Stereotactic Radiosurgery

The incidence of cancer continues to rise in the United States. According to the American Cancer Society, approximately 1,444,000 new cancer cases were diagnosed in 2007. Fortunately, technology also continues to advance, yielding new treatments for cancer patients in an outpatient setting.

One major area of emerging cancer care technology is the rapid advancement in stereotactic radio-surgery and stereotactic radiation therapy (SRS). SRS is the precise delivery of high energy radiation in one to five treatment sessions, primarily to ablate tumors, but also is used for a growing list of procedures as an alternative to invasive surgery (e.g. trigeminal neuralgia or arteriovenous malformations).

The Leksell Gamma Knife® was the initial installed SRS technology in the U.S. at the University of Pittsburgh Medical (1998). It combined high dosage Cobalt 60 radiation with advanced imaging and planning to treat cranial tumors and malformations in a single treatment session. Currently, there are over 100 Gamma Knife® installations in the U.S.

In recent years, with the advance of real time imaging, robotics and planning software, SRS technology has expanded to “whole body” treatment of tumors and in place of fixed frames (which the gamma knife employs) can utilize non-invasive masks or body forms to target radiation treatments with sub-millimeter precision.

Some current SRS systems are dedicated in that they only deliver high energy doses of radiation in one to a maximum of five fractionated patient treatments. These dedicated SRS systems include the Accuray CyberKnife® Robotic Radiosurgery System or the “cranial only” Leksell Gamma Knife® PERFEXION™. Other SRS systems are not dedicated in that they have the ability to deliver both high energy SRS treatments but also the lower energies used in the more traditional radiation therapies that are delivered in 10 to 40 fractionated patient treatments. These multienergy SRS systems include the Varian Novalis TX™, the TomoTherapy® Hi•Art® Treatment System, and the Elekta Synergy® system. In essence, the advanced image guidance and treatment planning capabilities of these new SRS systems is blurring the traditional clinical distinction between SRS and radiation therapy as clinicians now have greater flexibility to custom deliver targeted radiation in higher energies over fewer patient treatment fractions.

Provider Issues: Hospital Based vs. Freestanding SRS Programs

While the number and location of SRS programs has expanded dramatically in the last several years, almost all of this expansion has been through hospital-based outpatient service lines. This may be changing as reimbursement evolves for freestanding providers. While standard radiation therapy has long been reimbursed on a freestanding basis, SRS reimbursement was generally limited to hospital-based outpatient programs. This began to change as of January 1, 2007, when the Centers for Medicare & Medicaid Services (CMS) granted coverage for SRS procedures performed in freestanding centers under the physician fee schedules. However, the full effect has been delayed because CMS has left some discretion to the regional Medicare carriers to determine specific reimbursement polices for freestanding centers.

In particular, there are two distinct coding scenarios that the regional carries can apply in reimbursing SRS services provided by freestanding centers, either the G-code based reimbursement (e.g. G0173 and G0339) already developed for hospital-based SRS services or the use of the new SRS CPT codes (e.g. 77372). As a consequence, the level of reimbursement for freestanding centers may vary dramatically from one region to the next. Moreover, based on the adoption of G-codes or CPT codes, the reimbursement of freestanding centers can be significantly less than hospital-based SRS programs. These CMS reimbursement challenges can create a serious headwind to developing freestanding SRS programs. Moreover, similar challenges can also spill over into negotiating reimbursement contracts with private payors.

For these and other reasons, it is not surprising that many of the new freestanding SRS programs are being developed in conjunction with traditional radiation therapy programs (SRS/RT) and by established radiation therapy providers. This proclivity is also understandable from the technology side where a multi-energy SRS system can provide both SRS and RT patient treatments. As a consequence, an existing hospital or freestanding radiation therapy program can reposition itself to participate in SRS growth by upgrading or replacing their existing work horse linear accelerators with a multi-energy SRS system. In this context, the required investment for SRS is lessened and becomes an incremental component of the combined SRS/RT program.

Emerging Business Structures

With growth in the technology and “whole body” treatments, much of the growth in hospital- based SRS programs is occurring with “regional” hospitals that are newly bringing SRS to a limited sized patient markets (e.g. populations less than 250,000) or are part of a second wave of hospital-based SRS programs within a larger market. These same regional markets or sub-markets also are being targeted by established freestanding cancer providers, either in the form of one of the national radiation oncology chains or perhaps an established physician owned practice that currently operates a linear accelerator as an ancillary extension of their physician practice. In these regional markets or sub-markets, the challenges inherent to SRS programs become more manifest and are driving the emergence of new business structures. In particular, both hospital and freestanding providers struggle with committing $5 million to $8 million of capital to develop a new SRS program especially when there is uncertainty concerning reimbursement or with the timing and growth and adoption of new SRS treatment protocols.

Hospitals and freestanding providers are overcoming these challenges by joint venturing the SRS program through traditional means, including ownership (e.g. creation of a new freestanding SRS or SRS/RT provider) and management (e.g. bringing in a third party firm to manage the SRS program). However, it is important to note that CMS has not included SRS services in the list of Medicare approved ASC surgical procedures; an existing ambulatory surgical center provider cannot be used for an SRS or SRS/RT program.

In recent years, there has been a growth in a business model that focuses primarily on the capital challenge for SRS programs. In particular, either a hospital-based or freestanding provider will acquire use of the SRS equipment (and perhaps financing for vault construction) from a third party in exchange for a payment based on the number of patients that are treated by the SRS equipment (i.e. a “per use” payment structure). The consequence? Much of the financial risk associated with the SRS program is allocated to the third party. Moreover, in a capital constrained environment, this financing can be structured to allow the hospital or freestanding provider to achieve “off balance sheet treatment” (i.e. the SRS program is an operating and not a capital expense). One form of this structure is “lease to own” — the provider only pays the manufacturer when the SRS technology is used. Typically, after making payments in excess of a certain aggregate amount, the provider may have an option to purchase the SRS technology for a nominal amount.

Another variation of approach is illustrated below, in which a single purpose limited liability company (LLC) is created to lease the SRS technology to a freestanding or hospital that will operate the SRS program. As with the lease to own program offered by the SRS technology manufacturer, this “per use” leasing structure allows the hospital to shift millions of dollars of capital risk and fixed expenses to the equipment lessor and thereby limit its volume and capital risk exposure for the SRS program to more variable risks such as reimbursement (i.e. the realized revenue per patient treated) or operating expenses (e.g. staff).

As illustrated above, the equipment lessor can be structured as a joint venture between the hospital, physicians and a third party technology partner. Additionally, the equipment lessor or other investors may provide the hospital with capital to construct the treatment vault or over the lease term fund or reimburse additional expenses associated with SRS technology maintenance, upgrades and reimburse certain other SRS program overhead and operating expenses.

Any such joint venture needs to be structured carefully to comply with federal and state healthcare regulations. In particular, if physicians or the hospital invest in the equipment lessor, then particular attention is required to meet the federal Stark and anti-kickback laws and regulations and similar applicable state prohibitions. However, it is important to note that similar state regulations may raise equally complex issues that in some state jurisdictions may prohibit or render impractical physician investment. A discussion of state regulations is beyond the scope of this article.

SRS technology not only creates a significant opportunity for growth, it serves to restructure and realign specific markets concerning cancer care. With careful planning, knowledgeable advisors and compliance-oriented partners; hospitals, freestanding cancer centers and physicians can (and frequently do) come together to participate in a SRS program that will benefit each party and the communities they serve.