Peter McCanna & Julie Yoo
How AI cut healthcare burnout by 70%
You can watch this conversation on YouTube here.
Introduction
Julie Yoo: It is a pleasure to be here with Pete McCanna, who is currently the CEO of Baylor Scott and White. Baylor Scott and White is one of the largest not-for-profit hospital systems, certainly in Texas, if not the entire country. You guys are a top 20 hospital system, perhaps even in the world, I would guess. You were previously the president there, but have had a long-ranging career in healthcare that we’ll talk a lot about here that I think gives you a very unique vantage point on where healthcare has been for the past several decades, where it is today, and where it will head in the future. Thank you so much for being with us.
Peter McCanna: It’s a pleasure to be here.
A Career in Five-Year Increments
Julie: Let’s actually start with your story, Pete. Walk us through your 40-plus year history of being a healthcare leader in various health systems, a lot of different environments too. Maybe do a highlight reel of what were the themes of your career path as you transitioned between the various organizations that you’ve been at.
Peter: I’ve been fortunate. It wasn’t planned this way, but it’s almost been in these five-year increments with different challenges. I started out in consulting in Washington, D.C., for a firm called Lewin at the time. Great exposure, great learning. Then I worked as a budget director for the safety net system in Denver, a fabulous experience because everything was broken administratively, so you had to learn everything.
Julie: Could only go up from there.
Peter: Right. Then I became CFO at a young age at University of Colorado, so I started out in academic medicine in the C-suite. I moved on to a large integrated community system called Presbyterian in New Mexico, and then spent 15 years at Northwestern, first as the CFO, then Chief Administrative Officer, then Chief Operating Officer. I came to Baylor Scott and White as president, and about four years ago became CEO. I’ve been fortunate because I’ve been in both the academic environment and the community health system environment, and in a multitude of roles. I feel like I understand how the machine works. Now as CEO, it’s a great opportunity to say, okay let’s stake out a vision and take that machine and re-engineer it to get the outcomes that we want.
Academic Medicine Versus Community Health Systems
Julie: You mentioned the academic versus community-based health system environments. I think a lot of folks know conceptually the difference between the two, but what would you say are the biggest differences from an operating perspective and leadership perspective between those two environments?
Peter: I think one of the biggest differences is who are your real, substantive stakeholders you’re serving. In an academic environment, the power structure and the key stakeholders, that are the keepers and stewards of the mission, really are the chairs and the chiefs of the departments and the divisions. The challenge there is getting clarity. Is there a unifying vision for the academic center? And then getting the incentives right with those chairs and chiefs. If you get that right, it’s incredibly powerful. If you don’t get that right, it’s very frustrating because you’ve got a multitude of objectives going on, and trying to serve that.
Peter: When I was at Northwestern, I really felt that we got to the point where we got it right because we said with the chairs and the chiefs, we are going to be a top 10 academic health system. We’re going to get to honor roll. Chicago deserves an honor roll. We broke it down and said we’re going to have to double our NIH research, which is a big goal. Financially, we aligned the incentives where the chairs were incentivized for profitable growth. Prior to aligning the incentives, they essentially fought every expansion initiative because it took focus away from the mothership. Once we got the incentives right, I actually had to slow them down. So I think it can be really powerful, but the object of their work is really the advancement of knowledge and research. It’s really research. Education’s in the environment too, but the really big goal is to advance knowledge and, as we said at Northwestern, really reduce human suffering by that. That’s a powerful ‘why’ in that environment.
Peter: In a community environment, you’re really serving the patient at the core and the broader community. The objective isn’t high acuity, cutting-edge research. The objective is how do we wrap ourselves around you in your health journey and provide you an array of services so you and your family can manage your health. There’s much more focus at the provider level of providing great care from primary care to secondary to tertiary. It’s a different set of stakeholders.
Julie: It seems much more political in the academic environment the way you’re describing it.
Peter: Highly political, yes. It takes some skill. I think the community environment for what we’re setting out to do at Baylor Scott and White is much better positioned in its orientation and mission to really be customer centric because it does value that 24/7 array of services that we need to provide to you. That’s been a great platform to do that.
The Realization of a Broken System
Julie: Amazing. And we’ll come back to that because you’ve clearly done an amazing job with the platform that you have. You’ve also mentioned a little bit in the beginning in your background, you’ve inherited a lot of broken systems, and you’ve been very vocal about the fact that despite the fact that you’ve been a leader in this industry and part and parcel with everything that’s happened, the industry is fundamentally broken. It’s rare to hear people on the inside admit that. You’ve also referred to hospital systems as being these walled gardens. Explain to us what you mean by that.
Peter: First on the concept of the realization of a broken system, when I first became CEO, intellectually I understood that we needed to move to a new model. But it was an intellectual conclusion. For me, where it really changed was in the last two years of my dad’s life, helping him navigate the healthcare system. Here I was, a CEO of a major health system. It was a different city, but I should know how to do this. It was impossible for me. I saw the pain and suffering of it, I saw the cost implications of it, I saw all those difficult things.
Peter: As I’ve shared, my dad would make this list. He was very analytical, making this list of the things that needed to change. I reached a conclusion that my whole career I’ve been complicit in building this broken system. I made the assumption that if I can build and make these organizations strong, because they provide healthcare, I’m doing something really good. I think there’s some truth to that, but at the end of the day, I felt no, I’m down the wrong path, we’re down the wrong path. We have got to ask, what’s the object of what we’re doing? It’s not to make the organization strong. The pivot for me was the object is the customer.
Peter: When I say customer, a lot of people struggle with that within legacy systems. What I mean is it’s an elevated status that you’re always a customer to us. You’re sometimes a patient, and that means I worry about you 24/7 and I want to know what I need to deliver to you. That’s a whole different mindset than the 30 to 40 years of calcified systems.
Peter: That leads to the metaphor you mentioned. We are like a walled castle or walled garden. We’ve built these hospitals and clinics and rooted out of those castles anything that was not covered by insurance, that was somehow regulation rooted out. A classic example is behavioral health, or anything occurring in the home. Not covered, drive it out. So it becomes really difficult to access, very focused on safety and security, very episodic. It responds when there’s a crisis. Where we really need to move is to break down those walls and move to, the analogy would be like a vibrant city where it’s open, traffic flows through it, it’s innovating, and access is open.
Peter: I think that’s where we are in healthcare today. From my standpoint, the only way to do that is really to partner the legacy health systems, the walled castles with the innovators. I think it only happens through that combination. I don’t think either segment can do it totally on their own and really transform it into the type of health system that we would envision really serves our needs.
The Traditional Business Model of Hospital Systems
Julie: Let’s use this to pivot into what is the business of being a hospital system. If you think about the average health system in America today, talk us through how do you make money, what are the drivers of revenue, what are the drivers of margin, and what are the key operating levers that a CEO in that seat would think about?
Peter: I’m going to describe the traditional model. That’s not where we’re going as Baylor Scott and White at this point, but we’re in between. The traditional model is first, let’s break it down. How do you make money? Let’s start on the revenue line, it’s a few vectors. Vector number one is, I’ve got these hospitals and clinics that I’ve invested hundreds of millions of dollars in. It’s a supply-driven model. I’ve got the supply of assets. What are the array of tactics to fill the supply? It’s as simple as that. If you take any operator in healthcare, they could tell you what those dozen tactics are, service mix, so what’s the most profitable service mix; payer mix, there is a minimum commercial volume that a system really needs to have for it to be economically viable because all the government business loses money, so you’ve got to have an offset to that, and its payer negotiations would be another example. There’s this micro-optimization of aspects of the revenue line, to optimize it. Unfortunately by doing that, you are rooting out very important aspects of the health system if your objective was actually to keep people healthy, unfortunately. But we’re looking at 30, 40 years of that evolution.
Peter: On the cost side, half of the cost structure is labor. Those organizations that have very sophisticated staffing models that are matched to volume. A good example would be HCA and some of the not-for-profit systems do it well, I think we do it well. Labor management becomes crucially important, particularly on the clinical side. If you have a really disciplined operating model, you can do that. On the administrative cost side, increasingly there are a number of things you can do there to reduce cost.
Peter: Last but not least, really high-performing health systems financially are really good capital allocators. A health system our size may be allocating a billion dollars of capital a year, and making those decisions on the margin of what works and what doesn’t work. I would add one other thing, and at Baylor Scott and White it’s a difficult thing for not-for-profit systems. It’s related to capital allocation, it’s what’s done in other businesses all the time, but hard for not-for-profits to do, and that is to periodically evaluate its portfolio of assets. Sometimes you’re going to need to walk away and close some assets that continue trying to make work are actually hurting your mission because they’re pulling so much resource and you’re concluding you’re not doing a good job.
Julie: Is that always a purely financial decision or what else is it?
Peter: It’s not always purely financial. Honestly, it comes down to can we be excellent at this? If you can’t be excellent at it, that’s the conclusion. I would conclude though, the traditional healthcare system model is a zero-sum game in the markets that they’re in. The markets I’ve been in, it’s always take market share from the other guy, take the best doctors from the other guy, get the best technology from the other guy. Fundamentally, you’re not creating incremental value for the customer because very few health systems are really builders creating new, innovative approaches.
Peter: That’s why what we’re doing at Baylor Scott and White is increasingly asking, is this allocation of capital creating value for the customer? In the old model, we might go forward as creating a good return, but maybe a zero-sum return. In the new model, we’re saying we’re moving this forward in a context that creates value for the customer and has it be a good financial decision. Then it’s a go.
Building Customer-Centric Products and Services
Julie: So talk to us about that, because you just described a lot of different paradoxes there. You mentioned at the beginning it’s a supply-driven market, which 100% is the case that any consumer experiencing healthcare would agree with. The example I always use is when you look at a hospital system’s website, the way you present your services, or most health systems present services is by service line by department. Yet as a consumer, if I’ve got pain in my chest, how do I know if I have to go to the cardiology department or the pulmonology department or the neurology department? It’s entirely architected in a way that reflects the org structure. Yet, you just said every investment decision that you’re making on a go-forward basis has to be accretive or has to crack the status quo in some way, shape, or form.
Julie: Talk to us about what’s an example of that? What’s an example of a product or service that would not work in the status quo, supply-driven model, but you’re willing to make a bet on? And help us understand what KPIs you’re looking for when you’re measuring whether or not to sustain that over time, because I presume this is not you’re going to see an ROI in six months type of deal, that you may have to have a longer time horizon. How do you justify that in the course of your day-to-day operations?
Peter: A couple of examples. One is it starts with customer research and analysis. What are customer pain points? What are the gaps in the system that aren’t satisfying customer demand? That’s what I mean by demand-driven. Let’s understand the demand of our customer base. Some conclusions that we drew from that and I’ll give you several examples.
Peter: Number one is the obvious example, behavioral health. Systemwide, we’re a $17 billion system serving 12 million counters a year. I think we had 10 psychiatrists on staff. No access to behavioral health really for a new patient. We weren’t naive to think we’re going to solve every behavioral health problem, but can we get started somewhere? We found a partner in Geode Health, which is a hybrid platform with physical clinics, with a psychiatrist, clinical psychologists, and licensed clinical social workers that was financially sustainable. And we invested in that to fill that gap.
Peter: Another example that breaks the service line model is, we looked at what common conditions people have that aren’t adequately treated by health systems. A great example is headache care. In a typical health system, we say the neurology service line. What does that mean? People with chronic headaches, can we create a platform, a service offering that focuses on that particular problem and gives them immediate access to relief? The model we have is once you’re through the evaluation and you qualify through putting your symptoms in, immediately you’re connected with a headache specialist, not a general neurologist who doesn’t even want to see you. Headache specialist in getting the prescription of the treatment you want right away, and the list goes on. We keep building and stacking on that with very targeted solutions to often chronic problems that people have. It’s focused around the customer problem, not focused around what our supply of services or specialties are.
Julie: In that example, did you find that the reimbursement system was conducive to that product, or did you have to do some ninja moves on that side?
Peter: It’s a good question. One of the tensions in our strategy is some of the things we’re doing may or may not be reimbursed on a fee-for-service basis. But because we have this large ecosystem, and you ask the question about KPIs, what we’re looking for is ways to enhance customer loyalty, ways to enhance customer retention, and ways to attract new customers to Baylor Scott and White.
Peter: The bet here is can we provide a reasonably economic, sustainable individual solution. But the bigger bet is how all these things knit together into the overall mega product of Baylor Scott and White. If we can knit that all together, convenience, we’re proactive for your care, we’re providing a wide array of services that meet your problems, you’re going to be loyal to us, and you’re going to come to us. Particularly for those patients and families that have choice, they’re going to come to us and stay with us.
Peter: We monitor new patient acquisition. We monitor customer retention. We monitor customer loyalty. And also we’re monitoring our ability to match supply and demand, which increasingly becomes important in this model, that we’re willing to reconfigure the delivery system to match that demand. Thus far it’s been really good. Profitability overall has been good. I don’t think I can draw a complete through line to each one, to those outcomes, but I think we’ve created a dynamic model where if something isn’t working, we will replace it with something else. To execute on that model, we’re going to need outside expertise as well.
Julie: In some ways, the KPIs that you’re describing are like that of any consumer business.
Peter: Surprise, surprise.
Achieving Excellence at Scale
Julie: It’s refreshing to know that we’re finally using rational business frameworks to understand our customer base. You also mentioned earlier that you don’t want to be investing in things unless you can justify that you will be excellent at that. For the scale of organization that you run, it’s very hard to imagine that you can necessarily be excellent at the hundred different things that you do. Us in the startup world, we always tell our founders to focus, and the only advantage you have is to be excellent at one thing and then earn the right to do other things over time. How do you reconcile that? How do you justify trying to be excellent at so many different things under one roof?
Peter: This sounds like a rationalization, but it’s really not. In some of the things we’re doing, they’re not being done elsewhere. Simply being in the space—
Julie: Being the only game in town.
Peter: Being the only game in town, we’re filling a gap here that the alternative is they have nothing. If someone has chronic headaches, there’s not another service offering in town that really addresses that. It still gives us the opportunity to get better and learn from it, but the first hurdle is, are we addressing a unique gap in the marketplace that’s differentiating us and delivering something to the customer base that they need.
Julie: Related to that, you mentioned the locality of healthcare. Everyone always says healthcare is local. Yet we now are seeing the advent of pretty impressive national-scale healthcare brands for the first time that are very consumer centric, whether it be the Hims and Hers of the world. They might be starting with what we would consider more ancillary services, but increasingly getting more into core care delivery. You’ve got companies like Hinge and Omada that both went public earlier this year, similarly national virtual-first brands that serve customers in this longitudinal way. How do you think about those entrants? Are they today making an impact on how you think about your services mix and how you’re designing your competitive strategy, or are we still several years away from local institutions like yours really caring about some of those new emerging players?
Peter: I really look at those new emerging players and I want to learn from how they make direct-to-consumer attractive. Hims and Hers, I think it’s really brilliant, their marketing approaches to bring people in. If you get under the hood of those, they’re marketing organizations. Then they’re attaching things to that. I think that’s fascinating. Health systems have been local because up until this point, the delivery of healthcare has all been physical. It’s the physical hospital and the physicians attached to that hospital and practicing there. It just reflects the local environment. With digital platforms, it opens the door to scalability outside of geography.
Peter: In our circumstance, Longitude is a collaboration company that we’ve created, and it puts together four or five health systems. We’ll probably grow to about 10. It really asks the question, are there businesses direct to customer or capabilities that health systems need that are going to be more effective, more efficient, and we can build equity together at scale? The answer to that is yes there are. Our first venture is specialty pharmacy. The capabilities of really high-performing specialty pharmacy service business, you need data, you need a large service base, you need expertise around 340B and all those things. It makes sense and we’ll be looking for those things. So that’s one example.
Peter: The other example is in our ecosystem, some of these solutions I mentioned, can they be commercialized? Can we pull them out and find a distribution channel outside of our geography? An example of that is Levanto, which is a portfolio of services. What’s interesting there is the distribution channel is the employer. Most of what we’re doing inside our ecosystem is B2C and Levanto is B2B2C. Some things will only be offered to our customers if they’re offered through their employer, and Levanto is a pathway to do that.
Julie: That was an example of taking a bundle of services that were developed in-house at Baylor Scott and White and packaging them into a commercializable offering?
Peter: Yes. Muscle and joint care, headache care, postpartum care, navigation, putting them into one wrapper. If you’re an employer today, you’ve got all these vendors, a hundred point solutions. We say no, here are the high-volume ones. These are the ones that are really important from our research.
Julie: Almost like a formulary of sorts.
Peter: You can work with us, and by the way, you have confidence it’s been tested in an environment that has 3 million connected customers. We’ve done the A/B testing, and sometimes deeper research. There are research institutes that we can show you. It affects cost, good clinical outcomes. You can trust it. It’s got Baylor Scott and White behind it. So that’s what we’re setting out to do.
Financial Discipline and AI Adoption
Julie: You mentioned earlier your top-line number, just over $17 billion in revenue, and your operating income last year was a 10% operating margin, which is unheard of in our industry. Even being in the black is an aspiration for most systems, especially coming out of the difficult times of COVID and so many of the reimbursement pressures that the entire industry is seeing these days. What’s your secret? Is it these new programs that are already manifesting at the P&L level, or what are the other drivers that are enabling you to be so successful financially?
Peter: In any big company, any big business, you have to have a disciplined operating model. Baylor Scott and White, over the years, and the executives on the team, a fabulous team, has a very disciplined operating model. Cost management’s crucially important. Labor productivity continues to be important. How we allocate our capital continues to be really important. There are elements that don’t necessarily have to do with the customer strategy but are core foundational excellence that you just have to do, and they become crucially important.
Peter: On top of that, if you can execute well fundamentally but then also insert the new solutions that are customer centric, now you’re getting the new customers, getting the volume, getting that tailwind as well. When both come together, when the top-line revenue and your expense line is disciplined and growing, and the expense line is being very disciplined in terms of management, that’s what happens. And I think we’re fortunate. We’re unapologetic about the bottom line because that’s our source of capital. That’s how we’re going to transform Baylor Scott and White. Every penny of that, we’re plowing back into that transformation. We think it’s really important. We think it accelerates our ability to move from a supply-driven system to a demand-driven system.
Julie: Where have you applied AI internally, and is some of that already showing up on your P&L?
Peter: Not showing up on the P&L yet. The challenge for us on AI is we’ve launched a number of digital and technologically fueled inventions and products, but they were pre-AI. So we’ve got to circle back to some of those and say, how do we really supercharge them and put the rocket fuel of AI into them and change them. We’re going through that. That’s on the product side.
Peter: On the operational side, we’ve launched a number of things on AI, but we’re in the early stages. How do you apply AI in terms of our transfer center, for example? We’re a large health system, it’s complicated, where do you put people in beds, how do you make that work? Another place is our navigation system. We have a product called Help Me Decide where you go through a symptom presentation online. How do you inject AI into that so you’re triaging people to the right place and doing that in the right way?
Peter: I think some of the AI in imaging is super powerful. It’s so powerful that it would be malpractice not to deploy it. It’s that important.
Julie: You didn’t say revenue cycle. That’s the area everyone’s talking about these days where providers are ahead of payers and the rest of the market in terms of adoption.
Peter: Our rev cycle is so good we don’t even need AI.
Julie: Oh, okay. [laughs]
Peter: No. AI is permeating all the administrative functions. In rev cycle you’ll see it. There are a number of tools, and I think they’re important. I think from our standpoint, there are going to be certain deployments of AI that every health system will deploy, which is fine. We may not be on the cutting edge, but we’ll get there in the way that we manage the business. The thing for us is what are the applications of AI that if we inject into our service offerings and what we do that would differentiate us and really put us out ahead.
Labor, Workforce, and Frontline AI Adoption
Julie: Let’s talk about how you approach the labor side of the equation which you’ve mentioned a number of times, specifically at Baylor Scott and White. Describe the composition of labor in healthcare today as we’ve all read about in mainstream headlines, a ton of emphasis on the overhead. We have a lot of administrative overhead. There’s ratios everywhere between, for every one clinician, there’s at least 10 administrators, and that number’s only ballooned over the decades. Where do you see the most leverage in terms of the opportunity to streamline costs and be more productive? And what would you project the labor force will look like in five years time based on all these dynamics?
Peter: I think there is a very strong possibility. Let’s say the administrative overhead in the health system is 15% for sake of argument. There’s embedded administrative, but if you look at corporate services, I think you can cut in half that cost structure. There’s the opportunity that ultimately AI, any function where there is a human interaction with a screen, eventually AI is going to deal with that. Increasingly, human functions where there’s a telephonic interaction, call centers as an example, AI is going to play a big role in that with agents.
Peter: I think that’s going to roll out. Health systems are going to need to deal with the labor dislocation, because you’re looking at a system our size, we have 55,000 to 57,000 employees. On the administrative side, it’s at least 6,000 people. You’re looking at major labor dislocation. How do we get out in front of it? How do we grow into that? Or how do we do retraining in some areas, particularly into the clinical side? That’s where you’ll see a slower adoption of those tools because I think it’ll be hard for some systems to get their head around that. But I think there’s huge opportunity in the administrative side, and from our vision and strategy standpoint, holding onto that creates no value, in fact negative value. If we’re all about the customer, we’re going to get more efficient there and make those services even better through automation, then drive that freed-up capital into creating great products and services for our customers.
Julie: What are you actually hearing from your frontline clinician staff about the AI era? Are there pockets where they are embracing it? We hear a lot about AI scribes and other tools like that getting mass adoption on the front lines, but perhaps other areas where it’s a little scarier. What’s your sentiment analysis for your staff?
Peter: Intentionally, we launched ambient listening first in AI because we saw the potential there. We wanted to create a very positive cultural positioning to AI, and ambient listening has been a home run technologically. If you’ve talked to physicians, many of them, we’ve measured burnout. Burnout rates are down 70% after launching that. And the experience, I don’t know if you’ve ever gone through the experience.
Julie: Yep. It’s magical.
Peter: The experience is wonderful. You sit down and have a conversation with your physician. Likewise, the physicians have said the same, it’s brought the joy back into medicine. I can actually talk to my patient, understand, make eye contact, have a conversation. They don’t have to worry about generating the note and the like. Many have said it’s the first time application of technology in their environment actually helped them. That’s been a sad statement on the deployment of technology in the healthcare environment.
Peter: That’s been very successful. I suspect the imaging deployments will be as well. The fact that you can have AI read images, the old model would be a radiologist reading images in a queue coming out of different parts of the system, particularly the emergency department, going through one by one. AI can read them all immediately and pop up on his or her screen and say there’s a potential critical finding, go there first. Those are literally saving lives because of that delay. Those are super powerful.
Peter: You’re going to see AI in the product area for innovation, in the core delivery of clinical care, and in the administrative environment driving cost out. Last but not least, you’re going to see it in the personal assistant area, which will grow on the clinical side.
Julie: Like copilots you mean?
Peter: Yeah.
Payment, Payers, and Direct-to-Consumer Models
Julie: And for consumers hopefully as well. On the consumer side, I’m curious about what’s happening at the provider-payer interface, whether it be the general mix of the population. There’s obviously a lot of turbulence right now around different lines of business and what coverage is going to look like in the coming years. There’s also a huge trend towards more cash-pay behaviors, where there’s now more availability of services that are being provided at disruptive pricing levels with far more convenience. How do you think about the consumer dimension of the payment rails? Are you guys actually seeing uptake in more direct-to-consumer, cash-pay services? Is that part of your strategy to lean into that? How do you see that playing out in the next few years?
Peter: Today, very little. But we recognize as we launch some of these products, we’re going to have to go there, because some of the pain points or some of the innovations that help you, the problem with the US healthcare system is we’re really good inside the walls of the hospital and the clinic, and then you’re on your own. As we begin to fill that space, particularly in the home, we’ve launched what we call care companions, which basically if you’re discharged it gives you everything you need between appointments and really supports you for different clinical conditions. There are going to be certain aspects of that, that we’re going to need to see cash pay for, and customers will pay for it. I think you’ll see a mix over time.
Peter: If we’re completely shackled to coverage in what we’re doing, I don’t think we’re going to have the innovation because coverage, at least in the United States, for the most part doesn’t like access. Our whole model is predicated on access. It’s saying paradoxically to that conclusion, if we open up access and give you more choice to consume healthcare services to manage your health and engage you in that, actually lifetime costs go down. But the coverage system isn’t designed that way. The coverage system is, I have a member, I’ve got them for a year, I’ve got to tamp down unnecessary utilization. It’s a different set of incentives.
Julie: Talk about zero-sum game.
Peter: Yeah.
Julie: Have there been any initiatives or efforts on your part or from BSW to partner with payers in some unique way, or different way than the status quo, given the race-to-the-bottom dynamics of the current ecosystem.
Peter: Not yet, but we’re open to it. I’d love to see that. One would be on the payment experience for our customers. With AI and the deployment of AI, rather than an arms race between payers and providers just hitting up against each other, let’s find a product that does both that we both benefit from and our customers benefit from. I think there’s some intriguing opportunities there.
Peter: As we get deeper into our model, I think payers will become more interested. I think our ability to navigate and close that loop, schedule. Some of the navigation tools out there, they’re really powerful, but unless you get inside the walled castle and we’ve got the keys to open up the schedules, it’s going to stop somewhere. I think payers should be interested in partnering with us where their members, our customers and patients, can seamlessly schedule their care all the way through and close that loop and navigate the healthcare system. I think we’ll see some partnerships there.
Julie: You’re touching on an issue near and dear to my heart. I was previously the founder of Kyruus, which was aiming to create better access and open schedules. We always hit the steel wall of the cultural change. It was never a technological issue. It was always the cultural issue of the willingness to open up schedules and enable whether it be a consumer or a third-party provider to refer in. Have you guys made progress on that? Is there a light at the end of the tunnel in terms of more open access?
Peter: I think there is, and again, this really reinforces that the partnership needs to be there. The big thing on schedules is for many specialty practices, especially private practice, they’re like, I’m not going to give you access to my schedule. I’m fine. But I think to the point where if we can create a platform that customers are using religiously, then it breaks down those walls. The key is how many demands of the customer in terms of a schedule can you satisfy. That takes a lot of legwork, it takes trust, it takes data to show the providers, listen, open it up, it’s good for you, it’s good for your patients, and move to that level. So that becomes essential. Some of these things, they’re technologically enabled, but you’ve got to do some of the really down-and-in work to replumb the system to make it work.
Partnering with Innovators and Advice for Entrepreneurs
Julie: You’ve shared a number of examples of partnering with outside vendors and parties to execute against your strategies. Baylor Scott and White was a customer of mine in my past life, and you guys were excellent to work with—
Peter: Oh good. Good to hear that.
Julie: And particularly progressive about the patient experience element. But you probably get pitched a hundred things a week. What are the characteristics of the things that do end up successfully catching your attention versus not, and what advice do you give to people trying to approach you?
Peter: A couple of things. Number one, have they rigorously understood a customer problem? Is the design of what they’re bringing forward and the product really focused and shown to be able to solve that problem? Their level of customer centricity and sophistication in understanding what the job to be done for the customer is, that’s number one.
Peter: Number two is something I came to a little bit later. If you really look at a great business, they’ve got the ‘what’ right, so they’re going to solve this problem. But when I see founders with their passion around doing that, where it’s more than—If a founder or someone from a company comes to us and they talk about the TAM and how great the business fundamentals are, that’s interesting to me. But if you get someone who is unbelievably persistent about “I’m not gonna stop until I solve this problem.” That’s very compelling for us because that’s very much aligned with how I am, what we’re doing, and what my team is like. We’ve got the ‘what,’ but the purpose behind it, the conviction behind it, becomes crucially important. That’s the intangible I’m looking for when we partner.
Julie: We say the same thing in my line of work too. It’s also because it’s so hard to build a company from scratch. If you’re not doing it for the right reasons, then it’s just not worth it.
Peter: The way I look at our vision or strategy, I can tell you we will get it done. I can’t tell you exactly when. We’ll have a plan for when, but we’re going to run into problems along the way. Our deep conviction, it’s both head and heart here, about truly transforming healthcare for the customer, we’re going to get there. We will get there. That persistence is what a good business needs in any business.
Julie: Given how many pitches you hear, are there one or two areas where you do have a problem that you need to solve or you think should be solved, but you have not yet seen people focus on it or pay attention to it in a way that you hope would happen in the next few years? A call to arms for entrepreneurs, a white space where you see opportunity that no one else is pursuing?
Peter: I would say these areas where hybrid is important, where there are a lot of solutions that are exclusively digital, and on the PE side, ones that are exclusively physical for the most part, a rollup or some sort of ambulatory joint venture. Finding that space in between, because the future of healthcare is going to have both components. If you’re dealing with a customer problem, you’re going to need to do it where you can deal effectively digitally in that environment, but then you can pass it off.
Peter: A good example would be personal wellness. A number of products out there, Oura Ring and Whoop and all that. Great stuff, great data. I’ve tried it. But I’ve got all this data and it tells me I have a problem. My objective is to solve the problem, well now I’m on my own on the physical side. What are those that can create a partnership that bridges that gap so you’ve got the whole solution there? That’s what I’m looking for.
Julie: That is actually my number one criteria as well, is how do you connect into the broader ecosystem, or at least have a theory of it when you’re first getting started.
Julie: My last question for you, Pete, given how much is happening right now in the broader macro healthcare landscape, much of which is very consequential to health systems in particular, whether it be on the regulation side, whether it be on the reimbursement side, or it just be on the consumer behavior dynamic change side. How do you stay abreast of everything, and what are the signals that you do pay attention to versus not, as advice for all of us dealing with a lot of noise and trying to figure out signal?
Peter: There’s a lot of noise right? There’s a lot of noise. Well, I listen to your podcast, but I do a lot of listening to podcasts of creators and innovators in the space so I’m up to speed on that. I think the other thing is going around and meeting, really a network of in-person where you can have a candid conversation about what are some of the trends.
Peter: Also, expanding the time horizon on the trend. We don’t want to be zigging and zagging based upon maybe a one-year or two-year thing. For example, I monitor what’s going on in Washington, but it almost doesn’t matter what the label is. The core macro conclusion is because of the debt as a percentage of GDP, we’re going to get paid a whole lot less over the next five to 10 years, and we’ve got to make the adjustments in our cost structure. That would be an example.
Peter: Similarly around the customer, the fundamentals of, don’t be arrogant to think you know what the customer wants. Really do the research and understand what they want. But realizing the macro trend of more consumerism is a constant. The expectation that our customers and patients want to be more engaged in their healthcare, not only their healthcare but the whole area of being able to manage their family’s healthcare, that’s a constant trend that’s always going to be there. Sorting the interim fluctuation with what are some fundamental constant trends that you’re locked into that you’re trying to stay aligned with.
Julie: Amazing. Well, Baylor Scott and White is very lucky to have you. Thank you so much for your time and for sharing all your insights with us.
Peter: My pleasure. Thank you.
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