Health Leaders Magazine , February 2006
Radiation for Sale
Three years ago, Steve Barron sold out.
It was the right choice for him. Faced with a $4 million impending bill to update St. Bernadine Medical Center’s radiation oncology center of excellence to the standards that its radiation oncologists demanded, Barron, president of the 275-staffed-bed hospital, sold St. Bernadine’s service line to Vantage Oncology in return for updated technology and better patient care.
An old treatment, radiation has a new set of fancy clothes. Although sometimes effective, old radiation therapies used a shotgun approach, irradiating the whole body when a rifle that targeted individual tumors was needed. Several new cancer treatment modalities, which pinpoint radiation doses to the tumors without endangering healthy tissue, have recently become mainstream. Such treatments have been around for a few years, but improvements are constant and expensive to implement. As with other new promising treatments, hospitals feel an urgent need to upgrade not only to improve patient care, but to retain cutting-edge specialty physicians—who often locate their practices on campus—and their lucrative patient referrals. Hospitals that can’t afford to fund upgrades from their budgets have new alternatives, such as partnering with physician groups, radiation oncology management companies, or both.
Other priorities
Barron arrived at St. Bernadine six years ago in the midst of a financial crisis.
The San Bernardino, Calif., hospital faced a host of challenges, including a need to invest heavily in centers of excellence, which Barron saw as a way to compete with such heavy hitters as Loma Linda University Hospital, a 737-staffed-bed behemoth only six miles away. Contending with considerable capital needs for centers of excellence in heart, bariatric surgery and obstetrics, Barron didn’t have the necessary capital to invest in needed technology for his radiation oncologists. So he essentially sold the entire service line to El Segundo, Calif.-based Vantage Oncology.
“Frankly, if I were to make the decision today I would probably rather own the program because now I have the capital to do it right,” says Barron. “But we were either going to shut it down because we weren’t state-of-the-art or turn it over to someone who was going to do it right.”
Now the hospital offers cutting-edge cancer technology like intensity modulated radiation therapy, brachytherapy, high-dose rate implants and radiosurgery to better treat tumors. Meanwhile, Barron, who says the hospital’s board needed “very little convincing” to approve the arrangement, is still collecting rent from the physicians and Vantage for necessary medical office space.
Barron’s situation is not uncommon. Radiation oncology, says Mike Fiore, Vantage’s CEO, was once a “sleepy little business,” but now requires significant investment. Offering targeted radiation therapy is expensive because of a variety of factors. In addition to the services of high-priced oncologists, specialty physicists must be on hand to help target radiation doses. Construction requirements are daunting. Facilities to house such treatments require eight-foot-thick concrete walls and high ceilings, which means most who hope to offer them face new construction. Equipment costs can run into the millions. Finally, as cancer is a disease that disproportionately affects the aged, centers need to be as close to patients’ homes as possible, as six- to eight-week outpatient treatment regimens are the norm.
Such partnerships can come at a price. They may be a prudent choice, but hospitals aren’t likely ever to get their programs back once the deal is done.
Finding a partner
Patient travel time was part of the reasoning behind a joint venture struck between Vantage and Brooklyn Radiation Oncology, a group of clinicians who are on the faculty at the famed Beth Israel Medical Center, which is part of Continuum Health Partners, a group of four New York City hospitals. In Brooklyn, the result of that joint venture—a state-of-the-art radiation oncology center near Beth Israel Medical Center Kings Highway Division—opened in January. The idea behind the relationship between Vantage, the Brooklyn Radiation Oncology specialty practice and the 212-staffed-bed hospital was that Beth Israel wouldn’t have to spend its own scarce capital dollars to build the $6 million center and would gain a competitive chip to use against other centers in the area that are already much closer to patients than the hospital-owned center at Beth Israel’s main campus in Manhattan.
“The hospital could have done this on its own,” says Louis Harrison, M.D., clinical director of Continuum Cancer Centers of New York and chairman of radiation oncology at Beth Israel Medical Center, St. Luke’s Hospital and Roosevelt Hospital. “But lots of capital needs present themselves at one given time. It allows the hospital to use capital on other projects, while giving its wholehearted endorsement to this project.”
Harrison says the ready capital offered from outside will allow Brooklyn Radiation Oncology and Continuum to preserve market share at a time when funding priorities in other service lines meant that the system would have been unable to fund a radiation oncology center at the Brooklyn campus.
“We had to bring this clinical excellence that our program is known for without having to expend the capital to build it,” he says. “The relationship allows us to maintain a center with the greatest amount of high-level technology and support for the clinical operation that’s at least as good as the hospital.”
A campus jewel
Past financial problems made it impossible for Roger E. Seaver to build the needed improvements to radiation oncology at Henry Mayo Newhall Hospital, where he has been CEO for almost five years. Seaver was facing encroachment from a standalone radiation center operated by a competitor that was locating a mile from his hospital, but having emerged from bankruptcy protection only in 2003, the 217-staffed-bed hospital in Valencia, Calif., had other capital spending priorities.
Seaver says he encouraged physicians from the hospital’s affiliated oncology practice to pursue a partnership with Vantage as a way to preserve market share. Additionally, such a partnership would ensure that the practice operating Mayo’s then-outdated radiation oncology center had no incentive to leave campus.
“Honestly, if I’d had the time and capability, I would have taken advantage of the market myself,” he says, “but I couldn’t make that a top priority.”
The group debuted the new technology in the existing cancer center in July 2005, at which time Seaver extended the partnership’s on-campus lease.
“They have always been kind of a jewel on the campus,” says Seaver of the oncology practice. “They’re a tenant in a building that we operate, but the real benefit is that they’re staying around.”
Philip Betbeze is finance editor with HealthLeaders. He can be reached at pbetbeze@healthleadersmedia.com.
