Welcome to the "Lessons from the C-suite" series, featuring Advisory Board President Eric Larsen's conversations with the most influential leaders in health care.
In this edition, Cal Knight, CEO of John Muir Health (JMH), talks with Eric about finding his way to health care from roots in carpentry, taking on the "profound obligation" of leading an independent community health system, and how partnerships have enabled a $2 billion system to compete at scale.
Edited by Abby Burns, Research Director, Advisory Board.
Question: Cal, you've served in health system executive leadership for the past 27 years, including the past eleven as CEO of John Muir Health, but I understand you started off with very different ambitions. Can you provide a bit of an origin story?
Knight: You're right, my father was an engineer and general contractor, so my first job was working as a carpenter. Working construction during the summer definitely made me want to go to college!
How I got into health care is an interesting story. In college I developed an interest in speech and hearing, and I was—and am—also an avid fly fisherman. I was out fishing on a stream and came across an older fisherman. Turns out he was a professor of speech pathology, and he convinced me to take his class. I did, and I went on to get a graduate degree in audiology and worked for a few years as an audiologist.
I enjoyed practice, but I wanted to get my hands on a bigger part of the health care world, so I went to get my MHA with every intention of becoming an administrator in speech and hearing. I never made my way back to speech and hearing but continued on in health administration for the rest of my career.
Q: John Muir is a fascinating system because at $2 billion—objectively a large number—you're still relatively small side-by-side with competitors in your market—Kaiser at $93 billion, Sutter at $13 billion, Stanford at $5 billion, etc. But even while we've seen a race to horizontal industry consolidation to the point where the top 10 health systems alone control $324 billion, and there's enormous pressure on smaller systems to find a larger parent, JMH, and you as its leader, have maintained an allegiance to staying independent. Why not align with a better-capitalized system? Can you talk about where that commitment to independence comes from and how you've charted a course to protect it?
Knight: Certainly. My marching orders when I came here 11 years ago were to keep JMH independent, locally governed, and part of the community. I call it a "profound obligation."
An easy way to understand the rationale behind that ask is to compare our mission to the mission of a large investor-owned health system. I worked for a for-profit system early in my career and it was a great experience—I'd recommend it to anyone.
But when you're a smaller operating unit in a larger company that has broader capital and resource allocation challenges, decisions just aren't made around what's best for Walnut Creek and Concord California. If we throw our balance sheet into a larger system, that balance sheet is gone, those decisions are no longer ours, and the needs of local communities can get lost in the mix.
We're a community health system—our mission is to improve the quality of care and life for the folks we can see and touch. That's the profound obligation. But while independence is an easy concept to get behind, living up to that responsibility is hard to do. It's figuring out how we can allocate capital and reinvest margin to meet needs, stay afloat, and stay connected to our community, all at the same time.
It doesn't just happen—we've purpose-built structures to make independence sustainable, so that the strategy outlasts any individual leader. Obviously there are more chapters to be written here, but for us, the path to independence so far has been through partnership.
Q: Especially given the way healthcare is changing as we emerge from the pandemic, I'd place 'partnerability' as one of the most important characteristics for a CEO to demonstrate, and you've certainly evinced an intentional and sophisticated approach to partnership. What do you see as the instruction manual for how to cultivate effective partnerships, and how is that reflected across the partnerships you've formed at JMH?
Knight: If you want a partnership to last, you can't enter into it with a mindset of "if it's not working in a year, we're going to stop." You can't dabble. You have to build partnerships like marriages that are really hard to unwind. You have to design them for durability by baking in mutual financial commitment, shared governance and decision-making, and symbiotic benefit. There's going to be uncomfortable ambiguity. But partnerships need to survive personnel changes, retirements, payment changes—you need to make them intentionally hard to exit.
The downside, then, is that partnering is inherently complex and partnerships require continuous care and nurturing. But the upside is much greater—we've developed a regional presence and an operating IQ that allows us to execute on our mission.
In our partnerships, in part we're looking at how we can build synergy to keep services in our market and protect against the market giants. Good examples would be our pediatric partnership with Stanford Children's Health and our partnership with Tenet in San Ramon.
But there's also an evolution you have to go through when strategizing for the future and identifying what your core services and capabilities as a health system are and what they are not. So, there's an element of partnership predicated on ruthlessly performing that exercise, and then going out and finding organizations that can perform those key non-core capabilities better than you can.
Q: There's a lot to unpack there, and certainly a number of examples since you've constructed so many 'species' of partnerships over the past 11 years. Let's start with your last point, around boiling your identity down to its foundation and finding partners to fill in the gaps. What does that look like in practice?
Knight: Our partnership with Optum is a really good example of this, in a couple of ways. [Editor's Note: The Daily Briefing is published by Advisory Board, a subsidiary of Optum.]
For one, we were running a strong revenue cycle operation—I might even say best practice. But we were kind of at the limits of how much more sophisticated we could get with it. We're not a tech company or revenue cycle company, we can't compete in the IT world, and we're not trying to - our investment needs to be in our core clinical mission of patient care.
Maintaining a high-quality revenue cycle requires a ton of sophisticated and global resources that a $2 billion health system can't take on. It was a hard process to lead the organization through, but ultimately, deciding to outsource and rebadge our revenue cycle folks to Optum showed clear returns for our business, and for our teammates as well.
We were facing an entirely different problem in data analytics, where we couldn't hang onto our talent. I know this experience isn't unique to JMH—we would hire a data scientist, celebrate, and they'd be gone in 30 days because they'd get hired down the road in Palo Alto making way more money.
So Optum's data capabilities and thought partnership in this area have been instrumental in helping us fill that gap. Data and analytics people want to work in a company that has depth and capabilities in their discipline. They have that with Optum, and we have access to more talent.
Q: Is the same sort of identity-based strategic evaluation pertinent on the clinical side?
Knight: Yes, absolutely—it's actually what led to our partnership with Carbon. JMH has invested heavily in building up our ambulatory presence over the past several years. We've grown a solid footprint of large ambulatory clinics surrounded by smaller access points, and they are definitely in our "core services" wheelhouse.
But we started bumping into the point on the periphery of our service area where investing in that strategy was starting to have diminishing returns. We needed a lighter-touch approach, so we had to decide where to draw the line on our core services when it comes to ambulatory.
Instead of reinventing the wheel and trying to create our own digitally-enabled—and capital-intensive—retail presence to extend our service area, we decided to partner with Carbon. Together, we're building out a network of co-branded clinics in both our immediate and peripheral markets.
This way, JMH gets to touch digital- and convenience-oriented patients who will eventually need a more meaningful relationship with a health system, and Carbon has access to the piece of the health care equation that retail operations need, but don't always have—referral streams and a comprehensive continuum of care. And both organizations proactively position themselves to compete with the ambulatory disruptors of the world that haven't yet established footholds in our market.
Q: That competitive piece brings us back to the first impetus for partnership you mentioned: keeping services 'in market' and protecting against market giants. The Bay Area market is an interesting microcosm of diverse, well-capitalized, horizontally and vertically consolidated competitors. And it's comparatively unconsolidated compared to the rest of the country. You've got Kaiser, a juggernaut and a very sophisticated IDN, with 25% of inpatient market share; Sutter, with some well-publicized market share and pricing challenges, with 13%; Stanford, taking the lead on employer and tech partnerships, with 9%, and UCSF, a progressive and prestigious academic in its own right, with 8%. What is the playbook for competing in this area?
Knight: Being a small player in a market with Kaiser, Sutter, and Stanford is definitely not for the faint of heart.
Sometimes it's actually pretty straightforward—as a small community system, there are things that it just doesn't make sense to do on our own. For example, we just broke ground on a major destination cancer center in Walnut Creek that will be part of the East Bay Cancer Network we co-created with UCSF. Our cancer partnership with UCSF also has a major presence in Berkley, which is dominated by Sutter and Kaiser; it didn't make sense for either JMH or UCSF to independently move into the inner East Bay territory. It might have been a strategic blunder. But working together, it makes sense. By partnering, we make this interstitial space between our two service areas viable for both partners. We now access meaningful volumes in that market.
Sometimes it's less straightforward and more existential. As our market began shifting to value several years ago, we needed to figure out how to guarantee ourselves a seat at the table and have the kind of recognition as a competitor that a $2 billion realistically isn't going to get alone.
We're never going to be Kaiser, but at the end of the day, the 25-30% cost gap that existed between us and them was both unsustainable and preventing us from living up to our obligation to our community. We know that we have to be able to do all the things Kaiser can do, as well as they do, and in a cost-effective manner.
A big part of our answer for that was creating Canopy—an integrated accountable care network—in partnership with UCSF, Hill Physicians, John Muir Medical Group and a large number of network providers. We had to look at how we could go down the value-based care road in a way that allowed us to access the premium dollar and close that gap—and we weren't going to be able to do that alone. On the administrative side, partnering with Optum was a critical next step to dropping our unit cost at John Muir Health. And together these strategies are working.
Q: That makes sense. Bridging that 25-30% delta is critical to compete with a national player that's literally 50x your size and vertically integrated—you're essentially bringing together several market players to create a 'synthetic Kaiser' through Canopy. We haven't seen a lot of success nationally with synthetic CINs, so I think Canopy has the potential to be an instructive and pioneering example for those looking to replicate this model.
Knight: We wanted to compete in value-based care, but without the risk of building a health plan from the ground up and maintaining it on our own. There are certainly individual health systems that have done this really well like Intermountain and Geisinger, but they also have about 40 years under their belts, and far greater scale than we do.
We successfully pursued shared savings when accountable care networks were first becoming popular, but then premiums on those types of programs were hiked up by about 16-18%. It was too high for us, so we had to shut our program down.
Turns out, UCSF was having the same experience, and had a parallel ambition. So, we co-built and co-capitalized Canopy using a limited Knox-Keene license, opened it up to other partners, and began contracting. The goal was—and is—to compete with Kaiser by lowering patient costs. It's a compelling value proposition for smaller providers: we can provide health plans with access to a robust footprint and high-quality provider network in exchange for controlling premium costs such that they're returned to patients and employers in the Bay Area.
And it's working – through our contracted network, we have the only Kaiser-competitive footprint aside from Sutter; we have a cost-competitive product; we're at less risk than if we had built our own plan; and we're positioned for growth.
We have about 50-60,000 enrolled patients today, with projections for reaching 100,000 within the next few years. As our network grows, it pulls market share from competitors and allows us to reduce premiums for patients and fairly apportion savings to stakeholders. We're still writing the first chapters here, but I believe we have a good start.
Q: Another area I want to get your take on, especially given your proximity to the Venture Capital community on Sand Hill Road and Palo Alto, is digital. It's an exciting time for digital health, with $37.9 billion invested and 1,372 deals across 2021—but that 'excitement' has also led to over 11,000 companies and over 350,000 digital health apps flooding the market. I know JMH was named "Digital Health Most Wired" by the College of Health IT Management Executives (CHIME) in 2021—how do you capitalize on this moment and choose the right partners and investments in a time of such freneticism?
Knight: You're definitely right – there is an overwhelming horizon of "stuff" in the digital health space. Our approach has evolved here, and I don't think you'll be surprised to hear that where we've ended up is leaning on industry partners.
On the one hand, we're in this interesting time when we have to evolve the health care digital ecosystem while it's still on an old chassis. Even though it's becoming more robust and capable, existing digital infrastructures won't be able to fully meet consumer needs and demands. Which means that while we're continuing to invest in the "old" technology, we simultaneously need to be thinking about the future.
We used to have an internal process to allow us to dabble in investing in digital and we had a reasonable exchange of ideas with some venture companies. But diving in and doing this right, evaluating a large swathe of companies without clear or standardized industry criteria, requires infrastructure and expertise we didn't have in-house. It came back to deciding whether it was core to us. And it wasn't. We shouldn't be spending millions of dollars to sift through the haystack—we should be partnering to do that.
So now we allocate a small piece of the balance sheet to each of three different VC companies that help us scan the world of opportunities and understand what makes sense for us based on our current infrastructure and our goals. I see this as a book with many chapters still to be written. We have to believe that while this part of the journey is expensive, it's not forever. We will see an inflection in how our investments lead to better and different outcomes for patients and providers.
Q: One of the elusive objectives tech companies are targeting is unburdening the clinical workforce from the administrative headaches contributing to rampant burnout. Nurses spend an average of only 25% of their time caring for patients, and the other 75% on documentation, walking around hunting for equipment, etc.—in fact I recently saw an estimate that nurses walk an average of three miles daily during an average shift. And similar levels of frustration for physicians, who spend an average of four hours per day fighting with the EHR. Yes, some innovative digital health solutions are working to address this, but so far, no silver bullets. Your take?
Knight: My short answer is that I agree with you—I haven't yet seen tech innovations that change the clinician-patient-family dynamic in a way that really reduces the burden on the clinical team. I struggle to see how they're going to come to the bedside for nursing, because we haven't really seen it done yet.
That's not to say there's nothing that can be done. We bought small pieces of digital infrastructure that improved our call center operations, after the early days of the pandemic completely overwhelmed our old system and drove call abandonment rates way up. Those have come back down.
Accessing Optum capabilities as needed (call center operations for instance) was really helpful. Epic is much more efficient than it used to be when it comes to digital registration, bill paying, patient-provider communication; now we need to translate that progress to the provider and get rid of, say, 20 clicks per clinician per day, which translates to X more minutes to spend on patient care.
Q: That last piece is important, because it speaks directly to both productivity and burnout, both of which are huge problems with huge consequences in health care. Ours is the only major industry in the economy with negative productivity growth in the past couple decades. Burnout mitigation efforts so far have been band-aid solutions for what is, at this point, a crisis. We've celebrated frontline workers' heroism throughout the pandemic, but it's a malfunctioning system that necessitates that type of heroism—and it's taking a toll. Thirty-two percent of RNs say they may leave patient care within the next two years, 18% of health care workers have quit during the pandemic, and 12% have been laid off, which means 1/3 of the workforce has already been displaced.
Knight: I'm with you on this Eric. As a leader, far and away the hardest part of the past few years has been the toll the pandemic has taken on frontline staff. Ours and everyone else's. The fourth surge, around end of last year, was hard on our caregivers because so many of their patients were unvaccinated and our staff felt like they were treating people that didn't need to be dying. And then the fifth surge we had in January was just demoralizing. We're lucky in that we've never really seen persistent labor challenges like this before—this is unprecedented.
And you're exactly right, we're left with few options. We're paying rates we could never have envisioned, but the alternative is not to staff patient care floors. We're not going to let people die on our watch because we didn't pay people to provide care.
Part of the solution will be for the American policy machine to truly understand how health care is financed, how cost shifting actually works and what it looks like—at this point, they just don't. In the meantime, this is going to force some important evolutions and innovations in care team redesign, medical training and education, clinician engagement, etc. Innovation is born of necessity, right?
Q: I appreciate the positive outlook—gives me some confidence! Last question—Cal, you've announced your impending retirement this Fall after a decades-long career in health care. Can you close us out by sharing what you've learned and what you're most grateful for? And of course, I and others are curious—what's next?
Knight: Your first question leads me to a place of "looking back, what would I do differently?" I would block more time on my calendar to stay in touch with people I care about. I've moved around a fair bit in this business and had the great opportunity to know incredible people.
If I could go back, I'd block half a day per week to enjoy those relationships and give and receive the benefits those relationships offer. It would be positive for me personally and positive for my career.
I think that's what comes to mind even more so because the things I'm most grateful for do boil down to people. I'm grateful for mentors I had early on in my career that saw my passion for leadership and helped guide it. I'm grateful for having a board at JMH these past eleven years that 'gets it'—that's willing to take—and allow me to take—principled risks that a lot of other organizations wouldn't.
Most of all, I'm grateful for having a loving and supporting family that have been with me for the long haul. My wife, Maureen, has been a true partner in my career, and for that I am very grateful.
In terms of what's next—that's one of many chapters that hasn't been written. I'm going to stay involved in health care in a meaningful way that I haven't yet landed on, I'm going to spend more time with my family, and I'm going to fish some of my favorite rivers around the world.
Stand-alone hospitals find it increasingly difficult to remain independent as they operate under intensifying financial pressure and newfound competition.
Community hospital leaders’ typical approach to partnerships is narrow in scope, and expectations are low. If a partnership helps a community hospital remain independent, leaders often deem the partnership successful. We believe stand-alone facilities can go beyond merely surviving to fueling growth with innovative approaches to partnership strategy.
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