
Chapter 15: Strategic Financial Initiatives: MD Anderson España
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Description
In this segment, Dr. Leach explains that the increasing costs of health care signaled that traditional reimbursements for medical services were going to come under pressure, creating the necessity to look for other revenue streams. The sister institutions created such a possibility as well as satisfying the institutions mission to eradicate cancer globally.
Dr. Leach tells the story of starting his first day on the job in September of 1997, meeting with President Dr. John Mendelsohn and then immediately going cold into a meeting with Spanish representatives to talk about opening a cancer center from scratch in Madrid. Dr. Leach explains why the Madrid location was selected and describes some of the challenges met. He explains the main lesson learned: that MD Anderson is best suited to guiding institutions to create new cancer centers, rather than itself owning and operating new centers.
The España project gave rise to a new department for consulting services, Global Business Development.
Identifier
LeachL_03_20130109_ C15
Publication Date
1-9-2013
City
Houston, Texas
Interview Session
Leon Leach, MBA, PhD , Oral History Interview, January 09, 2013
Topics Covered
The University of Texas MD Anderson Cancer Center - Building the Institution; The Administrator; The Business of MD Anderson; Beyond the Institution; The Healthcare Industry; Professional Practice; Fiscal Realities in Healthcare; The Professional at Work; Critical Perspectives; Understanding the Institution; Professional Practice; The Professional at Work
Transcript
Tacey Ann Rosolowski, PhD:
We are live now, so I just want put an identifier real quickly. This is Tacey Ann Rosolowski. I am beginning my third session interviewing Dr. Leon Leach. Today is January 9, 2013. The time is 9 minutes after 3. So thanks again for agreeing to do this unexpected third session.
Tacey Ann Rosolowski, PhD:
And as I mentioned to you before I turned on the recorder, I realized that we hadn’t really talked about—in depth about many of the strategic business opportunities that you have developed. I wanted to ask you first what the method to the madness was—I think it was your phrase—and why these were initiated.
Leon Leach, MBA, PhD :
Well, we have known for some time that folks didn’t want to pay. It has not been a secret that things are changing on the national front. Healthcare, the gross domestic product when I came here in 1997 was probably in the ten percent to twelve percent range that healthcare would take of the gross domestic product. Today it’s pushing twenty—you know—fifteen years later. If you wind the clock back further, I can remember when I first got into the business it was six or seven percent. So it’s taking up more and more of the national financial pie, if you will. Now some of it’s very explainable. We do have an aging population, we do have baby boomers that are now—I think that this year is the first year technically the baby boomers are eligible for Medicare. And that’s the more expensive years, it’s the cancer-bearing years primarily. I mean, you do have cancer in younger people also, even children, but it’s—the incidence is far less. So we know that our traditional reimbursements are going to come under pressure—money that we get paid from Medicare, Medicaid, managed care companies. So we had been looking for opportunities to develop other revenue streams.
But more important than that, our mission is to eradicate cancer in Texas, the nation, and the world. We’ve got a strong presence here in Texas, but not so much the nation and the world—or at least that was the case in 1997 when we first came here. Even the presence in Texas was physically limited to 1515 Holcombe. So over the years we developed a number of strategies to more effectively address that mission of eradicating cancer in Texas, the nation, and the world but also speak to the diversity that’s needed from our revenue side.
And you rattled off—you’ve got a list of projects, which we can just kind of take them and—we can either take them in random order— The first two that we actually did, if you want to take them in some form of time sequence—the first one was MD Anderson España, which is where we partnered with folks in Spain to do a cancer center there from scratch. And this is—this is kind of a fun story for me to tell, because my first day on the job in September of 1997—I got here at eight o’clock and went into the president’s office and said hello to him. He was happy to see me, closed the door, we chatted for a while, and he said, “The first thing that I want you to do is there is a group sitting in the conference room—” which is literally right outside of his office, “that are here from Spain, and we’ve had talks with them to do a cancer center.” In fact, the talks had been going on for probably a year or maybe longer. He was getting impatient and wanted to do a deal. So long story short, I walked into that meeting cold with a gentleman by the name of Hugh Wilfong, who was the—at the time he was the counsel for our—it was called then MD Anderson Outreach, which is now MD Anderson Services Corp. Mr. Wilfong went on to become the president of that. That became the entity which contracted with this group in Spain to do what is now known as MD Anderson España.
So we did open a cancer center literally from scratch. It was a real learning experience. It didn’t go nearly as smoothly as we would have liked, and that’s pretty typical with any new business venture like that. I mean—I think we made a couple of mistakes early on. One was we kind of used the same folks that were the venture capitalists, if you will—the people that kind of pull the deal together. The entrepreneur is a better word. It was the entrepreneurs that pulled the deal together in Spain. As we moved towards operations and moved towards actually building a cancer center, we were still using people to do so that were entrepreneurs and not kind of established business people in that realm—kind of classic to open a new business. Usually the person whose brainstorm it is at some point has to give it all to professional managers to do. So we had to go through that. We were also undercapitalized going into it. Anderson didn’t put money into the deal. We brought our expertise to the table. The ones that we did the deal with brought capital, but not an adequate amount. It takes a huge amount of money to start a cancer center. And that was—you know—we figured we’d raise the money as needed.
Tacey Ann Rosolowski, PhD:
Can I ask you a question?
Leon Leach, MBA, PhD :
Uh-hunh (affirmative).
Tacey Ann Rosolowski, PhD:
Why was the Madrid location chosen specifically of all the many that I’m sure were on the table?
Leon Leach, MBA, PhD :
Well, that’s a very good question because we— When I came in the door in 1997, there really had not been a systematic study of the business opportunities— Do we want to be in Madrid or would we rather be in Beijing? There was no study of that nature that existed. The answer was we had some willing entrepreneurs who thought they could do this who had—were well connected in Spain with the investment community, with the governmental agencies. We actually did this in what was a former naval hospital in Madrid, and the government worked very closely with us. At our grand opening, the King of Spain was there. He’s largely a figurehead these days. And various officials in the Spanish government, President Bush—H.W. Bush, 41, came over and helped us with those ceremonies. So it was an opportunity where we had willing partners.
Now we did go through a business evaluation—a business feasibility study of the Spanish market. It was going to be a challenge in any country, because in Europe where you look at socialized medicine because you do have to work with the government. But again, the group had very strong contacts with the government. In Spain there was about a ten percent, at the time, private market. And we were geared more towards that. But we also worked with the government insurance folks. Our payor mix was heavier on the private side, if you will.
So when we kind of analyzed it prospectively, it wasn’t, do we do one here or in Bonn or in Paris or in Rome. It was, how does this market compare to others? And we did find out that it compared reasonably favorably to other European markets. There were factors there that had we done this from scratch, we would have been looking forward. So it was not a negative place to do it at all. In fact, we thought it was a good place to do it. When you get down to the success of anything like this, it’s usually very predicated upon the people who actually do it. So we felt we had a good group to do it with and at least get us started. As the project matured, so did the owners and managers. Today it’s quite successful. The original investors in the projects sold out to a company that is very much like Hospital Corporation of America. They are a hospital management company, and they have operations. They do have one hospital here—I think it’s in Florida. But they’ve got hospitals in the Caribbean. They’ve got hospitals in the Canary Islands and in Spain. So this company knows how to run hospitals.
Tacey Ann Rosolowski, PhD:
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I believe that Dr. Mendelsohn said that with the change in management, actually the center is better run.
Leon Leach, MBA, PhD :
Yeah.
Tacey Ann Rosolowski, PhD:
And is performing much better.
Leon Leach, MBA, PhD :
Yeah, it’s performing considerably better. So it is a learning curve. I think what we learned is we probably wouldn’t—I know we wouldn’t do it quite the same today if we had the opportunity. You know—this was a good experience for us to figure out how we wanted to do this.
Tacey Ann Rosolowski, PhD:
And how would you—what would you do differently?
Leon Leach, MBA, PhD :
Well actually you can see this in the relationship with Banner—you know—how we developed that relationship. It’s much more of a joint venture. Doing a startup comprehensive cancer center is tough. We had the ability to do that, but if somebody wants to do that and wants to work with us, we have a whole consulting wing now that we would help them—you know—for a fee we would help plan the facility. But to do it for them, probably not. It’s too much of a demand on our resources. We do have the ability to advise them on how to do it. But to actually manage it and own it, that’s—you know—more than what we would want to do generally.
Tacey Ann Rosolowski, PhD:
Now are those consulting services something that arose because of the MD Anderson España initiative?
Leon Leach, MBA, PhD :
That was the genesis. When you look at how that happened, we did get tons of opportunities. We wanted to get some experience in the international marketplace. We certainly have the experience on how to build a cancer center and how to manage and run and operate a cancer center. That’s our strength. So when you look at it from a strategic standpoint, what’s your strength, it’s really the knowledge that we have of how to do this. When you try to do—to build a cancer center in a foreign country, one of the things you really have to understand is the culture and the business plan that they’re—and there are people that live in that and know that. So we just think it makes more sense if we kind of stick to what we know—how to build cancer centers and how to run cancer centers and—but not necessarily try to own cancer centers in a foreign climate.
Tacey Ann Rosolowski, PhD:
Right.
Leon Leach, MBA, PhD :
So—you know—we have—we can help you with it. It’s kind of—you know—do you want to—the old biblical parable about—I think it’s biblical—about catching a fish. Do you want to catch a fish for somebody and give them the fish, or do you want to teach them how to fish? So we’d rather teach how to fish. And there’s a lot less risk in it for that. Again, we never did put any money in Spain, but we did have our pride on the line, and we had a lot of investment of individuals’ time. We were compensated for it, but we were very committed to that project being successful. And frankly there were times that we considered whether or not we wanted to continue with the project because there were things that local—the local owners had to sort out that we didn’t think were being sorted out quickly enough.
Tacey Ann Rosolowski, PhD:
Can you give me an example of one of those reevaluating moments?
Leon Leach, MBA, PhD :
Well, there were probably three different times that management changed there. That is part of the natural growth of a company from an idea and the entrepreneurs that pull that together to make it happen to a functioning business. But never was this smooth, and most of the time it’s not smooth. So it was just being involved from afar and being focused on—primarily on patient care. We did have some scientific research links to our friends in Madrid. That became a bit of a distraction as management changed. It would be—we build a number of safeguards into the model that we now use. And it’s—for international opportunities, it’s more of a consulting model. For national opportunities, it’s more of a partnership with an established player where we can be instrumental in raising the bar.
Tacey Ann Rosolowski, PhD:
What is the name—? Is there a specific department that takes care of those consulting services for—?
Leon Leach, MBA, PhD :
Yes.
Tacey Ann Rosolowski, PhD:
And what is the name of that department?
Leon Leach, MBA, PhD :
It’s run by Amy Hay. We refer to it internally as Business Development.
Tacey Ann Rosolowski, PhD:
Oh, okay.
Leon Leach, MBA, PhD :
There may be a more official name—in fact, I’m sure there is a more official name, but off the top of head, I can’t think of it. So that was one example.
Recommended Citation
Leach, Leon MBA, PhD and Rosolowski, Tacey A. PhD, "Chapter 15: Strategic Financial Initiatives: MD Anderson España" (2013). Interview Chapters. 1210.
https://openworks.mdanderson.org/mchv_interviewchapters/1210
Conditions Governing Access
Open
