MARINA DEL REY, Calif--Comparing the technical services portion of an oncology practice to a car that has been driven 25,000 miles, Dean H. Gesme, Jr., MD, managing partner of Iowa Cancer Care, P.L.C., said that he and his partners decided to spin off that part of their Cedar Rapids practice while it still had a high market value.
Chemo Not a Source of Revenue
"When we analyzed laboratory and chemotherapy revenues, drug prices, and reimbursement issues--and made suppositions based on historical fact and intent of government--we saw declining revenues and significantly increasing expenses. For example, using our financial model, in 3.5 years, chemotherapy was no longer a source of revenue but an expense to our practice," he said at the annual conference of the Association of Community Cancer Centers (ACCC).
The issues of financial stability and revenue control were key to the decision process. Dr. Gesme found that the majority of the practice's cash flow was not based on time and services charges, elements directly under physician control. Instead, it was based on laboratory and chemotherapy revenue--more under the control of those who set reimbursement rates and, therefore, deemed relatively risky sources of revenue.
So they sold those "high risk" parts of the practice to Physician Reliance Network, Inc. (PRN), a Texas-based practice management group, leaving a separate and distinct physicians' organization that is responsible for all clinical matters. Now, the revenue stream for the technical services they provide as medical oncologists goes to PRN.
In turn, for a fee, PRN furnishes the entire management operations for the newly formed group, Oncology Associates of Cedar Rapids. This includes all elements (eg, personnel, office space, equipment, and financial services) except physician services.
In Dr. Gesme's opinion, successful practice transactions depend on a physician's ability to develop a strategic vision of the future--a way of thinking he finds uncommon. "Many physicians rarely think about the future; in fact, they rarely think about today; they're still trying to get yesterday's records dictated."
But he stressed that such thinking is necessary to decide whether to maintain the status quo (or, in his used car analogy, drive that car into the ground) or to become proactive and make a change now. "This was a fairly conservative move and offered us greater financial stability," Dr. Gesme said.