Radiation and Proton Therapy Centers

A radiation therapy facility (RTF) uses targeted energy to kill cancer cells, shrink tumors, and provide relief of certain cancer-related symptoms. Generally speaking, there are three types of treatment modalities utilized by RTFs: Photon Therapy (EBRT, IMRT, SRS/SBRT), Proton Therapy and Brachytherapy.

Services are typically provided in a freestanding center or a hospital outpatient department. In 2013 there were approximately 2,340 photon/brachy based radiation therapy locations.

In 2017, there were 27 proton therapy centers in operation in the United States with 11 under development or construction. With only nine proton centers in 2010, the industry has seen tremendous growth which is expected to continue. The costs to construct a proton beam therapy center can range from $30.0 to $350.0 million, depending on the size of the center (number of treatment rooms), the equipment being utilized (pencil beam scanning/IMPT, volumetric imaging, etc.) and the type of treatment rooms utilized (gantry, fixed beam). Traditional photon centers are much less expensive with the cost of a new linear accelerator ranging from $2.0 to $5.0 million.

RTFs are typically valued as a contribution to a joint venture, buyout by an operator/private equity firm or for sale to physician investors. In addition, proton centers that issue tax exempt debt may need a valuation to support the bond issue as part of a refinancing process. VMG Health has extensive valuation experience within the RTF space, valuing dozens of freestanding photon centers and hospital departments per year. In addition, VMG has performed numerous proton therapy valuations, market studies and feasibility engagements.

Important Value Drivers

Determining the value of an RTF poses unique challenges as the appraiser must understand all of the specific facts and circumstances surrounding the industry.

Key value drivers for photon based RTFs include, but are not limited to:

  • Professional Services by Oncologists: In centers that bill globally, radiation oncologists are compensated for their professional work through professional services agreements (“PSA”). The PSAs can take on many structures and the ultimate payment to the physicians impacts the profitability of the center.
  • Equipment and Capital Expenditures: RTFs rely on costly technology to deliver services. The equipment must be maintained, upgraded, and eventually replaced for a center to sustain operations and remain competitive in the marketplace. Accurately valuing an RTF requires a comprehensive review of the equipment base and the timing of capital expenditures and/or lease obligations.
  • Payor, Disease Site and Treatment mix. Different types of modalities such as IMRT, EBRT and SRS/SBRT treat different disease sites, have different reimbursement rates and unique staffing/equipment requirements.

In addition to the above, other value drivers for proton based RTFs include, but are not limited to the following:

  • Strength of Clinical Partner and Brand: With the huge investment required to build a proton center, the ability to attract volume is critical to make a proton center viable and valuable. The strength of a proton center’s clinical partner and brand is extremely important in helping a center capture volume.
  • Type of Technology: The type of technology utilized by a proton center helps determine the cancer types that can be treated at the facility. In addition, having the latest technology is important for competitive reasons. Finally, certain technologies can shorten treatment time which helps drive patient throughput.
  • Acceptance of Payors: A valuation analysis must consider the local reimbursement environment for proton therapy. Depending on the market, some commercial payors may resist paying for proton treatment over traditional photon treatment. This can vary depending on the disease site and if the payor considers proton therapy clinically justified for that cancer type.