The first stage of our strategy has been to develop a strong base of medical oncology and market share in local markets. The cumulative effect of this strategy has been the evolution of a significant regional and national presence. The second stage of our strategy is to leverage the size of the network through Cancer Centers, PET Centers, and drug development and information sales. However, we face some significant challenges. One such challenge is managing the cost of drugs.
Drugs are a significant source of revenue and cost in the cancer treatment model.
Obtaining pricing discounts on drugs is difficult due to the lack of competition or increase in single source drugs. This results in lower margin on drugs and ultimately affects our overall margin. Another significant challenge is aligning the compensation models of network physicians and the company. Under the percentage of revenue model, physicians participate in revenue growth but do not participate proportionally in operating cost. Due to this flaw in the percentage of revenue model, physicians are not participating in operating cost increases.