The Economics of Oncology: Doctor-Hospital Integrated Practice

The Economics of Oncology: Doctor-Hospital Integrated Practice

ABSTRACT: The doctor-hospital integrated practice is one possible strategy oncologists may wish to employ in order to stay financially solvent in the current unstable health-care environment. Before entering into an arrangement with a particular hospital, the physician should compare the institution's financial health with that of similar hospitals. The practitioner also should review the hospital's current managed-care contracts to ensure that he or she will have access to new patients. Another crucial issue is whether the patients will belong to the physician or to the hospital, in particular whether patients cqan "follow" the physician is he or she leaves the hospital. Finally, the physician needs to consider whether the arrangement will provide the level of intellectual satisfaction he or she desires. The next step is to explore the various possible doctor-hospital relationships. These include a simple purchase of the practice by the hospital, renting space in a hospital-financed cancer center, or a hybrid of these two arrangements. [ONCOLOGY 10(1):104-106, 1996]


The managed-care revolution has had unprecedented effects on the
traditional practice of medicine. The combined purchasing power
of large employers paved the way for all types of health insurance
purchasers to band together to cut premium costs. Over the last
4 years, this march toward economy of health-care delivery has
had a dramatic impact on some health-care providers, especially
doctors and hospitals.

Many medical specialists have seen their incomes drop by 33%.
More importantly, many hospitals have seen their revenues disappear.
Not only are hospitals being pressured to drop per diem rates,
but hospital utilization is being hammered by case management
and primary-care capitation. In this unstable environment, what
strategies should a medical oncologist consider in determining
a future course for his or her practice? This paper looks at one
such strategy-the doctor-hospital integrated practice.

Before selecting any future direction, the medical oncologist/hematologist
should assess his or her current situation and professional goals.
Key issues to consider fall into four categories:

  1. financial capital
  2. access to patients
  3. practice quality
  4. intellectual satisfaction

Financial Capital

Finding financial capital needed for practice growth is one of
the most difficult hurdles physicians face in the 1990s. Since
the passage, in 1993, of the "Stark" anti-kickback laws,
physicians are essentially prohibited from investing in local
medical systems other than their own practices. Banks that were
formerly generous now require extensive personal collateral that
could put the individual practitioner at risk.

Separate and distinct from the federal anti-kickback statutes
is another impediment to physicians gaining access to working
capital--the federal antitrust regulations. These rules limit
how closely, and under what structures, physician groups can pool

Evaluating the Hospital's Financial Health

Working capital may still be available, however, from a hospital.
Before a physician decides to "bond" with a local hospital,
he or she should carefully evaluate the institution's financial
health and, if applicable, its affiliations.

National standardized measures of a hospital's health are available
from large accounting firms, such as Peat Marwick. These standardized
measures can be used to compare the hospital in question to other
similar institutions with respect to profitability, reserves,
and working efficiency. The physician should not accept a hospital
administrator's assurances that the money is there and available.
Rather, the physician should obtain these reports for an objective
analysis of the hospital's strengths.

Forging an Agreement

Once the oncologist confirms that the prospective hospital partner
does indeed have capital, he or she needs to secure a contractual
agreement that specifies what resources will be expended to fulfill
the needs of the oncology practice and how soon this will be done.
Just because a hospital has investment capital available, there
is no assurance that it will invest that money in a cancer program.
The hospital could change its direction and invest in other areas
that would help it survive in the new marketplace, such as mental
health, long-term care, and primary-care practices. The contract
should include specific commitments from the hospital and a timetable
describing when they would be implemented.

Access to Patients

The second critical area that the physician should consider is
where the patients will come from. If a physician enters into
a relationship with a hospital (the various types of which will
be discussed below), how will his or her present referral patterns
change? The physician who becomes an employee of one hospital
in a community that fails to capture a large managed-care preferred
provider contract will not see those potential patients. If the
physician is not employed by the hospital, but has an office on
the hospital campus and the chemotherapy drugs are provided by
and billed for directly by the hospital, he or she also may be
excluded from new referrals for the same reason; namely, the hospital
partner may not be the preferred provider for any outpatient or
inpatient services.

Reviewing the Hospital's Managed-Care Contracts

Before forming a relationship with any hospital, the physician
should review the institution's current managed-care contracts,
specifically looking for how many insured lives in its service
area are covered and what is the duration of the contract. If
time permits, the practitioner also can contact the corporate
benefit managers of those employer groups and query them on their
degree of satisfaction with the hospital contract. This "investigation"
may reveal that an employer group is planning to switch hospitals
at the next contract renewal time.

Practice Quality

The physician also needs to think about the type of practice he
or she wants. Does the clinician want to work as hard as possible,
or set up an 8-hour-day, 4-day-week schedule? Issues such as workload,
type and amount of ancillary staff, and choice of associates will
change if the practice is blended with a hospital.

The most critical question is, to whom do the patients "belong"?
If the patients belong to the physician, if their medical records
are owned by the physician, and if they can follow the physician
if he or she leaves the hospital, the physician will have an incentive
to work hard and strive for a high level of patient satisfaction.
If, on the other hand, the patients belong to the hospital or
vertically integrated health-care system, the physician may still
provide great care, but the reward for that effort is less direct
or immediate.

Similarly, when patients belong to a "system," the repercussions
arising from low patient satisfaction may never reach the physician
responsible. Also, decisions about adding doctors or other staff
are made on the basis of what is good for the system as a whole.
Likewise, if the patients belong to the hospital, how hard the
physician works will be directed by policy rather than by the
physician's determination of need, as is the case in a private

Intellectual Satisfaction

A final issue to consider is whether the arrangement will offer
the intellectual satisfaction that the physician seeks. Many hospitals
have the resources to enable an oncologist to perform clinical
research with the help of an on-site data manager. Funding for
such capability can come from NCI research grants (CCOP [Community
Clinical Oncology Program], CGOP [Clinical Group Outreach Program)
and also from pharmaceutical research programs or hospital endowment
funds. Such a research effort can help the physician provide state-of-the-art
care and keep him or her abreast of new treatment options.

What Hospitals Look for in a Physician

What should the hospital administrator look for in determining
whether a physician is a good partner for that institution? Currently,
there are between 6,000 and 7,000 active practicing oncologists
in the United States. Even though this is a small number that
will not increase significantly over the next decade, it behooves
the hospital administrator to be just as cautious as the physician
when selecting a partner. Certainly, the physician must be credentialed
as an active member of a hospital staff, without any privilege
restrictions. The clinician should have completed an approved
fellowship training program and should be board certified in medical
oncology and/or hematology. He or she should have the trust and
respect of referring physicians.

The physician also should have leadership capability, as evidenced
by participation in medical society, hospital staff, or tumor
board activities. Ideally, the prospective partner should demonstrate
a desire to provide high-quality, state-of-the-art care through
national clinical trial programs. These characteristics will predict
that if all the incentives of the hospital and the physician can
be properly aligned, the joint cancer program will be successful.


Loading comments...

By clicking Accept, you agree to become a member of the UBM Medica Community.