After IU Health announced it will close its proton therapy center, we sat down with Chris Pericak, Senior Consultant for Service Line Strategy Advisor, to discuss the news and potential implications of this closing on the future of other centers.
Q: Indiana University Health announced this week that it is permanently closing the Proton Therapy Center by January 1st, 2015—what happened here?
Chris Pericak: IU Health’s Proton Therapy Center is one of the earliest sites to open in the U.S. and has been running for about a decade. Unfortunately, it has been operating at a deficit for most of that time and has seen a decline in volumes.
After reviewing future prospects for improving the financial outlook – like investing in new technology, reorganization, or expanding clinical research – the center was not confident it could ever reach a break-even point, and couldn’t justify that offering proton therapy was critical enough to keep it open at a loss.
Q: Is the fact that an older site is closing an indicator of things to come for the proton therapy industry?
Chris Pericak: Well, not so fast – while there are larger industry trends at play here that contributed to IU Health’s decision, we need to separate them from institution-specific factors to evaluate how relevant this closing is for other centers.
Related: The Current Proton Therapy Marketplace
Q: So what factors created a “perfect storm” for IU Health’s Proton Therapy Center?
Chris Pericak: First off, the center struggles with particularly high overheads of about $14M, when you consider the cyclotron and center’s combined operating costs. Because the center was originally built by repurposing the university’s physics research cyclotron, it requires a staff of over 60 people to maintain it and create the beam for treatment.
That cyclotron is now 25 years old and needs replacing –adding to the cost of keeping the center open. The bad news is, even with a replacement, the technology has other limitations. In order to stay relevant and deliver “cutting edge” ” techniques such as intensity-modulated proton therapy, the tech would need more upgrades.
On the revenue side, the center seems to have been at a disadvantage by the nature of its structure. As a free standing center, it cannot benefit from hospital-based reimbursement from CMS or tap into the negotiating power of the IU Health system when working with commercial payers.
Related: Providers want coverage, payers demand evidence: Is there a solution for proton therapy?
Q: Sounds like they had a lot going on that wasn’t in their favor. But how much can we discount the role of larger trends in the proton industry—with sites rapidly emerging across the country, is competition making it harder for sites to succeed?
Chris Pericak: Yes, that’s absolutely correct. Many markets are becoming saturated, making it challenging for programs to differentiate themselves and solidify referral patterns.
In IU Health’s market, regional competition has significantly increased. While it was originally the only center in the Midwest, there are now two additional sites, including the new Siteman Cancer Center, and three others in construction. The presence of these centers and future competition may have contributed to the decision to close.
Another trend which likely played a role here is that centers across the country are experiencing challenges in securing the volumes they expected when they first opened. Many of them relied on large volumes of prostate patients, but with recent changes in care patterns and payers dropping coverage, this business model is no longer viable. That said, there are a number of options out there now – specifically, single-room solutions – that don’t require the same volumes to reach the breakeven threshold. It’s too early to say if these will prove to be viable.
Related: Three lessons from proton therapy providers you need to learn