Knights in White Lab Coats

UC San Diego and the Desert Research Institute rescued the Nevada Cancer Institute. Will they all live happily ever after?

seven051612nci-10.jpgReported and rumored causes for the Nevada Cancer Institute’s demise abound: A stand-alone nonprofit clinic didn’t have a prayer in this market. There were too many administrators for too few doctors and patients. Management overspent on marketing, while ignoring community connections. Covenants with Summerlin tied researchers’ hands.

Speculation aside, the outcome is there for all to see. The nonprofit patient care and research facility referred to as NVCI declared bankruptcy in December, eight months after shedding about half its staff—including its director and CEO John Ruckdeschel—in a last-ditch effort to keep the doors open. It had racked up $91 million in debt.

“It was a roller-coaster ride, and I don’t think anybody would tell you differently,” says Karen Jacks, an NVCI oncologist who left her home state of North Carolina in 2007 to join the new Nevada facility, then full of promise. “But what we’re doing is so worthwhile, and we kept our eye on that.”

Before layoffs in 2011, NVCI clinical and research faculty numbered three dozen. Today, Jacks is one of seven clinical staff who remain. She says she’s not going anywhere.

Now, Jacks—and, more importantly, NVCI’s 6,000 patients—have reason for renewed hope. Concurrent with the bankruptcy, UC San Diego Health System announced it would buy the patient-care portion of the institute for $18 million and the promise of future donations from its nonprofit fundraising arm, which lives on. The bankruptcy court approved the sale in mid-January, just before another hero, Desert Research Institute, struck a bargain to take over a part of the institute’s research operations that UCSD didn’t want.

Observers agree it’s a good deal for all concerned, but the relative neatness of the legal process won’t cure the ills that led to NVCI’s slow death. With the new facility and staff in place, the two university-affiliated programs have their work cut out for them: convincing patients, grant-makers and donors, as well as the rest of the Southern Nevada medical community, to give NVCI a second chance.

Anatomy of a deal

Before its bankruptcy, NVCI consisted of three parts: one did patient care, including clinical trials; another conducted laboratory research; and a third, the nonprofit, raised money and oversaw the business.

Under the new structure, approved by the bankruptcy court in late April, UCSD gets the first part, patient care and clinical trials, including the main building on the institute’s Summerlin campus and its operation at UMC. It has been renamed the UC San Diego Health System Nevada Cancer Institute.

DRI gets what’s left of the second part—laboratory research—by hiring 18 former NVCI staff (nine researchers and nine support staff) and leasing space from UCSD on the Summerlin campus. This portion of the erstwhile NVCI is now the DRI Human Health and Environment Program.

The third part carries over from the past, but is reduced to its philanthropic function. Run by the existing NVCI development staff, the nonprofit will continue to raise funds for the patient care provided by UCSD at the university’s newly acquired facility.

Up from the ashes

As with all bankruptcies, much has been lost. Once 300 strong, the staff was halved last year. In addition to the layoffs, some people left voluntarily. A few programs, such as the mobile mammography clinic, are gone. More than $80 million in debt was discharged.

But by far the biggest blow is to NVCI’s reputation. At least four laid-off staff have filed lawsuits claiming breach of contract, fueling public perception that the institute somehow failed.

Jacks, still working at the patient care-clinical trial facility now owned by UCSD, says she and her colleagues all entertained the idea of leaving at one time or another, but her patients kept her going. In fact, she and other institute representatives insist the quality of patient care never faltered.

“The patients we’ve not been able to keep have [left due to] insurance-based issues, such as an HMO giving a patient’s contract to another provider,” Jacks says. “I have not lost any patients due to the transition. In fact, we’re starting to see improvement in overall referrals, because people are starting to see there’s some stability, that we have the ability to take care of our patients.”

The rescue of NVCI will benefit not only the patients but the rescuers themselves: Both UCSD and DRI gained a lot from their acquisitions.

UCSD gets to expand its services beyond California, where academic hospitals face stiff competition from private oncology practices.

“When I was looking at it, I thought it was a great deal for UC San Diego Health System,” says Adam Higman, a Tampa-based consultant who has worked on similar transactions. “They’re getting entrée to a whole new market, which usually comes at a much higher price tag.”

DRI gets back into biomedical research, which, President Stephen Wells stresses, was part of its original mission in the 1960s. Although the cancer research being done at DRI will, at least initially, be linked to its better-known work by focusing on environmental causes of cancer, the university-based institution is following a strategic plan to expand into new realms, Wells says.

And both UCSD and DRI are getting state-of-the-art facilities—a steal, in the latter’s case. DRI will lease labs in the Engelstad building for $1 per year, plus a portion of the maintenance costs, which Wells estimated could add up to about $80,000. It will also pay $6,250 a month to use the vivarium in the main NVCI building. UCSD donated more than $2 million worth of equipment to DRI, including a flow cytometer (which separates and analyzes cells), several mass spectrometers and two high-performance liquid chromatography machines.

Wells says DRI is extremely grateful to the institute and UCSD for the favorable arrangement, which has allowed his new team to continue its work almost seamlessly.

Meanwhile, Jacks and the rest of the staffers who remain at the patient care facility get some peace of mind. With a well-established group such as UCSD taking over, they may finally exhale.

Off into the sunset

Before they can move on, UCSD, DRI and the nonprofit each have some hurdles to clear.

UCSD has to mend fences in the community to foster patient referrals and collaboration. It has to restore what was cut: programs such as the mobile mammography clinic, as well as specialties and staff. It has to beef up its withered slate of clinical trials, important sources of revenue and standing in the cancer community. And, if it wants to grow, it eventually has to add services, such as bone-marrow transplants, which UCSD-NVCI interim executive director Mickey Goldman says he’s exploring. Such services are forbidden by covenants that NVCI made with Summerlin, so UCSD has to figure out a way around those, too.

Goldman says most of this work—along with basic improvements in systems and communication—is under way. At press time he was interviewing candidates for director and other key management positions. Their job will be to remake the Las Vegas institute in its big sister’s image, as a comprehensive care clinic.

This will be easier for them than it was for NVCI’s founders. In addition to being less exposed financially, UCSD also can tap its own resources to fill gaps in the Las Vegas operation. Jacks, for instance, hopes her patients will have access to UCSD’s endoscopic ultrasound service.

DRI’s challenges come from its move into foreign territory. Wells plans to run the new cancer lab the same way he’s run DRI for 13 years—a period during which its operating revenue has more than doubled.

“DRI’s model is built on the faculty bringing in research grants, supporting themselves, and then the state providing the portion to cover operation and maintenance, and admin costs,” he says. “We’re different from the rest of [the Nevada System of Higher Education] in that we don’t offer tenure. Our total budget is research grants, about $40 million per year, contract grants and services, and the state provides $7.4 million.”

This heavy reliance on research grants could pose a problem, according to Higman, who points out that little-known DRI will be competing with regional powerhouses that are well-established in cancer research.

The nonprofit faces perhaps the greatest obstacle: the local philanthropic market. During its decline, the NVCI board frequently blamed a massive, recession-induced drop in donations. As part of the restructuring, the nonprofit has committed to raising $15 million over five years for UCSD to operate the institute. The Engelstad Family Foundation agreed to amend its gift agreement so that its endowment could serve as a financial backstop for the fundraising commitment.

The new affiliation with UCSD, which has National Cancer Institute designation, might motivate potential donors to return development staff’s calls. So might assurances that their money won’t be going to San Diego. In a recent radio interview, NVCI nonprofit board chairman Michael Yackira said funds raised in Nevada would be used in Nevada.

It would be a boon to Las Vegas if all goes as Goldman, Wells and Yackira envision. Local cancer patients would get a top-notch treatment facility, and the community would get two prestigious medical-research institutions to add to the Cleveland Clinic Lou Ruvo Brain Center.

Jacks believes it will happen.

“I look forward to being able to collaborate with physicians here in town and building a network of care here,” she says. “I think UCSD will help us do that.”

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