
Chapter 16: Strategic Financial Initiatives: The Story of the Proton Therapy Center, Part 1
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Description
In this segment Dr. Leach explains the rationale for building MD Anderson’s Proton Therapy Center and describes the unusual financial partnerships that enabled it to be funded. He begins by noting that only a few proton centers existed with only one providing patient care –and that one, in Loma Linda, California, only treated prostate cancer. Dr. James Cox [Interview # 32] made the case that proton therapy was a next step in cancer care. He notes that he ran feasibility studies that confirmed that MD Anderson had the patient volume to support a Proton Therapy Center offering treatment for many different cancers. Dr. Leach then describes a first attempt to finance a center in partnership with Tenet Healthcare Corporation and why that failed. He explains the feasibility studies done regarding patient availability and the possibility for reimbursement, and other financial concerns at the time. (23:00) He then talks about the consortium that responded to the call for proposals: The Styles Company (a healthcare development company) and the Sanders Morris Harris Group (investment banking firm), both Houston based. He goes on to explains what these companies brought to the project, who eventually invested, and (25:00) sketches the innovative dimensions of the consortium/partnership between a government supported academic institution (not usually business friendly) and private investment. Next Dr. Leach explains why some technological challenges made it necessary for the Proton Therapy Center to open with only one of its four gantries in operation and outlines the financial implications this had on Hitachi, the company providing that technology. The delay opened the possibility that investors could return their shares to Hitachi, receiving back their money plus a percentage of their investment. The Center ran for a year with only one gantry.
Identifier
LeachL_03_20130109_ C16
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; MD Anderson History; The Business of MD Anderson; Beyond the Institution; Industry Partnerships; 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
Leon Leach, MBA, PhD :
Another example was the proton center. I know you talked with Dr. Cox. This was his brainchild. He met with me and kind of educated me on what proton beams were. I had no idea what they were and why they were advantageous to cancer patients and cancer treatment. Most of what they were seeing back then—in fact, there were only a couple in the United States at the time. There was one in Loma Linda, California, that did largely prostate cancer, and there was one in Mass General in Boston. It was more for research, but they did see some patients. And there were some other interesting pediatric cases or ocular tumors that would wrap around the ocular nerve where if you went in and operated, chances are the patient may not have vision afterwards. It might knick the nerve or something like that because it’s such a delicate operation. The proton beam was so accurate that you could radiate that and not damage the nerve.
So—and he really built a good case about how this was the next step in many types of cancer. At the time it was being—proton centers were being looked at a little bit by a hospital company in California that has its roots back here in Texas, a company called Tenet—Tenet—T-E-N-E-T. They were looking at building maybe as many as twenty proton centers throughout the country. They had actually contacted the University of Texas Southwestern Medical School and did some studies there. But these were quite expensive. We did ours for about $128 million. Today you’re looking at $200 million for one that would be the same size and scope as ours—if not more.
Tacey Ann Rosolowski, PhD:
Wow, and that’s only—that’s less than ten years.
Leon Leach, MBA, PhD :
Yeah.
Tacey Ann Rosolowski, PhD:
Wow.
Leon Leach, MBA, PhD :
Yeah. So it became pretty clear pretty quick that Southwestern didn’t really have the volume with cancer patients that justify that. We were asked if we would be interested in talking with Tenet, and we did. And we were progressing nicely towards what could have been a deal, but a couple of things happened. There was an earthquake in California. I think it was the Northridge earthquake—no, I think it was after Northridge. But there was a major earthquake in California that did a fair amount of structural damage to hospitals that were owned by Tenet. But all hospitals—there were some laws passed in California about how they had to earthquake proof hospitals. So Tenet was a major player out there. It had to spend a lot of capital on that. It made it difficult to fund the proton vision. And they also got into some trouble with the Medicare and Medicaid folks—or Medicare folks—federal government on some of their Medicare billing. I think they got a pretty huge fine, and that kind of dampened their appetite a little bit, too. So that deal—that deal fell through. But by now we had done enough research that we were pretty convinced this is a good thing to do.
Tacey Ann Rosolowski, PhD:
Now what was the research you were doing? What piece were you bringing to that table?
Leon Leach, MBA, PhD :
Really the business side. I mean, the research I was referring to when I said, “This is the right thing to do,” was more medicalized as far as this is something that—the science that we need to have here at MD Anderson. And Dr. Cox was convinced of that before the rest of us, and he had to kind of get the rest of us there.
Tacey Ann Rosolowski, PhD:
Now did you start doing feasibility studies or running—
Leon Leach, MBA, PhD :
Yes.
Tacey Ann Rosolowski, PhD:
Okay. And what—what was coming out of those?
Leon Leach, MBA, PhD :
Well we—we did a very sophisticated feasibility study that basically showed we did have the patient volume to support something like this. So we had built the model, and we knew what we wanted to do. We also knew that we were in the expansion phase; we were building lots of buildings. The University of Texas Board of Regents had been very generous with us as far as supporting our financial needs and letting us have access to the money that we needed for those facilities. We felt that this might be a step too far for the University of Texas because it was still very experimental. And the one concern we had at the time was the payers’ willingness to pay for something that’s deemed experimental. Now Medicare was already paying for it. So that was huge in our decision-making process, because we used the Medicare numbers as kind of the can we make this work on Medicare. And also the fact that Medicaid was paying for it we thought was a good argument with the managed care companies as to yes, this is—it’s leading the realm of experimental. It’s standard of care.
Tacey Ann Rosolowski, PhD:
Can I ask—it seems like pretty early in the game you must have been thinking about how a proton center could—I mean, obviously generate more revenue, but then also support whole new areas of research and then enhance patient care. So those—you know—
Leon Leach, MBA, PhD :
Right. All the pieces came together. I mean, this was new—well, it’s not really new to technology. Proton centers have been around since the fifties. The Russians looked at them more as a possible weapon, but they were around. There were twenty-something of them at the time in Europe and places in Asia. But they weren’t being used extensively for patient care. Loma Linda was the only one in the United States that was really using it extensively for patient care, and that was primarily for prostate cancer. So that was part of—that was all part of the due diligence that we did. Is this usable technology? Is it cost effective? You know—the cost for treatment is considerably more than your normal radiation. We understood that going in, because you have this incredible expense in the facility that you have to recoup over time. And the question really became, do we have enough patient flow and will the payor levels be there to recoup that over time? And that’s where Southwestern kind of bowed out because they didn’t think they had patient flow. We had a big enough patient base that we thought it would work.
Tacey Ann Rosolowski, PhD:
Uh-hunh (affirmative). So what happened when Tenet backed away?
Leon Leach, MBA, PhD :
Well, when Tenet backed away, we had already done all the research, and we decided to go out and issue an RFP to see if there was another partner out there that wanted to do this with us. And we got some responses. Long story short, the successful responders were a combination of the Styles Company and Sanders Morris Harris. The Styles Company is a Houston-based hospital management company—very small, kind of family owned. And Sanders Morris Harris is an investment bank based here in Houston. But they were the winners in the RFP process, if you would. Sanders Morris Harris, what they brought to it was the ability to raise the capital that was needed. And the Styles brought outside hospital management in the experience that they could use it in managing the institute for us. We thought about going to the Board of Regents for their money, but we had been to the well quite a bit, and we thought it would be better if we could demonstrate that this is something—this is an idea that the private sector is willing to invest in.
Tacey Ann Rosolowski, PhD:
Now I read that that was really unusual.
Leon Leach, MBA, PhD :
0:24:12:7 It was extremely rare to put together the kind of deal that we did because it was not only Sanders Morris Harris from the private sector, but folks that put money into the deal included the Harris County Police Department pension fund, the Harris County Police Department—Fireman’s Fund, Hitachi put a fair amount of money into it in a couple of forms. One was just taking back the debt for the machinery that we bought—from the proton machinery that we bought from them. And then there was a consortium of investors that Sanders Morris Harris had raised. So it was—
Tacey Ann Rosolowski, PhD:
Why—I’m sorry, but why is it so unusual for an academic institution to embark on a project of that kind using private money?
Leon Leach, MBA, PhD :
You know, that’s a good question, and I’m not sure I know the answer. I know it doesn’t happen all that much. I suspect having been on the outside of academic medical centers, I had never thought about doing that kind of joint venture with them when I was in the other world. But I know from my days in the HMO business that trying to just arrange and negotiate services with them is difficult because they tend to be very high-priced and pretty rigid in what they will and won’t negotiate. So they’re not really—my experience—my personal experience has been they’re not really that business friendly, and I think we were. This is what I did for a living in the other world. And Dan Fontaine was very instrumental in bringing this off, and he had kind of a similar ilk. So we were looking for ways to make it happen, not ways to keep it from happening.
Tacey Ann Rosolowski, PhD:
Uh-hunh (affirmative).
Leon Leach, MBA, PhD :
So we wound up with a great government private sector and academic medical center type of consortium that put this together with people from Japan as the provider or the builder of the equipment and services. So we built it, and we opened it. We opened it with a single gantry. There are four gantries down there, and we got a single one up and running.
But at the time, Hitachi had developed some new technology called—the shortcut description was paintbrush technology. And what they did, instead of just zapping the tumor, they kind of painted in the beam so it was even more precise than zapping it with the beam. And we kind of switched strategies at the request of Hitachi and the agreement of our faculty members that were into this who thought the beam could be more precisely delivered. And we were assured that this technology was ready to go. Well, as we got into it, we found that the technology was pretty much ready to go. There were just some bugs and just some things.
In the meantime, Hitachi had agreed to certain completion dates. And if by no fault of ours, if they were at fault for not missing the completion dates, then the investors had an option to put the investments back to Hitachi in return for what I believe was they would basically give the investors back their money plus—I think it was something like eight percent interest a year. For purposes of the paper, we probably ought to say X because I don’t remember—you know—X%.
So what happened was we were—we opened and for about a year ran it with just one gantry. We actually opened on schedule, on budget, but it was one gantry. We didn’t open the whole facility. The rest of the facility—what was available got held up because of the paintbrush technology. And dates were missed, and Hitachi was now at risk at having the shares put back to them. But the project was coming along well, and everyone kind of believed in the project. There was no real danger of doing that. The investors had some kind of—they had a window. They could put it back for maybe a year or something like that. And I think Hitachi—my recollection is that they actually extended the window while they were fixing the problems.
Tacey Ann Rosolowski, PhD:
Can I ask you to just pause one sec. Okay, I’m good now.
Leon Leach, MBA, PhD :
Okay.
Tacey Ann Rosolowski, PhD:
I’m sorry I interrupted you.
0 (End of Audio Session 3)
[Interviewer's Note: The recording cuts off abruptly at this point because of an equipment failure discovered only later. An additional session was scheduled to recapture lost material. Notes on the lost material are included below.]
LOST MATERIAL:
This became significant, Dr. Leach explains, with the economic meltdown of 2008, when many investors exercised this option. Hitachi did not want to run a proton therapy center, and MD Anderson, Harris, and Styles were able to purchase the center for pennies on the dollar. Dr. Leach then explains the legal and economic status of the Proton Therapy Center vis a vis MD Anderson and sketches what it represents financially to the institution.
Dr. Leach describes the lessons learned through the Proton Therapy Center: become more involved in varied aspects of health care deliver to control your destiny; MD Anderson should do what it is good at to further its; and remember, “no margin, no mission.”
Dr. Leach sketches the partnership established with Banner Healthcare in Gilbert Arizona, leading to the opening of MD Anderson Banner in 2011, the first fully autonomous center carrying the MD Anderson name. He also talks about the satellite care centers around Houston. Dr. Leach begins by noting that such initiatives can only be successfully undertaken when there is a “meeting of minds” on how cancer services must be delivered.
Dr. Leach explains it is important that MD Anderson’s partners share a vision –for example a vision of multi-disciplinary care as a key to successful cancer treatment. He explains the “employee model” that guarantees that all MD Anderson faculty adhere to the same standards of care and contrasts this with systems outside of the institution.
Dr. Leach notes that Banner is a like-minded institution and explains what MD Anderson and Banner each brought to the partnership. He also says that MD Anderson will be developing more autonomous centers, probably in the west and south. President Ronald DePinho supports this long-range vision and under his direction McKinsey & Company was hired to do a growth analysis. Next Dr. Leach talks about the rationale for opening the satellite care centers around Houston.
Dr. Leach quips that the Texas Medical Complex is ‘complex’ and daunting for many patients –one element of the rationale for situating care centers so patients have local access to MD Anderson care.
The local care centers, he notes, created a cultural change for faculty.
Dr. Leach imagines a patient who lives in the suburbs driving in to Houston for an eight A.M. appointment.
Dr. Leach observes that it is cheaper for MD Anderson to build facilities outside the city and notes that the institution has just purchased property near Katy. He briefly talks about why the Woodlands will be the next location for a care center. He then touches on the importance of personalized care.
Dr. Leach describes what personalized care will offer to patients.
Dr. Leach explains that President Ronald DePinho’s Moon Shots Program will generate many financial opportunities that have not yet been imagined. He sees MD Anderson evolving into an institution where patients will come for specialized treatment or for specific cancers.
Dr. Leach explains how he describes the value of MD Anderson care to the people who live in the town near his ranch. “If your pickup truck breaks down,” he says, “you don’t take it to the shop that only repairs one or two pickups a month. You take it to the shop that repairs hundreds of them.”
Finally, Dr. Leach summarizes that MD Anderson will have to be more accessible in order to secure its financial health. He notes that very few of the faculty are clinicians only. While not advocating any change of the research-based culture, Dr. Leach explains that there must be a discussion about encouraging some faculty to serve only as clinicians and also for the institution to “open portals” to see a wider spectrum of cancers.
Recommended Citation
Leach, Leon MBA, PhD and Rosolowski, Tacey A. PhD, "Chapter 16: Strategic Financial Initiatives: The Story of the Proton Therapy Center, Part 1" (2013). Interview Chapters. 1211.
https://openworks.mdanderson.org/mchv_interviewchapters/1211
Conditions Governing Access
Open
