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As Practices Look to the Future, 2 Models for Next-Generation Management Companies Emerge

Tony Berberabe, MPH
Published Online:3:18 PM, Fri March 22, 2019
Three next-generation physician practice management (PPM) companies—US Oncology Network, American Oncology Network, and OneOncology—provided an overview of their business models to distinguish themselves from competitors at a breakout session during the Association of Community Cancer Centers (ACCC) 45th Annual Meeting & Cancer Center Business Center Summit held in Washington, DC.

“It is important for community oncology practices to consider their position in the marketplace going forward,” said Michael L. Blau, an attorney with the law firm Foley & Lardner LLP, who served as moderator for the session. “One option for the oncology group to consider is a relationship with some type of next-generation practice management company.”

By working with a next-generation practice management company, Blau suggested, the practice would gain access to new technology platforms, payer contracting and positioning for value-based care, and other operational/outcome improvements. Such a relationship could also assist with group purchasing, shared services, drug formularies, and more.

Blau described 2 types of models for next-generation PPM companies: a management company/PPM model and a friendly PC/PLLC model. In the management company/PPM model, a private practice oncology group sells its tangible assets (eg, furniture, paintings, equipment, its space) to a managing company. In this model, the physicians in the practice agree to take a cutback in compensation of between 20% to 25%. This cutback will be paid as an additional management fee to the management company on top of the purchase price for the tangible assets. The additional fee is assigned a market multiple for the amount of physician compensation that the practice forgoes. Blau said an average practice can be assigned a multiple from 4 to 6, but if it’s a large successful practice, the multiple can be as high as 8 to 10.

“If physicians give up $10 million in compensation and the practice is run-of-the-mill, you would have a $60 million purchase price for entering into this arrangement,” said Blau. He emphasized that the physician group would remain independent under a long-term management agreement for 20 to 25 years. Over the course of that agreement, the physician owners of the practice would be paid that purchase price through a combination of all cash, cash notes, or cash, notes, and stock. “Increasingly these combinations are cash, notes, and stock transactions. The owners are going to get some money, they are going to get money in the future, and they are going to get some stock in the PPM company,” Blau said.

In a friendly PC model, the structure is essentially the same as the management company model. However, instead of the physician owners still overseeing the governance of the group in the management company model, the physicians now become employees of the friendly PC company.

“A friendly PC is a captive practice entity that has a locked-in, long-term relationship with the next-generation PPM company,” Blau said. A friendly PC, which was formerly the private practice physician group, is owned by 1 oncologist who serves as the chief medical officer (CMO). The CMO is compensated to hold the equity on behalf of the friendly PC as a nominee or designee of the PPM company. The CMO can be removed if the PPM company so chooses and a successor can be named.

Blau noted that one of the advantages of this arrangement is that all the revenue generated by the friendly PC is attributed to the PPM company. This could benefit the PPM company for tax and for financial accounting purposes.

Three PPM Companies

US Oncology Network has 25 years of practice management experience with 450 sites in the US, said Marcus Neubauer, MD, the company’s CMO. The network and the physician practice enter into a management services agreement, usually for 10 years. As a result of the partnership, the 2 entities form a joint operating board whose members are equal representatives from both the practice and the network. The practice retains its physicians and clinical staff, physicians have sole discretion with respect to medical decision making. Physicians also maintain their legal entity. US Oncology Network provides the practice with nonclinical staff and assets in the form of capital and asset management (eg, real estate, equipment, etc.), and the development of technical products and services that create solutions for revenue cycle reporting, electronic health records, and patient engagement.

The US Oncology Network model is based on 4 objectives: clinical confidence, operational ease, financial security, and physician-led committees and annual meetings. They also are very involved in phase I through IV clinical trial research and provide practices with daily support services that range from analytics and reporting, electronic health records, revenue cycle reporting, and clinical decision support.

American Oncology Network was created by the physicians and administrators from the nation’s largest independent community oncology practice, said CEO Brad Prechtl, MBA. This PPM boasts 35 years of proven oncology management, providing practice partners with centralized ancillary services such as clinical laboratory and pharmacy support, experience with radiology and radiation oncology services, and participation in the Oncology Care Model (OCM).

“OneOncology’s objectives are to focus on practice empowerment, experience, quality, outcomes, and cost,” said Erich Mounce, chief operating officer. Like the US Oncology Network, when a practice joins OneOncology, a joint governance board is created, made up of equal representatives from the practice and OneOncology. The management group is keyed into maintaining strong physician leadership and practice leadership.

Although PPM companies were popular in the 1990s, they eventually fell off, said Blau. “But hopefully, these next-generation PPM companies have learned what worked and what didn’t to help physician practices going forward,” he concluded.

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