawaii and the Pacific Islands With New Gamma Corporation Partnership.” Apex Physics. May 19, 2021.

15. “L2 Capital Announces Healthcare Services Platform Acquisition.” L2 Capital. May 8, 2017.

16. “Associates in Medical Physics Rebrands to Aspekt Solutions to Meet the Complex Demands of the Radiation Oncology and Radiology Market.” Business Wire. April 12, 2021.

17. “Aspekt Solutions Acquires Nordic Medical Physics.” Business Wire. May 24, 2021.

18. “LNC Partners Completes Recapitalization with West Physics Consulting.” LNC Partners. May 29, 2018.

19. “West Physics Announces Acquisition of Radiological Physics Consultants, Inc.” PR Newswire. July 21, 2020.

20. “West Physics Acquires Phoenix Technology Corporation.” LNC Partners. May 13, 2019.

21. “Landauer, Inc. Private Company Profile.” Capital IQ. May 23, 2022.

Categories: Uncategorized

Private Equity Investment in Urology

October 7, 2021

By: Jordan Tussy, Hunter Hamilton and William Teague, CFA

As many physician specialties begin to mature (e.g., gastroenterology, dermatology and ophthalmology), funds have started to flow into the urology space from private equity (“PE”) firms still eyeing platform acquisitions. “Competition for quality assets in this segment is still pretty light. There are a number of independent urology groups of scale with good management teams and back-office infrastructure,” stated Jeanne Proia of Cross Keys Capital in an interview with Mergermarket. [1] Growth prospects for urology practices are also particularly strong due to increases in life expectancy that have led to increases in demand for urologic services. Additionally, an expected shortage of urologists estimated to exceed 3,600 by 2025 will only further amplify the situation. [2] Urology’s several sources of ancillary revenue such as lab & pathology services, lithotripsy, radiation oncology, and ambulatory surgery make the specialty particularly attractive to platforms seeking to execute a roll-up strategy. With over 13,000 urology providers, 51.4% of whom work in private practice, this fragmented market offers PE firms the opportunity to facilitate consolidation. [3]

This prospect, paired with the strong demand for urologic services, has led to significant investment interest in the space, which can trace its roots back to August 2016 with Audax Private Equity’s partnership with Chesapeake Urology and the resulting formation of United Urology Group (“UUG”).

United Urology Group

Since acquiring Maryland’s Chesapeake Urology, Audax Private Equity’s UUG has further expanded its footprint both locally in Maryland, as well as nationally. Most recently, UUG has entered Arizona markets through its partnership with Arizona Urology Specialists in late 2019 and additional affiliations with Arizona Institute of Urology and Urological Associates of Southern Arizona in January of this year. Through this most recent partnership, UUG now operates out of 25 offices in Delaware and Maryland, 11 facilities in Tennessee, 10 offices in Colorado, and 23 locations in Arizona. With these locations and over 220 physicians, UUG remains committed to providing accessible care. [4]

Urology Management Associates

Prospect Hill Growth Partners (formerly known as J.W. Childs Associates) partnered with New Jersey Urology (“NJU”), a practice comprised of 96 providers in 46 New Jersey locations, to form Urology Management Associates (“UMA”) in September 2018. [5] NJU, having previously merged with Delaware Valley Urology in April 2018, represented the largest group of urologists in the United States at the time. Since then, UMA has expanded through a partnership with Premier Urology Group in September 2019 and Urology Care Alliance in December 2019. This latest affiliation expanded the platform’s presence in New Jersey and established its stake in Pennsylvania. UMA currently has over 150 providers and operates out of 64 locations, including 6 cancer treatment centers. [6]

U.S. Urology Partners

A 2018 strategic investment by NMS Capital in Central Ohio Urology Group launched US Urology Partners as an employment alternative for practices wanting to maintain their independence. As of August 2019, the hope of the organization’s CEO Mark Cherney was to grow US Urology Partners’ roughly $50M in revenue 10x in the next 3-5 years. Cherney also indicated that urology may be the next physician specialty to see significant consolidation, stating that “while the other physician specialties such as dermatology, dental and ophthalmology have seen heavy M&A activity in recent years, urology has remained relatively untapped for sponsor investment.” [7] Cherney cites shrinking rates of reimbursement, growing administrative costs, a complex regulatory environment, and a lack of independence as deterrents to hospital employment, while a national platform partnership on the other hand can provide “greater management support and financial strength.” [8] The group most recently partnered with Associated Medical Professionals of New York, a nearly 30-physician practice operating out of 9 locations throughout the Central New York region. Ancillary services offered by the practice include radiation oncology, pathology, imaging, lithotripsy services, as well as clinical research. [9]

Solaris Health

Another big presence in the space is Lee Equity Partners, who in June 2020 acquired and merged Integrated Medical Professionals and The Urology Group to form Solaris Health. The goal of Solaris “is to build a national platform that attracts leading independent urological partners who are committed to providing quality and value in healthcare.” [10] The platform has since expanded from its origins in New York, Ohio, Kentucky, and Indiana into Pennsylvania through a partnership with MidLantic Urology and, most recently, into Illinois through an affiliation with Chicago’s Associated Urological Specialists in March of this year. With more than 262 providers, Solaris now operates out of more than 11 sites in six states. [11]

Urology America

With its formal acquisition of Texas-based Urology Austin in October 2020, Gauge Capital established Urology America, a fully integrated urology network providing comprehensive urologic care. The largest urology practice in the metro Austin area, Urology Austin brought 18 locations and over 50 providers to the platform. Also included in the transaction were Urology Austin’s clinical research department, patient navigation programs, pelvic floor physical therapy, the Austin Center for Radiation Oncology, as well as a nationally accredited in-house pharmacy and pathology laboratory. Urology America is currently seeking to partner with urology practices nationally recognized as innovators and leaders in the field. [12]

Urology Partners of America

New to the space is Triton Pacific Capital Partners. This May, the Los Angeles private equity firm partnered with Genesis Healthcare Partners (“GHP”), a Southern California urology group with 48 providers and 15 locations, to establish Urology Partners of America (“UPA”). At the time of the transaction, GHP represented the largest independent urology group on the West Coast. With a current focus on further expansion across the Western States, the platform has a long-term goal, according to UPA CEO, Marshal Salomon, of building “the business to 200+ physicians within the next few years.” [13]

Future of the Field

According to data compiled by Urology Times, over 90% of urologists surveyed are concerned about declining reimbursement trends, growing regulation, and increasing overhead costs. [14] Furthermore, a study published in the July 2021 Issue of The Journal of Urology revealed that the average rate of reimbursement per urologic procedure decreased by an average of 0.4% per year from 2000 to 2020 before adjusting for inflation. [15]

As a result of these pressures, independent physicians are seeking alternative employment structures to private practice. PE firms are an attractive option due to their ability to alleviate some of the administrative burden, strengthen payor negotiations though scale, provide access to additional capital and allow the providers to focus on their clinical services. With this model, physicians receive upfront compensation from the acquisition and may retain an equity position in the new entity. They often agree to a reduction in their historical compensation as a trade-off for the promise of future equity returns and current liquidity. The success of the model depends on the ability of the PE firm to provide both operational and financial value to the practice and deliver on earnings repair. Otherwise, shareholder physicians may not continue to perform at historical levels, and non-shareholder physicians may begin to reconsider private practice.

Since the formation of United Urology Group, there has been a trend of PE-backed urology practice consolidation over the past 5 years. Given that most urology visits are with patients over the age of 65 and that nearly 20% of the population is expected to be 65 or older by 2030, demand for urologic services is only expected to increase. [16] With increasing demand, fragmentation, and a complex regulatory environment, continued consolidation should be expected in the urology space. The ability to deliver on earnings recapture through the successful implementation of economies of scale will ultimately determine the outcome of these platforms, as the value of the model hinges on the loyalty of the urologists.


















Categories: Uncategorized

Oncology: Private Equity Investment in Cancer Care

July 27, 2021

By: Vince Kickirillo, Jordan Tussy & Hunter Hamilton


In August 2019, VMG Health published an article titled “Oncology on the Rise: Private Equity Investment in Cancer Care.” This article discussed the emerging interest in the oncology provider industry by private equity (“PE”) firms, most notably through the formation of PE-backed platform practices. Since this article was published, the oncology practices have continued to trend toward consolidation. According to the 2020 Community Oncology Alliance Practice Impact Report, the number of community oncology practices merging or being acquired by another practice or corporate entity, such as a private equity firm, has increased almost 21% since 2018. In fact, trends over the previous ten years suggest there has been an approximately 7.0% annual increase, on average, in the number of community oncology practices that have been acquired by a corporate entity and/or merged with another oncology practice. [1]

However, more recent deal activity suggests a shift from the large-scale platform transactions to tuck-in acquisitions by these platform entities as they seek to scale their businesses in both geography and size.

Tuck-in Acquisitions

As previously mentioned, there has been an uptick in tuck-in acquisitions in the oncology space following the emergence of these PE-backed platforms throughout 2018. These platforms strategically target practices for consolidation to leverage geographic expansion, economies of scale, or hospital affiliations. Below is a summary of the recent activity of the major PE-backed oncology platforms.


Alliance Health Services

Following its acquisition by Tahoe Investment Group in April 2017, Alliance Healthcare Services has continued its national oncology and radiology platform expansion through direct partnerships with physicians and hospitals, such as Beaufort Memorial Hospital in South Carolina and SCL Health in Colorado. “Across the US, we work side by side with more than a thousand hospitals to deliver effective and efficient diagnostic radiology, radiation therapy and related services. We believe it is the best of both worlds: a focus on each unique community, partnership and patients, supported by national resources,” said Rhonda Longmore-Grund, President and CEO of Alliance HealthCare Services. [2]

On June 25, 2021, Alliance announced its acquisition by Akumin for $820 million, which is expected to close in Q3 2021. After holding the platform for 5 years, Tahoe Investment Group will transition to a minority ownership position in the publicly traded, combined entity. Regarding the transaction, Riadh Zine, President and CEO of Akumin, stated “The acquisition of Alliance is transformative in a changing healthcare ecosystem that continues to shift toward outpatient, price-transparent, value-based care. There’s no other organization that has the complement of attributes we will offer together as outpatient healthcare services experts, in particular with Alliance’s longstanding hospital and health system relationships and Akumin’s freestanding operational expertise.” The combined company is projected to have pro forma revenue in excess of $730 million and EBITDA of approximately $210 million based on the trailing twelve months ended March 31, 2021. [3]


Verdi Oncology

Founded in 2018 with the acquisition of Horizon Oncology by Pharos Capital Group, Verdi Oncology has since expanded into the Tennessee and Texas Markets. In July 2019, Verdi announced a partnership with Nashville Oncology Associates, a two-physician medical oncology practice, in which the platform would provide management services, economies of scale, and infrastructure.[4] Similarly, in August 2019, the company launched Verdi Cancer and Research Center of Texas, which would provide medical oncology services and early phase clinical trials in Dallas-Fort Worth. [5]



Since its founding in 2018 by General Atlantic, OneOncology has continued to expand its physician network in both size and geography. The platform, now comprised of 600 providers at 189 sites, has acquired, and subsequently grown, practices in Arizona, California, New England, Pennsylvania, New Jersey, and Texas. [6] For example, OneOncology partnered with North Texas-based Center for Cancer and Blood Disorders (“CCBD”) in 2020 and recently announced the addition of three practices and fourteen physicians to the Texas affiliate. [7] OneOncology targets leading community oncology practices to provide comprehensive and cost-effective cancer care. Oncologists are attracted to the platform’s business model which allows them to remain independent while expanding their services and offering advanced treatment options. “OneOncology gives us the best path forward to continue to bring our patients in Central Pennsylvania advanced cancer care and to grow our clinical trial program. Working with other leading oncology practices across the country who share our vision for delivering the highest quality care in the community setting is what sets OneOncology apart” said Satish Shah, MD of Gettysburg Cancer Center, one of the platform’s most recent targets. [8]


Integrated Oncology Network

Silver Oak Services Partners led the recapitalization of Integrated Oncology Network (“ION”) in October 2018. Shortly thereafter, ION continued its growth strategy with the 2019 acquisitions of Gamma West Cancer Services (“Gamma West”) and e+CancerCare. As a result of the e+CancerCare acquisition from Kohlberg & Company, ION added 21 outpatient cancer care centers in 10 states. [9] Similarly, the platform expanded their services into communities in Utah, Nevada, Wyoming, and Idaho with the Gamma West acquisition. [10] This partnership also advanced ION’s strategy to affiliate with quality healthcare systems. Recently, ION created a new multispecialty platform in the Cleveland, Ohio market with the acquisition of Southwest Urology in January 2021. As stated by Josh Johnson, ION CEO, “This new venture with Southwest Urology represents a pivotal moment in ION’s strategic direction. Our entrance into the urology space with such a highly-respected practice strengthens our capabilities and positions ION to continue growing specialty networks across the country.” [11]


21st Century Oncology 

KKR-backed GenesisCare, an Australian oncology platform, acquired previous standalone operator, 21st Century Oncology. The transaction was completed in May 2020 and valued at over $1 billion. At the time, 21st Century Oncology operated out of 293 locations with nearly 900 affiliate physicians in 15 states. [12] Now the combined entity collectively operates with over 5,000 physicians at 440 locations across the world. [13]


Corporate-Backed, Standalone & Other Operators

Updating our August 2019 article, the following section addresses follow-up items on previously discussed corporate-backed and standalone operators, McKesson’s The US Oncology Network and Cancer Treatment Centers of America, as well as two new operators, American Oncology Network and The Oncology Institute.


The US Oncology Network 

Since July 2019, The US Oncology Network has expanded its presence in California, Pennsylvania, Indiana, and Texas through partnerships with Northern California Prostate Cancer Center, Alliance Cancer Specialists, Northwest Oncology, and Texas Colon & Rectal Specialists. Since April 2020, the Network has brought over 131 new physicians into the organization.[14]


Cancer Treatment Centers of America

Cancer Treatment Centers of America, an owner and operator of cancer care hospitals and outpatient care centers, announced in November 2020 a partnership with Miller County Hospital designed to meet cancer care needs of Southwest Georgia residents. The organization also notably sold CTCA Philadelphia to Temple University Hospital and announced the closure of CTCA Tulsa in March of this year. CTCA Atlanta opened a comprehensive Women’s Cancer Center this past June with 8 physicians.[15]


American Oncology Network

Though not currently backed by a private equity group, American Oncology Network (“AON”) has gained significant ground in the oncology space over the past few years. Since its founding in mid-2018, AON, a nationwide group of physician practices focused on improving outcomes in community-based oncology, has expanded to include over 170 providers across 17 states. New partnerships in the past year have been forged in Michigan, Georgia, Washington, Arizona, and Maryland. They also have a presence in Idaho with the recent addition of Summit Cancer Centers.[16]  According to recent press releases, reasons given for aligning with AON include greater access to resources (i.e., outpatient pharmacy, pathology, and laboratory services), enhanced care management and technological capabilities. Most recently, AON finalized an $85 million financing package with PNC Bank, priming the organization for continued growth in the development of its information technology platforms, pharmaceutical purchases, practice acquisitions, and expansion of service-line offerings.[17]


The Oncology Institute

Another sub-sector within the oncology space that has garnered recent interest is value-based care. Recently, DFP Healthcare Acquisitions Corp (“DFP”), a special purpose acquisition company (“SPAC”) announced the acquisition of The Oncology Institute (“TOI”), a market-leader in providing value-based oncology care. Regarding the transaction, Richard Barasch, one of the sponsors of DFP, stated “[TOI] has created a scalable, replicable model with difficult-to-duplicate capabilities that facilitate rapid expansion… this business combination will create a well-capitalized company that is poised to expand organically, through accretive M&A activity, and via strategic payor relationships.” While TOI currently operates 50 community-based practices in Florida, Arizona, Nevada, and California, they plan to pursue organic growth opportunities and strategic acquisitions in both new and existing markets.[18]


Future of the Field

While the oncology industry continues to trend toward consolidation, there has been a shift from the acquisition or establishment of platform practices to the acquisition of tuck-ins as existing platforms focus on growth through strategic partnerships with practices and physicians. Even with the emergence of such platforms and their subsequent tuck-in activity, the oncology market remains fragmented and poised for continued consolidation as physicians seek alternatives to hospital employment.

Furthermore, private equity firms hold their investments for an average of three to seven years. This trend can be evidenced by the recently announced acquisition of Alliance Healthcare Services by Akumin after five years of ownership by Tahoe Investment Group. Given the age of several of the other platforms, it is likely there will be recapitalizations of these businesses over the next few years.





















Categories: Uncategorized

340B Program & Oncology: What You Need to Know

October 8, 2020

By: Ashley Dyke & Jordan Tussy


The future of the 340B Program remains up in the air as policy makers continue to scrutinize its reimbursement model, citing a potential contribution to rising drug costs and a shift in site-of-service for cancer treatment.8,20 Will the uncertainty of 340B disincentivize hospital consolidation of oncology practices? Is this Program contributing to the shift in oncology treatment from free-standing clinics to hospital outpatient facilities? Many are asking what the future holds for the 340B Program and what the repercussions will be if significant changes are implemented.

340B Program Overview

The 340B Program requires drug manufacturers to offer qualified healthcare providers substantial discounts on select outpatient drugs. The formula used to calculate the “ceiling price”, or the maximum price a manufacturer can charge for a 340B drug, is based on the Medicaid drug rebate formula. It is the average manufacturer price (“AMP”) less a unit rebate amount (“URA”), which is specified in the Social Security Act (“SSA”) and varies by type of drug.21 Generally, the six hospital categories listed below can qualify as a “covered entity” and be eligible for the Program.

  1. Disproportionate share hospitals (DSHs);
  2. Children’s hospitals;
  3. Cancer hospitals (those exempt from Medicare);
  4. Sole community hospitals;
  5. Rural referral centers; and,
  6. Critical access hospitals.

The 340B Program was founded in 1992 with the goal of reducing drug costs for the listed entities and enhance access to prescription medication to vulnerable patients.

In 2010, the 340B Program experienced significant expansion with the passage of the Patient Protection and Affordable Care Act (“PPACA”).9 However, in recent years, CMS has enacted several budget cuts targeting the 340B Program and its reimbursement for drug costs, leaving the Program’s future in question. More cuts and/or structural changes to the 340B Program should be expected, as lawmakers re-evaluate the effectiveness of the current payment model.

340B Program Key Milestones

Some of the key dates in the history of the 340B Program are outlined chronologically below.

1992: 340B Program Enacted

  • Section 340B of the Public Health Service Act was enacted by Congress. Manufacturers of pharmaceutical drugs were required to enter into a pharmaceutical pricing agreement (“PPA”). The PPA agreement required manufacturers to provide front-end discounts to “covered entities”. Discounts are applied to qualified outpatient drugs to covered entities that serve the most at-risk populations.4

2018: CMS Final Rule

  • CMS final rule pays 340B hospitals 77.5% of the average sale price (“ASP”) for most Part B drugs. This payment rate was determined based on an analysis in 2015 the MedPAC report, which indicated the average discount received on 340B covered drugs was 22.5%.21 CMS historically paid 106.0% of the ASP.1
  • In December 2018, a Federal Judge from the US District Court for the District of Columbia ruled that CMS did not have the authority to change the payment rates because it had not collected enough data on the hospitals’ acquisition costs to justify the payment cuts.3, 6 HHS has appealed the ruling and continued to reimburse 340B hospitals at ASP minus 22.5%.6

November 2019: Proceed with Reimbursement Cuts

  • CMS announces plans to move forward with reimbursement cuts to 340B safety-net hospitals in 2020 despite pending litigation.11

January 2020: Hospital Eligibility Called into Question

  • The US Government Accountability Office (“GAO”) published the results of a study on the HRSA oversight of non-government 340B hospitals, which found the current processes did not provide adequate assurance that hospitals were meeting eligibility requirements for 340B participation. As a result, GAO recommended six steps for the HRSA to implement to improve these processes. The results of this study support the notion that 340B hospitals may face greater scrutiny in the future.12

March 2020: Program Incentives Not Aligned

  • Some have claimed that the 340B Program may incentivize qualifying hospitals to use more expensive cancer drugs. However, a study in the March MedPAC report to Congress concluded that there was little evidence to support the idea that 340B status influences cancer spending.13

April 2020: Approval of Hospital Survey

  • In response to the federal ruling, CMS received approval to survey 340B hospitals to collect drug acquisition costs2. The collected data may be used to determine future reimbursement rates for drugs purchased under the 340B Program. The goal, as stated by the agency, is “to ensure that the Medicare Program pays for specified covered outpatient drugs purchased under the 340B Program at amounts that approximate what hospitals actually pay to acquire the drugs.”3 Hospitals were required to submit the surveys by May 15th.7

July 2020: Trump Administration Announces Drug Price Cuts

  • President Trump signed four executive orders that will ultimately lower costs on prescription drugs, including insulin and epinephrine. Hospitals who purchase insulins and epinephrine through the 340B Program must pass the savings from discounted drug prices directly to the underserved patient.17

July 2020: U.S. Court of Appeals Upholds CMS Payment Cuts

  • On July 31, 2020, the U.S. Court of Appeals reversed a previous ruling, which claimed CMS did not have authority to change payment rates for the 340B drug discount Program. As a result, the 28.5% cuts to part B drug reimbursement for 340B hospitals are permitted to continue.18

August 2020: CMS Proposed Rule

  • On August 4th, CMS released the OPPS/ASC Payment System proposed rule for CY 2021, which included new proposed rates for covered 340B drugs based on results of the hospital survey. While CMS has proposed adopting rates of ASP minus 28.7% for 340B-acquired drugs, they have also solicited comment on continuing payments of ASP minus 22.5% instead. Additionally, CMS has proposed that children’s hospitals, rural sole community hospitals, and PPS-exempt cancer hospitals be exempt from either of the proposed policies and continue to be paid ASP plus 6%.19

How might changes to the 340B Program affect Oncology M&A?

As indicated in the March 2020 MedPAC report to Congress, cancer drugs from hospital outpatient departments comprise approximately 73% of total Medicare Part B drug spending. Consequently, any sustained budget cuts to the 340B Program would likely have significant effects on the oncology sector. For instance, a report by the community oncology alliance states “the 340B Pricing Program has fueled significant consolidation of the nation’s cancer care system, driving independent, community oncology practices to close or merge with hospital outpatient departments.” If CMS proceeds with the 340B reimbursement cuts, will hospitals become less incentivized to acquire oncology practices?

While changes to the 340B Program may create a major headwind for the oncology industry, the overall demographics for cancer treatment in America remain strong enough to spur attractive investment consideration. According to the American Cancer Society, approximately 80% of new cancer diagnoses occur in individuals aged 55 years and older.14 Given the current population trajectory, which projects approximately 20% of the population will be over the age of 65 by 203015, it is estimated that the incidence of cancer will continue to increase, from approximately 17.0 million in 2018 to 26.0 million in 2040.16 These factors will likely result in an increase in demand for oncology providers and services over the next ten years.

This notion is supported by the recent uptick in investment activity in the oncology provider space. In June 2019, e+CancerCare was acquired by the private equity group, Silver Oak, and then combined into larger Integrated Oncology Network. Additionally, Genesiscare acquired 21st Century Oncology on May 15, 2020.22 This recent activity suggests that even with the uncertainty, the oncology space remains ripe for investment.

The mixed trends facing the oncology sector suggests that hospitals and other potential acquirers will need to perform careful and proper due diligence to determine whether making investments in the oncology space is appropriate for their organization. With looming regulation on the horizon, it remains to be seen whether oncology practices continue to consolidate into hospitals, pursue alternative investment strategies in private equity firms or practice management groups, or revert to independent status.


  8.,through%20the%20Affordable %20Care%20Act.&text=The%20new%20rule%20allows%20all,location%20to%20numerous%20retail%20pharmacies.
  13. Medpac, March 2020 Report
  14. American Cancer Society. Cancer Facts & Figures 2019. Atlanta: American Cancer Society; 2019
  15. Mather M, Jacobsen LA, Pollard KM. Population Bulletin: Aging in the United States, 2015.
  16. The Lancet Oncology, Volume 20, Issue 6, June 2019
Categories: Uncategorized

Oncology on the Rise: Private Equity Investment in Cancer Care

August 13, 2019

Written by: Michael Miner and Vincent M. Kickirillo

Dry powder in the private capital markets has been on the rise since 2012 and surpassed the $2 trillion mark for the first time in 2018.[1] With so much capital to deploy, and the rise of asset values since the Great Recession, private equity fund managers have struggled to find attractive investment opportunities in recent years. In search of returns, one industry that private equity firms have continued to frequent is healthcare. Healthcare spending accounted for approximately 17.9% of gross domestic product (GDP) in 2018 and is anticipated to grow 5.5% annually, approaching $6 trillion, or 19.4% of GDP, by 2027.[2] Given the massive market, it is not surprising that dollars have continued to flow to the space, with 316 deals completed in 2018 totaling $63 billion in value.[3] Healthcare businesses that have been of particular interest to private equity firms include physician practices and facility operators. Attractive elements of investments in these segments include the fragmented nature of the market, opportunities for consolidation, and benefits of scale. Dermatology, dentistry, ophthalmology, orthopedics, and radiology have been popular targets of private equity investment in recent years; however, as landgrabs have been made in the aforementioned sub-specialties, investors have begun to tap into new areas to capture return. One such sub-specialty that has experienced strong investor interest in recent months is oncology.

Oncology Industry Overview

One of the most attractive aspects of the oncology industry to private equity investors is its size and highly fragmented structure. Based on 2017 Medicare Physician Compare data, there were more than 2,200 oncology practices in the U.S. and over 12,000 providers. The same data showed that 76% of oncology practices employed just one to five oncologists. Further, 72% of the practices included in the survey had one service location, while 25% had two to five service locations, and 4% had more than five service locations.[4] The fragmented nature of the industry allows for private equity firms to employ similar roll-up strategies to those already at work in other sub-specialties. These roll-up and consolidation strategies allow private equity firms to create economies of scale and efficiencies in cost structure by centralizing general and administrative functions.

In addition to the fragmented market, the need for oncologists is also growing. A 2014 study found that national demand for oncologists and radiation oncologists is projected to increase 29% by the year 2025 while the number of providers is projected to increase by just 25% over the same period.[5] The projected shortfall in oncology providers is largely a result of increased demand projections related to the growing aging population, earlier cancer detection rates, and increased cancer survivorship. This high demand for oncology services and providers should result in steady cash flows for oncology practices for years to come.

Another attractive quality of the oncology specialty to private equity firms is the low-competition environment. While investors have crowded other sub-specialties (dermatology, ophthalmology, and orthopedics, among others), significant consolidation and roll-ups have not yet made waves across oncology. Private equity firms who are the first movers in the space will have the opportunity to acquire the best assets at more attractive valuations with less competition from other buyers.

Oncology Investment Considerations

Not long ago, few private equity firms were deeply involved in healthcare delivery due to regulatory concerns and an overall lack of experience investing in the industry. These concerns are no longer present today, as many private equity firms have gained expertise in the space and developed investment theses surrounding healthcare over the past decade. While the factors previously mentioned make oncology an attractive target, experienced private equity investors will not rely solely on industry tailwinds to deliver returns. In establishing platform practices or facility operators, private equity firms can create efficiencies through economies of scale not otherwise possible for smaller businesses. Specific areas of improvement often captured by platform-scale practices or operators include: centralization of general, administrative, and other non-care focused business functions, increased use of technology and data management, reporting and tracking of KPIs, and sophisticated marketing and branding efforts. With regards to data management, a major advantage of a platform-scale business is the opportunity to aggregate large amounts of clinical data. Analysis of this data can lead to key findings that help physicians improve care and drive better patient outcomes. Additionally, de-identified oncology clinical data can be sold to biotechnology and pharmaceutical companies who use the data in research as they attempt to develop novel cancer treatments. Another important area of improvement is in the platform’s ability to wield more negotiating power with managed care payors due to its increased size and patient population. More negotiating power for the platform can result in increased commercial reimbursement rates and therefore increased earnings potential. The ability of a private equity-backed platform to step in and take responsibility of business functions not related to patient care is often one of the most attractive benefits of a partnership for physicians. With less focus on non-patient related tasks, providers can increase productivity and deliver better care.

Prior to executing a transaction, perhaps the most important factor to consider for both the private equity firm and physician practice is the alignment of incentives. For the investment to be successful for both parties, physicians and private equity firms must be fully aligned and committed to the partnership. Several factors to consider include: Is the physician better off financially? Compensation structures should ensure physicians are fairly compensated but also motivated to maintain or increase productivity post-transaction. Is the private equity firm delivering the promised value proposition? General and administrative functions must be more efficient and less burdensome for physicians; strategic acquisitions should align with the values of the existing practice. Finally, for the private equity firm, can earnings growth meet expectations and deliver returns? These are just a few questions, among many others, related to alignment that must be thoughtfully considered by all constituents prior to entering a transaction.

Given industry tailwinds and a recent spur of investor activity, the oncology space appears ripe for consolidation. Similar models to those already in place across other sub-specialties should serve as a starting playbook for the successful establishment of platform oncology practices and operators. Long-term success will be dependent on the alignment of incentives within the partnership and strategic execution by the private equity firm.

Major Players & Recent Activity

As previously mentioned, there has been an uptick in investor activity in the oncology provider space over the last 24 months. Below is a summary of the major private equity players in the space as well as a few corporate-backed or standalone platforms that could challenge private equity investors in future bids for acquisitions.[6]

Private Equity-Backed Operators

Investor: General Atlantic

Operator: OneOncology

Founding practices of OneOncology include Tennessee Oncology, New York Cancer & Blood Specialists, and West Cancer Center. OneOncology received a $200M growth investment from General Atlantic in September 2018. The platform currently includes 227 providers at 62 care locations.

Investor: Kohlberg & Company

Operator: e+CancerCare

e+CancerCare operates a network of outpatient cancer care centers in the United States. The company offers care services, including diagnostic testing, radiation oncology, medical oncology, and ancillary services. e+CancerCare was acquired by Kohlberg & Company in 2011. Kohlberg recently exited the space when e+CancerCare was acquired by Silver Oak and combined into Integrated Oncology Network in June 2019 (see below).

Investor: Pharos Capital Group

Operator: Verdi Oncology

Pharos’ acquisition of Horizon Oncology in March 2018 marked the launch of Verdi Oncology. Verdi will focus on aggregating high-quality oncology practices that participate in their Oncology Care Model program, a value-based care payment program backed by CMS, and similar value-based care payment programs.

Investor: Tahoe Investment Group

Operator: Alliance Healthcare Services

Alliance Oncology provides outsourced healthcare services to hospitals and providers. It operates through three segments: Radiology, Oncology, and Interventional. Alliance Oncology services include conventional beam therapy, 3D conformal radiation, intensity modulated radiation, image guided radiation, stereotactic radiosurgery, and more. Alliance was acquired by Tahoe Investment Group in April 2017.

Investor: Silver Oak Partners

Operator: Integrated Oncology Network

 Integrated Oncology Network (ION) provides strategic solutions, development for cancer centers, financing and management services with expertise in radiation oncology operations including accounting, compliance, IT, M&A, physics and dosimetry, and billing & collection. Acquired e+CancerCare from Kohlberg & Company in June 2019.

Corporate-Backed & Standalone Operators

Corporate-Backer: McKesson

Operator:US Oncology

U.S. Oncology operates a network of integrated community-based oncology practices in the United States. It provides medical oncology, hematology, radiation oncology, gynecologic oncology, urology, oncology surgery, and other specialties. US Oncology was acquired by McKesson in November of 2010 and expanded its reach with the acquisition of Vantage Oncology in February 2016.

Corporate-Backer: n/a

Operator: 21st Century Oncology

21st Century Oncology develops and operates radiation therapy centers. The company provides radiation therapy services, including treatment for deep-seated, head/neck, breast, and skin and surface tumors for cancer patients.

Corporate-Backer: n/a

Operator: Cancer Treatment Centers of America

Cancer Treatment Centers of America owns and operates cancer care hospitals and outpatient care centers. It offers medical oncology, surgical oncology, radiation oncology, hematologic oncology, and neurosurgery services. Cancer Treatment Centers of America was founded in 1988.

Final Thoughts

As evidenced by recent investor activity, the oncology industry provides interesting opportunities for consolidation. Based on the fragmentation of the market and increasing demand related to patient population trends, the industry is poised for investment and growth. We expect the oncology transaction environment to be very active in the coming years as private equity firms seek to continue to deploy capital within the healthcare sector while corporate buyers look to remain competitive in the oncology space.

[1] Prequin – Private Equity Dry Powder Factsheet

[2] Centers for Medicare and Medicaid Services (CMS)

[3] Bain Global Healthcare Private Equity and Corporate M&A Report 2018

[4] DOI: 10.1200/JOP.18.00149 Journal of Oncology Practice 14, no. 7 (July 1 2018) e412-e420.

[5] DOI: 10.1200/JOP.2013.001319 Journal of Oncology Practice 10, no. 1 (January 1 2014) 39-45.

[6] Capital IQ

Categories: Uncategorized