Proton Facility Economics: The Importance of Simple Treatments

Peter A. S. Johnstone, MDa,b, John Kerstiens, CPAb, Richard Helsper, MBAb

Purpose: Given the cost and debt incurred to build a modern proton facility, impetus exists to minimize treatment of patients with complex setups because of their slower throughput. The aim of this study was to determine how many simple cases are necessary given different patient loads simply to recoup construction costs and debt service, without beginning to cover salaries, utilities, beam costs, and so on. Simple cases are ones that can be performed quickly because of an easy setup for the patient or because the patient is to receive treatment to just one or two elds. Methods: A standard construction cost and debt for 1, 3, and 4 gantry facilities were calculated from public documents of facilities built in the United States, with 100% of the construction funded through standard 15-year nancing at 5% interest. Clinical best case (that each room was completely scheduled with patients over a 14-hour workday) was assumed, and a statistical analysis was modeled with debt, case mix, and payer mix moving independently. Treatment times and reimbursement data from the investigators facility for varying complexities of patients were extrapolated for varying numbers treated daily. Revenue assumptions of $X per treatment were assumed both for pediatric cases (a mix of Medicaid and private payer) and state Medicare simple case rates. Private payer reimbursement averages $1.75X per treatment. The number of simple patients required daily to cover construction and debt service costs was then derived. Results: A single gantry treating only complex or pediatric patients would need to apply 85% of its treatment slots simply to service debt. However, that same room could cover its debt treating 4 hours of simple patients, thus opening more slots for complex and pediatric patients. A 3-gantry facility treating only complex and pediatric cases would not have enough treatment slots to recoup construction and debt service costs at all. For a 4-gantry center, focusing on complex and pediatric cases alone, there would not be enough treatment slots to cover even 60% of debt service. Personnel and recurring costs and prot further reduce the business case for performing more complex patients. Conclusions: Debt is not variable with capacity. Absent philanthropy, nancing a modern proton center requires treating a case load emphasizing simple patients even before operating costs and any prot are achieved. Key Words: Protons, prostate cancer, health services research J Am Coll Radiol 2012;9:560-563. Copyright 2012 American College of Radiology

INTRODUCTION

At the time of writing, there are 9 functioning proton centers in the United States (Table 1), with several others under construction. Many of these centers emerged through unique circumstances. The Massachusetts General Hospital and Loma Linda facilities have been in existence for several decades, beginning as research centers. Our center began as a modication of the existing
This article is only available for CME credit online and CME credit may only be claimed online. Visit www.acr.org, ACR Education, online learning for more information. a Department of Radiation Oncology, Indiana University School of Medicine, Indianapolis, Indiana. b IU Health Proton Therapy Center, Bloomington, Indiana. Corresponding author: Peter A. S. Johnstone, MD, Indiana University School of Medicine, Radiation Oncology Department, 535 Barnhill Drive (RT041), Indianapolis, IN 46202; e-mail: pajohnst@iupui.edu. Dr Johnstone is president and CEO of IU Health Proton Therapy Center. Mr Kerstiens is chief nancial ofcer of IU Health Proton Therapy Center. Mr Helsper is chief operating ofcer of IU Health Proton Therapy Center.

Indiana University cyclotron: a building addition was funded with some state grant support, and 2 gantries were installed. In 2004, Indiana University (IU) Health (then incorporated as Clarian Heath) became an equity partner. More recently, several proton facilities have been developed through a for-prot franchise model. The use of protons for prostate cancer (PCa) is a divisive topic. The use of a scarce, expensive technology without documented survival improvement has served for some as an example of out-of-control health care costs [1,2]. Moreover, PCa is a high-incidence malignancy that contributes importantly to the bottom line of virtually every conventional radiotherapy (RT) practice as well. Every RT center deals with complex and simple patient cases. This remains true for proton centers: complex cases (eg, pediatric, skull base) and simple cases (eg, palliative pelvic, PCa) are treated at each site. Complexity of cases does not imply patient-specic beam modication (eg, apertures and compensators) because the beam is modied for each eld at our center. Rather, simple cases are cases that can be treated in 30 min0091-2182/12/$36.00

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2012 American College of Radiology http://dx.doi.org/10.1016/j.jacr.2012.03.014

Johnstone, Kerstiens, Helsper/Proton Facility Economics 561

Table 1. Operational proton therapy centers in the United States

Massachusetts General Hospital Loma Linda University Medical Center IU Health Proton Therapy Center University of Florida Proton Treatment Institute University of Texas MD Anderson Cancer Center Procure Oklahoma City University of Pennsylvania Hampton University Proton Therapy Institute Procure Chicago

utes because of easy immobilization or the use of 2 treatment elds. Complex cases are cases that require difcult immobilization and use 3 treatment elds. Because most proton centers must include debt service in their business plans, we sought to model the practical case distribution necessary to facilitate debt management.
METHODS

4. Revenue assumptions were based on IUHPTC experience. a. Net billings were dened as reimbursements after contractual allowances and bad debts. b. Because treatment is 78% of all IUHPTC revenue, we calculated only treatment charges, including a daily simulation charge for lm review. c. Pediatric cases are a mix of Medicaid and private payer, resulting in average reimbursement of $X per treatment. d. Medicare reimbursement at Indiana rates of $X per treatment was assumed. e. Private payer reimbursement at an average of $1.75X per treatment was assumed. f. Prostate cancer cases at IUHPTC are 47.5% Medicare. g. Non-PCa cases at IUHPTC are 19.5% Medicare. 5. A 1-room facility was assumed to cost $25 million [8]. 6. A 4-room facility was assumed to cost $150 million [9]. We then modeled a statistical analysis with debt, case mix, and payer mix moving independently. Using a sensitivity analysis, we modeled at differing case complexities, differing principal and interest payments on estimated construction debt, and differing payer mixes.
RESULTS

For the purpose of this analysis, public documents were uniformly used. Because each proton center emerged from unique circumstances, different (and sometimes conicting) data are available in each case. In Jacksonville, several local and state entities posted bonds for the center, so any debt carried on the University of Florida Proton Therapy Institute books is a portion of total debt [3]. MD Anderson and the facilities built by Procure in partnership with a local practice (Oklahoma City, Oklahoma, and Chicago, Illinois) are private entities; equity stakes were sold to hold down debt [4,5]. The University of Pennsylvania used a joint operations model with Childrens Hospital of Philadelphia and the US Department of Defense [6,7]. Because debt and interest data are proprietary, we used representative values from the US economic environment of the era. Furthermore, Medicare reimbursements vary by region and treatment level. The following assumptions were used in our model: 1. Fifteen-year nancing at 5% interest was assumed because it is unlikely that any lender would be interested in a 30-year note for technology such as protons. Table 2 provides the daily debt service for varying debt loads at varying interest rates. 2. The unit of analysis was per room, with 14 hours of daily operations. 3. Capacity assumptions were based on IU Health Proton Therapy Center (IUHPTC) experience. a. Pediatric with anesthesia and other complex cases require 1 hour of room time per treatment. b. Simple head, neck, and pelvic cases require 30 minutes of room time per treatment. c. Patients with PCa require 24 minutes of room time per treatment.

Not surprisingly given the assumptions, the number of patients treated per day per room is maximized with an increasing percentage of simple and PCa cases (Figure 1). With a single complex patient, 35 simple patients may be treated. In our experience, a practical daily maximum of pediatric patients requiring anesthesia is 6 or 7, given the nil per os requirements of the anesthesia. If one presumes that number, or an equal number of complex adult or pediatric cases without anesthesia, the number of possible simple cases on that gantry in a 14-hour workday drops to 16. Compared with a room lled by patients with PCa, daily billings per room drop by 61% with the scenario described above of 6 or 7 pediatric or complex cases. In short, for each complex or pediatric case added to a simple case mix, daily revenues will fall by more than $2.2X. For

Table 2. Daily principal and interest payments over a range of interest rates and debt amounts Interest Rate Principal and Interest Payment ($)
Debt ($ millions) 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5% 20 6,435 6,668 6,906 7,149 7,397 7,650 7,908 8,171 8,439 8,711 50 16,088 16,670 17,265 17,872 18,492 19,125 19,770 20,427 21,096 21,778 100 32,175 33,339 34,529 35,744 36,984 38,250 39,540 40,854 42,193 43,555 120 38,611 40,007 41,435 42,893 44,381 45,900 47,448 49,025 50,631 52,266 150 48,263 50,009 51,794 53,616 55,477 57,374 59,310 61,281 63,289 65,333

All amounts are based on 20 operating days per month.

562 Journal of the American College of Radiology/ Vol. 9 No. 8 August 2012
40 35 30 25 20 15 10 5 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Complex/Pediatric Cases $60,000 $50,000 $40,000 $30,000 $20,000 $10,000 $0

CapacityOne Room

Net Expected Dailiy Billings

Capacity 100% Simple Capacity 100% Prostate Net Billings $ 100% Simple Net Billings $ 100% Prostate

Fig 1. Sensitivity analysis: effect on daily capacity and billings of adding complex and pediatric cases to a simple or prostate-based clinical load.

each complex or pediatric case added to a prostate case mix, daily revenues fall by approximately $2.4X. Put another way, a single gantry treating only complex or pediatric patients would need to apply 85% of its treatment slots simply to service debt. However, that same room could cover its debt treating 4 hours of patients with PCa. A 3-gantry facility treating only complex and pediatric cases would not have enough treatment slots to recoup construction and debt service costs at all. That 3-gantry facility could ll one room with simple cases and still fall just short of covering debt; the other two rooms could support the residual remaining debt plus operating expenses including salaries, utility costs, maintenance, and potential prot. For a 4-gantry center, focusing on complex and pediatric cases alone, there would not be enough treatment slots to cover even 60% of debt service. Simple patients thus are critical to a proton facility of any size.
DISCUSSION

In any radiation therapy (RT) center, it is paradigmatic that reimbursement suffers with slowed throughput. For the time spent with a single complex patient, 2 to 5 simple or PCa patients may be treated. In a proton center treating predominantly complex patients, the lower average reimbursement of faster simple treatments can compensate only to a point.

At modeled reimbursement, a single gantry room focusing on pediatric or complex patients will operate for 12 hours daily simply to service debt. Staff compensation, beam costs, marketing, and the other necessities of business raise the bar, so that for many, either single gantries or complex cases become impossible. Admittedly, certain efciencies are gained in a 3-gantry or 4-gantry operation, albeit at signicantly greater construction and operating costs. These efciencies are outside of our model, which looked exclusively at xed debt service for construction and did not address variable operational costs. Using these assumptions, each $10 million of 5% debt amortized over 15 years will result in monthly principal and interest payments of approximately $80,000 or approximately $4,000 per day in a 5-day workweek. This demonstrates the critical need to devote capacity to debt service as debt increases. Figure 2 places additional context with regard to principal and interest. As shown, a low interest rate environment does not have a signicant impact on the daily debt service. Only by limiting the total amount borrowed will the daily hurdle for principal and interest be lowered. These data reveal two sides of a critical truth. The upside from our perspective, and for many others, is that treating simple cases facilitates our treatment of pediatric and complex patients. The corollary is that treating simple cases

Fig 2. Sensitivity analysis: daily principal and interest (P & I) payments on debt of varying interest rates and amounts plotted against net billings as case mix moves from 100% prostate or 100% simple to more complex and pediatric cases.

Johnstone, Kerstiens, Helsper/Proton Facility Economics 563

facilitates maximum prot from any gantry. A single gantry will cover its debt treating 4 hours of patients with PCa, thus either (1) opening slots for complex and pediatric patients or (2) opening slots for more simple cases. Our model presumes that all potential patient treatment slots are lled daily; this admittedly is seldom the case. Even if it were true, the issue then arises as to where those patients will come from. Given the penetrance of linear accelerators in the United States today, new proton centers will divert patients from existing centers nearby. Many prospective proton facilities and investors consider it given that large cadres of patients already in existence elsewhere will shift to the proton facility, away from the centers where they would otherwise be generating income. For many such patients, including most with metastatic disease, there is no conceivable benet in that move, and for the existing centers there is no conceivable benet to referring such patients away. As new centers are built, there will be overlap within regions, resulting in fewer patients having to travel for protons. This overlapping will reduce the acquisition of patients from outside any centers catchment area and will result in the cannibalization of existing RT patients from a centers conventional RT option to protons. This loss of revenue from an existing patient ow was not considered in our analysis, although as more centers are built, this will surely come into play. To further cloud the issues, few expect current proton reimbursement to remain at current levels. The likelihood of signicant cuts in Medicare and private payer outlays seems inevitable in an accountable care organization environment. Philanthropy may certainly play a role in proton center construction for some institutions. However, we anticipate that few, if any, proton facilities will be constructed completely debt free in this economy. Finally, as we have discussed previously [10], the issue of uncompensated care using such scarce technology takes on special visibility, especially vis--vis tax-exempt vs taxable centers. At our center, we consider the loss of revenue from free care to be more than balanced by access to tax-exempt debt and revenues. At IUHPTC, our status as an exempt organization under Internal Revenue Service code section 501(c)(3) is based in part on providing charitable care. However, it seems obvious that a startup center with a high percentage of debt on the books, regardless of tax exemption status and interest rates used in amortization of debt, might have to restrict charitable work. Many readers may assume that children would be the most common charitable cases; in reality, pediatric patients are insured (via Medicaid and privately) at a higher rate than young andmiddle-agedadults.Thispopulationalsogenerallypresents with complex central nervous system and head-and-neck cases. Under the Patient Protection and Affordable Care Act, we expect the population of patients presenting with Medicaid to increase. Thus, although we did not include uncompensated

care in our model, it clearly would affect each proton site differently. Any center that provides health care should operate to the requirements placed by its board. In our case, Indiana University, IU Health, and IUHPTC boards have been outspoken that we center on our pediatric expertise. Although we are tasked preferentially with treating pediatric and complex headand-neck or central nervous system cases, our board also is outspoken that they expect return on their investment, so with our excess capacity, we treat simple and PCa patients as they present to our southern Indiana location. We understand that scheduling those when possible provides a clear advantage in debt management. This then allows for salaries, utility costs, and prot. Although prot is arguably a consequential goal in and of itself, no center should be expected to consistently operate at a loss. Our analysis shows the crucial nature of a case mix maximizing simple cases to such an enterprise.
CONCLUSIONS

Debt service for a modern proton center requires a considerable number of simple or PCa cases. Once operating costs and any prot are considered, centers without considerable workload devoted to these patients should not be expected to survive. REFERENCES
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CME: This article is only available for CME credit online and CME credit may only be claimed online. Visit www.acr.org, ACR Education, online learning for more information.