HEALTH SERVICES AND DEVELOPMENT AGENCY SEPTEMBER 23, 2009 APPLICATION SUMMARY. Tennessee Urology Associates, PLLC

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1 HEALTH SERVICES AND DEVELOPMENT AGENCY SEPTEMBER 23, 2009 APPLICATION SUMMARY NAME OF PROJECT: PROJECT NUMBER: ADDRESS: LEGAL OWNER: OPERATING ENTITY: CONTACT PERSON: Tennessee Urology Associates, PLLC Parkside Drive ville ( County), TN Tennessee Urology Associates, PLLC 9724 Kingston Pike, Suite 800 ville ( County), TN Not Applicable J. Scott McDearman (423) DATE FILED: April 15, 2009 PROJECT COST: $2,505, FINANCING: Commercial Loan REASON FOR FILING: Establishment of a single specialty ambulatory surgical treatment center limited to radiation therapy, initiation of radiation therapy services and acquisition through a licensing arrangement of a linear accelerator DESCRIPTION: Tennessee Urology Associates, PLLC (TUA) is seeking approval to establish a single specialty ambulatory surgical treatment center (ASTC) limited to radiation therapy, initiate radiation therapy services and acquire through a semi-exclusive licensing arrangement use of an existing linear accelerator which is currently housed on Baptist West Hospital s campus at Parkside Drive in ville, Tennessee. The linear accelerator is currently owned by Baptist West Hospital. Subsequent to the approval of this Certificate of Need ( from Tennessee Urology Associates) and Certificate of Need (CN from ville Urology Clinic), the linear accelerator will be sold to a newly created limited liability corporation, Tennessee Men s Health Center, LLC, whose PAGE 1

2 members consist of Baptist West Hospital (51% ownership), Tennessee Urology Associates (39%), and ville Urology Clinic (10%). Tennessee Men s Health Center would then license (another legal term for lease) the use of the linear accelerator, associated equipment and other resources, on an interval basis, to Tennessee Urology Associates for provision of radiation therapy planning and treatment to patients of TUA who require radiation treatments for prostate cancer. TUA will occupy 1,410 square feet of space which will be renovated upon approval of this CON application. In a similar arrangement, ville Urology Clinic, PC, (KUC) will also lease renovated space within the Baptist West Hospital s existing radiation therapy department and license, on an interval basis, use of the Varian Clinac 21EX linear accelerator, associated equipment and other resources for provision of radiation therapy planning and treatment to patients of KUC who require radiation treatments for prostate cancer. TUA is an established medical practice with nine (9) medical offices located in six counties in ville, Oak Ridge, Harriman, Clinton, Maryville/Alcoa, Lenoir City and Jefferson City. The medical practice is equally owned by nineteen practicing urologists: Laurence Thomas O Connor, Jr., M.D., Mark Gregory Bowles, M.D, Stuart Alan Chasan, M.D., Randall Eugene Pearson, M.D., Eric Roger Nicely, M.D., Edward B. Tieng, M.D., Jeff Earnest Flickinger, M.D., M.D., James Parks Hitch, Jr., M.D., William Scott Muse, Jr., M.D., R. Wayne Hatfield, M.D., Brian Parker, M.D., Katherine M. Cameron, M.D. Christopher Eric Ramsey, M.D., Charles Wilson Reynolds, M.D., Lee Congleton, III, M.D., Don Richard, Heiser, M.D., Coy Freeman, M.D., James D. Briggs, M.D., and James Collier Sloan, M.D. TUA, along with Baptist West Hospital and ville Urology Clinic, plan to jointly develop a Men s Prostate Center, which is intended to be a single facility where TUA s prostate cancer patients can receive virtually all available modalities of treatment for their disease. The applicant is establishing a medical office directly in a renovated portion of the existing radiation therapy department of Baptist Hospital West. In addition to the availability of radiation therapy, patients will have options including cryosurgery, open surgical procedures, robotic surgery, complementary and alternative treatments, hormone ablation therapy, brachytherapy, IMRT, IGRT, and palliative care. Tumor conferencing, patient counseling and other support programs will be important aspects of the patient care as well. The applicant indicates the Men s Prostate Health Center will be the ville area s only comprehensive facility for the treatment of all aspects of men s prostate health, thereby enhancing patient convenience and availability of a continuity of care currently unavailable in the ville market. PAGE 2

3 TUA indicates scheduling of radiation therapy treatments would occur during the Men s Prostate Health Center s normal 8 hour operational hours, 250 days per year. Radiation therapy services include Brachytherapy (placement of radioactive materials inside the patient s body), external beam (delivering a beam of high energy x- rays from an external source to the location of the patient s tumor), IMRT (intensity modulated radiation therapy is an advanced mode of radiotherapy where the intensity of the beam is computer controlled 3-dimensionally to deliver the most intense dosages to the tumor, while minimizing the intensity of the beam to surrounding tissue), IGRT (image-guided radiation therapy is the process of frequent two and three-dimensional imaging, during a course of radiation treatment, used to direct radiation therapy utilizing the imaging coordinates of the actual radiation treatment plan) and electron therapy. The application includes a letter of support from the City of ville Mayor. Although the approval of this application would add an additional provider to the six county service area, the applicant indicates approval would not be adding to the existing inventory of expensive medical resources (thirteen (13) linear accelerators, one (1) cyberknife and one (1) gamma knife with one (1) more linear accelerator approved, but unimplemented). TUC, ville Urology Clinic and Baptist Hospital West would be sharing the radiation oncology equipment and personnel resources currently housed at Baptist Hospital West. TUA indicates that its service area consists of the following six counties: Anderson, Blount, Jefferson,, Loudon, and Roane. Based upon TUA s historical patient mix, the applicant anticipates 65% of its patients will originate from County, 17% from Anderson County, 10% from Blount County, 3% from Loudon County, and 3% from Jefferson County. The Tennessee Department of Health indicates the population of the six county service area will grow 2.9% from its current 2009 overall population of 768,376 to 790,675 in The estimated male population for the service area in 2009 is 372,143 and is projected to grow to 382,819 in 2013, a 2.9% increase. The applicant notes that the more specifically targeted male population age 45+ is projected to grow by 5.6% from 138,501 in 2009 to 146,295 in The applicant reports based on the most recent data available from the Tennessee Cancer Registry ( ), the overall incidence of cancer in Tennessee is estimated at cancer patients per 100,000. The incidence of cancer and, more specifically, prostate cancer in the six service area counties are: PAGE 3

4 Overall Incidence of Cancer per 100,000 Population Total 2009 Male Population age 45 and older Prostate Cancer Incidence Rate per 100,000 Men* , Anderson , Blount , Jefferson , Loudon , Roane , TUA Svc Area 148, Tennessee United States *The applicant reports the reported numbers are necessarily low, because only licensed health care facilities which diagnose cancer in patients are required to report to the Tennessee Cancer Registry. Physicians, who diagnose the majority of prostate cancer cases, are not required to report to the Tennessee Cancer Registry. Source: Tennessee Cancer Registry, and the National Cancer Institute ( ) Utilizing the data from the HSDA Medical Equipment Registry, the following chart reports historical utilization of linear accelerator services located within the applicant s service area. Historical Service Area Distribution & Utilization of Linear Accelerators Facility # Units *% County Facility Procs. Procs. Procs. % change Type (2008) Util. Anderson Methodist-Oak Ridge H 2 9,430 10,082 9, % 83.0% Blount Blount Memorial H 1 7,687 7,308 7, % 129.8% Baptist-West H 1 2,162 1,155 1, % 29.8% Baptist of East TN (Riverside) H 1 4,092 3,739 2, % 43.4% St. Mary s H 1 5,391 3,033 3, % 61.8% St. Mary s-north H 1 7,955 5,885 7, % 121.5% UTMC H 2 10,062 11,986 10, % 88.3% Service Area Hospitals Sub- Total 9 46,779 43,188 43, %% 80.8% Thompson Cancer Survival Ctr- ASTC 2 10,083 11,089 11, % 99.8% Downtown Thompson Cancer Survival Ctr -West ASTC 1 8,847 7,744 10, % 181.4% Service Area ASTC s Sub- Total 3 18,930 18,833 22, % 127.0% Grand Total All Total 12 65,709 62,021 66, % 92.5% Additional Approved Linacs Thompson Cancer Survival Ctr -West ASTC 1 UTMC H 1 Other Megavoltage Units UT-Cyberknife H 1 NR NR NR Baptist (Riverside) Gamma Knife H 1 NR NR NR Source: HSDA Medical Equipment Registry 1 - Opened 4/ To Open 12/09 PAGE 4

5 H=Hospital, ASTC=Ambulatory Surgical Treatment Center *Based on minimum capacity of 6,000 procedures per unit, Guidelines for Growth TUA indicates the following historical activity related to prostate cancer activity in its practice and projects similar activity in future years # Prostate Cancer Pts. Seen % of Positive Biopsies Referred to Radiation 28% Therapy # Referred for Radiation Therapy Source: On the average, of the 146 patients per year referred for radiation therapy, TUA reports an average of 46 being referred to St. Mary s, 42 to the Thompson Cancer Survival Center, 33 patients to Methodist in Anderson County, 12 to the Blount Memorial in Blount County, and 13 patients were referred to other facilities. The applicant projects the TUA utilization of the shared linear accelerator will perform 3,808 radiation therapy procedures on 119 patients during the first year of the project and 5,440 procedures 170 patients during the second year of the project. The applicant, in conjunction with ville Urology Clinic (KUC) and Baptist Hospital West, has provided the historical and projected radiation therapy utilization by entity at the Baptist Hospital West site should this and TUA s CONs be approved, shown below. Note the historical referral numbers for the urology practices are greater than the projected volume on the linear accelerator located at Baptist West, as the applicant intends to continue referrals to other providers: Year Existing Baptist West LINAC ville Urology Clinic (KUC) Tennessee Urology Associates (TUA) Total Utilization by Treatments PAGE 5 As a % of Minimum Guidelines ** ,164 Not Available Not Available 4, % ,162 Not Available 4,100* 6, % , * 4,575* 6, % , * 5,440* 7, % , * 5,440* 8, % Year 1 2, ,808 6, % Year 2 2, ,440 8, % *Based on historical referrals of radiation therapy patients-both KUC and TUA ** Based on minimum capacity of 6,000 procedures per unit, Guidelines for Growth Source:, supplemental response Per the revised Projected Data Chart for the shared linear accelerator, the project exhibits a favorable financial operating margin in the first year of operation in an

6 amount equal to approximately 11.1% of total gross operating revenues. The second year returns a favorable financial operating margin equal to approximately 12.4% of total gross operating revenues. The average gross charge per procedure during the first year of operation is $2,101.40, with deductions from revenue reducing the net charge per procedure to $1, Through the licensing agreement the applicant intends to utilize the staff which will be shared by the center between TUA, KUC, and Baptist Hospital West. The applicant has shared the staffing of the center along with the prorated shared portion which TUA will utilize during the time of its proposed utilization as shown below: Position Baptist Hospital Staffing (FTEs) Proposed KUC Prorated Staff (FTEs) Average Salary 0f 1 FTE PAGE 6 Prevailing Wage/Salary in Service Area Executive Director ,000 $43,420-94,305 Care Coordinator ,680 $49,035-76,520 Registered Nurse $56,160 $44,475-58,000 Chief Radiation Therapist $64,480 $52, ,190 Radiation Therapists $60,320 $41,720-$57,890 Physicists $160,000 Unknown Dosimetrist $100,000 Unknown Receptionist/Operator ,040 $19,205-25,970 Clerical Personnel ,160 $20,650-31,460 Total of Current and Proposed Program Employees Radiation Oncologist 1.0 by separate professional services contract 0.85 $3,565/patient Source: ville Urology Clinic CN The DOH Report also provides a chart identifying the number of TennCare enrollees in the service area counties. There are 129,704 TennCare enrollees in the service area as of 6/4/09. The TennCare enrollee range by county is 14.6% in Blount County to 19.9% in Jefferson County. The Average TennCare enrollment of the service area was 15.7%. The applicant states TUA currently treats TennCare participants and will continue to do so as part of the Men s Prostate Health Center. TUA has contracted with the TennCare network, AmeriChoice as network providers. TUA s payor mix has consisted of commercial - 56%, Medicare - 37%, TennCare - 3% and self pay and charity care 1.5%. During the initial year of operation, the applicant expects to receive $1,300,000 in revenues from Medicare (16.5% of Gross Revenue) and $116,000 in TennCare revenues for care provided to their beneficiaries (1.5% of Gross Revenue). A comparison of how these match with other radiation therapy providers in the services area is shown below.

7 SERVICE AREA LINAC MEDICARE AND TENNCARE PAYOR MIX Service Area Radiation Therapy Providers Facility Type Medicare as a % of Total Gross Revenue TennCare/Medicaid as a % of Total Gross Revenue Baptist of East TN H 52.2% 8.5% Baptist-West H 53.7% 5.7% St. Mary s H 45.2% 2.3% St. Mary s-north H 26.3% 7.3% UT H 49.0% 10.6% Hospital Sub-Total 50.4% 7.9% Thompson CSC- Downtown ASTC 50.9% 8.9% Thompson CSC - West ASTC 53.1% 4.3% ASTC Sub-Total 52.0% 6.6% All Total 50.6% 7.7% 1.5% Applicant Year #1 PO 16.3% +1.6% Charity H=Hospital, ASTC=Ambulatory Surgical Treatment Center, PO=Physician Office Sources: HSDA Medical Equipment Registry The applicant intends to finance the project from commercial loan from First Citizens Bank. An April 27, 2009 letter from First Citizens Bank s Vice President attests to the bank interest in providing a $910,000 loan for the project. TUA s Chief Manager/CEO provided a letter indicating TUA intends the balance of the funding will be provided through operational funds and attached its 2008 Federal Tax return as evidence of its financial capability to absorb the project s funding requirements. The total estimated project cost is $2,505,625.00, 69.8% of which is based on the full fair market value of the linear accelerator and associated hardware and software (IMRT & IGRT). Another $41,643 is budgeted for moveable equipment and furnishings. Construction costs and contingencies of $110,000 account for another 4.4% of the projects costs. Start-up reserves account for $571,832 with the remainder consumed by architectural, consultant fees, miscellaneous and CON filing fees. The applicant has submitted the required corporate documents, licensing option agreement, major medical equipment valuation with their FDA approvals, and the medical director s credentials. Staff will have a copy of these documents available for member reference at the meeting. Copies are also available for review at the Health Services and Development Agency office. PAGE 7

8 Should the Agency vote to approve this project, the CON would expire in two years. CERTIFICATE OF NEED INFORMATION FOR THE APPLICANT: There are no other Letters of Intent, denied or pending applications or outstanding Certificates of Need for this applicant. CERTIFICATE OF NEED INFORMATION FOR OTHER SERVICE AREA FACILITIES: There are no other Letters of Intent or denied applications from other health care organizations in the service area for projects similar to this application. Pending Applications ville Urology Clinic, P.C., CN , has a pending application which will be heard at the Agency meeting. The purpose of the review is for the establishment of a single specialty ambulatory surgical treatment center (ASTC) limited to radiation therapy, acquisition through license of the shared use of a linear accelerator and initiation of radiation therapy services to a 5 county service area. The ASTC is proposed to be located at Parkside Drive in ville, Tennessee. The estimated project cost is $2,182, East Tennessee Radiation Therapy Services, LLC, CN , has a pending application which will be heard at the October 28, 2009 Agency meeting. The purpose of the review is for the establishment of a single specialty ambulatory surgical treatment center (ASTC) limited to radiation therapy, acquisition of a linear accelerator and initiation of radiation therapy services to a 16 county service area. The freestanding ASTC is proposed to be located at 1415 Old Weisgarber Road, Suite 250 in ville, Tennessee. The estimated project cost is $8,295,094. Outstanding Certificates of Need Thompson Cancer Survival Center, CN A, has an outstanding Certificate of Need that will expire on January 1, The CON was approved at the November 15, 2006 Agency meeting for the establishment of an ASTC, Single Specialty, limited to diagnostic and therapeutic radiology, chemotherapy and related services, and the initiation of Megavoltage Radiation Therapy and mobile PET services and the acquisition of LA equipment located in Sevierville, PAGE 8

9 TN (Sevier County). The estimated project cost is $10,110,685. Project Status: Mass site grading, excavation, and site utility work began in November 2007 and is progressing well. Its construction and opening is being coordinated with the construction of the replacement hospital for Fort Sanders Sevier Medical Center, CN A. The anticipated project completion date is November 15, Thompson Cancer Survival Center West, CN A, has an outstanding Certificate of Need that will expire on December 1, The CON was approved at the October 24, 2007 Agency meeting for the acquisition of a second linear accelerator and modification to its existing building at 9711 Sherrill Blvd., ville, Tennessee. The estimated project cost is $4,118,690. Project Status: The linear accelerator began treating patients in April The HSDA is awaiting the Final Project Report. University of Tennessee Medical Center, CN A, has an outstanding Certificate of Need that will expire on August 1, The CON was approved at the June 25, 2008 Agency meeting for the acquisition of a third linear accelerator and the facility renovation and modification of approximately 7,973 square feet of space to house the proposed linear accelerator at its campus at 1924 Alcoa Highway, ville ( County), TN. The estimated project cost is $4,692, Project Status: The project construction is well underway with an anticipated project completion date of December PLEASE REFER TO THE REPORT BY THE DEPARTMENT OF HEALTH, DIVISION OF HEALTH STATISTICS, FOR A DETAILED ANALYSIS OF THE STATUTORY CRITERIA OF NEED, ECONOMIC FEASIBILITY, AND CONTRIBUTION TO THE ORDERLY DEVELOPMENT OF HEALTH CARE IN THE AREA FOR THIS PROJECT. THAT REPORT IS ATTACHED TO THIS SUMMARY IMMEDIATELY FOLLOWING THE COLOR DIVIDER PAGE. PMW (09/01/09) PAGE 9