When the Greater Baltimore Medical Center invested in state-of-the-art technology years ago for its radiation oncology center, it assumed its competitors would be other hospitals that operated under the same rules.
But a convergence of forces changed the landscape. The cost of the machines used by GBMC to deliver high-intensity beams of radiation dropped substantially as the cancer rate in Maryland rose to the highest in the country, increasing demand for treatment.
The result: The state is saturated with privately owned, competitively priced cancer treatment centers that are beginning to lure away hospital patients.
There are about 32 independent radiation treatment centers in Maryland, according to industry estimates.
The case of GBMC, which announced layoffs this week affecting the outpatient radiation portion of its cancer treatment program, shows how the heavily regulated Maryland hospital industry is losing business as technology makes it possible to deliver cheaper medicine outside hospital walls.
This week, GBMC laid off 22 percent of its radiation oncology staff, saying its patient load had dropped to 80 people a day from 140 only a few months ago. Because it is equipped with three linear accelerators while most competitors have only one, GBMC's center "should be able to blow away the competition," said Dr. Kelly Drake, the radiologist who chairs the department. But it lost out to competitors with a single machine who are not subject to the state's hospital regulatory body and thus can charge cheaper rates.
"We'd love to discount our fees," said Dr. Drake, adding that the prohibition against hospital discounting in Maryland has resulted an uneven playing field. "The bottom line is, Maryland is schizophrenic," he said. "You can't have one half [of the health care industry] regulated and the other half unregulated."
Because hospitals aren't allowed to discount fees, Maryland has become a magnet for alternative health care services that can be delivered on an outpatient basis, undercutting the whole premise behind its cost-control system. The growth of for-profit medical centers was aided by a decision in 1985 by the General Assembly to allow any provider to install expensive medical equipment, said James R. Stanton, director of the Health Resources Planning Commission. The thinking was that a proliferation of such big-ticket items as CAT scanners and magnetic resonance imaging machines would bring down prices both the equipment and the service. But few imagined that linear accelerators, the machines used in radiation therapy, would become cheap enough for others besides hospitals to afford.
"It's a serious problem," said John Colmers, head of a new state panel on health care access and former director of the panel that regulates hospitals. The Maryland Hospital Association, too, is alarmed and is looking at ways to respond, including a possible tTC moratorium on free-standing centers.
GBMC's patient load began to dwindle a year ago, when two new cancer treatment centers opened on the grounds of nearby hospitals. For the hospitals, Union Memorial and St. Joseph, it made great sense: Without a capital investment of their own, they were able to offer a prestigious service at discounted rates, collect rent from the private companies, and charge them to use laboratory or other hospital-based services.
Arthur A. Serpick, head of medicine at St. Joseph Hospital and a medical oncologist, said the new center, which treats 40 to 45 patients a day, made it easier for the doctors located in its three physician buildings. The physicians previously sent patients to several sites for different cancer treatments.
"We were using the radiation therapy from GBMC a mile away. We found out it was more efficient having it on campus. It is one-stop shopping," he said.
The result of this competition is a shift in patients from hospitals to independent centers and excess capacity at both. At the same time, since hospitals can't fight back with discounts, fees haven't dropped significantly and the centers can be selective in their pricing.
The private centers typically give discounts to large managed-care companies to win their business. By and large, they charge less than GBMC. But in some cases they are charging patients covered by traditional health insurance higher prices than those charged by GBMC, Dr. Drake said.
In addition to GMBC, hospital-based outpatient radiation treatment centers are located at Johns Hopkins, the University of Maryland Medical Center, St. Agnes, Mercy, and Sinai hospitals.
RADAMERICA Inc., which owns the St. Joseph center, also owns centers on or near the campuses of Franklin Square, Good Samaritan, Mercy and North Arundel hospitals. Altogether those centers treat more than 200 people a day and employ six doctors and 60 nonphysician employees.
The Union Memorial center is owned by Oncology Services Corp., of State College, Pa., which has opened 26 centers since 1985. It treats 20 to 30 patients a day on average at the new center, which it built on land rented from Union Memorial.
In the past three years, the company opened six centers in Maryland, said John B. Derdul, the administrator for four of them. He said the company has achieved economies of scale by buying its equipment in bulk at a price hospitals could not obtain. That, in turn, gives the company an advantage when negotiating with HMOs. Moreover, it is able to spread potential losses from one disadvantageous bid over many centers, he said.