Peter D. Banko, president and CEO of Centura Health
Question: Peter, before we dive into Centura's strategic plan, Colorado's hyper-competitive health care market, and your colorful blog posts—I'd first love to hear about Sister Marie de Pazzi. You've credited this formidable 5'2" nun, the former CEO of St. Peter's University Hospital in New Brunswick, New Jersey, for launching you on your health care career.
Peter Banko: No question. I volunteered at St. Peter's during high school and college, and our CEO was very unassuming. She was a 5'2" nun, so patients would see her and think, "Oh, she's just involved in pastoral care stuff," and I'd have to tell them, "No, she's the CEO." She really turned the hospital around; it was near closure, and she brought it back.
And she brought me back, really. During my junior year at Notre Dame, where I was majoring in aerospace engineering for an ROTC scholarship, I was failing out. And one day when I'm volunteering at the hospital, Sister catches me in the hallway looking miserable, and I tell her everything—I wasn't doing well in engineering, I couldn't stand it, I didn't know what I was going to do, and I was on the brink of being booted out. So Sister—the CEO of a 400-bed, $200-million-plus operation—sits me down in her office, and the first words out of her mouth are, "I think you have an aptitude for health care leadership."
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Q: And that changed everything.
Banko: She spent the next couple hours talking it over with me, explaining why I should major in information systems—keep in mind, this is 1987—because that's the direction health care's going in. So a few hours later, I get on the phone with my parents, the colonel of my ROTC program, and the dean of the engineering school, and they explain that they've worked out a deal for me. I was kicked out of the college of engineering—the dean said he didn't even want to see me in the hallway there. Which is funny because I was back at the college of engineering just a few years ago and needed to use the restroom—but here I was, nearly 20 years later, apprehensive to enter the building! But they got me in the college of business, and they asked me what I wanted to study there. I said, "Well, I just had a conversation this afternoon, and I'd like to do management information systems." They said, "Done."
The intersection of faith and business
Q: That's a wonderful start to your career, and Sister's perfectly timed intervention sounds like a providence. Now I know what a deeply committed Catholic you are, and—unsurprisingly—you've run Christian systems for the entirety of your career. What does it mean to you, Peter, to be a leader of a Christian health system?
Banko: Working in Christian health care makes me whole. For me, it is important that who I am at home and who I am at work are the same, I don't have to change who I am or shut off parts of myself in the work setting. And having been doing this for a while now, I've realized that while we often think of faith and business as separate, they actually need one another. When business and faith work together, love, kindness, and dedication are at the heart of all we do and influence every sphere we touch. Within our organization, I share with every leader that if the mission of extending the healing ministry of Christ doesn't resonate with you in your heart, you're probably in the wrong place. It is not a criticism—there are 4,000 other places you can work—but rather, our mission is core to who we are and the legacy we were entrusted with by our sponsors to carry forward.
Q: Let's talk about that core for a moment, as faith of course has played a central role in the founding and formation of both of Centura's sponsors, AdventHealth and CommonSpirit Health. How do you think that faith-based background shapes the care these organizations provide?
Banko: Well, think of the Adventist roots of the Boulder-Colorado Sanitarium with Dr. Kellogg. He sought to deliver a different brand of health care, a health care that was about teaching the whole person—lifestyle, rest, exercise, spirituality—back in the 1880s, to miners who went to the saloon every day and then started over the next day. That was a hard sell, but it was part of a holistic idea of health care.
And then think about the Sisters of Charity of Cincinnati who started our system in 1882—we were the preferred health system for Billy the Kid! These were teenage women, moving to Colorado, never having run a hospital, never having done health care, still not able to vote, and then Billy the Kid visited them for two reasons: One, they're extremely professional, and two, they were non-judgmental and compassionate. They didn't care why he was there or what he was coming to them for, they cared for him compassionately.
And that's how we were built. Those are our roots, and it's my job to carry that forward and to do something different. So that's why it's our legacy, and it's who I am. And that part of my job is to prove that faith and business can coexist.
We believe in the healing ministry of Christ, but some people confuse the "Christian" thing with the "nice" thing. Jesus asked people to be kind, but in the Bible, the word "nice" is never used, right? If you think about the Sisters, they were tough people who had to do tough things—but they did them in a kind, loving, and caring way. And I believe that we can be kind—and also make tough decisions—in our business.
Q: Let's broaden the aperture a bit and talk more broadly about the state of Catholic health care in the United States today. There's a ton of dynamism in this sector of the health ecosystem: CHI-Dignity merging (now CommonSpirit Health); Bon Secours-Mercy coming together; CHRISTUS doing pioneering health care work in Colombia, Chile, and Peru. And of course, some would-be marriages that didn't ultimately come to pass (Ascension and Providence, as an example). As a strategist and steward of Christian health care in the United States, Peter, what do you see when you step back and assess all this activity?
Banko: I think it's good that some of the larger Catholic systems are starting to get together, because historically, Catholic systems have done more deals with non-Catholic systems than with each other. Same with Adventist systems. There's kind of a parochialism, so it's almost easier to get a deal done with someone other than that of your faith, and that's troubling for me.
Health care is a hard business to operate in, and Catholic health care is different enough that it would be nice if Catholic systems could figure out how to work well together. I think Catholic health care could go away for a variety of reasons, and I don't want to see that happen. So it would be nice if we could end up with two or three Catholic systems throughout the country that are working with one another in a variety of ways—and that doesn't necessarily mean a merger.
Defining Centura, in the past and present
Q: And what about Centura specifically? Because the system is, of course, sponsored by AdventHealth and CommonSpirit Health. What does that convergence look like on paper, and how does it functionally work for Centura?
Banko: Our two sponsors came together 22 years ago. At that time, it was pioneering. No one had done something like that before, and no one thought it could be done or that it would last. But I believe it's one of the longest-standing joint-operating agreements in the country today, and it works because of the united mission. So, we've got these two formidable national systems sponsoring us, and they are very intentional about making sure that Centura is a management company and letting us do what we can do to build wholeness and healthy communities while being able to take advantage of both sponsors and not being encumbered by either of them.
Q: From Centura's standpoint, what are the implications of CHI-Dignity coming together?
Banko: For me, it's who's on my board and capital flow and expectations. But for our 21,000 associates, or even the average VP or CEO, it doesn't change anything because we do our own IT, we do our own legal, and the services we buy from the sponsor are very limited—Offshore Captive for CommonSpirit Health and Biomed. So there may be some changes there, but, overall, it's minimal.
Q: Now, to pivot a bit, Centura just completed its strategic plan—Centura Health 2025?
Banko: We really view it as a refresh of our Centura Health 2020 strategy—which served us well. Using The Future Back Process, our plan is about taking Centura Health's potential and cultivating it into our purpose and impact. Centura Health 2025 is intentionally on one page and anchored with our mission on top. It's our beacon and guiding post for our health system. It's why we do what we do. The foundational component of our plan is our operating model—our structure and processes, how we make decisions, how we set our goals, and how we develop talent. Our 2025 aspirations are bold—the system of choice, physician-facing, high-performing, whole-person care, greatly improved financial performance, and doubling the size of our ministry—and to reach them, our 21,000 caregivers are critical.
Q. I understand Centura just had its single best financial year in 22 years. I can count on one hand the number of nonprofits with a 13% EBITDA margin.
Banko: Yeah, I believe so—I only have the last 10 years or so in actual data—but here's the thing: A lot of our competitors in the market are putting up higher margins. As someone at Innosight said, "You're a C student at Harvard." So while we're performing well and had a really great year, we're not performing as well as our competitors. We have to up our performance to be able to do the things we need to do over the next five to seven years.
Q: Let's talk about what constitutes 'good' performance in such a unique market. Can you describe the health care market in your region (and Denver more generally) to the rest of the country?
Banko: On the surface, it appears a very easy place to operate. Colorado has five big payers—Kaiser, United, Anthem, Cigna, Aetna—that are all doing well, and all the health systems are doing really well, and we've got 50 new people moving into Denver every day. The market's in the upper 50s in terms of the percentage of the population with commercial insurance. So, you hear about other markets that are 70%, 80% government payer—that's just not us. And Colorado is a Medicaid expansion state, so that's been a big boost for the health systems.
But that kind of market stability comes with a whole host of other challenges. Since everybody is fat and happy, the payers and providers don't want to change. I think less than 3% of our revenue is in value-based payment, and that 3% is fee-for-service plus per-member-per-month (PMPM). Basically, no one wants to disrupt the market; everybody's just doing traditional stuff. From that perspective, I've found the ability to change and disrupt in parts of the market is probably 10, 15, even 20 years behind other parts of the country.
Q: You have a good representation of the full competitive spectrum of hospitals in the Colorado market—for-profit, faith-based, academic—the whole gamut. How does Centura's strategy diverge or converge with the other major players you're up against?
Banko: We've got a bit of convergence with UnitedHealth Group and HCA in that we're focusing on engaging physicians and running really good hospitals, rather than building "value" in the abstract sense, because that shift isn't going to happen fast in our market. We were building a health system view of population health—a term I avoid because there are 100 different definitions, and no one really knows what it means—but we needed to be thinking about what the consumer really wants, what the payers want, and what the physicians need to do their jobs. And that's what UnitedHealth Group was doing; in our work with them, we found that they focused on physician enablement and consumer enablement, and we weren't. So we share that focus now.
On the flip side, we diverge from UC Health and its strategy of building a lot of bricks-and-mortar hospitals. I get that strategy in terms of geographic coverage, but I can't in good conscience spend $1 billion building bricks-and-mortar facilities when consumers want stuff on their phone. And we've got access issues to primary care—that's where we need to be spending our money. That said, we're building a replacement hospital in Colorado Springs because it's needed, but we're not going to be building new hospitals in new markets. I'd rather partner with physician groups in markets and not even have a hospital there.
Q: Centura has an innovative payer-provider partnership in place with UnitedHealthcare. Can you talk about how that started, and what the ambition is?
Editor's note: Daily Briefing is published by Advisory Board, a division of Optum, which is a wholly owned subsidiary of UnitedHealth Group. UnitedHealth Group separately owns UnitedHealth care.
Banko: It started with the Colorado Doctor's Plan. Originally, in Colorado, Kaiser was the only option for employers looking for a low-cost coverage option. We thought there needed to be another option; UnitedHealthcare wanted another option, employers wanted another option, and brokers wanted another option, so we sat down for two years and built the health plan from scratch.
We did a soft launch July 1, with a harder launch that was scheduled for January 1, 2019, so we've got a nice uptake. Now, Kaiser's got a great model, but I think we're a viable competitor because we go about it in a different way; we have a broader network, and it's a different experience.
That said, we're still sorting through the data and analytics and the physician network. We really tried to have physicians help us drive how it was constructed, between Optum and our clinically integrated network.
Q: How do you think about approaching this kind of payer-provider collaboration in the context of the broader volume-to-value transition? Especially in light of your comments around Colorado's slow transition to value (with less than 3% of your revenue derived from value-based reimbursement). It's interesting to hear a leading nonprofit CEO acknowledge that fact and pivot his strategy as a result.
Banko: I think we're one of the first partnerships that UnitedHealthcare has architected around the country, so it's a learning experience for us, and I think the folks at UnitedHealthcare would say the same thing. There are just some things the payer community completely don't understand, like how an ED actually works day-to-day, and there are a lot of things providers don't understand about the brokerage, like how to construct a health plan or make it low-cost. And that all means that our construct with UnitedHealthcare around our doctors plan isn't perfect, which is probably the way it should be—I think it will get better over time.
And we were so worried about what other payers would think. But the other payers in the market are now so intrigued about how we pulled that off with UnitedHealthcare that they're just asking about what we can do together. It's opened up many different conversations.
Q: A couple years ago, Intermountain in Harvard Business Review suggested you need to hit 35% full capitation in order for the economics of a full shift to a population-based delivery structure to financially work. If you buy that hypothesis, how do you navigate the value transition in Colorado's predominantly fee-for-service market?
Banko: I think with what we've constructed, we can do well. The construct below the plan is still fee-for-service; it's getting people to the right care settings, the right physicians doing the right things, giving them the data to do the right things, and keeping things in-network.
So yeah, I think that even in a fee-for-service world, there's an upside for us financially to having that narrow network and just keeping everything in network. But again, in Colorado and Kansas, there are very few narrow-network products. In Colorado, we've got one with Bright Health, and we've got this with United. There's a few other subsets within all the plans, but for the most part everything's open access.
Q: I understand Centura, which is $3.8 billion in revenue now, is projecting to double in size in seven years. I'd like to ask about your growth strategy, particularly around your investment in freestanding EDs and 'Urgency' Centers.
Banko: Freestanding EDs have been a success for hospitals and health systems. They are very profitable—they pay for themselves within 18 to 24 months. I think if you look five years back, Denver had three of them; now there are more than 40. Originally, ours started as an 87%-13% joint venture with a physician group out of Houston, but we bought out that last 13% in January.
As for the Urgency Center model, which is essentially a combination of a freestanding ED and an urgent care center, that's something that was instituted prior to my arrival. We have nine of them.
Q: There's a lot of curiosity around the Urgency Centers. How do they work?
Banko: Patients will arrive at one of the centers and, based on the presenting diagnosis, they'll get treated—and billed—for urgent care or ED care. So if you come in with chest pain, you're going to get worked up for a heart attack, and that's an ED bill, but if you come in with the flu, you're going to get an urgent care bill. So there are different treatment tracks, but they are in the same building, with the same staff and the same experience—the only difference is the bill.
Q: How are the centers faring from a strategic standpoint?
Banko: It was a consumer play that was the right thing to do, but it's too confusing to the consumer and to the payer, so we didn't get rewarded for it. Based on our consumer research, people pretty much know only their physician's office—no one can really tell the difference between the rest of the stuff, like the urgent cares, freestanding EDs, the MedExpress, etc. So I don't think we've been rewarded in the market for that play.
Similarly, payers like the centers because they're not getting whacked with freestanding ED bills, but they don't know how to drive business to the right setting.
Q: So how do the economics shape up? You said can break even on the freestanding ED in 18 months. How about the Centers?
Banko: We can do well in them. Our partner, who was the managing partner, did not operate them well. So we were losing a ton of money, but we've gotten them to break even. We think there's profitability there, but we've not gotten to the profitability yet. We will.
Q: Based on what you know now, are you a proponent of this urgency model?
Banko: Frankly, I think we have too many urgent care centers and too many freestanding EDs, and we probably don't need most of that stuff in the market. And the same could be said for physician employment. We have not been in that game in a serious way. Our competitors were, so now we're in that game, but employment for the sake of employment is stupid. That said, you've got to play the game that's being played, not the one you want to play.
Finding $400M in savings
Q: Let's flip the lens from revenue to cost, and your 9-figure cost transformation initiative. I believe you're aiming for $400 million in savings. What's the time frame?
Banko: So over the last two years, as you know, most organizations have seen costs go up and revenue not go up as fast, and we have experienced that since 2011. So we've probably taken out about $100 million in costs in the last two years. We've got another $350 million to $400 million to take out over the next 36 months.
Q: Where did the first $100 million come from?
Banko: Across multiple platforms, some from labor, and some from supply chain. That said, we believe we've got the best-performing supply chain system at any large system in the country. We're at about 13% of net patient revenue including pharmacy, and we've been experiencing only a 1% to 2% increase per year, while others are seeing double-digit increases or more. And that's all thanks to a having a really good supply chain team. We've got this cadre of millennials who are just really sharp with data, but they're also relationship-astute—they know how to work with a doctor, when to back off and when to push.
Q: And the next increment, where are you targeting?
Banko: This year, we're getting that by focusing on labor and purchased services. We still have market labor work to do, and we're doing a lot of work in management span and control. It basically boils down to having too much management, especially in a matrix organization. If you've got a priority and I've got a priority, then the guy who works for both of us now has two priorities. Take that down a couple levels and it becomes 12 priorities.
We just have to flatten out the organization. We have too many layers between me and the people who actually generate the revenue and do the work. We're also working on our own medical costs for associates, which are increasing 14% to 15% a year. If we're really going to be about value, can we actually do it for our own associates?
Blogs and video messages
Q: I have to ask about your blogging. You are, shall we say, a voluminous blogger. And each blog covers the waterfront—just to take one I recently read, you quoted Thomas Merton, Steven Covey, Willie Nelson, Lou Holtz, and the Bible. Oh, and Princess Leia.
All in one blog. Not bad.
Banko: Yup. We've got 21,000 associates from Durango, Colorado, to Garden City and Ulysses, Kansas—that's almost a 12-hour drive. I'm not the face in every market, nor should I be, but folks need to know where we're headed, what I'm thinking, and who I am. So I started blogging when I joined the organization. Right now, I'd say about 15% of the organization, board, physicians, and associates read it every week, but I'd love to see that uptake a bit more.
I post every Monday on our intranet. My senior management team meets every Monday for four hours, so I also post an update on that meeting each Friday. I also post quarterly about what happened at our board meeting.
Q: And you do video messages, too, right?
Banko: Yeah, I've actually added a monthly video message. Someone on our team pointed out that a lot of millennials don't like reading stuff. I hadn't ever done a podcast-type message, nor do I listen to them, but now, every month, I'll post a five-minute video message on what I covered over the last few weeks. If people want more information, they can go back and read the posts for the details.
We also do a quarterly livestream to the entire organization, and then, once a year, I open it up to questions from the organization.
Q: I've never seen a CEO be as self-disclosing. I read those blogs and they were fun, self-revealing, and instructional—all at the same time.
Banko: I wasn't born a CEO, right? I didn't come out of the womb with my mom saying, "Peter, a CEO is born." There's really a sense of King Arthur in me, too: I'm the reluctant CEO. So while I aspired, I never really asked for it, right? It's easier to be Merlin. Merlin was always on vacation when King Arthur summoned him when something was going wrong. Merlin would wave a wand and fix it. Merlin should have been the king, right?
I want people to see me as I'm a human: I've got kids, I've got the same problems you have, just a little bit different. And, as much as I hate to say it, the stuff that resonates most with the people in the organization is the stories about my cows and pigs.
A cattle-rancher as CEO
Q: You mentioned the cows, so before we wrap up, we have to talk about your ranch. You've got a 15-acre cattle ranch in Sedalia—a town that's probably got more horses than people—and I know you've analogized what you're doing on the ranch with what you're doing with Centura. Tell us about that. Why do you do this?
Banko: First, my mom grew up on a farm, as did my dad's mom, so I felt a need to get back into the dirt a little bit and back to our roots. But as I think about my role at Centura, it's also about growing and cultivating the people and our communities and the business, and doing that well. If I don't actually know what that means in the real gardening sense, I don't think I could really be effective at doing it in the corporation as a whole.
Q: And there's also a connection between your personal interest in sustainable food—you have a substantial garden at the ranch—and your work to boost Centura's sustainable food production.
Banko: Yeah, our interest in sustainable food is another reason we settled on a ranch. There are 40 food deserts in Denver, and more than 100 in Colorado. A lot of our associates can't afford healthy food. So we were interested in how much of the food we consume we could grow or cultivate ourselves, and that's why we've got about an acre of garden. This summer, I would pick zucchini and tomatoes which my wife ended up canning for sauce.
And when I step back, I realize that it's also like business. You learn lessons on what to do and what not to do. What grows and what doesn't produce fruit. And it informs what you do differently next season.
Q: Let me close, Peter, with my favorite question: As you reflect on your career, what are you most grateful for?
Banko: I'm most grateful for my family and the people I've worked with. I wouldn't be in the position I'm in without my wife and my family. They've had to make a lot of sacrifices for me to be where I'm at.
And I've worked with a lot of really great people. I would put the team we have at Centura against any team in the United States today in terms of diversity, but also in terms of their ability to get things done. I don't have to manage a lot—I have to be clear about direction and reinforce direction, but I don't really have to push to run. In fact, I've got a team that I have to run to keep up with, which I think is the best place to be.
As I say to people who ask me about our competitors, I say, "As long as we're executing on our plan and our team is doing what they need to do, I don't worry about anything."
Questions or comments about Lessons from the C-suite? Email Eric at email@example.com.
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