More than one medical provider has tried to find success by creating an elaborate integrated system that can deliver a wide variety of care. But such care continuums are costly and often difficult to manage. So now some providers are looking at healthcare from a different perspective.
Bigger isn't necessarily better, they've concluded. Instead, they're betting better care will come from "carving out" a niche, i.e., managing the business and clinical aspects of only one disease, instead of many.
"The notion of single-specialty specialization in healthcare isn't new," says Stuart Friedman, director of the Tiber Group, a Chicago-based management consulting firm specializing in healthcare. But the drive for carve-outs is new.
One reason is the sense in many markets that there are diminishing returns on unit-cost reductions. "Squeezing another 5% off the fee schedule won't give benefits as great as reducing the number of services delivered for a particular condition," Friedman says.
A second force, he says, is physician income concerns. Physicians see two opportunities to boost income -- to increase market share or to invest in new facilities. Carve-out companies provide a turnkey solution; they offer physicians good marketing materials and expertise in managing risk.
One way carve-outs meet managed-care pressures to lower costs is by bringing together physicians and investors across the nation. The increase in depth (numbers) gives them an increase in capital and brand identity without an increase in breadth (services they provide).
Among the other advantages of carve-outs are the shifing of some treatments from inpatient to outpatient settings, the development of standardized treatment protocols and a structure that allows specialists to share in ancillary revenues to offset reduced reimbursement.
Carve-outs have a particular appeal at a time when everyone is searching for ways to cut the costs of treating big-ticket intransigent ailments, such as cancer and heart disease. The complexity of caring for cancer patients, for example -- high-fixed costs and a multidisciplinary approach -- has not dissuaded a number of companies from trying to do for cancer what others have done for outpatient surgery, prescription drugs, home care and rehabilitation. Yet the benefits of a carve-out are hardest to achieve with such diseases.
The Tiber Group estimates that by 2000 the cost of treating cancer will overtake the cost of treating heart disease, currently the most expensive disease to treat.
According to the National Institutes of Health, total annual costs of cancer treatment were estimated at $96.1 billion for 1990; the cost of treating heart disease was estimated at $125.8 billion for 1991. Total costs include direct costs of treatment and indirect costs of lost productivity because of disease-related disability or premature mortality.
Friedman expects cancer treatment carve-outs to double their market share during the next five years, though he says they will continue to be experimental. "I don't think carve-outs will solve everybody's problem, but I do see some great opportunities," he says.
Here's a look at three oncology carve-out companies:
Salick Health Care
Salick Health Care was founded in 1983 to provide outpatient kidney dialysis. But when the 6-year-old daughter of founder Bernard Salick, M.D., became ill later that year with a rare form of bone cancer, the internist and kidney specialist began thinking about branching into cancer care. He opened his first center in California in 1985, bringing together a variety of healthcare resources to offer round-the-clock care to patients with chronic or catastrophic illness. And he made a profit.
In 1995, needing capital to expand, Salick sold a half interest in his company for $204 million to London pharmaceutical giant Zeneca Group, which acquired the remaining 50% last April for $234 million. (Salick left the company and has since established Bentley Health Care, a Beverly Hills, Calif., company that intends to build a $300 million network of cancer centers in Connecticut, New Jersey and New York.)
As a pioneer in cancer carve-outs, Salick's legacy includes the development of practice guidelines for specific cancer treatments and a nationwide network of comprehensive cancer centers, comprehensive breast centers and other treatment sites.
"Oncology is very different...than any other form of medicine," says Lawrence D. Piro, M.D., executive vice president of medical affairs and managed care for Salick. "It's multidisciplinary; it requires a high degree of coordination between the physician and other medical professionals; it requires technology and complex diagnoses; and it is extremely costly, requiring some outpatient and inpatient care. Because of all that, it is an area with a high variation of care, which makes it an ideal target for disease management."
Piro says, "Disease management is all about practice guidelines, trends, reporting, feedback loops and facilitating physicians to make good decisions."
Salick uses an electronic disease management tool -- the Oncology Management Assessment Reporting System -- to bring together guideline management, case management, financial management and detailed reporting modules. Its focus is on comparing clinical and financial performance by provider, line of business or delivery system. It also supplies key information about clinical-care administrative costs in the managed-care setting to assist in providing high-quality, cost-effective cancer care.
"We realized that in order to have an effective disease-management system, you have to start with data," Piro says. "We developed a system to look at claims and other data and pull it into a structure that represents the way oncology care is provided."
Salick also uses Vital Oncology software for chemotherapy ordering and documentation; Vital Oncology gives physicians access to information from all points of care.
The effectiveness of the guidelines and technology is the subject of a peer-reviewed company publication now under way, so it's too soon to know how well the systems are working.
True comparative data -- Salick's methods vs. the many others used around the country -- will not be available until there is consensus among providers on the best methodology, Piro says.
Because oncology is an area in which costs are still difficult for networks and insurance companies to control, Piro considers the future of oncology carve-outs to be "very strong."
Accountability Oncology Associates
As a management services organization, Accountability Oncology Associates focuses on coordinating the treatment of cancer patients by designing and implementing disease management programs for risk bearers, such as HMOs, independent practice associations, physician-hospital organizations and integrated delivery networks. The Alexandria, Va.-based company's strategy includes holding physicians to measurable standards of clinical efficiency, engaging patients and their families actively in treatment plans through informed choice and stimulating provider behavioral change through realigned incentives. Its efforts can result in cost savings, enhanced patient satisfaction and systemwide clinical improvements.
When Accountability was founded in April 1995, its managers expected oncologists to serve as gatekeepers. But they soon realized that most costs are affiliated with radiation oncologists, surgeons and other special-care providers, so AOA now works with each physician involved.
"One of the lessons we learned as we got involved in product development," says founder and Chief Executive Officer Rick Lee, "was that you couldn't replicate the HMO model by creating a cancer gatekeeper. If you were to make the medical oncologist the gatekeeper, 50% to 60% of initial cancers that start with a surgeon would have to go through the medical oncologist, and that doesn't work for two reasons. First, the medical oncologist doesn't want to jeopardize the referral source. And second, surgeons work at breakneck speed to get the cancer out of the body and don't want to be slowed down by medical oncologists.
"Instead, AOA focuses on providing value for the physician by coordinating care through multiple levels," Lee says.
Albert M. Brady, M.D., an oncologist and medical director of cancer services for AOA-affiliate St. Joseph/Mercy in Oakland County, Mich., sees AOA not as a carve-out but "more as a management aide for whoever hires them.
"The option to bring in an outside organization that has a more global perspective on overall patient care is extremely valuable both to the payer and to the patient," he says.
Carve-out companies can help physician groups in two areas, Brady says -- oversight on therapies and management of the transition to palliative care; both fall under AOA's purview.
Doctors are constantly concerned these days about who is interfering in their decisionmaking. But if companies like AOA work effectively, they provide physicians with important support, Brady says. Instead of the doctor's having to discuss hospice options with the patient, for example, the patient is informed by other people, and the doctor is left free to concentrate on delivering medical care.
AOA controls aspects of patient oversight from the beginning of an illness through the use of case managers and other resources as they are needed, Lee says. AOA also provides a toll-free telephone line staffed by oncology nurses to answer patient queries, which ensures the "patient comes to us first," Lee says. Though Lee believes an informed patient will participate more in his or her care, he wants to avoid the scenario of the oncologist's "being besieged by patients who have 200 pages of Internet printouts about cancer."
Among the services AOA provides: Case managers follow up with patients to assess home-care planning and monitor pain levels. They pass along information to physicians and negotiate care by hospitals, home-care services or subacute facilities for patients who need more supervision.
AOA also helps physicians by giving them utilization data. "We like to think of clinical performance measures as windows into the practice profiles of physicians," Lee says. "We develop profiles of doctors and share that information with them to influence behavioral change, as opposed to denying care or regulating them."
For example, by using such data, AOA was able to reduce costs on a per-member, per-month basis by 35% for one customer -- the Hitchcock Alliance in Lebanon, N.H. Inpatient hospitals stays were reduced from 30 days per 1,000 patients per year to 10 days in the first quarter of 1997.
Physicians also are kept apprised of the latest treatment options and studies.
"In cancer, there's a fair amount of overtreatment at the end of life, where failed chemotherapy regimens are succeeded by other chemotherapy treatment," Lee says. "Doctors are moving at warp speed, and it's often difficult to access available information."
Overall, Lee says, managed care can "coordinate care and promote communication, so everybody's singing from the same hymnal."
In particular, he says, "cancer really cries out for managed care. You put both clinical and financial resources in the hands of a physician, so that decisions are being made for the most appropriate clinical reasons and for the most appropriate resource reasons."
Physician Reliance Network
Dallas-based Physician Reliance Network develops comprehensive oncology-care networks by affiliating with an oncology group, adding radiation therapy to the practice and providing standards of care based on experience and the backing of a large corporation.
"Most physicians see that it's difficult for them to compete as a stand-alone oncologist or even a small group," says Michael Murdock, executive vice president and chief financial officer of PRN. "A bigger group gives them more clout when negotiating contracts with managed-care companies."
Other benefits of affiliating with PRN, he says, are sharing in the profitability of a combined medical oncology and radiation practice, and being involved in cutting-edge research.
Established in 1993, PRN manages the practices of 326 physicians in 144 practice locations, including 20 outpatient cancer centers. The company is paid 30% to 35% of each group's profits, which, Murdock says, "we like, because it truly aligns the incentives for us and the physicians. We really want to maximize profitability for the practices, since we share in the income."
In other models, he notes, physicians are compensated with a percentage of revenues and are not as involved in controlling the operating expenses of the practice.
Oncology Associates of Oregon, in Eugene, is affiliated with PRN. "Our radiation oncology group merged with a medical oncology group, and we saw how that integration and collaboration could lead to better care for patients," says David C. Fryefield, M.D., a radiation oncologist at Oncology Associates.
"Having made that first step, we realized the next step was to put together a full-service cancer center, where patients had access to chemotherapy, radiation therapy, diagnostic imaging, a lab and support services in one place. We needed a partner, and that's where PRN came in." In July, Fryefield's group will open the Willamette Valley Cancer Center in Eugene.
"The other advantage of partnering with PRN was the management piece," Fryefield says. "Dealing with all of the contracting -- with insurance companies and managed-care companies -- can take you away from the practice of medicine."
The concern of every doctor who looks at physician practice management companies is control, he says. "They ask, 'Are these people going to tell me how to practice medicine?' We felt reasonably comfortable with PRN because we felt this company had arisen from a physician culture," Fryefield says. "It was started by doctors, and it had that focus. And that has been our experience. We have not felt as though PRN had any interest in getting involved in the medical decisionmaking."
To earn its share of the profits, PRN provides capital, facilities, administrative support and ancillary services to affiliated physicians. It also negotiates systemwide arrangements for drugs, supplies and equipment, all high-cost items for oncologists.
"We come in and provide help with billing, purchasing and other activities that previously took a lot of the physicians' time, which allows them to be much more involved in delivering care," Murdock says.
Robin F. DeMattia is a Connecticut-based writer and editor.