Daily Briefing

Steve Klasko on diverging from the 'natural order of things' to move health care forward

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, Dr. Steve Klasko, CEO of Jefferson Health, talks with Eric about revelations in a Barnes & Noble, navigating “principled” growth, and how he approaches health care through an “old math versus new math” mindset.

[Editor’s note: In the weeks following this interview, Dr. Klasko announced his retirement as CEO from Jefferson Health, effective December 31, 2021.]

Edited by Abby Burns, Research Consultant, Advisory Board.

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Steve Klasko
Steve Klasko

Question:  Steve, you’ve been busy in the eight years since you became CEO of Jefferson Health in 2013.  The Philadelphia-based system is unrecognizably different now – expanding from a 2-hospital, $1.5B player to a $9B, vertically-integrated (adding a health plan this year), 18-hospital system in 2021.  Just as importantly, I would characterize you as one of the leading “translators” between Silicon Valley digital-forward entrepreneurs and the health care incumbent ecosystem, which gives you a unique vantage point in assessing and driving healthcare innovation.  And along the way, you’ve picked up some well-deserved recognition - #2 on Modern Healthcare’s “Most Influential” list, and maybe even cooler, #21 on Fast Company’s “Most Creative” list. 

Dr. Klasko: Yes, #21 on Fast Company’s Top 100 Most Creative People in Business. I was right next to Reese Witherspoon.

That was funny, because I was the only health care leader on the list – it’s mostly the Tim Cooks of the world and the like. My kids are all grown up, but still, they saw my name on that list and they go “Oh, Dad, you really are important!” You know, like everything else I had done didn’t matter.

Taking a “no limits” approach

Q: What would you say have been the grounding principles for you as you’ve navigated different roles across the health care ecosystem?

Klasko: All joking aside, creativity is certainly a big factor, and on the whole, it’s a characteristic that health care doesn’t place nearly enough emphasis on. From the beginning I’ve always taken a kind of “no limits” approach, starting with doing my residency in a two-resident a year program at Allentown Hospital and continuing on through today. 

Along the same lines, a concept I have shamelessly stolen – or I should say adopted and given credit for – is the Steve Jobs idea of old math versus new math. I got a chance to work with Apple on the iTunes U Health board in the early 2000s when in the early 2000s, the “cool things” were laptops and operating systems. Everybody was asking, “What is Steve going to come out with next? A cooler laptop than Dell or Gateway? Windows 2030, instead of 95?” Steve recognized that that was an “old math” game and said, “Screw that. I'm going to think about what's going to be hot 10 years from now and do it today. I’m going to play to the ‘new math’ of the digital lifestyle.”

The Wall Street Journal articles were all saying he was crazy – no one understood the idea of the “i” revolution yet. But that “old math, new math” thing really stuck with me.

Q: A running theme across your career, Steve, is drawing inspiration from out of industry and then thinking through the translation and application to healthcare – working at Apple in the early 2000s is emblematic.  More recently, you’ve come full circle and immersed yourself in the digital startup and capital allocator world in health care. You and Hemant Taneja of General Catalyst have co-authored a book (Health Assurance), partnered in launching the platform companies Commure and Tendo, introduced a healthcare-focused SPAC (special purpose acquisition company), and, in my estimation, led the charge in helping health systems and the broader healthcare “establishment” begin to capitalize on this digital-health resurgence.  What drew you to this part of the ecosystem?

Klasko: A lot of things in my career have been serendipitous. Someone had told Hemant that he and I should meet – he was understandably skeptical, because he had just written a book called Unscaled, which is all about using technology, rather than new bricks and mortar, to bring people together, and here was some guy who had just built a system up from two to 18 hospitals.

We met up anyway, I talked about my vision for “health care at any address,” which I can talk more about, and we just sort of hit it off. One of the things he picked up on was that when talking about health care, I didn't talk about doctors and patients; I talked about the 97% of people in Philadelphia that don't wake up in the morning and don’t think of themselves as patients. That was his same goal when General Catalyst invested in Livongo. So, we became really friendly.

You mentioned Commure, Eric.  Hemant and I started to work together on how Jefferson and Commure could interact. I loved the concept of creating a FHIR layer that allows us to add apps across platforms. It offered a really good analogy between what Apple did with the iPhone and where we were – and are – in health care. When I had a Mac years ago, I couldn't use PowerPoint. That’s gone, right? But if I have Epic, I still can't use a Cerner product, and vice versa. I loved that Commure was democratizing health technology.  That led to our announcement on October 18 with Jefferson, Commure and General Catalyst.

Creating “Frankenstein”

Q:  What you’re describing, Steve, is one of the most remarkable things that you and Jefferson have achieved – a “shuttle diplomacy” between the capital allocators (and Silicon Valley innovators) and the health system incumbents.  With all of the hyper-liquidity in the market, and the justified excitement around digital health, we’ve seen an explosion in activity – over $25B invested by venture capital and private equity into digital health so far this year in 2021; more than 8,000 health “platform” offerings created; and an entirely new cast of characters seeking to disrupt healthcare. 

All good, but we’ve consequently created a bit of a Wild West situation, with a spate of new companies trying to figure out how to work with (and sell to) payers, employers, hospitals and doctors.  We’re also seeing growing pains – frustration with the lack of interoperability and standardization, protracted deployments/installations (by some estimates upwards of two years for a successful adoption of a digital health solution at a health system), and a pervasive sense of impatience as to how to make this all work.  I’m discerning that this is one of your passions – to figure out how to optimize all of this.

Klasko: Yes, exactly Eric.  What we are ultimately doing is trying to morph the mindsets of a Silicon Valley entrepreneur and the CEO of a 197-year-old academic medical center. Hemant and I asked ourselves what that Frankensteinian entity would look like, and we wrote a book about it called UnHealthcare - A Manifesto for Health Assurance.

“Move fast and break things” isn't necessarily what health care needs, but health care isn’t going to progress under the traditional mindset of inching forward to avoid risk at all costs. That hasn’t gotten us anywhere. Under the status quo, when we improve access, all we've really done is get more people into a fundamentally broken, fragmented, expensive, and inequitable system.

So, we thought, what if we took the best of both worlds? We used health “assurance” intentionally to contrast with health “insurance.” Our job, whether you're in the payer world or the provider world, should be to make sure your health is as far away from a high-fixed cost hospital as possible. How can we bring together folks to do that?

So, we created that Frankenstein, and Hemant brought in Ken Frazier (CEO of Merck) to run the dedicated Health Assurance division of General Catalyst.

Rectifying structural health disparities

Q: One unfortunate aspect we see in this unprecedented capitalization of digital-forward companies is the perhaps inadvertent neglect – but neglect all the same – of disadvantaged, marginalized populations.  It is hard to accept that zip code is still more determinative of health status than genetic code.  And yet with all of this capital flowing, and this digital and entrepreneurial “Renaissance moment,” we see comparatively little energy and capital serving populations like Medicaid (outside of a few notable examples like City Block or Station Health).  Fair?

Klasko: Yes, fair. This has been a big area of focus of ours – how do we prevent these “unintended consequences” like paradoxically worsening disparities for disadvantaged populations? We have to get out in front of them. If we knew that the Industrial Revolution and internal combustion engine would cause climate change, we might have made some tweaks. If we knew that social media wouldn’t just be used so I could see my (unbelievably cute) grandkids, but would actually spew hate, we might have put some provisions in place up front.

At Jefferson, we brought in Aimee Van Wynsberghe, who runs a Center for Ethical AI and Robotics, to help us figure out how to put ethics in at the beginning of all this. And that’s been informing our process of trying to figure out what companies PCHE (the Philadelphia Collaborative for Health Equity), an entity created at Jefferson but now citywide) should work with that will really make a difference. Is it CityBlock? Zipline? EQRx? You mentioned a couple of them, Eric.  Those are all the kinds of companies we’re looking at and saying, "This has nothing to do with our hospitals, but it’s about getting rid of food deserts by drone-delivering food or using community health partners to really help the 5% of people who end up using 50% of the resources.”

Q: You and Jefferson have been focused on rectifying these structural health disparities and inequities for a while – not just within the conventional service area and structure for Jefferson but also designing some cross-industry and cross-sector alliances.  Talk a bit more about the work you’ve done to date, and how you envision this work evolving.

Klasko: Certainly. In 2017 we made a core shift as a system to place health equity at the center of what we do. Twenty five percent of my own personal incentive became tied to reducing health inequities in Philadelphia, and in 2017 we started the Philadelphia Collaborative for Health Equity to bring folks across the community together in service of this goal.

Last year, Ken Frazier gave us a $5M gift to find a way to reduce disparities in stroke outcomes in the neighborhood in Philly where he grew up. He recognized that an African American male like himself, living in that neighborhood, has a 30 times increased risk of stroke than where he lives today, nine miles away. He believed our commitment to “health care at any address,” drew a circle around where he was born, and said “let’s do something about that stroke disparity.”

The circle he drew on the map was in the heart of Temple’s territories. So, we partnered with Temple, we gave them half the money, and established the Frazier Family Coalition for Stroke Education and Prevention.

Then Novartis came to us wanting to partner on gap closure for arteriosclerotic cardiovascular disease. Once you give people a vision to grab onto and start to get a reputation for being creative, nimble, flexible, doors open up. We’re going out to barber shops; we're going to go to people's homes.

It’s similar to what we’ve been doing with the vaccine. We've had great success improving vaccination rates in the African American and Latino communities, not by doing billboards, but by doing what we call #realtalk. Going out to African American pastors and congregations, meeting people at home. Doing it, not talking about doing it.

Q: What has it been like for you, personally – especially as someone who grew up in Philadelphia – to be engaging with the community this way?

Klasko: Well, I’ll tell you one of the most emotional things that happened. For the last 70 weeks, I've been on "The Sonny Hill Show," which is an 8 a.m. to 12 p.m., largely African American audience radio show. And I’ve been talking about Covid, the vaccines, etc. Well, after about 45 weeks somebody who listens to the show texted me and said, "Dr. Klasko, it's really, really, really hard for me to trust someone like you. But Sonny really believes in you and I believe you're telling the truth, so I'm going to go and get a vaccine. There's a lot of people that think like me that are listening to you now and trusting you – please don’t disappoint us." So, that was an “aha” moment.

Moments of wow

Q:  It seems you’ve had a lot of these course-changing, unanticipated “aha” moments, Steve.  Maybe stepping back from Jefferson for a moment and thinking a bit more retrospectively about your career, what were some of the other big, seminal moments that influenced your path?

Klasko: There are a couple. First, I would probably still be delivering babies in private practice at Lehigh Valley if it weren’t for a lecture I attended at Penn State that altered my course. This older, male OB/GYN was telling students, “If you see a fibroid in a woman in her 40s or 50s, just take it out, because after childbearing, a woman doesn't need her uterus." I was at Barnes & Noble that night and I saw four of the top 10 nonfiction bestsellers were, What My Hysterectomy Did to Me, How a Hysterectomy Ruined My Life, etc. That was my first “aha” moment of realizing that health care was a little screwed up. And I wasn’t going to be part of the problem.

Fast forward a few years, I’m Chair of OB/GYN at LVHN and I'm listening to all these brilliant doctors talk about gatekeepers and insurance companies and saying, “business is killing us,” and I’m thinking, “neurosurgeons can take out a small tumor through a microscope…these other problems should be fixable.” It was my second “aha” moment. In 1994, I decided to get my MBA at Wharton.

Coming out of Wharton, I got a research grant along with Richard Shell (Chief of Negotiation at Wharton) to study what makes doctors different from other people in how we negotiate and handle change. We came up with a theory that the way that we select and educate physicians in the U.S. has created a cult around four biases: an autonomy bias, a competitive bias, a hierarchical bias, and a non-creativity bias.

I got obsessed with the non-creativity bias. If I ask most successful people, “What got you where you are?” Creativity will be first, second, or third on the list. Well, doctors are as creative as anyone else, but less than 10% put creativity in the top three. They always say strategy, focus, discipline. It was another “aha” moment.

This bias doesn’t come out of thin air. We can't accept students based on science GPA, MCAT scores, and organic chemistry grades, and then be amazed that doctors aren't more empathetic and creative. So that set me on the path of advocating for reform in medical education.

Q:  You’ve written and spoken extensively about this, Steve – the structural biases and behaviors that we embed into the profession from the very first selection criteria we use to admit these young men and women to medical school.  If I remember correctly, you materially changed the evaluative and admission criteria at first USF and later at Jefferson medical schools to begin to solve for this?

Klasko: Exactly. I had written pretty extensively on the flaws in how we select and then educate medical students when USF approached me in 2004 and essentially offered me the keys to a brand-new medical school and a chance to put my philosophies into practice.

At Morsani (USF), we created the first medical school in the country that chose applicants based on self-awareness, empathy, communication skills, and cultural competence. We basically erased the objective criteria.

One of the interesting things we found was that this nearly tripled diversity. When you evaluate applicants based on what kind of human they are and what kind of doctor they’d be, it doesn’t matter whether they paid thousands of dollars for tutors and prep classes or not. We don’t need students to be robots – there are going to be robots next to them pretty soon that are going to be better at memorizing than physicians could ever be – I want us to have empathy and creativity.

Q: It's thinking in the Steve Jobs way of “what are we going to need 10 years from now?” I know you did work in this vein to transform the curriculum side of medical education as well, with CAMLS – prefiguring some of the virtualized and AI/ML-augmented training modalities of today.  Would you describe CAMLS and what problems you were solving for?

Klasko: You’re exactly right, Eric. The second thing we did was build the Center for Advanced Medical Learning and Simulation (CAMLS).

Here’s the problem. I’m a private pilot, and every two years I have to get my technical and teamwork competence checked in order to fly. Well, at that point I'd been a surgeon for 32 years, and nobody ever checked my technical or teamwork competence. Based purely on objective criteria, you were much safer flying with me than you were being operated on by me! Ten years from now, it’s going to be obvious that these competencies are mandatory for success. So, we worked with Lockheed, Stryker and the Tampa Bay Lightning to create CAMLS.

We became proselytizers that the “see one, do one, teach one” educational model doesn’t make any sense. I learned how to intubate a 1.5-pound baby in the middle of a chaotic delivery, with the dad looking over me – it shouldn’t be like that. Technical medical skills shouldn’t be taught in day-long courses that result in a certificate. With CAMLS, we developed time-independent modules to dynamically test expertise. No one is learning to intubate babies on the fly.

Redefining the meaning of “championship”

Q: What were your main takeaways here? Because I’m hearing echoes of other themes you’ve mentioned.

Klasko: Absolutely. For one, rejecting the “old math” definition of success was critical. Every dean of USF before me wanted to compete with UF. Just like every president before me at Jefferson wanted to compete with Penn. Well, we weren’t UF, and we were never going to be. And I didn’t want my goal for the organization to be becoming a closer “second” – I wanted to win a championship.

So, I redefined what “championship” meant to us. We won the championship of having the coolest selection of education procedures. We won the championship of creating the largest, at that time, assessment of technical and teamwork competence.

Along these same lines, my time at USF reinforced the notion that we shouldn’t be limited by the “natural order of things.”  People liked when USF was a nice little system that minded its own business, but between our work in medical education, our work in The Villages – we changed that. I think Philadelphia and Tampa are pretty similar in that way. The natural order of things was UF above USF, or Penn above Jefferson. But I don’t abide by that.

Q: I love it. And this sort of transformation mindset shift is one of the reasons you were brought to Jefferson, right?

Klasko: Right. In 2013, when I got a call from Jefferson asking me to interview for the CEO position, I laughed out loud. At the time Jefferson was one of the more conservative systems in Philadelphia, so I figured they couldn’t be serious – I was the opposite of a traditional, conservative health system leader. But they were committed to transformation, and here we are.

The path towards growth

Q: As we’ve discussed, Steve, under your leadership Jefferson has grown 6 times in size – completing six health system mergers, integrating the University and the health system, adding a design school, etc.  And as we’ve discussed in parallel you’ve been increasingly involved in partnering with and integrating tech and digital in a new way.  But I want to go back to something you referenced that undergirds all of this: the construct of “old math and new math.”  What was Jefferson’s brand of “old math” when you arrived, and how did you shift the construct to “new math”?

Klasko: When I got there, the governance structure was a bit of a wreck, there was a board for the university, a board for the hospital and a board for the system…and I was a single campus leader reporting to three boards. Folks were espousing the same sort of hierarchical value chain as I’d seen with UF/USF. Only this time it was, “We're number two to Penn, but we can be better than Temple and Drexel.”

So, in 2013 we created a blueprint for strategic action to change the way we defined success, and this is where I shamelessly stole the Steve Jobs “old math/new math” dichotomy as an organizing structure. The old math was inpatient revenue, outpatient revenue, NIH funding, and in-person tuition. The new math was innovation, strategic partnerships, and philanthropy. I got the same reaction that Steve got of, “Hey, you’re crazy!” But we invested $30M in telehealth in 2013, and we actually followed our four-part plan.

The first goal was to diversify our portfolio through innovation, strategic partnerships, and philanthropy. And that was because I correctly predicted that our traditional source of revenue would go down, so we needed to get creative. And we’ll get into all of those, but on the philanthropy side I’ll tell you we averaged about $25M in philanthropy the year before I got here. We’re now doing $170M per year.

Second, what if, instead of a hub and spoke model, we did something totally different, like hub and hub? And then that turned into health care with no address, and ultimately, what we’re doing now, health care at any address.

Third, we needed to change our mission and vision. Before, everyone’s mission was the same – being the premier AMC in Philadelphia. What does that mean? We changed our mission and vision to be more externally facing and we established three organizational values to lay the foundation for our culture: do the right thing, put people first, and be bold and think differently.

And then finally, change up our governance structure so that it becomes an asset, not a hindrance

By the way, these are kind of the four things we’re going after, but they’re interrelated, they’re inextricable from one another.

All of this fits together perfectly.  First of all, from a literal sense of “health care at any address,” it gives us the foundation to enable that kind of access across Philadelphia and South Jersey and diversify our portfolio in the process.

And it’s all predicated on our values: put people first, which I think is especially true with the Einstein merger; be bold and think differently - a lot of this activity goes back to what we’ve been talking about, about messing with the natural order of things.  Jefferson was the “cute, cuddly” system rather than a significant competitor, and these mergers and our national reputation really changed that up.

But in order to pursue the M&A activity, the first order of business had to be separating ourselves from the JHS system – our governance structure wasn’t working. That was the riskiest thing we did, but it was the right thing to do, to realize our mission and vision. And that’s what I focused on when we went to Moody’s for our first bond rating. The Merrill Lynch folks had advised me “not to be myself” because Moody’s doesn’t have the reputation for being the most creative place on the planet. Well, you know me…I get up there and I launched headfirst into telehealth and “health care at any address.” I had read their last four downgrades, and part of what they said was that people weren't getting ready for a very different future." We ended up getting an A1 rating.

From there, we merged the university and the hospital, and then we started our path toward mergers/acquisitions.

Q: With this foundation, Jefferson clearly had a “gravitational pull” for other Philadelphia and New Jersey systems like Aria, Abington, Kennedy, Magee Rehab, and Einstein.  This kind of horizontal consolidation mirrors what we’ve seen nationally, with the top 100 systems now controlling over $850B out of our entire $1.3T sector.  But Jefferson charted a novel course, adding a health plan (Health Partners Plan) as part of your overall growth strategy, as well as other unique dimensions that fit your strategy.  Thoughts?

Klasko: Well, everybody looks at the fact that we went from two hospitals to 18 hospitals. What they don’t see is that each of the places we acquired or merged with had the largest primary care networks in their region – so we ended up with the largest number of attributable lives. And that supports exactly what we’re trying to do with health care at any address.

The first deal, Abington Health in 2015, created a bit of a seismic shift in Philadelphia. Abington didn’t really need to go to anybody.  But they saw the future, so they pursued acquisition, understanding that it would probably mean becoming a “spoke” in another system’s hub and spoke model. And if you’re going to be a “spoke anyway,” they figured they might as well go with Penn. This is where our no limits approach came into play. I went to Abington and pitched my “hub-and-hub” model, and I and my board offered them equal board seats as incentive. To their credit, my board saw that this deal would be a game-changer and agreed to give up half the company. We got the deal.

Before the Abington merger, there was a “natural order” in Philadelphia – Temple was the underserved place, Jefferson was cuddly, Penn was Penn. The fact that there was an open competition, and we were chosen for this crucial merger, messed with the hierarchy. That made people pay attention and start to listen to our vision and say, “No, Jefferson isn’t talking about hub-and-spoke, they’re talking about hub-and-hub, they’re talking about telehealth, they’re talking about an optimistic future.”

Q: Abington was a watershed merger for you, and catalyzed, as we’ve seen, a fast growth trajectory.  But I don’t want to lose sight of the other thing you’ve focused on relentlessly, which is philanthropy – your vision has attracted some transformational donations. We’ve talked about this with Ken Frazier’s gift, and Novartis’ funding, but there are two big gifts that are more specific to Jefferson.

Klasko: You’re absolutely right, Eric. So, of course, Sidney Kimmel gave us $110M because of this vision that we laid out including extricating ourselves from JHS, implementing health care at any address, and diversifying our portfolio. So we now are the Sidney Kimmel Medical College.

And Bernie Marcus and the Marcus Foundation gave us what's now about $50M to support the integrative health and nutritional sciences into clinical care and medical education. And we created the first academic Department of Integrated Health and Nutritional Sciences.

Philanthropy took off because people saw a vision very different than simply where we were ranked on USNWR.

So, in keeping with the “governance is currency, optimistic future” message, the next acquisition we made was Aria Health in 2016, which brought in the entire Northeast Philadelphia. By that point, we had nearly a quarter of our patients and employees in living in Southern Jersey, and it was becoming increasingly difficult due to political maneuvering, for patients to come into Philadelphia for care. So, we merged with Kennedy, which considerably expanded our primary care footprint. Next was Magee Rehabilitation, and then the most creative acquisition we made was Philadelphia University in 2017.

PhilaU is the number three school for fashion design in the country. It’s known for architecture, sustainable environment, and design, and it’s 80% undergraduate.

Q: I feel like I’m transported back to our conversation about medical education and creativity and kind of thinking outside the box. What was the thought process here?

Klasko: It goes back to the whole idea of thinking ten years ahead. I was thinking, within the next ten years, people are going to be designing the human experience in health care, creating “healthy buildings” – how can we design how folks get care, starting from the time they’re at home?

Q: So that all sets the stage for the Einstein merger. To date, you hadn’t really run into too serious an issue with the FTC, right?  How did things play out?

Klasko: Einstein put out an RFP for a buyer because they had seen the writing on the wall. And as far as we could tell, the only other places that they could go would be to UPMC, Temple, or a for-profit entity.

Well, we had seen what had happened with hedge funds taking over community hospitals and it clearly wasn't good for the community. And if they went to Temple, that would have been an issue for ou






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