London calling

REVIEW SUMMARY
Company. Radiation Therapy Services
Industry. Health care
Key. The most efficient health care providers will survive regardless of who pays.
By the Numbers. Click here for more information about RTS' three-year performance by revenue.

It's hard to imagine any U.S. for-profit health care provider venturing to Europe in search of growth, but don't underestimate Daniel Dosoretz.

Dosoretz built Fort Myers-based Radiation Therapy Services into the largest operator of radiation-treatment centers in the U.S., from $56.4 million in revenues in 1999 to $524 million in 2009. So traveling to Europe, the epicenter of socialized medicine, is not out of character for the entrepreneurial doctor. “A big group in London called,” he says.

An Argentina-born physician, Dosoretz is scouting both Europe and Latin America for expansion opportunities that would complement the company's U.S. growth and vault revenues over the annual $1 billion mark. It's the kind of nimble move that has been a hallmark of the doctor-led company.

In a remarkable stroke of good timing for its founders, Radiation Therapy was taken private by New York City private-equity firm Vestar Capital Partners in February 2008, just before the financial collapse, for $32.50 per share in cash. The $1.1 billion debt-financed deal netted Dosoretz $127 million, $45 million of which he reinvested in the now privately held firm (he currently owns 7.1% of the company's voting stock), public filings show.

Already low-key when it was publicly traded, Radiation Therapy has been growing even more quietly since it became privately held. But while Radiation Therapy may not be widely known, even on the Gulf Coast, Dosoretz is a giant in the cancer-treatment world.

Just recently, a consortium of the leading cancer hospitals in New York City, including Memorial Sloan-Kettering Cancer Center and Beth Israel Medical Center, picked Radiation Therapy to manage the new $235 million New York Proton Center, where physicians will zap cancer with proton beams. “We have not been good about branding,” Dosoretz acknowledges when he's asked about the announcement.

Founded in Fort Myers 25 years ago, Radiation Therapy is visible through its network of 97 centers called 21st Century Oncology that are scattered in 15 states around the country.

But when people are dying of cancer, branding doesn't exactly rise to the top of the to-do pile. Despite being the president and CEO of Radiation Therapy, Dosoretz still makes time to see patients two days a week, a key factor that keeps him in touch with the front lines of the war on cancer.

That's what makes Radiation Therapy exceptional in the health care industry, says James Elrod Jr., managing director at Vestar. The trick, Elrod and Dosoretz say, is to instill more corporate discipline in the growing company while retaining the doctor-led entrepreneurial culture that's made it so successful.

Private versus public

Dosoretz found the public-company requirements tedious and distracting. While Dosoretz says Vestar investors are demanding owners, he says, “they've given us the opportunity to improve our processes in a less hectic environment.”

Vestar, which controls 83% of the company's equity, has urged Dosoretz and senior executives to bring more structure to the company, from billing to sales. For six weeks, McKinsey consultants evaluated Radiation Therapy's operations, an exercise that Dosoretz says would have been “too distracting” for company leaders while publicly traded.

Because Dosoretz and top executives and owners are mostly cancer physicians, Radiation Therapy executives preferred to spend more on medical equipment than billing software or other corporate infrastructure. “We always favored the medical side of things,” says Dosoretz.

But since going private, Radiation Therapy has embarked on an upgrade of the billing software and it has hired regional administrators with business rather than medical backgrounds. While improvements in billing are essential, Dosoretz is ambivalent about the new layer of management. “The jury's out,” he says. “Doctors like to work with doctors. We are much less bureaucrats.”

But Elrod says Dosoretz has been receptive about improving the company's internal structure to handle future growth. “He's proved remarkably flexible,” Elrod says. “They are, at the end of the day, men of science. If there are new facts, they don't mind turning 180 degrees.”

The doctor-led entrepreneurial culture means each radiation treatment center operates with a great degree of autonomy. “You're in charge of 100 small businesses,” says Kerry Gillespie, who joined Radiation Therapy Services in the spring as senior vice president and chief financial officer. His biggest challenge as the CFO is to assimilate information from all of the company's centers.

Future opportunities

Becoming a privately held company certainly hasn't slowed the company's growth. Revenues in 2009 grew 5% to nearly $525 million and adjusted earnings before interest, taxes, depreciation and amortization grew nearly 4% to $113.4 million. The company expects revenues in the range of $550 million to $600 million this year.

Still, Radiation Therapy executives say the company hasn't been immune from the recession. That's because patients have been delaying visits to their primary care physicians, an important source of referrals to cancer specialists. Despite this, the company managed to boost its treatments per day at its freestanding centers by 2% in 2009.

In the spring, Radiation Therapy sold $310 million in bonds through a private placement at a coupon rate of just under 10%. It used the greatest portion of the proceeds to pay off $175 million of debt that was costing the company 13.5%. It also used $35 million of the proceeds from the bond sale to acquire a radiation-treatment practice in South Carolina, says Gillespie.

While Radiation Therapy could increase its borrowings, it generates enough cash to fund expansion of its existing operations and acquire new ones. Net cash from operations was $71.4 million in 2009, an 11% increase over 2008. “We do throw off enough cash for growth,” Gillespie says.

Issuing more debt would be limited to a significant acquisition. “It would have to be a very attractive opportunity for us,” Gillespie says. While Radiation Therapy is the largest operator in the country with nearly 100 centers, there are about 2,500 radiation-treatment facilities around the country that could present opportunities for acquisitions.

Because of the uncertainty over reimbursements from Medicare, Medicaid and private insurance, some smaller operators of radiation-treatment centers are more eager to sell their practice at lower prices than a few years ago. What's more, the financial crisis means fewer of them can obtain loans to equip their centers with the latest technology. “Valuations are getting better,” Gillespie says.

For now, Vestar executives say they're pleased with Radiation Therapy's performance and have no immediate plans to sell their stake for a quick return via a private sale or an initial public offering. “At this point we're focused on helping Danny build the business,” Elrod says. This includes building a stronger presence in existing markets and exploring new opportunities overseas.

Obamacare on the horizon

When Vestar completed its acquisition of Radiation Therapy Services, few could have foreseen the passage of federal legislation that reshapes government's role in health care. “We view this as an opportunity and a challenge,” says Dosoretz.

The opportunity for Radiation Therapy is to be the most efficient provider of radiation treatment. It's also exploring the possibility of offering a broader range of services.

For example, the government may prefer to pay one fee for a cancer patient's entire treatment program, which would include services such as surgery.

So Radiation Therapy may hire its own cancer surgeons if necessary or expand its relationship with hospitals it considers its main competition today. “We want to be ready for the next phase,” Dosoretz says, noting that many of the significant health care changes won't take place for several years. “Nobody knows that part yet.”

Leaving health care matters to legislators can be tricky, evidenced by the on-again, off-again Medicare reimbursements this year. The cuts threatened to slash 10% from Radiation Therapy's revenues in 2010.

Elrod, meanwhile, says if Radiation Therapy is the best provider, either private insurance or the government will pay for the service. “I take some comfort in the fact that what we do actually works,” Elrod says. “Cancer is not going away.”