According to a study published earlier this year in the Journal of the National Cancer Institute, total expenditures for cancer treatment and care in the United States are expected to grow to between $158 billion and $173 billion by 2020. This growth represents an increase of 27-39 percent over total cancer expenditures in 2010 and is largely attributable to the expected expansion and aging of the U.S. population.

Hospitals and other healthcare facilities and providers throughout the country are already responding to these and other projections and are beginning to develop strategies for how they will meet the expected demand. However, before a hospital, facility or other provider establishes or expands a freestanding radiation therapy center or hospital radiation oncology department, there are several critical issues that must be addressed.

The first issue is the anticipated service offerings and utilization of the radiation therapy center or hospital radiation oncology department. Establishing or expanding a radiation therapy center or hospital radiation oncology department is generally a capital-intensive venture, and a reliable forecast of expected volume is essential to determining whether the center or department can cover its operating costs and provide high-quality patient care. The presence of established or other developing cancer programs in a city or region can have a significant impact on both the short- and long-term financial viability of new or expanded radiation therapy services.

Another closely related issue is determining the radiation oncologists and other physicians who will likely practice at or utilize the radiation therapy center or hospital radiation oncology department. Cancer patients tend to be sophisticated consumers of healthcare services and are likely to seek out highly respected physicians and explore all of their treatment options before deciding upon a course of treatment. As a result, the performance of a cancer center is, in many cases, directly tied to the reputation and experience of the radiation oncologists and physicians who utilize the center. Having the right physicians in place will enhance both the quality of care that is provided and the long-term viability of the cancer center.           

Once a healthcare facility or provider has determined its anticipated service offerings and utilization, the facility or provider needs to determine which structure (freestanding or hospital-based) will best allow the facility or provider to accomplish its objectives and reach its targeted market. For example, some radiation oncology services are only reimbursed by Medicare, Medicaid, and other third party payers when provided in a hospital-based facility. Other radiation oncology services may be reimbursed at a higher level when provided in one location versus another. As a result, understanding the center’s expected reimbursement is key.

In addition, the structure of the cancer center also has a direct impact on a number of other issues, including who might invest in or hold an ownership interest in the center, where the center could be located, and how the center would be staffed and supervised on a daily basis. Given the importance of these issues, choosing the most appropriate structure is vital to the long-term success of a cancer center.

After the structure of the cancer center has been determined, the healthcare facility or provider would need to make sure that it completes all of the steps that are necessary to establish or expand a freestanding radiation therapy center or hospital radiation oncology department. Since Tennessee is a CON state, establishing or expanding a radiation therapy center or hospital radiation oncology department could potentially require a certificate of need.

In addition, the facility or provider would also need to work closely with the applicable licensing and accreditation bodies to ensure that the center is constructed to the appropriate standards and would otherwise be able to obtain the required licenses and accreditations. Determining the applicable licensure and accreditation requirements can be quite confusing, particularly with respect to hospital-based radiation oncology departments. As a result, this is an area where healthcare facilities and providers should consider seeking assistance from legal advisors who are experienced with the specific requirements.

Finally, if the cancer center anticipates having any financial relationships with physicians or other potential sources of referrals, the center must ensure that each of those financial relationships comply with the requirements of the applicable federal and state law. For example, under the federal physician self-referral statute (the Stark Law), radiation oncologists are generally the only type of physicians who can hold ownership interests in radiation therapy centers. As a result, it might be very difficult for a radiation therapy center to partner or joint venture with general surgeons, neurosurgeons and medical oncologists.

In addition, if the radiation therapy center or hospital radiation oncology department will be paying any compensation to any physicians or other potential sources of referrals, the compensation paid to those physicians or potential referral sources must be fair market value for the services being provided, and the agreements under which the compensation is being paid must comply with the applicable federal and state fraud and abuse statutes. Those statutes contain a number of potential traps for the unwary, so any relationship between a radiation therapy center or a hospital radiation oncology department should undergo a thorough legal review by experienced counsel.

While establishing or expanding a freestanding radiation therapy center or hospital radiation oncology department might be complicated, healthcare facilities and providers that are able to successfully navigate the waters and develop an effective cancer care strategy should be well positioned to tap into a growing market and meet the future healthcare needs of their patients.

Attorneys Brandon Schirg and Brent Hill are both partners at Waller Lansden. Schirg, who practices exclusively in the firm’s Healthcare Regulatory Group, advises many of the nation’s leading healthcare providers on regulatory and operational issues involving hospitals, ambulatory surgery centers, hospices, cancer centers, and independent diagnostic testing facilities. Hill has extensive transactional experience in the healthcare industry.  www.wallerlaw.com

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