Strategic Case Study: Oncology Services Assessment

September 26, 2022

A large, regional health system initiates to position itself strategically to offer the community a wide breadth of community cancer care programming but encounters issues.


Situation

Successful physician alignment with numerous oncologists is critical to experiencing regional growth, sub-specialization, and strategic differentiation. This regional health system was hampered by a lack of economic and strategic alignment with a large group of independent medical oncologists which is a common issue in this sector. Although the physicians fully participated in select cancer center programs sponsored by the health system, the lack of practice integration created conflict and competitiveness across infusion services, growth initiatives, and care model innovation. Further, most of the care delivery in the community did not maximize available drug purchasing programs under eligible 340B programs which resulted in raising the overall cost of care in the community.

Solutions

The regional health system retained VMG Health to perform a comprehensive service line assessment and recommend potential strategic affiliation options for the health system’s consideration and the independent medical oncology practice’s consideration. VMG Health completed various analytical frameworks to evaluate affiliation opportunities, including capacity planning, retail pharmacy sufficiency, value-based care and ACO waiver eligibility, combined growth opportunities, business combination models, and 340B cost savings.

Upon selection of a preferred practice affiliation model by the independent group practice and the health system, VMG Health completed several independent valuations connected to business enterprise value, provider compensation, assets, and value-based compensation programming.

Success

The parties signed a definitive agreement setting forth a plan for business combination and development of a single medical oncology group practice structure. A Professional Services Agreement (PSA) is the primary transaction vehicle to support the business combination strategy. The overall affiliation framework provides opportunities for community oncology providers to subspecialize, grow, and be remunerated for high-value care delivery. The regional health system has achieved greater scale to support growth and investment, full economic alignment across its oncology service, and an engaged group of providers co-leading medical administrative functions.

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.

Conclusion

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.

 

Sources:

1. https://www.commonwealthfund.org/blog/2020/aca-10-how-has-it-impacted-mental-health-care

2. https://www.psychiatrictimes.com/view/psychiatric-care-in-the-us-are-we-facing-a-crisis

3. https://www.kff.org/other/state-indicator/adults-reporting-symptoms-of-anxiety-or-depressive-disorder-during-covid-19-pandemic/?currentTimeframe=0&sortModel=%7B%22colId%22:%22Location%22,%22sort%22:%22asc%22%7D

4. https://pubmed.ncbi.nlm.nih.gov/33267652/

5.https://www.merritthawkins.com/uploadedFiles/MerrittHawkins/Content/News_and_Insights/Articles/mha-2022-incentive-review-final.pdf

6. https://www.kff.org/coronavirus-covid-19/issue-brief/telehealth-has-played-an-outsized-role-meeting-mental-health-needs-during-the-covid-19-pandemic/

7. https://bhbusiness.com/2022/07/15/cms-proposes-to-make-hospital-outpatient-tele-behavioral-health-services-reimbursementpermanent/?mkt_tok=NjI3LUNQSy0xNjIAAAGFsMvYuo_UB6dQZxBh_IkZF4hvXACFV0GIjZxfM2vrUb5h-VkrhwcEgWlpyflCT-dNK26J0lXJUVSjQhZQaVKdJQFPw4S7QA5L-e9bxR0

8. https://data.hrsa.gov/topics/health-workforce/shortage-areas

9. https://news.gallup.com/poll/355907/remote-work-persisting-trending-permanent.aspx

10. https://www.fiercehealthcare.com/providers/hhs-renews-covid-19-public-health-emergency-another-three-months

11. https://bhbusiness.com/2022/07/15/cms-proposes-to-make-hospital-outpatient-tele-behavioral-health-services-reimbursement-permanent/?mkt_tok=NjI3LUNQSy0xNjIAAAGFsMvYuo_UB6dQZxBh_IkZF4hvXACFV0GIjZxfM2vrUB 5h-VkrhwcEgWlpyflCT-dNK26J0lXJUVSjQhZQaVKdJQFPw4S7QA5L-e9bxR0

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
investment.

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
platforms:

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.

Sources:

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.

Sources:

[1] https://us-uro.com/wp-content/uploads/2019/09/mergermarket-urology-private-equity.pdf

[2] https://solarishealthpartners.com/wp-content/uploads/2021/04/Private_Equity_and_Urology_-Urol_Clin_N_Am_48_2021_233%E2%80%93244.pdf

[3] https://www.auanet.org/research/research-resources/aua-census/census-results

[4] https://www.unitedurology.com/news/

[5] https://njurology.com/j-w-childs-associates-forms-urology-management-associates-with-new-jersey-urology/

[6] https://njurology.com/about-us/news/

[7] https://us-uro.com/wp-content/uploads/2019/08/us-urology-in-mergermarket.pdf

[8] https://us-uro.com/2019/08/27/u-s-urology-partners-supports-growth-of-independent-practices/

[9] https://us-uro.com/2020/11/23/u-s-urology-partners-announces-partnership-with-associated-medical-professionals-of-new-york/

[10] https://solarishealthpartners.com/wp-content/uploads/2020/09/LEE-EQUITY-INTEGRATED-MEDICAL-PROFESSIONALS-AND-THE-UROLOGY-GROUP-FORM-SOLARIS-HEALTH.pdf

[11] https://solarishealthpartners.com/news/

[12] https://www.urologyamerica.com/october-2020-2/

[13] https://www.mygenesishealth.com/about-genesis/news/2021/05/triton-pacific-announces-partnership-with-genesis-healthcare-partners.html

[14] https://www.urologytimes.com/view/state-specialty-survey-top-pain-points-are-revenue-drop-prior-auth?page=2

[15] https://www.auajournals.org/doi/pdf/10.1097/JU.0000000000001655

[16] https://www.merritthawkins.com/uploadedFiles/Merritt-Hawkins-urology-trends-white-paper-2021.pdf

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]

 

OneOncology

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.

 

Sources:

[1] https://communityoncology.org/wp-content/uploads/2020/04/COA_PracticeImpactReport2020_FINAL.pdf

[2] https://www.alliancehealthcareservices-us.com/alliance-cancer-care-colorado-at-red-rocks-partners-with-scl-health/

[3] https://www.alliancehealthcareservices-us.com/alliance-healthcare-services-announces-acquisition-by-and-integration-with-akumin/

[4] https://www.prnewswire.com/news-releases/verdi-oncology-inc-completes-partnership-with-nashville-oncology-associates-pc-300880500.html

[5] https://www.prnewswire.com/news-releases/verdi-oncology-launches-verdi-cancer-and-research-center-of-texas-300896938.html

[6] https://www.oneoncology.com

[7] https://www.prnewswire.com/news-releases/in-growth-spurt-since-joining-oneoncology-the-center-for-cancer-and-blood-disorders-in-fort-worth-adds-3-practices-and-14-physicians-301331169.html

[8] https://www.oneoncology.com/blog/gettysburg-cancer-center-joins-oneoncology-platform

[9] https://ionetwork.com/2019/06/26/integrated-oncology-network-acquires-ecancercare/

[10] https://ionetwork.com/2019/05/13/integrated-oncology-network-and-gamma-west-announce-transaction/

[11] https://ionetwork.com/2021/01/07/integrated-oncology-network-announces-strategic-partnership-with-southwest-urology/

[12] https://www.genesiscare.com/us/21st-century-oncology-now-genesiscare-collaborates-with-landmark-cancer-center/

[13] https://www.genesiscare.com/us/21st-century-oncology-becomes-part-of-genesiscare/

[14] https://usoncology.com/our-company/news/media-releases/

[15] https://www.cancercenter.com/community/press-releases?page=1

[16] https://www.aoncology.com

[17] https://www.aoncology.com/2021/06/24/american-oncology-network-secures-85-million-in-financing-from-pnc-bank/

[18] https://www.businesswire.com/news/home/20210628005481/en/DFP-Healthcare-Acquisitions-Corp.-Announces-Proposed-Business-Combination-With-The-Oncology-Institute

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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.

Sources:

  1. https://essentialhospitals.org/policy/cms-finalizes-340b-cuts-in-cy-2018-opps-rule/
  2. https://www.reginfo.gov/public/do/PRAViewICR?ref_nbr=202002-0938-001
  3. https://www.govinfo.gov/content/pkg/FR-2020-02-07/pdf/2020-02357.pdf
  4. https://www.340bhealth.org/members/340b-Program/overview/
  5. https://www.ruralhealthresearch.org/projects/100001908
  6. https://www.natlawreview.com/article/cms-advances-340b-drug-acquisition-cost-survey-to-omb-and-solicits-final-comments
  7. https://www.natlawreview.com/article/340b-update-cms-opens-acquisition-cost-data-survey-340b-hospitals
  8. https://www.ncbi.nlm.nih.gov/pmc/articles/PMC2993068/#:~:text=We%20estimate%20that%20as%20many,through%20the%20Affordable %20Care%20Act.&text=The%20new%20rule%20allows%20all,location%20to%20numerous%20retail%20pharmacies.
  9. https://www.healthaffairs.org/do/10.1377/hpb20171024.663441/full/
  10. https://communityoncology.org/wp-content/uploads/2019/09/COA-340B-PosStmnt-Final.pdf
  11. https://www.modernhealthcare.com/payment/cms-moves-forward-site-neutral-payments-slashes-340b-payments
  12. https://www.gao.gov/products/GAO-20-108
  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. http://www.prb.org/pdf16/aging-us-population-bulletin.pdf
  16. The Lancet Oncology, Volume 20, Issue 6, June 2019
  17. https://www.hhs.gov/about/news/2020/07/24/trump-administration-announces-historic-action-lower-drug-prices-americans.html
  18. https://www.hfma.org/topics/news/2020/08/hospitals-decry-appeals-court-decision-upholding-340b-cuts.html
  19. https://www.cms.gov/newsroom/fact-sheets/cy-2021-medicare-hospital-outpatient-prospective-payment-system-and-ambulatory-surgical-center
  20. https://obroncology.com/article/total-cost-of-care-site-of-care-shift-and-340b-drive-total-cost/
  21. http://www.medpac.gov/docs/default-source/reports/chapter-3-part-b-drug-payment-policy-issues-june-2015-report-.pdf
  22. https://www.businesswire.com/news/home/20200515005414/en/21st-Century-Oncology-Becomes-Part-of-Australia%E2%80%99s-GenesisCare-to-Increase-Access-to-World-Class-Cancer-Care-in-the-U.S.
Categories: Uncategorized
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