Salick Health Care, Inc.

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Salick Health Care, Inc.

8201 Beverly Boulevard
Los Angeles, California 90048
U.S.A.
Telephone: (323) 966-3400
Fax: (323) 966-3680
Web site: http://www/salick.com

Wholly Owned Subsidiary of AstraZeneca plc
Incorporated: 1983
Employees: 1,400
Sales: $176 million (2000)
NAIC: 62149 Other Outpatient Care Clinics

Salick Health Care, Inc. is a unique chain of for-profit outpatient clinics dedicated specifically to cancer care. Salick’s eight cancer clinics are affiliated with major hospitals and staffed by the hospital’s leading cancer specialists. Salick clinics offer 24-hour care, seven days a week, with the goal of making cancer treatment as comfortable for the patient as possible. The clinics give comprehensive cancer care, which includes psychological counseling for patients and their families as well as onsite radiation physicists, laboratory technicians, nutritionists, pain management specialists, and a host of other professionals trained in diverse aspects of cancer management. The company was named for founder Bernard Salick, M.D., and is now owned by the European drug company AstraZeneca plc.

Personal Crisis Leads to New Business Direction

Bernard Salick was born in New York City in 1939, the son of recent Jewish immigrants from Rumania. Though his family was poor, Salick’s parents pushed him to study and aspire for a professional degree. Salick graduated from Queens College in 1960 with a degree in mathematics, then began his medical training at the University of Southern California. Salick earned his M.D. in 1964 and became a specialist in kidney disease with a practice in Beverly Hills. Salick married in 1973 and eventually had three daughters. It was a confluence of a family medical crisis and Salick’s burgeoning entrepreneurship that led to the formation of his chain of cancer clinics.

Beginning in 1972, Bernard Salick began using profits from his medical practice to invest in a chain of outpatient kidney dialysis clinics. Though Salick was still paying back student loans, he put what money he could toward the dialysis centers, soon deciding to keep them open 24 hours, seven days a week. Salick sold the dialysis chain in 1975 to a conglomerate called Damon Corp. Damon ran aground in the early 1980s, and so Salick decided to buy back the kidney clinics. Salick got financial backing from Michael Milken of Drexel Burnham Lambert, the notorious trader who was later jailed for insider trading and racketeering. The new company, in 1983, was again under Salick’s management and was called Salick Health Care, Inc.

However, Salick abruptly changed his focus from kidney disease to cancer. In 1983, shortly after he had won a contract to operate a dialysis clinic at prestigious Cedars-Sinai Medical Center in Beverly Hills, he learned that a mysterious pain in his middle daughter’s knee was actually a particularly deadly cancer. His daughter, Elizabeth, was only six years old when she was diagnosed with a form of bone cancer that killed nine out of ten victims. Salick was immediately plunged into caring for his daughter, and he basically gave up his medical practice. Elizabeth Salick recovered from cancer after surgery and rounds of chemotherapy at both a Los Angeles hospital and at Memorial Sloan-Kettering Cancer Center in New York. Suffering through midnight visits to emergency rooms and sleeping in the hospital hallway because there was no provision for the patient’s parents set Dr. Salick thinking about comprehensive cancer care. His dialysis clinics offered round-the-clock care, but there was nothing comparable for cancer. Salick got the backing of Drexel Burnham Lambert and diversified his dialysis business into a new chain of outpatient cancer care clinics. Salick Health Care’s first cancer clinic opened at Cedars-Sinai in 1985.

The company was for-profit, which dismayed some members of the medical community who feared patient care might be skimped on. Salick countered that not-for-profit hospitals were often too loosely run, and sloppy management in itself often worked against the patient’s best interest. Salick Health Care was determined to run profitably, but it did anything but skimp. Quite the opposite: Salick was called on to justify his clinics’ opulent architecture and design as well as such services as valet parking. Drawing on his own family’s experience, Salick insisted that cheerful, comfortable surroundings made patients more likely to comply with their physicians and thus led to better patient outcomes. And valet parking was not a frill where extremely sick people were concerned.

Salick Health Care made an initial public offering in March 1985, raising $18 million, and in 1986 raised another $30 million through a bond offering. Salick had revenue of over $21 million in 1987 and brought in over $38 million the next year. By 1989, the company operated seven cancer centers (while still running its dialysis clinics)—two in Southern California, four in Florida, and one in Philadelphia. The clinics worked with top oncologists who were not paid directly by Salick Health Care but remained on the affiliated hospital’s staff. The clinics operated mostly in partnership with non-profit teaching hospitals which were known for excellent staff but could not provide the extensive outpatient care Salick could. Salick Health Care was a profitable public company, bringing in net income of around $7 million by 1988. With its stock market backing, Salick could afford to lay out for its clinics in a way that most non-profit hospitals could not, so it seemed to be a comfortable arrangement all around.

Changes in the Early 1990s

By the early 1990s, Salick had expanded to a chain of nine outpatient cancer clinics. It had established itself financially, both as a profitable small-cap company and as a money-saver for hospitals. Though Salick clinics offered extensive care in plush surroundings likened more to a hotel than a hospital, by 1993 the company was estimating one year of cancer treatment at its clinics cost 20 percent less than in a traditional hospital setting. One reason for this seemed to be that Salick patients had such complete outpatient care that they could avoid costly hospitalization. By 1994, Salick ran ten cancer care clinics as well as nine dialysis clinics and was treating close to a million patients annually. Sales had grown to around $100 million. The company expected to grow even more through a venture begun that year that established a first in the health care industry. Salick negotiated a contract with a Florida health maintenance organization, called Physicians Corporation of America (PCA) to treat all the group’s cancer patients for a flat annual fee. For something between $10 and $25 per patient in the group, Salick would cover the entire cost of cancer treatment for any sick PCA member. Such an arrangement is known as a “carve-out,” when a health maintenance organization contracts out services for part of its membership group. This was apparently the first time such an arrangement had been made for a specific disease. The Economist (July 23, 1994) called Salick Health Care the “world’s first full-service disease management firm.”

Salick began negotiating a similar deal with an Arizona health maintenance group. The company had shown that, at least so far, it could offer its Cadillac service at a substantially lower cost than traditional hospitals and clinics. It gambled that it could continue to make a profit with the flat-fee arrangement. The company’s revenue almost doubled with the PCA deal, and if similar arrangements came off, Salick looked like it would expand very quickly. At this point, Salick sought an investment partner. In 1995, the company sold 50 percent of its shares to the British pharmaceutical and chemical company Zeneca Group PLC for $195 million. The acquisition raised eyebrows, as Zeneca, a $9 billion giant, was a leading manufacturer of cancer-fighting drugs. Both companies proclaimed that there was no conflict of interest, and that Salick physicians would not be pushed to prescribe Zeneca drugs over other treatments. Zeneca explained its interest in Salick as giving it access to Salick’s vast database of cancer drug use and treatment outcomes. Under the 1995 agreement, Bernard Salick was to remain as CEO of the company he had founded until at least 1999. Zeneca retained an option to buy the rest of the company after several years.

Subsidiary Company in the Late 1990s and After

Now flush with cash, Salick went on with its expansion plans. The company continued to put together proprietary practice guidelines, which outlined standards of care for specific disease treatments, such as chemotherapy for colon cancer, bone marrow transplants for breast cancer, and the use of antinausea drugs. These guidelines helped make care consistent within the clinics. Consistency between different practitioners and clinics was something Dr. Salick had found sadly missing when his daughter was being treated for her bone cancer. The Salick chain persevered in using its immense patient database and its specialists’ expertise to come up with clear protocols for each disease. Because the chain was for-profit, it did not share these guidelines with non-Salick physicians, which again angered some in the medical community. Bernard Salick seemed able to use his own charm, bluster, and prestige, plus his clinics’ reputation for excellent care, to counter such criticism. The company’s next big move was to enter the New York City market. New York was a potentially lucrative area, accounting for some 10 to 15 percent of the $50 billion Americans spent annually on cancer care. The city was also home to four other well-known cancer clinics, including Memorial Sloan-Kettering. Salick worked out an arrangement with St. Vincent’s hospital in 1996 to set up a cancer center under its auspices. St. Vincent’s was the flagship of New York’s non-profit Catholic hospital system, and the deal with Salick sent reverberations all the way up to New York’s Cardinal John O’Connor. The Catholic hospital’s mission was to serve the poor, and so there were barriers to it contracting with the profit-driven Salick. Yet the agreement brought money into St. Vincent’s that it could then use for the indigent, and Salick built a $20 million cancer facility the hospital could not otherwise have afforded.

Company Perspectives:

Salick Health Care is dedicated to helping cancer patients live longer and better lives by developing and managing leading cancer programs in partnership with physicians and hospitals. Care is the cornerstone of our business that underpins our relationships with patients, physicians, employees, and hospitals. The following values and principles are integral to our mission: patient focus, mutually beneficial partnerships, innovation, high ethical and compliance standards, employee development, and the creation of shareholder value.

Moving into New York City was quite a coup for Salick, and the company had plans to expand into satellite clinics throughout the area. Then in 1997, its half-owner, Zeneca, bought up the other 50 percent of the company it did not already own. Zeneca had had the option to buy the rest of the company within two and a half years from when it purchased half the company in 1995, but it moved up the time frame and made the purchase sooner than expected. It spent $234 million for Salick, which had revenue of $163.5 million for 1996. Though Bernard Salick had an employment contract which was to run for two more years, Zeneca removed him as chairman and CEO. Salick quit rather than take the position of chairman emeritus, and he immediately started a competing firm of cancer and AIDS clinics, Bentley Health Care. Zeneca was by 1997 the number two maker of cancer drugs worldwide, and its sole ownership of a chain of cancer clinics sent up cries of conflict of interest. The company insisted that the data the Salick clinics provided was its most valuable asset and reiterated that it would never pressure doctors to prescribe Zeneca drugs. Under new leadership, the firm continued to make inroads into the New York market, in 1998 forging an alliance with the University Medical Center in Stony Brook, New York, to run its oncology department. Salick also sold off its dialysis clinics and closed several of its cancer centers, including its long-standing one in Philadelphia.

In 1999, Zeneca merged with the Swedish pharmaceuticals company Astra. The new company, now called AstraZeneca PLC, ranked as the fifth-largest drug company in the world. The company was still a leading cancer drug maker, with one of its best known products the breast cancer fighter tamoxifen. The goal of the newly combined company was to become the number one anti-cancer company in the world, developing and marketing cutting edge treatments of all sorts. With the backing of its powerful parent, Salick poured money into its computer and information systems, investing over $20 million between 1999 and 2001 on upgrades. By 2002, the chain consisted of eight comprehensive cancer clinics. The company ran three clinics in Florida, two in New York City, two in the Los Angeles area, and one more in Berkeley, California.

Principal Competitors

Memorial Sloan-Kettering Cancer Center; US Oncology Inc.; Albert Einstein Cancer Center.

Key Dates:

1972:: Bernard Salick founds a chain of dialysis clinics in Southern California.
1975:: Salick sells the clinics to Damon Corp.
1983:: Salick buys back the dialysis clinics from Damon and incorporates as Salick Health Care, Inc.
1985:: The company goes public and opens its first comprehensive cancer clinic.
1995:: British drug company Zeneca PLC buys 50 percent of Salick.
1997:: Zeneca completes its buyout of Salick.
1999:: Parent company Zeneca merges with Astra to form AstraZeneca.