CARTI’s New Plan Upsets Decades-long Relationship

(Editor’s Note: This is the latest in a series of business history feature stories. Suggestions for future “Fifth Monday” articles are welcome. Please contact Gwen Moritz at (501) 372-1443 or by email at GMoritz@ABPG.com.)

For more than three decades, it was a perfect partnership.

Four central Arkansas hospitals had set aside their competitive differences and banded together to create the nonprofit Central Arkansas Radiation Therapy Institute Inc., which opened in 1976 to provide radiation therapy treatments.

But when CARTI announced in August that it had bought the for-profit Little Rock Hematology Oncology group and was planning on building its own comprehensive cancer treatment center, the University of Arkansas for Medical Sciences had had enough of the cooperative it helped to create.

UAMS officials saw the acquisition as a threat to its own cancer treatment center and severed ties with CARTI at a cost of approximately $20 million, which includes buying out CARTI’s lease agreement with UAMS for $9.5 million and replacing CARTI’s machines.

UAMS’ and CARTI’s missions “don’t jibe with each other anymore,” Dr. Peter Emanuel, the executive director of UAMS’ Winthrop P. Rockefeller Cancer Institute, told the University of Arkansas Board of Trustees board members on March 29.

Emanuel told the board members that UAMS relies on cancer patients coming to its center, which it spent about $130 million to expand to 12 floors, in order to improve care through research and education.

“But if we have a direct competitor … it significantly impedes our ability to attract patients into the Cancer Institute to practice in clinical protocols to advance the research mission to improve the quality of cancer care,” he said. “And so it’s a detriment to this whole operation for them to establish and build a comprehensive cancer center.”

Jan Burford, president and CEO of CARTI, told Arkansas Business recently that the move to build its own center wasn’t designed to compete with UAMS.

“CARTI has a history of collaborating, not competing,” she said in her office, which is on the campus of Baptist Health’s Higginbotham Outpatient Cen-ter in Little Rock. “We didn’t go into it thinking it would be competing with, let’s say, UAMS.”

But these days, radiation therapy is one more of the profitable medical procedures.

For the fiscal year that ended June 30, 2010, the most recent numbers available, CARTI reported net income of $5.7 million on revenue of $139.8 million.

“There are certain types of radiation therapy treatment that are profitable, so I would say it’s one of the areas of medicine that you can stay in the black,” Burford said.

Burford said the treatment of cancer has changed since the 1970s, when hospitals needed to work together to create CARTI. Now it can make economic sense for individual organizations like UAMS and Arkansas Urology to have their own cancer treatment centers.

And now cancer patients can receive their chemotherapy and radiation therapy at the same time, Burford said.

“And cancer care is becoming much more multidisciplinary with surgeons, medical oncologists, radiation oncologists needing to collaborate very closely,” Burford said. “It’s kind of the wave of the future to have all the treatments for all the cancer patients as much as possible under one facility.”

She said that’s why CARTI bought Little Rock Hematology Oncology — she wouldn’t reveal the price tag — and decided to build its own center.

Burford said the details of the cancer center are still coming together and scouting for a location for the 60,000-80,000 SF facility in Little Rock continues. The timetable calls for opening in the fall of 2014.

Meanwhile, St. Vincent Health System and Baptist Health still are open to working with CARTI.

“Cancer care should be an area for partnership in our community,” Peter Banko, the CEO of St. Vincent Health System, said in an email to Arkansas Business. “St. Vincent is open to true partnerships with local physicians, UAMS, CARTI, or any organization that shares our vision to develop world class cancer care for the state.”

He said St. Vincent is not planning or considering building its own cancer treatment center.

Baptist Health president and CEO Russ Harrington also said Baptist is committed to CARTI.

“We go way back,” he said. “We have a great relationship, a very cooperative relationship. And we hope that would continue into the future.

“And as far as I know, it probably will,” Harrington said.

Cracks in the Relationship

After decades of growth and expansion to satellite campuses around the state (see Seeds of CARTI Planted 44 Years Ago), cracks appeared in the relationship between CARTI and some of its partners.

Around 2009, Arkansas Urology of Little Rock, which had been sending its patients to CARTI for treatment, decided it wanted its own radiation treatment equipment.

“Because it’s a revenue source,” Karen Flake, CARTI’s board chairman, explained in the March 29 UA board meeting. “This is really about money.”

In 2009, Arkansas Urology said its new 6,700-SF facility was a joint venture with AKSM/Oncology Inc. and cost $3.3 million to build and another $2.7 million for the equipment.

Flake said the loss of Arkansas Urology patient referrals cost CARTI “a few million” dollars annually in lost revenue.

Arkansas Urology CEO John Hutton didn’t return a call to Arkansas Business.

Flake said in the meeting that after Arkansas Urology stopped sending patients to CARTI, another of its larger referring customers, Little Rock Hematology Oncology, wanted to buy CARTI’s location at Baptist Hospital.

“And [LRHO said] if you didn’t sell to us, we’re going to go out and put in our own radiation treatment equipment,” Flake said.

“We were in a really difficult place.”

Flake said it was a survival move to buy LRHO, which had been working with CARTI for about a quarter century.

She told the board members that she feared that if CARTI lost LRHO “we were probably going to close our doors. … The size of our system would have diminished quite a bit.”

Burford, however, had a different take on how LRHO came to join CARTI.

She said that she went to talk to LRHO officials about a year ago and it was suggested that they work together.

She said LRHO was interested in becoming one organization with CARTI and building a community cancer center for private practice doctors.

Burford said the money to buy LRHO came from CARTI’s reserves and not from funds that were donated to CARTI through its fundraisers.

The acquisition increased CARTI’s employees from 174 to 341.

And CARTI added medical and surgical oncologists and diagnostic radiologists.

CARTI also said it would partner with Radiation Oncol-

ogy Associates P.A., a seven-member medical practice in Little Rock, to build the center. CARTI already had a working relationship with ROAPA and paid it $6.4 million for radiation oncology service during the fiscal year that ended June 30, 2010.

But the move to build a CARTI cancer center upset UAMS.

“We believed that CARTI’s decision to acquire a hematology and oncology practice and to become a comprehensive cancer center … was a fundamental change in scope,” said Dan Rahn, the chancellor of UAMS, in the March 29 UA trustee meeting.

Burford agreed that CARTI has been unusual in that it worked with both private practice doctors and UAMS physicians.

“It’s worked for 35 years,” Burford said. “We thought we could continue doing it. … CARTI will now focus exclusively in the private practice arena.”