Closure of Triangle cancer clinic triggers Duke, Rex fight for market share

July 19--Doctors are bailing out from what was once North Carolina's largest private cancer clinic and joining Rex Healthcare and Duke University Health System as the two hospital chains carve up Wake County's lucrative oncology market.

The looming breakup of Raleigh-based Cancer Centers of North Carolina, which at its peak employed 19 physicians and more than 130 people, will bring nearly all of the Triangle's cancer care under hospital control.

Cancer Centers had until just weeks ago treated the majority of Wake County's cancer patients, but the dissolution of the practice looked increasingly inevitable as patient volumes flatlined and then declined in recent years.

The breakup of Cancer Centers was finally precipitated last month when a trio of its oncologists joined Rex Hematology Oncology Associates and formed a new Cary office that will see patients from other Rex doctors and likely steer patients to Rex facilities. Three more physicians from Cancer Centers also joined Rex are slated to start a new Raleigh office on Oct. 1.

Hospitals are increasingly assembling their own stables of doctors, who typically refer patients to other doctors within the hospital system, leaving non-affiliated physicians like Cancer Centers out of the referral loop.

"If it keeps going like this, it doesn't look good," said John Reilly, a radiation oncologist with Cancer Centers. "If Rex has its own oncology group and Duke has its own oncology group, then who's going to refer to us? We're going to be out of patients."

Some doctors involved in the split say the result will be markedly higher treatment costs for patients as well as for insurers because hospitals charge higher fees than independent doctors for the same procedure. Hospitals can squeeze higher payments from insurance companies, and they charge additional fees because they have higher overhead.

"Patients are going to pay more for co-pays, and insurers are going to pay higher reimbursement rates," Reilly predicted.

Hospital officials say that over time, market control will drive down prices because the nation's health care system is moving away from a fee-for-service model. Instead, the federal government is mandating a system in which hospitals are paid for quality outcomes with financial penalties for unnecessary procedures, excessive infections and other inefficiencies.

The biggest prize

From a financial standpoint, the Cancer Centers breakup presented a golden opportunity to consolidate the Triangle's cancer services. Rex and Duke moved in quickly to court the soon-to-be free-agent oncologists and lock in the related revenue streams from doctors consultations, cat scans, lab work, X-rays, intensive care units and surgeries.

But perhaps the biggest prize is gaining ownership of the cancer practice's radiation machines. Called linear accelerators, they can cost about $3.5 million each to purchase and install in a special vault and would otherwise require a lengthy and contested state regulatory approval to purchase.

Cancer Centers owns two of the machines -- one in Raleigh and one in Cary -- and also holds a coveted state permit to add a third accelerator to serve Wake, Harnett and Franklin counties.

Rex has six machines in the Triangle; Duke has only one in Raleigh while WakeMed Health & Hospitals has none. WakeMed has been sending virtually all of its patients to Cancer Centers facilities for radiation treatment, Reilly said.

Once foes

Back in 2007, when Cancer Centers applied for the permit for the third accelerator, Rex and Duke lodged challenges trying to block state approval and seeking the equipment permit for themselves. The regulatory review was tied up in appeals for several years before approval was finalized for Cancer Centers in 2011.

A single new radiation machine in the Triangle posed a direct threat to Rex's business model, the nonprofit organization said in a 2009 filing.

"Rex is directly affected by its substantial risk of losing patients and patient revenue due to CCNC's proposed linear accelerator that unnecessarily duplicates Rex's existing linear accelerator services," the hospital wrote.

The sudden availability of three accelerators -- and the flow of patients to keep the machines fully scheduled -- is an opportunity that may not present itself again in the Triangle.

Rex commissioned an independent third-party valuation of Cancer Centers, appraising the medical practice at $12 million to $15 million, plus nearly $3 million in debt, said Chad Lefteris, Rex's vice president for operations.

The expansion to nine accelerators in Wake and Johnston counties would have cemented Rex's domination of the area's cancer treatment possibly for decades to come.

But Cancer Centers' Texas management company, McKesson Corp., in late June spurned Rex's bid to purchase the assets.

"They just kind-of said 'no thanks,' " Lefteris said. "We were told the number was too low by the physicians involved."

Expanded presence

Paramjeet Singh, one of the three oncologists who helped form Rex's new office in Cary, said Duke offered to pay about twice as much for Cancer Centers as Rex.

"Duke has a minimal presence in Wake County," Singh said. "For Duke it was a huge incentive to come to Wake County, where Duke has been trying for so long."

Duke and McKesson spokespeople confirmed that Duke is negotiating with Cancer Centers and with McKesson to take over the medical practice. They declined to discuss the specifics of Duke's offer. The assets under discussion include the linear accelerators, buildings, chemotherapy drugs and a portfolio of hundreds of patients.

"Welcoming the CCNC physicians to Duke Medicine will enhance our ability to care for Wake County cancer patients in Wake County," said Duke Medicine spokesman Douglas Stokke. "This also allows the Duke Cancer Institute to offer additional locations throughout the community, providing care for patients closer to where they live and work."

Stokke said Duke's interest in Cancer Centers' assets is not related to WakeMed's announcement three weeks ago that it will collaborate with Duke Medicine in the areas of oncology services, pediatric services and population health.

WakeMed declined comment about the oncology market reshuffling.

Reilly, the radiation oncologist, said he would become a Duke-employed doctor because the radiation doctors are tied to the radiation machines. Reilly said he expects Duke to continue accepting WakeMed's patients after the Durham hospital system takes over Cancer Centers.

"This allows Duke to get a big jump into the Wake County market," Reilly said. "Basically Rex and Duke will be almost split."

Murawski: 919-829-8932

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