Capable of eradicating tumors with little or no effect on healthy tissue and none of the side effects of traditional photon radiation, proton therapy is offering new hope--not just to cancer patients, but also to those suffering from certain neurological and ophthalmological diseases.

The cost of developing proton treatment centers is high, however, and the corporate and financing structures are complex. Academic medical centers (AMCs) and health systems that are considering a proton therapy center must understand not just their strategic benefits, but also their attendant financial and structural issues associated with their development and operation.

 Strategic advantages

Debate over proton therapy's cost-benefit analysis has never been louder. With a five-acre physical footprint, these centers are expensive. While clinical studies comparing proton therapy's efficacy to traditional therapies are still emerging, most radiation oncologists agree that introducing less radiation into healthy tissue is clinically beneficial. AMCs and health systems haven't waited for additional clinical data-often, because they want to brand their cancer/oncology programs as offering technologies that competitors don't provide. Because most centers require two to three years to develop before they can treat patients, the first market entrant often has a significant strategic advantage.

From a mission standpoint, a proton therapy center makes a cutting-edge treatment available to the community. It also draws high-caliber cancer specialists and clinical trial sponsors. And an influx of new cancer patients could increase demand for complementary diagnostic and therapeutic cancer care services. (Notwithstanding this, the cost and benefits of these services may not be accounted for when valuing a proton therapy center.)

Moreover, AMCs or health systems typically can't bear the full development costs of these facilities. More often, they'll make a stated investment in a portion of the center's associated costs, with the remainder being structured on an off-balance-sheet basis.

Many AMCs and health systems that invest in private equity or hedge funds have redirected these investments into an on-campus proton therapy center to achieve not just a strategic benefit, but also a financial return consistent with alternative investment vehicles.

The healthy brain tissue in the grey/white area of this proton therapy image received zero radiation exposure. image/courtesy ProCure

Reimbursement

Proton therapy has gained widespread acceptance in treating localized cancer of the prostate, brain, eye, head and neck, spinal cord, abdomen, pelvis and other sites, as well as noncancerous disorders such as brain arteriovenous malformations. Reimbursement from Medicare, Medicaid and private payers is widely accepted. Proton therapy carries its own current procedural terminology (CPT) codes and has been assigned American College of Physicians (ACP) payment rates under the Center for Medicare & Medicaid Services' (CMS) Hospital Outpatient Prospective Payment System (HOPPS) reimbursement system.

An AMC or health system must negotiate reimbursement levels with local Medicare carriers that lack proton therapy policies. This situation has led to inconsistent reimbursement policies for different Medicare regions.

Generally, if a facility can structure its proton therapy center as a hospital outpatient department, it can achieve higher HOPPS reimbursement rates. That said, HOPPS significantly restricts the facility's location and manner in which it operates. Typically, obtaining HOPPS reimbursement requires the center to be integrated and under the hospital's clinical supervision on multiple levels.

Often, an institution will outsource clinical and technical operations to a third-party developer. By doing so, however, the institution may restrict its ability to treat the proton therapy center as an outpatient department of the hospital that otherwise would be entitled to HOPPS reimbursement. If it can't bill for proton services as a hospital outpatient service, the AMC or health system will need to consider whether it would be more favorable to have the freestanding center negotiate payer contracts under its own name, or leverage the institution's existing relationships and bill for services in the AMC's or health system's name. Often, a freestanding center with no other local operations may lack the relationships or leverage with managed care payers needed to negotiate favorable managed care payment rates, which directly impacts the center's revenue and bottom line.