Competition Unfolding In Cancer Care Hospitals React To Proposal For A For-Profit Treatment Center

Spokane hospital officials were all smiles last month when they announced plans for a new cancer treatment center promising the latest in technology and affiliation with one of the world’s best-known cancer clinics, Fred Hutchinson in Seattle.

But they didn’t mention the center would compete head-on with another in the works for nearly two years by local doctors and a for-profit national physician management group.

The company, Physician Reliance Network of Dallas, has already signed up Spokane doctors, agreed to buy property and just received a zoning exemption permit.

By contrast, hospital officials offer few specifics for their proposal.

The CEO of Sacred Heart Medical Center said the hospitals have been talking about collaborating on a cancer center for some time. But the threat of a for-profit competitor was the catalyst to move forward.

“All of a sudden at Sacred Heart, we were threatened with the evolution of a free-standing center, taking away up to 50 percent of our business,” said Skip Davis, chief executive officer of Sacred Heart.

“That has a lot of implications for an employer. My feeling was, if we just sit back and are passive, we’re going to get left behind. It seems a little unfair, doesn’t it?”

The doctors’ group and the hospitals are still talking about possibly working together and building a single center. But Spokane could wind up with two centers in a medical arms race of treatment plans, doctors and equipment, scrabbling for every last patient.

Hospital administrators believe a cancer center should be nonprofit and managed by someone representing the Spokane hospitals. With their track record of running cancer centers nationwide, Physician Reliance Network administrators believe the company should be in charge.

The competition over cancer care illustrates the future of medicine. As health care becomes more competitive and managed care more pervasive, for-profit companies with a flair for business and medicine are carving out lucrative specialties.

A national for-profit company, HealthSouth, has already set up outpatient rehabilitation offices in Spokane that compete with St. Luke’s Rehabilitation Institute. Doctors’ groups and foreign corporations are considering profit-making kidney-dialysis centers that would compete with Sacred Heart’s network of clinics.

Nonprofit hospitals eager to stay afloat have little choice but to fight back and change the way they do business. Many are becoming lean, trimming fat and running like for-profit companies. New alliances are being formed between for-profits and nonprofits.

Physician Reliance Network has formed partnerships with nonprofit hospitals in the past. The group has set up 20 cancer centers nationwide and manages the business of more than 310 doctors.

“We feel there are considerable cost savings for patients and improved quality of care by coordinating the cancer care,” said Dr. Merrick Reese, chief executive officer of Physician Reliance Network. “It has been in the past a very fragmented system.”

Cancer treatment is big business, and it’s growing. The number of new cases of cancer grew from 782,000 in 1980 to an estimated 1.38 million in 1997. One in two men and one in three women will develop cancer in their lifetime.

Cancer diagnosis, treatment and related services add up to about $35 billion in direct costs, or about 6 percent of all health care spending.

Cancer treatment has switched from primarily an inpatient business to mostly outpatient. At Sacred Heart, only 8 percent of cancer cases are handled as inpatients.

In Eugene, Ore., the hospital didn’t want to watch its outpatient cancer program drain away when Physician Reliance Network moved in.

It opted to join forces with the company. As in Spokane, the network signed up medical oncologists in Eugene and then started planning a cancer center.

“This was the first time an out-of-state, for-profit company came in and said, ‘We’re here. Are you going to play with us or not? Because we are going to be here, whether you like it or not,”’ said Beverly Mayhew, spokeswoman for the Sacred Heart Medical Center in Eugene.

“It was a wake-up call for our administrators. They’ve come to learn and accept and embrace the new opportunities that exist in forming relationships with physicians.”

The alliance, reached June 1, marked the first time that the nonprofit Eugene hospital formed a partnership with a for-profit management company. The network manages the cancer center in Eugene, and has hired most of the people that worked for the hospital. No one has lost a job, Mayhew said.

Davis flew to Eugene on Thursday to talk to doctors and hospital officials about their joint center, set to open next year.

As shown in Eugene and Spokane, the trend is to handle cancer in a smooth continuum of care. Cancer centers are supposed to be better for patients, and better for their care, combining expertise, resources and equipment in one building.

“It is absolutely the ultimate in bringing everybody together,” said Dr. Turner Wood, a lead doctor at Spokane Oncology Hematology Associates, the group of medical oncologists that signed up with Physician Reliance Network.

The six doctors at Spokane Oncology Hematology started considering the idea of a cancer center three years ago. At the time, they talked to the hospitals about a center, but didn’t see much movement or even collaboration at the time, Wood said.

Mike Liepman, chief operating officer of Valley Hospital and Medical Center, said the hospitals and doctors started talking two years ago. He said the hospitals have long hoped to start a comprehensive cancer center.

“We’ve got a plan, and it’s a good plan,” Liepman said. “It’s one we feel is right. But still, the goal is let’s not duplicate if we don’t have to.”

The doctors didn’t wait for the hospitals’ plan. They looked to a physician-practice management organization - a new type of health care management organization formed primarily in response to managed care. The new organizations answer doctors’ growing need for capital, management expertise, economies of scale and security in the increasingly sharklike health care market.

Physician Reliance Network is the largest of five publicly-traded companies nationwide that manage cancer care.

“They do the red tape,” Wood said. “They do all the business side of it. We do the medicine side.”

In November 1995, the doctors signed up as affiliates with the network. In March 1996, they again talked to the hospitals about jointly forming a cancer center. Since then, doctors and hospitals have kept talking. And the doctors have moved ahead with plans for a cancer center, with or without the hospitals.

Few people question the quality of care from Physician Reliance Network, especially considering the physicians the company affiliated with in Spokane.

But the company has run into complaints over its business practices. At least three class-action lawsuits have been filed against the company, alleging federal securities violations, fraud, and misrepresentation to stockholders. The company has denied the allegations.

The Spokane cancer center planned by Physician Reliance Network will cost about $8 million. The two-story, 35,000-square-foot brick building with arched windows will sit at the corner of Fifth and Sheridan, just east of the Rockwood Clinic. The center will employ 60 people, including eight doctors, and could treat up to 160 patients a day.

The center planned by Inland Northwest Health Services, representing Spokane’s four hospitals, isn’t nearly as specific. There’s no site. No price tag. No time line. But hospital officials say they’re committed to the best cancer care for patients.

“We’ve earned our stripes,” Sacred Heart’s Davis said. “We’re not going to be passive players.”

, DataTimes