Radiation Oncology Market: The Battle for Doctors

To thrive in the competitive radiation oncology marketplace, companies must have referring doctors on their side. It’s the most important element. Even massive, international companies like GenesisCare and Icon rely on individual patients to fuel their revenue streams. Different regions of the world have different characteristics for patient referrals.

In a recent teleconference, GLG’s Xavier Peluso spoke with a former head of business development at a healthcare firm, and a GLG Network Member, to uncover a bigger picture. What follows has been edited and condensed from the teleconference transcript.

What does the current radiation oncology marketplace look like globally?

In Europe, especially in the U.K. and Spain, companies pursue specific public contracts as well as relationships with insurance companies. Public contracts can be significant and include treatment for entire regions. Winning one can boost the fortunes of any company. Losing a contract can be devastating.

By comparison, in the U.S., cancer treatment centers pursue relationships with insurance companies and are more integrated with doctor referral networks. Companies have incorporated urologists or breast surgeons, for example, into their centers and have installed the diagnostic equipment those surgeons need on their premises as a strategy to lock in volumes.

It’s quite different in Australia, where volumes are largely publicly funded and insurance companies don’t pay for outpatient radiation oncology. It’s a fight for every patient in an open market that may come down to the doctor you have, the centers you are running, or how many linear accelerator machines (linacs) a company has installed and the hospitals with which they have partnerships. It especially matters how many doctors are sending referrals.

The business tools that cancer treatment companies employ for growth look like other mature industries. Some companies have made major acquisitions, particularly in the U.S., where GenesisCare purchased 21st Century. Many companies are updating existing centers with new technology because there are limited opportunities for greenfield development in most mature countries.

What new technologies are driving the radiation oncology industry?

Photon beam linacs have been the standard for quite some time. A more innovative piece of equipment, the MR-linac, which incorporates magnetic resonance, goes for about 6 million euros. GenesisCare has installed these machines in Sydney, London, and in Oxford, and another has been announced for Madrid. Other hospitals in Europe, predominantly university hospitals in the public sector, have also installed MR-linacs in, for example, France, Germany, Italy, Netherlands, and the Nordics.

Other models are differentiated. In Málaga, for instance, a CyberKnife will be installed, considered a highly specialized piece of tech, which will replace the older version of the same equipment that GenesisCare is already operating in Madrid.

Innovative equipment is important but offers a limited advantage. Most centers now offer, for example, the deep inspiration breath hold (DIBH) technique, which reduces side effects for the heart. It’s a good thing, but once one company starts doing it, others will follow suit, and then it becomes just a baseline offer.

How are companies managing the high cost?

Linac machines sell for about 1.5 million euros and require additional equipment and maintenance. MR-linac machines cost about four times that. Building a new facility or upgrading an older one requires large capital expenditures, which may be unrealistic depending on headwinds.

Overall, operational costs for radiology and oncology are largely fixed. If patient volumes drop, it is possible to reduce the workforce. But if it drops below half, companies can’t really decrease the workforce. There’s a staffing minimum for safety and basic operational reasons. An uptick in volumes directly translates to profit.

Efficiency can improve your margins, but it has much less impact than if you lose a doctor who had a significant referral base or if you lose an important contract. The least profitable centers usually have a significant volume issue, and it is not so much about them being operationally inefficient.

Why are doctors so crucial?

The most important thing for a cancer treatment center to get right is relationships between doctors.  Doctors are direct drivers of the volumes.

Doctors who have established referral patterns are unlikely to change them because in the end they know each other, they speak to each other, and they want to be able to trust that their patients will be taken care of.

Because if you take, for example, a urologist’s patients, they may present symptoms and go through different diagnostic tests, but the urologist maintains the relationship with those patients. Referring to radiation oncology is basically sending those patients to a different doctor who will treat them and hopefully send them back to the urologist.

It’s important that there is that relationship and you send the patient back to the referring doctor after they’re treated, as to not damage the trust.

What are companies doing to motivate referrals?

One of the ways of making doctor affiliations stronger is through incentivization models. However, these can be tricky since there are strict legal and ethical boundaries.

When a center treats a prostate patient and it needs to insert spacers to protect other organs at risk, a urologist will perform this surgical procedure and will get paid for the medical act. That’s a way of involving them in the process. It’s also a way to reduce side effects, reassuring them that their patient has the best possible outcome.

There are some models where external doctors who are not oncologists invest in the oncology center. So if the center goes well, they enjoy a return on investment. That’s implemented in some places and fully compliant with regulations.

But there are murky waters. Remunerating directly is not allowed, but that hasn’t stopped some people in the market from trying to get around the rule. Some incentivization models exist in a gray area, where remuneration is given on questionable grounds. There are techniques, especially in the U.S., that are very sophisticated when it comes to remuneration issues.

European and Australian companies are starting to use some of these models, which is risky because the regulatory frameworks are very strict. That leaves companies more exposed to both legal and ethical issues around paying for patients being referred.

---

This healthcare industry article is adapted from the GLG Teleconference “GenesisCare: Leveraged Loan Update.” If you would like access to this teleconference or would like to speak with healthcare experts like this or any of our approximately 1 million experts, contact us.

---

Questions Asked During the Teleconference:

• Could you give an overview of the current trends and dynamics in the radiation and oncology sector?
• Can you give an overview and update on GenesisCare’s organizational structure and performance?
• How has the business model changed regarding the U.S.? Will there be more focus on the U.S.?
• What is GenesisCare’s market share in Australia and the U.S.?
• How do those contracts work, and what are the risks and challenges in Europe?
• What are the referral criteria, and why would one refer to GenesisCare over other players?
• Who are its competitors, then, and how does it really differentiate?
• What are the equipment CapEx requirements, especially new and innovative equipment?
• What’s the rate of innovation within this space, and what CapEx is needed to get the cutting-edge machines?
• What is the typical cost profile? Would that be personal expenses or the typical margin?
• What are the buying criteria for insurance companies when looking at clinics?
• Is there more room to growo with shares and long-term incentive plans?
• What is your outlook for GenesisCare?