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Merrick Reese, MD, is the founder of Physician Reliance Network, which later merged with American Oncology to form US Oncology, now the nation's largest health care services network devoted to cancer treatment and research. Dr. Reese retired in 2000, and Journal of Oncology Practice caught up with him on his farm. We asked him to share his history and the story of how he built the company, including any pearls of wisdom that might help other practicing oncologists. He was happy to oblige.
JOP: Dr. Reese, where did it all begin?
MR: When I went to college at SMU, I didn't know whether I wanted to do engineering or medicine. Well, I became so interested in medicine that I started medical school at the University of Texas in three years. Which was just as well, because I couldn't afford another year of college.I graduated in 1963 and finished residency in 1968. I expected to become an academic nephrologist, and started doing experimental chemotherapy, which in those days was pretty rudimentary. This was with the department of pathology at Baylor University Medical Center in Dallas. I found lots of sick people who had very few people to take care of them, and that looked like a niche that would fit. In those days very few doctors were willing to take on the oncology patient.I had said that I had to have a laboratory, but between teaching and clinical practice, I didn't even have time to unpack. I ran the internship program and was part of the Department of Internal Medicine teaching program at Baylor for several years, until my clinical practice became overwhelming. At that time most, or maybe all, oncologists were hospital based.By 1976, the hospital had built a large cancer center, and we took over medical oncology. We were a full-time practice in a hospital-based cancer center. At the same time, we built our first clinical practice bases outside the hospital at other sites in Dallas and cities scattered throughout Texas. We called them our outreach programs, and ran them as satellites, with full-time physicians we'd recruited to work in them after we had matured the practices. The farthest was 400 miles away.By 1982, we had started our first bone marrow transplant program at Baylor, and by 1983 we had 15 or 16 medical oncologists, making us the largest private practice group of oncologists in the country. We continued our expansion, maintaining some hospital bases, but moving primarily to office-based private practice settings. This was because of the changes in the reimbursement programs associated with Medicare and many other providers.Within 10 years, what was by then Texas Oncology, PA, was operating I think 12 cancer centers in Texas, and employing about 90 medical oncologists. The centers were office based and were part of our private practice. Once again, this was the largest group of medical oncologists in the country.Needless to say, building and staffing multiple cancer centers was very capital intensive, so we decided to look to the public markets for capital. We formed Physician Reliance Network and took it public in 1994 or '95. This corporate entity proceeded to develop practices all around the country. In the late 1990s, we merged American Oncology with Physician Reliance Network to form US Oncology.
JOP: This is a remarkable business success story, and it shows considerable foresight. Did you guide the growth with five-year strategic plans?
MR: I don't believe in five-year plans. It's hard to see the future that far. I think I'm one of those people who sort of has a backwards look at things. I try and see what I think the future is going to be, and then build toward it. It was our goal in the early '80s to have a large, multispecialty oncology practice that would support our various entrepreneurial efforts, and would allow us to approach the public markets for capitalization and growth. That was fulfilled in the '90s. Now, was that a 10-year strategic plan? I think it was more goal setting, and sort of knowing where we wanted to go. My philosophy has always been, if you don't know where you're going, you sure aren't going to get there. This was the way that we went.We also did something that most physician practices didn't: We used innovative financing techniques and multiple layers of ownership within the practice. We created a revenue stream from real estate investments, and used it to support the hospital practice. So we actually had an earning stream that was different from the practice revenue.By the mid '90s, everybody was becoming a public company. All you had to be was a piece of paper. But a bunch of those didn't survive, because of the fallacy that all it took was being more efficient at the business of medical practice. That fallacy is based on the belief that doctors are terrible business people who must be leaving a lot on the table. Not true. Doctors are often ignorant of business opportunities, but they're fast studies. They're not stupid, and ignorance is a correctable problem. Over the last five to 10 years, physicians in general have become relatively astute business people. If they weren't as astute as they might have been in the 1980s, it was probably because most were working 80-hour weeks, and didn't have time for other things.We felt that we could survive and thrive by integrating multispecialty practices, and owning the real estate and facilities, as well as the technical and professional charges. We thought that we could put these all into one earning stream and actually make it better for the physicians, which turned out to be correct. It also had enough profitability to attract investors and be good for shareholders.
JOP: There must have been conflicting visions along the way. How did you reach consensus among your physician colleagues and staff? How do you resolve conflict?
MR: Clearly the most important aspect is strong leadership, but one must also develop an environment where people really trust one another. Many companies and large practices have sequestered bookkeeping. I did the opposite. I told our people that we were an open book. All of our financial aspects were open for their examination. Any physician working for us—whether he'd been there three weeks or 10 years—had the right to inspect the financial records. Once you eliminate the secrecy, nobody even asks. When we had 90 doctors, I think maybe one or two came by to look at a few things. They could see what they were doing and what everyone else was doing. And that was as it should be; as a member and shareholder of Texas Oncology, they had as much right to this information as I did. There was another benefit to this as well. Allowing every physician to know what was going on with every other physician meant that if any people weren't doing as they should, peer pressure would come to bear. And that is an extremely effective behavior modifier.
JOP: How did you go about making the big decisions about capital equipment and entering new lines of business?
MR: Our group always had a Board of seven to nine physicians elected by their peers, and that Board was empowered to make these decisions. There would be maybe one out of 20 that we would back away from, and we didn't hesitate to say if something was an endeavor that we shouldn't be in. Because of this structure, we never had any significant adverse economic events in all the things we tried.Patients needed integrated practices and cancer centers. We found that patients had to travel tremendous distances across Texas to get the procedures they needed, so we decided to get quality comprehensive care as close as possible to where they lived. When we first started back in the '70s, we would go to remote areas once a week and have an all-day practice. We left it with the referring physicians that they could immediately send any patient to us in Dallas, no questions asked. We also offered to help with anything over the phone; we just weren't available to do primary care in their communities.As things got busier, we recruited additional physicians into those satellite practices. They became amalgamated into the local clinical practices and hospital systems, and we continued to give them backup from Dallas. It worked extremely well. I concluded that, as subspecialties matured, a large number would be at the specialty hospitals. Over the years their numbers would dwindle and so would the referrals as the subspecialty practices disseminated into the local communities rather than the medical centers. Based on that, I made the strategic decision that if we were going to have competition in the communities, we wanted them to be our partners. With that philosophy, we became a very dominant force in the state of Texas, probably taking care of 25% of the patients scattered throughout the state.
JOP: What process do you use to hire new associates?
MR: I was personally primarily responsible for recruiting and hiring the physicians. Early on I decided that we shouldn't hire anybody who wasn't smarter than we were; that was the only way to keep going forward. Over time, we developed a very good network. That doesn't happen overnight. But if you are extremely careful with the people you recruit early on, and get the top performers who are well respected in their training programs, your job will be very easy. Their presence will help your recruiting, because these are the kinds of colleagues people want to work with. That philosophy was extremely effective in growing our practices through the '80s and '90s.
JOP: This is such an impressive story. As you look back, do any particular career milestones come to mind?
MR: When I started practice in the late 1960s, I was a lone ranger. One really couldn't have any quality time with family. You needed colleagues to maintain your skillset and to grow your practice.I've been out of the loop for a few years now, but the clinical part is still lots of fun. That was the part I actually had the most fun with, taking care of patients. I hadn't paid that much attention to the business until I got partners, and then my philosophy was that somebody in the practice has to know more about the business of what's going on than anyone else we hired, or we would be vulnerable. So I made it a point to do this. As time went on and we started getting all these really bright kids, I said I might not be able to compete on the basis of current science, but I could compete on the basis of the business aspects of running our practice and making us financially successful. It has to be done in a very special way that maintains the true purpose of what we're trying to do, which is, to give quality compassionate care to very needy patients.