Los Angeles, CA—Radical changes are resulting from the recent shift from volume-based to value-based reimbursement and care. The fundamental shift in reimbursement models is proving disruptive, as providers and payers are exploring integration opportunities with their continuum partners that may redefine the current reimbursement paradigm, said Jonathan Bluth, MBA, Vice President, Healthcare Investment Banking, Deloitte Corporate Finance LLC, Los Angeles, CA, at the Fourth Annual Conference of the Association for Value-Based Cancer Care.
“Health reform initiatives and incentives provide a potential tipping point to accelerate the existing momentum for physician practice consolidation,” stated Mr Bluth (Figure).
The result of the underlying shift in reimbursement is uncertainty facing the oncology community. With the rise of accountable care organizations (ACOs), physician practices, whether independent or small group practices, and potential investors of practices are asking if they can “manage the game,” said Mr Bluth, “or will they just have to accept whatever the larger ACO pushes down their throats?”
Many physician groups are wondering whether they should sell their practices, and other physician practices are actively pursuing or are considering merger and acquisition approaches from financial or strategic buyers.
Why Are Oncology Practices Pursuing Mergers and Acquisitions?
The reasons for this are different for each practice group but have common themes, which include:
- Liquidity at attractive valuations: the window is open
- Concern over uncertainty in the future: to preserve income
- To gain access to outside capital
- To grow through acquisition
- For information technology and infrastructure investment
- To pursue opportunistic new revenue areas
- To gain access to a larger platform
- Greater size and scale creates relevance in the market and with payers
- More sophistication regarding new payment models
- To potentially accelerate growth in income
- To better compete with larger competitors in the market now and in the future
- To be more efficient at taking advantage of growth opportunities.
Oncology merger and acquisition activities have seen consolidation within and across a variety of sectors. Suppliers, physician groups, and pharmaceuticals are no longer independent, and are getting closer with consolidation, said Mr Bluth. “Individual companies that had been focused on pharmaceuticals or have been suppliers are moving into other aspects of the value chain, or specific industry-focused physician practice management companies are moving into other clinical specializations,” he noted.
A variety of acquisition strategies have been used across oncology. One strategy is to acquire more volume to drive down per-unit costs or perhaps to improve on the ability to drive decision-making within an ACO. Another approach is to cross over to other markets in an effort to offer greater value and quality. Private equity investment in oncology is also continuing, despite the reimbursement uncertainties. The interest by the public market will be tested with the initial public offering of 21st Century Oncology, which has been in an acquisition spree, with Oncure being a recent acquisition.
21st Century Oncology “is continuing to look for more investments across the country, and now even internationally,” Mr Bluth said. With the Oncure transaction, 21st Century Oncology operates 165 treatment centers, including 132 centers located in 16 states.
In 2011, with the financial backing of Oak Hill Capital Partners, Physician Oncology Services and Vantage Oncology merged to create one of the largest networks of outpatient radiation oncology centers in the country. Vantage Oncology then expanded its presence with the acquisition of Radiation Oncology Services of America, adding 17 new treatment centers across 5 states. Vantage Oncology’s desire to establish a national model and expand into new markets may provide a new opportunity for merger and acquisition activity in the Northwest and Mountain West, said Mr Blum.
With the acquisition of e+CancerCare, Kohlberg & Company (a US private equity firm) has invested in expanding its outpatient cancer center group.
One acquisition that did not work as intended was AstraZeneca’s purchase of Aptium Oncology, a provider of outpatient oncology management and consulting services, which was eventually sold to Mount Sinai Medical Center.
“All of these groups are still on the prowl, and it’s all of the large national players that are still hungry for acquisitions to feed that engine,” said Mr Bluth. “Many of these companies are privately held today, but 21st Century Oncology is going public, and, I expect, Vantage’s Oncology will soon. There will be so much more transparency behind their business models.”