Hospital-Based Cancer Centers

Creating a successful hospital based cancer center requires medical and radiation oncologists to collaborate with the hospital. But how to partner to create a financially viable cancer center while staying in line with myriad regulatory laws that affect such arrangements?

1. Hospital employs medical and radiation oncologists. Hospital creates an on- or off-campus cancer center that may be provider-based and employs the oncologists to provide services to the center. This option presents little risk for the hospital; however, it may not be the most attractive to the oncologists.

2. Hospital-oncologists clinical joint venture. Hospital and radiation oncologists partner to create a freestanding cancer center. Medical oncologists are excluded from such a venture because of the Stark regulations. The venture could still involve medical oncologists through equipment leasing, medical directorships, and/or a management services relationship.

Under the federal and state anti-kickback statutes, ownership may be open to scrutiny given the ability of the hospital and oncologists to generate business for and refer patients to the cancer center.

3. Hospital-oncologists nonclinical joint venture. Medical and radiation oncologists form a management services organization (MSO) to provide management services and lease equipment, space, and nonprofessional staff to the hospital’s on-or off-campus cancer center.

Due to constraints under the Stark law, the MSO cannot actually “perform” the radiation therapy and other cancer-related services. The hospital must exercise professional control over the services and perform other functions to ensure that it is clear that, although the hospital may be contracting with the MSO for certain functions, it is the hospital itself operating the cancer center and providing the services.

Payments to the MSO need to be structured to comply with applicable law. The management fee could be a percentage of collections, and lease fees would likely need to be flat dollar amounts that are consistent with fair market value and not be based on a percentage of revenues or a peruse basis in the case of the leases.

4. Hospital-branded cancer center. Hospital and oncologists remain separate in providing their respective services, but collaborate on marketing and “branding” all of their services under the auspices of a cancer center. This model works particularly well with a hospital with a well-known reputation.

A number of federal and state laws and regulations may impact any proposed arrangement discussed, including the federal anti-kickback statute and state anti-kickback laws, the Stark law and state versions of such law, state certificate of need regulations, corporate practice of medicine laws, and state licensure laws and regulations. In addition, ownership structure and governance issues will need to be carefully considered.

What You Can Do

  • Assess current oncology market in the community. Are there already large, established groups, or are there a few smaller groups? What makes the most sense in terms of the community—a hospital- based cancer center or a freestanding clinical or nonclinical joint venture entity?
  • Analyze proposed structure under applicable laws and regulations to identify potential legal hurdles.
  • Keep abreast of additional regulatory changes that may impact the cancer center in the development phase and thereafter. Be prepared to modify arrangements as needed.

Sharron Swann and Sarah Fink are attorneys at Swann & Waddill, a law firm in Austin, Texas, that focuses on healthcare-related legal matters.

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