April 30, 2015

Why one health system quit the ACO program—and partnered with Intel instead

Daily Briefing

    This interview with Jim Hinton, the President and CEO of Presbyterian Healthcare Services, was conducted by Eric Larsen, managing partner, and condensed by Dan Diamond, executive editor.

    Q: Jim, I know that you're a local boy made good. You were born and raised in New Mexico. Was this the plan all along?

    Hinton: I grew up here in New Mexico, the youngest of three boys. My two older brothers are pretty high-performing guys—one is a psychologist, the other is a radiologist.

    Unlike them, when I got out of undergrad at University of New Mexico, I didn't know exactly what I wanted to do.

    So I took the LSAT.

    Q: That might have launched you on an interesting career. But you didn't go to law school.

    Hinton: I had my acceptance letters and was ready to commit, but then things changed. It was one of those serendipitous situations where I ran into the administrator for the University of New Mexico hospital. He knew me because my mom worked there. To him, I was always "Jimmy."

    He asked, "What are you going to do, Jimmy?" I said, "I guess I'm going to go to law school, Mr. Johnson." He said, "Well, why the hell would you go to law school?" Good question.

    One thing led to another, and he suggested I look at a health care administration program. And I did. Honestly, I'd never given any thought to who ran hospitals before that moment. But I got hooked and ended up at Arizona State for my graduate degree.

    It was a great decision. I've never wished I had gone into another career. I mean, unless Peyton Manning wasn't playing for the Broncos or something like that.

    But a normal person's career—yeah, I think it's been a great one.

    Mentorship lessons

    Q: I read a funny story about you that quoted Mr. Johnson—the man who asked 'why the hell would you go to law school?' I think he still lives in Albuquerque and whenever he sees you he says…

    Hinton: "I'm the reason. I take credit for all of your success."

    Q: I know he's being a little facetious. But in truth, that was a pretty influential moment for you. I'm always curious, when talking to leaders who have achieved success on a scale like you have, who their mentors might be and what that might say about them.

    Hinton: It was a real turning point for me. I've reflected on this question before, and there are probably four or five. I'll tell you about a few of them.

    One was a [construction] foreman who really taught me the value of hard work when I was young. I know, that sounds a little cliché. But we would walk onto these slabs at 7 a.m. and there would be a big bundle of lumber. When we walked off that slab at 5 p.m., the walls were standing and you could see what you did.

    He really got after me, and we worked hard all day. But working hard is not bad for you. I think a lot of people really find themselves in their work.

    The worst jobs I've ever had were when I wasn't that busy. I hate those jobs. Of course, I haven't had one like that for 30 years.

    Q: Speaking of doing a busy job, you also worked retail, is that correct?

    Hinton: That's right. When I was just starting college, I sold shoes at a very upscale shoe store. I worked alongside one of my friends, and his father owned the store.

    My friend and I decided we were going to have a beard-growing contest. We grew them during the week, so when we came into work on Saturday we looked scuzzy. Just totally scuzzy.

    His dad planted himself at the door when he saw us coming and said, "You have a couple of options. You can keep your beard or you can keep your job."

    So, that decision was pretty clear.

    Q: And so much for the contest.

    Hinton: It was a lesson that leaders need to insist on what the culture is going to be. The culture in great businesses is not an anything-goes culture.

    At Presbyterian, we talk about the values of the organization. With 10,000 people spread out over a large state it is hard to make sure that every one of our employees lives those values. But we do our best. We stress our organization's history and fundamental belief that Presbyterian exists to improve the health of the patients, members, and communities we serve.

    Industry transformation

    Q: You are a past chair of the American Hospital Association, which is a prominent and highly visible role. But Presbyterian is distinct among many health systems—yes, you've got eight hospitals, but you've also got one of the largest health plans in the state, you've got more than 700 physicians in the medical group. You have been a proponent for this different integrated model, which seems like an interesting fit for AHA chair.

    Hinton: I succeeded Dr. Ben Chu from Kaiser in California and the current chair is Dr. Jon Perlin, the Chief Medical Officer for HCA. I think you could make the case that there have been three of us in a row who are not exclusively hospital people.

    Q: What does that say about the AHA, at a time when so many of your counterparts around the country are still steeped in a hospital-centric world?

    Hinton: There is an awareness within the association that the hospital frame is an important frame—but it's not the only one.

    We are all talking about this movement from volume to value. Most executives can say the words, but I think there are very few who understand how perilous that gap is.

    Either end is fine. It is life in the gap that's tough—and that is where most people are going to be over the next few years. Half of your business will be responding to fee-for-service incentives, another portion will be capitated and another portion will be shared savings.

    This hodgepodge of different payment incentives, while keeping your organization focused on the long-term, is very challenging. Even for an organization that's been doing it for 25 years.

    Sometimes we get a little distracted. You might hear, "That may be good for the health plan, but it's not good for the hospitals." But who are we trying to please here? Well, ultimately we're trying to please the customer. The customer uses our health plan and our ambulatory clinics significantly more than they use the hospital.

    Q: I recall one of your quotes—and I might be paraphrasing a bit—but you said the immune system of the hospital will eat the health plan.

    Hinton: Well, it will reject almost anything that's not the hospital or that takes the focus away from the hospital. So the question is, how do you suppress that  instinct to reject fundamental change? That's what it will take to drive down length of stay, drive up efficiencies, and rethink how physicians practice.

    Q: You and Presbyterian have had relevant experience here. You've lived life in that gap. And I agree, it's a sort of transitional, schizophrenic moment for a health system.

    What are the cautionary notes, Jim, that you might offer with 25 years of managed care experience, and with two-thirds of your revenues capitated already?

    And for folks that are on the early part of that curve—what lessons would you impart?

    Hinton: Well, the insurance business is very different from the hospital business. It takes a different mindset. It takes different information. It takes different incentives and different systems. It's about as different as can be.

    You need humility to know that these jobs are all very challenging for different reasons, and to make sure that you don't underinvest in the people skills to succeed.

    I would also encourage leaders to get the talent it takes to succeed. For example, when Presbyterian started the health plan we brought out executives from HealthPlus of Michigan. When we started our medical group, the first three or four executives we hired had all run physician practices. They didn't come out of hospitals.

    You also need actuarial skills in your organization, whether you own a health plan or are on the other side of that transaction. You have to be as smart as you can be about the data, the basis of the contract, payment and risk adjustment and all of the issues that are driving these transactions. You have to hire people with those skills.

    Q: You've talked a lot about people skills, and about the people you need. What else have you learned?

    Hinton: I'd recommend a completely sober objective assessment of your market position. Ask yourself, if you were running a health plan, would you want your system in your network and why? Are you essential?

    It is easy to just assume that you are essential, and that is not always true.

    There is a growing segment of very price-sensitive customers who do not plan on having a heart procedure. Whether the Cleveland Clinic is in the network or not does not really matter to them. But the premiums and deductibles they spend to take their kids to the doctor, that's paramount.

    We have new customers. We have new expectations. We have new payment systems. It's all in flux right now. That's what makes it so much fun.

    Piloting initiatives

    Q: 2013 was a seminal year for Presbyterian in a lot of ways. On the one hand, you withdrew from the Medicare ACO program and on the other hand, you pioneered this sort of groundbreaking partnership with Intel. I'd love for some perspective on the juxtaposition of those decisions.

    Hinton: We pursued the Pioneer ACO because we have a deep belief that movement away from fee-for-service is both inevitable and desirable.

    For us, the problem was that we are already one of the lowest utilization regions in the country. There has never been a huge utilization reduction opportunity for us.

    Our main opportunity was to look at cost across the entire episode of care. For example, how soon could we move a patient with a hip replacement into a skilled nursing facility? The problem was that the way Pioneer was scored, they count the cost for the DRG and then count the cost for the skilled stay. It makes you appear more expensive.

    It turned out that it was not a good fit for us because of the way we manage care in this state and our already-low utilization rates.

    Q: I better understand why you left the ACO program. Why start something with Intel, at the same time?

    Hinton: Intel came to us and said, "Look, we have 107,000 employees and dependents that we provide health care to on a worldwide basis. We have plants in Malaysia and Ireland and Israel, in Arizona and Oregon and in New Mexico. We can effectively run a comparative health care assessment in terms of quality and cost in both US and global markets.

    And if our chips had as much variation as these health care systems, we would have been out of business a long time ago."

    They said they wanted to create something new with us in Albuquerque. We were their first pilot site. I think it was their energy and our openness that got us together to work on a couple of these things.

    The model is anchored by the Patient-Centered Medical Home concept. This is especially true for the clinic we run at the Intel fabrication plant in Rio Rancho. We transitioned it to our own staff and management, and it has been recognized as a NCQA level three Patient-Centered Medical Home, the highest achievement possible.

    We also created a custom scorecard for Intel, which was green on every measure except cost. We were red on cost. But our costs were better than the trends for employees who opted into another insurance plan. So, we know we are bending the curve.

    Q: What have you learned from working with Intel?

    Hinton: It's been really good for us to deal directly with a sophisticated employer and have them put their demands and specifications on the table. These companies invest in innovation like nothing we could ever get close to.

    Learn more: Intel creates an ACO-style narrow network for its workers

    Retail revolution

    Q: I'm curious for your view of the retail evolution, both in your role as AHA chair but also in your position as CEO of Presbyterian. Are health care leaders misjudging the true threat here?

    Hinton: I am a market guy. I believe the markets win and the customers win when they have the money to spend.

    The problem with health care for the patient is that it has never been our money. It has been some money that an employer throws in a bucket, and we throw in a little bit, and then we go to the doctor and we never see the bill. Or if we do, we get a statement that says, "Don't pay this bill. Don't even look at it. I'm not sure why we sent it to you."

    That is changing, partly because more employees are using high-deductible health plans. All of a sudden, they become consumers again, and it is their money.

    Even affluent consumers are price-conscious people. They are aware of what things cost.

    I think these retail plays will continue to expand. In five or 10 years, I predict that Walgreens will have CT scanners. Why wouldn't they? You can buy a CT scanner now for a few thousand dollars.

    It is interesting that their own retail models are changing. These big box stores are becoming small boxes now. Just like health care, retail isn't static.

    I don't know yet how we are going to connect with the retail sector but we are definitely talking to them.

    Strategic vision

    Q: Let's say you're writing a press release about Presbyterian's strategic successes for January 1, 2017. What does it say about how you've innovated? About how you've succeeded at challenges like population health?

    Hinton: At Presbyterian, our strategic goals are better health, exceptional experience, and lower cost—the Triple Aim. When we say "better health," or what could be referred to as population health, we really want to make our mark in hypertension control and unhealthy substance use. There is no one definition of population health. I think it's based on knowing who you are, knowing where you can make an impact, knowing where the financial alignment supports the impact you want to have—and then organizing yourself to go after it.

    Q: What does that mean for Presbyterian, then? I want to hear how you're making the vision real.

    Hinton: Every state probably has its share of third-world health statistics. But it sure feels like we have more than our share here in New Mexico. So, what can we do? How can we leverage the fact that Presbyterian takes care of a third of New Mexicans and we are influential in the state from a policy standpoint? How can we put those together to leverage a positive health impact for a broader population? That's how we think about it.

    We are focusing on controlling hypertension. If you talk to Tom Frieden at the CDC, he will tell you that the silent killer in this country is high blood pressure. We do a terrible job of managing it in this country. So, what if you really engaged everybody in a hypertension awareness and reduction approach?

    The other thing we are focusing on is unhealthy substances. We have led a lot of policy work in New Mexico on tobacco and what employers can and cannot do with regard to their employees' decision to use tobacco.

    That is what's exciting about being in health care today. With clinical evidence, we see the issues more clearly than we ever have before. At the patient level, we can make an enormous impact. And if those of us in health care think about our roles more broadly, we have a huge opportunity in the public space to change policy and improve health on a larger scale.

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