Allina Health System has invested $50 million to launch a new cancer center, hiring more than 15 oncologists and adding or renovating spaces at three metro hospitals.

The Allina Health Cancer Institute will bring more cancer services in-house to streamline care for patients who otherwise must traverse multiple locations for their services and appointments, the Minneapolis-based health system announced this month.

It also helps Allina better manage cancer costs, officials say,and work within bundled payment rates from health insurance companies.

"We are addressing the fragmentation — and the referral fragmentation — for cancer services," Michael Koroscik, the vice president of Allina Health Cancer Institute, said in an interview. "We know that we need to manage cancer in a much better way."

Allina joins a trend of hospitals across the country launching cancer centers, sometimes with the help of a federal program that gives medical centers a price advantage when buying expensive oncology drugs. While Allina now has access to these discounts, health system officials said the creation of the new institute was not based solely on this pricing advantage.

For many years, cancer treatment has been one of the biggest drivers of medical expenses in the U.S. with costs continuing to grow as new therapies emerge. Total U.S. costs for oncology care in 2015 were $183 billion, according to a recent report, and annual costs based solely on population growth are expected by 2030 to swell by roughly one-third to $246 billion.

Cancer services account for 25 to 40% of the overall profit margin at many hospitals and health systems, said Ryan Langdale, a consultant with Chicago-based Chartis Group. Medical centers are looking to maintain those margins by developing new oncology centers that focus on particular types of cancer tumors rather than offering generalized cancer services, Langdale said.

To launch the institute, Allina has expanded or renovated space at Abbott Northwestern Hospital in Minneapolis and Mercy Hospital in Coon Rapids over the past 18 months. At United Hospital in St. Paul, the health system opened a revamped center for radiation oncology treatments earlier this month.

Dr. Badrinath Konety is among the physicians newly recruited to Allina Health Cancer Institute. Konety is now the president of Allina's institute, having previously served as dean of Rush University Medical College in Chicago and a senior vice president at Rush University System for Health.

A report this month found that patients in 2019 faced more than $16 billion in out-of-pocket costs for cancer care. The institute plans to announce a new program next month designed to help patients better handle what Koroscik described as the "financial toxicity" for cancer care patients struggling with medical bills.

For years, a large medical group called Minnesota Oncology has provided much of the cancer care for patients across Allina's network of 11 hospitals. The group remains a partner in many ways, said Dr. John Schwerkoske, the group's president, but Allina's new institute also duplicates services offered by the physicians practice.

As Allina has hired medical oncologists, Minnesota Oncology has seen a hit to its volume of patients, Schwerkoske said.

"In a marketplace you can have too much of something, which tends to raise prices," he said. "Obviously, hospital systems have facility fees, which raise prices."

Allina contends the new institute is better equipped to efficiently provide low-cost, high-quality care under "value-based care" contracts with health insurers. In general, these contracts ask health care providers to work within a budget to cover the cost of medical expenses for a population of patients.

"We realize our constant now ... is lower reimbursement and higher costs," Allina's Koroscik said. "So, cost and quality in oncology are primary concerns."

The new cancer institute plans to help oncology patients avoid emergency room visits with programs such as after-hours symptom management. Allina also hopes to provide more infusion treatments at patients' homes.

In the past, Allina and Minnesota Oncology jointly owned a linear accelerator — a piece of equipment used for radiation treatments — at United Hospital. Allina opted recently, however, to solely operate and replace the machinery, which can cost anywhere from $3 million to $5 million.

Hospitals can purchase chemotherapy and immunotherapy drugs used by cancer patients at discounts of 20 to 30% through the federal government's 340B Drug Pricing Program. The savings free up resources to provide "very high-touch" services at hospital-based cancer centers, Langdale said, the consultant whose company worked on the Allina project.

"So, things like patient navigation — Allina employs almost 40 nurses, qualified nurses, cancer nurses that do nothing all day other than help coach and navigate patients through the cancer experience," Langdale said. "There's no revenue/billing for that — that's pure cost that sits on the cancer institute's books."

Congress created the drug-pricing program decades ago so that hospitals treating a disproportionate share of low-income and uninsured patients could see financial relief in the form of low-cost outpatient medications. For community-based oncology groups that can't tap the savings, however, access to these discounts have been controversial.

The trade group for community-based groups published a September report saying hospitals were profiting handsomely from the federal program, since they turned around and charged health insurers nearly four times their acquisition price when subscribers needed the medicines.

Hospitals have countered that medical centers use the savings to provide free care to patients and run other money-losing services while noting that the program is funded by drug company discounts — not taxpayer dollars.

The Allina Health Cancer Institute was "not predicated" on access to the discounts, the health system said in a statement, but officials added: "By optimizing savings under this program, Allina Health is able to invest that revenue to potentially expand access to oncology services and supportive services locally for years to come."