Memorial Sloan Kettering Cancer Center Business Information, Profile, and History

Company Perspectives:

"As the world's oldest and largest private institution devoted to patient care, education and research into cancer, we believe that access to information about cancer can help lessen the burden of disease. Better understanding of cancer prevention, dissemination of the latest research findings and exchange of scientific knowledge will make a difference today and in the future." --Dr. Harold Varmus, president and CEO

History of Memorial Sloan Kettering Cancer Center

Memorial Sloan-Kettering Cancer Center is the world's oldest and largest private nonprofit institution devoted to the prevention, treatment, and cure of cancer. It is also generally considered one of the best facilities in the United States for combating this dreaded disease. In 2001, for example, U.S. News & World Report rated it first in cancer care among U.S. medical institutions, a ranking it has often held. Each year Memorial Sloan-Kettering offers both inpatient and outpatient services to well over 10,000 patients.

Beginnings in the 1880s

The institution today known as Memorial Sloan-Kettering Cancer Center was founded as the New York Cancer Hospital in 1884. It was the first such hospital in the United States to devote itself solely to the study and treatment of cancer, then considered incurable and therefore shunned by many doctors. The founders were Mrs. Elizabeth Hamilton Cullum, a granddaughter of Alexander Hamilton, and financier John Jacob Astor and his wife.

The hospital, completed and opened in 1887, occupied the entire block between Central Park West and Manhattan avenues and West 105th and 106th Streets on Manhattan's Upper West Side. A stone-and-brick edifice in the French Gothic style, it resembled a chateau and featured turrets with conical roofs at each corner. These turrets allowed a good deal of natural light to enter the circular wards located within. This extra sunlight, it was then believed, would promote cleanliness and impede dust at a time when cancer was thought to be contagious. The institution was renamed the General Memorial Hospital for the Treatment of Cancer and Allied Diseases in 1899; "General" was dropped from the name in 1916. A clinical laboratory was opened in 1917 and a social service department in 1920. Among the hospital's benefactors was Edward S. Harkness, who in 1926 gave $250,000 for the purchase of radium to treat malignant tumors by radiation. Dr. James Ewing, who was director of Memorial from 1931 to 1939, later was quoted by Time magazine as saying that until then "the hospital had enjoyed the studied neglect of the public, while the medical profession had left us severely alone."

In 1927, John D. Rockefeller, Jr., made the first of his annual $60,000 contributions to Memorial for research and the establishment of six clinical fellowships. He also quietly began assembling parcels of land on Manhattan's East Side, between First and York avenues and 67th and 68th Streets, directly across from the Institute for Medical Research, which later became Rockefeller Institute, then Rockefeller University. In 1936, he donated this tract of land, valued at $900,000, and another $3 million for the construction of a 12-story hospital to replace the existing Upper West Side structure. When the new building opened in 1939, it was able to house 200 patients in place of the 110-bed capacity at the old one, making it the largest institution in the world for the treatment of cancer. Each arriving patient was sent to one of 11 highly specialized departments, each with its own staff.

Research Plus Treatment: 1945-89

In 1945, Alfred P. Sloan, Jr., chairman of General Motors Corporation, donated $4 million to establish, with Charles F. Kettering--another General Motors executive--the Sloan-Kettering Institute for Cancer Research. A 14-story building, erected beside Memorial Hospital, was completed in 1947 to serve as the research division of the hospital. Dr. Cornelius P. Rhoads, who had succeeded Ewing as Memorial's director, became head of Sloan-Kettering as well, but the two institutions were entirely separate in terms of budget, management, and personnel. During the 1940s, research concentrated on chemotherapy, which joined surgery and radiation as the accepted methods of treating cancer.

Also part of the Memorial Sloan-Kettering complex, and opened in 1950, was James Ewing Hospital, built by the city of New York for the treatment of city residents and staffed by Memorial. It was absorbed by Memorial in 1968, renamed the Ewing Pavilion, and later remodeled and renamed as a research facility. The Tower Building, opened in 1951, more than doubled Memorial's outpatient capacity. (It was razed for a new outpatient building in 1969.) In 1959, a research laboratory was opened in Rye, New York.

Memorial Sloan-Kettering Cancer Center (MSKCC) was established in 1960 by the consolidation of Memorial Hospital and Sloan-Kettering Institute, and John D. Rockefeller, Jr.'s son Laurance became its chairman, serving in this capacity until 1982. Additions to the complex by 1972 included the Kettering Laboratory (1964) and a radiation-therapy center. The new 19-story, 565-bed Memorial Hospital was completed on the 68th Street end of the site in 1973.

Memorial Hospital, Sloan-Kettering Institute, and Memorial Sloan-Kettering Cancer Center came under the direction of Dr. Paul A. Marks, who became president and chief executive officer of all three in 1980. Under Marks, wrote Philip M. Boffery for the New York Times Magazine in 1987, "once-powerful surgeons known for 'heavy cutting' are no longer the dominant faction. Marks' administration has boosted the roles of radiotherapists and doctors who treat cancer with chemical and biological agents and has made the hospital more research-oriented. At Sloan-Kettering ... there is increased emphasis on molecular biology. ... To accomplish this, Marks has executed a major purge of the scientific staff." Marks also embarked on a $325 million fundraising drive, of which $78 million was earmarked for a new, 13-story research laboratory. (Laurance Rockefeller donated $36.2 million for this purpose.) The new Rockefeller Research Laboratory (named for his father) consolidated laboratories from other portions of the site and from the Rye laboratory. It was completed in 1989.

According to Boffery, the shake-up was needed because many scientists, including Marks himself, considered the center's research and treatment efforts to have fallen behind the times as well as behind other institutions. (Scandal rocked Sloan-Kettering in 1974 when a staffer who was a protégé of the director was found to have faked his research.) The board of trustees was said to feel that the center was badly organized, with research and clinical activities largely independent of each other, expenditures growing out of line, and the collection of payments from patients inefficiently handled. Marks established a tenure plan for the scientists--in effect, lifetime appointments--but made all tenured professionals subject to a rigorous peer review every four years.

A Competitive Marketplace in the 1990s

By the 1990s, Memorial Sloan-Kettering, like other cancer centers, was scrambling for patients because of the rise of managed-care plans. Many health maintenance organizations (HMOs) were refusing to pay the high prices such centers traditionally charged for care and preferred to send their cancer patients to the lowest-cost hospitals available. This made it all the more vital that Memorial hold on to the more than half of its patients who were referring themselves to the hospital, without consulting their primary doctors, because of the institution's reputation. In 1992, Memorial established a freestanding breast cancer center on 64th Street. MSKCC officials said the new offsite clinic would expand its breast cancer treatment capacity by 30 percent. They then established a prostate cancer center on 65th Street and added a radiotherapy treatment center in White Plains, New York, cut costs by 10 percent (partly by closing a medical-surgical floor), and signed the center's first managed-care contract, with Travelers Insurance Co.

Like other New York hospitals, Memorial Sloan-Kettering found it would have to expand further into the suburbs in order to serve on an outpatient basis the more than 16,000 cancer patients it was discharging annually. Many of these patients lived in the metropolitan area but outside the city, sometimes beyond easy commuting distance. During 1996 and 1997, in cooperation with other medical institutions, MSKCC established treatment centers in Danville, New Jersey; Sleepy Hollow, New York; and at the Hauppauge and Rockville Centre, Long Island. By early 1998, MSKCC had begun work on a $20 million outpatient treatment center in Commack, Long Island. Meanwhile, the Rockefeller Outpatient Pavilion set up shop on 11 floors of an East 53rd Street high-rise in Manhattan, at a cost of $100 million. An outpatient center in Dover, New Jersey, a screening center in Manhattan's Greenwich Village, and a breast examination center in Harlem were in operation by 2002. To attract foreign patients who could afford to pay out of pocket, MSKCC established, in 1997, an International Center at First Avenue and 74th Street that was seeing about 200 new patients a month. In the main building, Memorial Sloan Kettering remodeled the top patient floor, transforming it into a 14-suite luxury facility with hotel-style services, including private chefs for the state-of-the-art kitchen.

Memorial Sloan-Kettering made its first major connection to managed care in 1996, when it signed a contract with Empire Blue Cross & Blue Shield, the state of New York's largest health insurer. A vital part of the agreement was MSKCC's willingness to cut its rates by as much as 30 percent. The center's chief operating officer told Lucette Lagnado of the New York Times that it had little choice because "Empire is 22 percent of our business--we had to protect that piece of business." Memorial was only filling about 60 percent of its beds at the time. Moreover, the state was preparing to lift regulations that had for 30 years artificially inflated the prices that hospitals could charge and that insurers would pay. Under this system, MSKCC received higher reimbursement rates than those paid other hospitals because it was one of only two specialized cancer centers in the state. In order to prepare for the new age of aggressive price-cutting, the hospital closed three patient floors--nearly a quarter of its capacity--and induced 164 nurses, doctors, and administrators to take early retirement.

Memorial Sloan-Kettering lost money throughout the 1990s, but it bolstered its finances through a combination of stepped-up fundraising, cost control, and lucrative investments in such instruments as venture-capital funds. The center's money managers had at their disposal a portfolio of assets worth $1.9 billion in early 1999. Of this sum, 36 percent was invested in equities, 25 percent in short-term fixed-income products, 21 percent in long-term fixed-income products, 11 percent in alternative investments, and 7 percent in international securities, including emerging-market stocks. In 2000, income from the center's net assets--now grown to $2.1 billion--and other sources enabled it to compensate for an operating loss of $101 million--compared to only $5 million in 1995--on its operating revenues of $876 million. Some 850,000 people contributed $124 million in funds to the center during the year. "They're very aggressive about fund-raising," a Standard & Poor's analyst told Judith Messina of Crain's New York Business. "They want your 10 bucks and my 10 bucks. [Their fund-raising] is much more broad-based than others'."

Memorial Sloan-Kettering's sound finances enabled it to receive by far the highest bond rating (AA) for a hospital in the state of New York from Standard & Poor's. The institution issued $450 million in variable rate bonds in January 2002 to finance a new five-story tower to a building on East 67th Street and a genito-urinary center on East 68th Street, fund a satellite clinic in Commack, pay for the construction of 265 new apartments on nearby Roosevelt Island for staff and postdoctoral students, and refinance debt. Its demonstrated fundraising ability was cited as a primary credit strength by Moody's Investors Service, which rated the new bonds--which were insured--at Aa2. MSKCC was planning to issue another $400 million in debt in 2003 to finance a 23-story Manhattan research facility on East 68th Street in the face of strong community opposition.

Memorial Sloan-Kettering's added income allowed it to pay for some cancer therapies and diagnostic techniques not fully covered by insurers and to provide more charity care. Even so, the hospital filled only an average of 79.5 percent of its 437 beds on a given day in 2000. A Wall Street Journal article in 2001 reported that it was considering turning away at least some of the terminally ill patients who appeared at its door but who often proved unprofitable to treat because there was little that could be done to help them. (Second-opinion cases reportedly consumed 10 percent of MSKCC physicians' time while producing less than 1 percent of its revenue.) Instead, it launched a marketing campaign aimed at recruiting more early-stage patients who not only offered a more favorable prognosis but would be much more profitable to treat. Because the decline in stock prices in 2000 reduced the value of its investment holdings, the center was also considering performing surgery on weekends and keeping its outpatient clinics open later in order to raise more revenue.

Principal Competitors: Beth Israel Medical Center; Dana Farber Cancer Institute; Johns Hopkins Hospital; Mayo Foundation; Montefiore Medical Center; Mount Sinai Hospital; New York Presbyterian Hospital; St. Luke's-Roosevelt Hospital Center; Anderson Cancer Center.

Chronology

• Key Dates:
• 1884: The New York Cancer Hospital is founded on Manhattan's Upper West Side.
• 1939: Now called Memorial Hospital, the facility moves to Manhattan's East Side.
• 1945: The Sloan-Kettering Institute is established as the hospital's research arm.
• 1960: Both facilities are consolidated as the Memorial Sloan-Kettering Cancer Center.
• 1973: A new 19-story hospital building is completed on the site.
• 1989: Work is completed on a new 13-story research laboratory.
• 1996: The center signs its first contract with a major health maintenance organization (HMO).