Satellite Cancer Center Business Care Analysis
A university health system and a community hospital in the west. The organizations have a master affiliation agreement for joint development of selected clinical services.
To demonstrate a compelling business case to proceed with a cancer center joint venture on the community hospital campus, before committing resources. Key elements of the case were to include: validation of market size and characteristics, ability to achieve critical success factors and manage business risks, and projected ability of the cancer center to meet or exceed utilization and financial performance thresholds.
The preparation of a business case was challenging because no decisions had been made regarding whether the cancer center would be “hospital-based” or freestanding and whether or not it would seek 340B reimbursement. Each of these factors influenced revenue projections and thus financial viability. To support a decision on each of these issues it was necessary to evaluate multiple utilization, reimbursement and financial projection scenarios.
In addition, prior to the study, the detailed parameters of the JV had not been determined (e.g., which organization would provide specific clinical staff and other resources, where particular procedures would be conducted, how funds would flow among the organizations). These factors influence operating expenses. Here too, in support of building a business case, it was important to identify and evaluate alternative scenarios.
Veralon completed a detailed market analysis with attention to the demographic and health status trends (incidence of cancer by tumor type), the competitive environment, and patterns of patient access to oncology services.
We identified a proposed scope and configuration of cancer services for the joint venture program based on the findings from the market analysis and interviews with key stakeholders. Volumes for oncologic infusion, radiation therapy, ancillary services, and physician consultation activity were projected for a five-year period under an array of different scenarios.
The utilization projections were used to determine staffing, space, and equipment needs (including linear accelerators and CT/PET-CT).
Financial projections were developed based on resource requirements and payer mix, and included capital requirements and five-year projections of expenses, revenues, and operating margins. Here too, multiple scenarios were considered.
Veralon concluded that there was a strong business case to proceed with the JV.
A steering committee composed of representatives from both organizations reviewed the business case and approved passing the report and recommendations to the executive management teams of each organization. At the present time, those teams are continuing to refine the parameters of the JV. In conjunction with that they are refining the assumptions for the financial projections. A final decision to proceed with the JV is expected shortly.