Chapter 20: The Proton Therapy Center, Part 2

Chapter 20: The Proton Therapy Center, Part 2

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Description

Dr. Leach explains that the 2008 financial meltdown resulted in a financial situation in which MD Anderson was able to purchase shares in the Proton Therapy Center previously held by other investors at a very good price. He lists the parties that came together to form the unique public/private partnership financing the Center and explains what the Center means to MD Anderson.

Identifier

LeachL_04_20130429_ C20

Publication Date

4-29-2013

City

Houston, Texas

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; Fiscal Realities in Healthcare; Understanding the Institution; Professional Practice; The Professional at Work

Transcript

Tacey Ann Rosolowski, PhD:

I wanted to follow up on our discussion about the Proton Therapy Center too. We had started a conversation about that, and then around the time when you were beginning to talk about the economic meltdown of 2008, the conversation was cut off. So maybe we could resume that. So, what was happening in 2008—the meltdown—and then what was the impact of that financial situation on the proton therapy center? Leon Leach, MBA, PhD Well, there were a few things that happened in 2008. One was local. It was Hurricane Ike. Another one was a financial meltdown throughout the world. There was no real effect of either immediately on the proton center. The effect on the proton center was kind of tangential, because in the spring of 2009, Hitachi held a strong position financially in the proton center. Directions came from Japan to sell off non-core assets, and at that point Hitachi’s stock was basically bought by us and by The Styles Company, which were our partners in that at a very attractive price. So we were able to seemingly gain more control but they actually looked to us to run it.

Tacey Ann Rosolowski, PhD:

So why was it seeming—seemingly—?

Leon Leach, MBA, PhD :

Well, we had a lot of control to begin with, more so than what a minority stockholder would have because we were going to actually man—you know—manage and staff and run the facility. So Hitachi had a high degree of respect for us. So it’s not the same kind of transaction that you see in the business world when you buy somebody’s stock, because we already had on a contractual basis rights to make a lot of the decisions there. So that to me is—that wasn’t a big story. You know, the story about 2008 and 2009 was earlier in 2008, we were seeing productivity drop off. And there was a lot of—

Tacey Ann Rosolowski, PhD:

You mean productivity in the institution? Leon Leach, MBA, PhD Yes, as far as seeing the number of patients that you’re seeing. And there are some logical reasons for it, because it wasn’t that anyone was working any less hard. They may be working on different things. They may be spending more time in their lab, spending more time on the educational side. But the clinic side is not as—didn’t have as much through-put as it was. It was dropping off a bit, and there were some warning signs there that didn’t go unnoticed. They were brought out, but they weren’t— It was a slow deterioration. It wasn’t a rapid drop-off. But couple that with the Ike that put us out of business. We also got maybe about 3 weeks’ worth of outpatient visits. That may be 2 weeks, 3 at the most. So that was a bit of a financial hit. It was nothing compared to what happened to UT Galveston Medical Branch. But then also there was the economic—worldwide economic meltdown. So those things put pressure on us to do a lot of what we’re struggling with today as far as becoming more efficient. But they weren’t sea changes. They were a perfect storm type of thing where elements came together coincidentally that caused a problem that we would have to address. So we actually laid off about 500 people and the faculty scheduled less travel and saw more patients. So we turned a financial corner quickly. I mean, within 6 months, amazingly quickly. But those problems were not systemic problems within the structure of the system. They were a hurricane, international meltdown, and a gradual deterioration of productivity. Today you have a fundamental change in your environment that isn’t a passing thing. It’s going to be a permanent thing. So you have to— I think we’re under a lot more pressure today to change than we were in 2008 and 2009. What we demonstrated in 2008 and 2009 is that we can change, and we tend to change in a fairly rapid fashion. So what I’m hoping that we don’t have to demonstrate in 2013 and 2014 is the rapid fashion. Hopefully we can change in a systematic way and produce lasting change that will be appropriate for the environment. Those that don’t will then be faced with having to change in a reactionary fashion, and whenever that happens it’s always not as smooth for the entity.

Tacey Ann Rosolowski, PhD:

How did—just to continue the story with the proton therapy center— What was the effect of MD Anderson being able to acquire all those shares, and then what happened next in getting the center to the point where it could open and function? Leon Leach, MBA, PhD Well it was already— The Center was open and functioning.

Tacey Ann Rosolowski, PhD:

Oh, okay. I didn’t—okay.

Leon Leach, MBA, PhD Yeah, when 2008 and 2009 happened. But that was a situation, and I think the story there is more the various elements that came together to make it happen. You had MD Anderson, the University of Texas, governmental entity, educational. You had Hitachi. You had the Houston Police Department. You had the Houston Fire Department. Some of their pension funds were invested. You had Sanders Morris Harris [Group, Inc.] which was a— I think they’re the largest Texas-based investment bank in Houston, or were at the time. They brought investors in—people like Nolan Ryan invested in it. He is a baseball player—

Tacey Ann Rosolowski, PhD:

Oh, okay.

Leon Leach, MBA, PhD —famous baseball player. So you had an unusual group that came together to make this happen. And it went through some challenging times but not really traumatic times. And it wound up a little different at the end, but it was still very much successful. What happened was with the economic meltdown, folks that had invested more from a venture type of—you know—the Sanders Morris Harris type of investors. They had a—what’s called a put—that they could put their stock back to Hitachi, and Hitachi agreed to buy it back but only if Hitachi didn’t meet certain deadlines. And they were actually tracking on schedule, and then everyone agreed to put in a different—it’s called paintbrush technology. That was the short name for it. It’s how the bean gets distributed. It’s a little bit more efficient. Well that wasn’t quite ready for prime time, so they didn’t get the facility opened across the board in the time frame they had indicated. When the meltdown came, some of the investors— The contract said you get your money back plus eight percent annually—I think it was eight percent. So some of the investors saw that as a way to balance what was otherwise a pretty dismal performance year. So a number of them put the money back in Hitachi and put the stock back into Hitachi. So Hitachi never wanted to be in the business. They wanted to build the linear accelerator for the proton therapy, and suddenly they found themselves in a business that they weren’t really looking to be in. And then later that year in 2009, the edict from Japan about unloading non-core assets gave us an opportunity to buy it on a very reasonable basis and consolidate ownership. So it worked very well. It’s an example of how strange bedfellows can come together. You know, entities that you don’t think of as normally working together—ranging from private investment banks to the fireman’s and the police pension funds to University of Texas to Hitachi international corporation based in Japan—work together for the common good. That’s really the story there.

Tacey Ann Rosolowski, PhD:

Is that kind of unusual partnership a model that could be repeated or would be worth repeating? Leon Leach, MBA, PhD I think the concept can be repeated. The model is so unique that you’re not going to find too many circumstances under which it’s repeatable, but the concept of a public entity—the University of Texas—working with other types of entities I think is an excellent one. And it came to be—it came together really for the common good, because it gave MD Anderson leading-edge technology to address the future needs of cancer patients. So I think it came together for the right reasons.

Tacey Ann Rosolowski, PhD:

What else does the Proton Therapy Center represent for MD Anderson beyond that patient-care mission? Leon Leach, MBA, PhD Well there’s— We do research there, and we do— It’s staffed primarily— It’s staffed exclusively by MD Anderson doctors, but there are certain types of cancers that are more common in children. So it was not uncommon for us to see patients from Texas Children’s. We have a relationship with them where they will basically send their patients to MD Anderson docs for certain types of cancer services. So that’s, you know—

Tacey Ann Rosolowski, PhD:

Is that kind of collaboration something that you feel the institution should be interested in cultivating? This partnership with—? Leon Leach, MBA, PhD Oh absolutely. I mean, and this one is just more— You don’t need a proton center on every corner. So if you have it, you find ways to work with the folks that don’t. It’s just for the best of humankind. And if you have a situation where you need this for a particular child’s cancer, then— you know, you’ve got Texas Children’s Hospital right next door—you find a way to do that.

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Chapter 20: The Proton Therapy Center, Part 2

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