The Oncology Care Model (OCM)
Financing & Operational Requirements of Super Groups
Making Value Based Care Work for Community Oncology
April 28, 2016
OCM – Opportunity & Risk
The OCM program, now well on its way to becoming a reality, is based on a very simple concept: community oncology practices can improve care and save money by managing patients over the continuum of care. The reality is that common sense dictates the need to designate a single medical specialty as the quarterback for integrated cancer care delivery, and medical oncology is the natural fit. Quarterbacking a loosely affiliated team of providers is never easy, and will put a number of new demands on practices including:
- Detailed multi-specialty care planning, patient navigation, patient education, provider coordination, survivorship planning, triage and palliative care and detailed cost estimation;
- Integrating existing IT systems with new systems for all of these services, as well as advanced tools for patient reported outcomes, symptom reporting and management, EMRs and compliance;
- Hiring new staff and changing existing patient flow and practice management.
- Quantify the resulting changes in patient management and costs;
- Utilizing new facilities optimized around integrated outpatient care, including dedicated urgent care facilities optimized to the needs of cancer patients, medical/radiation/surgical oncology, imaging, labs and palliative care; and
- Simultaneously adopting and adapting to the new CMS MACRA: MIPS & APMs payment structures that underlie the OCM, as well as the myriad of related but distinct payment structures from private payers.
This is a lot to ask of very busy people providing lifesaving medical care while running businesses that must live on very thin margins.
The three major potential advantages of the OCM overwhelm the prospective risks:
- Vastly better patient care;
- Much lower total costs and higher margins through shared savings; and
- Preparation for the bundled payment and related population based models which will be mandated in the future.
Cooperative Groups – Shared Information, Assets, Services & Risk
Physician practices are organized based on advantages of shared information, assets, services and risk. Historically, Super Group meant the merger and integration of regionally adjacent practices – typically including consolidation under a single tax ID. The motivations for these groups were overwhelmingly for shared services, drug purchasing and scale in discussions with payers. The de facto reality of these regional groups was that they provided advantages of consolidation, but resulted in substantial loss of autonomy, loss of operating control and provided little or no liquidity to physicians.
The movement to value based reimbursement, the development of modern cloud-based IT systems and the prospective requirement for large scale patient populations, militate for data driven process integration, running through independent practices. The future lies with a lighter model of integration, with clear financial and operational choices for individual practices. The historical advantages of regionally defined Super Groups are secondary when the operational model is being driven by the dictates of CMS, and regional and local payers are moving to conform with that model.
Future oncology “Super Groups” practices are a hybrid practice model that exists between complete independence and sale to a hospital group or merger with a regional behemoth – hoping to capture the benefits of affiliation without loss of independence. Various types of Super Groups have formed and dissolved over time in response to clinical and financial opportunities and threats – with varying degrees of success. But always the motivations and methods are always the same – shared information, assets, services and risks. In every case the trade-offs for affiliation are potential loss of independence, increased administrative burden, and the requirement to conform with externally determined practice methods.
The patient and population management aspects of the OCM make shared information particularly important. Shared information and patient populations will be critical for risk mitigation, best practice development, and compliance monitoring between practices. Real time information sharing and patient management tools will be critically important for care delivery and profitability – and they are expensive.
While we hope that total patient care costs decline through the OCM, it is certain that costs for the medical oncology practices implementing the program will increase. The monthly $160/patient MEOS payment will offset some of the costs, but additional financing will be required in most cases.
Financing requirements for the OCM will vary substantially by practice depending if:
- A medical home model is in place throughout the practice, together with adequate navigation and palliation.
- The EMR and IT based patient management systems are in place to plan care, track patient health easily and remotely, track utilization and costs.
- The project management and supply chain management systems and capabilities are in place to move quickly and adapt to OCM requirements as they become clear in the future.
- IT and RCM systems to deal with the new opportunities and challenges presented by a shared savings model and the requirements of referral partners and other partnered oncology care providers.
- The physical infrastructure to handle increased patient care interactions and meet growing patients demands for physically integrated care delivery (integrated ambulatory cancer center).
Although the financial benefits from the OCM may be substantial, they are not immediate. It is critically important to recognize that shared savings payments are very back-end loaded – first being paid months after the savings actually begin and subject to unknown future adjustments. In virtually all cases, physician compensation will initially be negatively impacted by the OCM, before future benefits start to accrue. The prudent practice Executive Director recognizes this reality, and takes steps to mitigate it.
The earning power of the practice can be harnessed to raise capital by establishing new levels of physician compensation. With adjusted salaries, practices will have the free cash flow required to raise capital to invest in the OCM, and to make a large lump sum distribution to physicians. This both mitigates future risk, and takes advantage of favorable capital gains tax treatment.
Extracting and Managing Super Group Financial Synergies
Enhanced credit capacity is a product of the synergies of effective Super Group formation. This benefit can and should accrue to those members with the individual credit capability and the clear vision for effective use of proceeds. Administration of the credit facility and the maintenance of credit quality within the individual practices will require the services of a capable and trusted financial partner. As the Super Group matures and is successful, there will be the opportunity to expand financial activities into reinsurance and related products to enhance profitability and mitigate risk.
What Does the Ideal Debt Financing Look Like?
Getting the financing right is critical for success of practices in the OCM. All financing is based on trade-offs, and making those explicit and optimizing the outcome is critical for the success of individual practices and the larger Super Group.
|Use of Proceeds||Needs to both fund growth and serve to level out physician compensation.||About 50/50 use of proceeds results in adequate financing for growth and keeps physicians whole on a NPV basis.|
|Maturity of Financing||The financing should not provide obligations beyond the life of the OCM||Ideally, this should be a 5-year financing, with options to prepay at reasonable costs.|
|Collateral||Balance the needs of lenders with unfettered practice operation.||Collateral in the stock of the practice.|
|Form of Financing||Unsecured, non- personally guaranteed debt, issued in a credit facility to all Super Group members||A single credit facility, with all members participating. Total availability approximately 4-5x cash flow dedicated to debt service.|
|Interest Rate||Around 4-5%||Low rate makes debt service less burdensome.|
|Credit enhancement||All Super Group members and Verdi participate with common interest in a successful credit outcome. Having the right partners is critical to overall success.||All members sharing aggregate risk makes financing possible, and makes common success a key goal.|
|Credit facility management||Verdi provides key credit/managerial oversight to ensure success.||Verdi provides low cost group credit enhancement and managerial oversight – allowing lenders to deal with a single entity.|
|Efficient capital allocation||Determination of capital allocation in supply chain is critical to success, vital for credit quality and practice financial success.||Verdi provides low cost, high value service in capital allocation – vital for practice & Super Group success.|
|Future financing needs and opportunities||Financing opportunities change, and require good information and fast response.||Long term relationship with top-tier investment bank ensures a window to opportunities with fast reaction time.|
Historically, Super Groups have been focused on clinical best practice, drug sourcing and clinical quality issues. The structure contemplated herein, separates these issues from the requirements of financing, leaving these critical clinical issues entirely in the hands of the practices. Going forward, practices will be confronted with the requirements for scale, as they address population management and bundled pricing. Financial products will become increasingly important to successful practice management – and professional control and evaluation will be critical to practices financial success. Careful work and thoughtful development will facilitate the ability to create group bundles to mitigate risk and create future reinsurance products.
Composition of the Super Group will be critical to success – these are pooled credit facilities, and the chain is only as good as its weakest link. Professional evaluation of individual practice credit up front will avoid a lot of problems down the road.
These credit facilities are best sized at 3-5 practices up front. It may be possible to expand the Groups later, once smooth operations are established.
Execution of this financing can be accomplished in 60-90 days, and is really dependent on the quality of the Super Group organization, and the amount of time spent optimizing terms and structure with prospective lenders. Above all else, it is important to keep it simple – this is a complex financing with a lot of moving parts. Getting the financing done with the smallest amount of future obligations is critical – complexity in design will make this difficult to execute and cumbersome to administer.
Patient centric care is the paramount goal of everything that we do at Verdi Oncology. A large part of that mission is helping practices access and utilize financing, goods and services to transition into patient and population management models. We help medical oncology practices access private debt and equity sources for growth and physician liquidity. Verdi staff customizes best-in-class financial services and operational solutions to meet the mandates of value based care initiatives. Verdi is an affiliate of Chapman Medical Quality LLC, and is dedicated to the design and building of integrated care delivery systems. Consistent best practices and patient care does not require homogeneity of systems, but rather commonality of methods and metrics. Finally, Verdi is dedicated to the underlying values of Lean & Six Sigma, and delivers data driven practice management systems, that are very capital and process efficient.
Please give me a call if you want to learn more: Wes Chapman, 603 252 7340.