Welcome to the "Lessons from the C-suite" series, featuring Managing Partner Eric Larsen's conversations with the most influential leaders in health care. In this edition, Ken Davis, CEO of Mount Sinai Health System, talks to Eric about his background as a psychiatrist, how he revamped Mount Sinai by "betting the ranch," and the health system's commitment to population health.
Ken Davis, CEO of Mount Sinai Health System
Question: Ken, most everyone knows you as CEO of Mount Sinai—the renowned $8 billion, 38,000-employee system in New York City. But not everyone is aware of your clinical background, particularly your pioneering research in Alzheimer's and schizophrenia. You authored or co-authored 575 scientific studies, and were chair of psychiatry at Mount Sinai for 15 years, prior to becoming CEO in 2003. As you reflect back on your earlier, pre-CEO experiences, any particular moments stand out?
Ken Davis: Yes, a few. I had my first "aha" moment at my residency in Stanford. I was working at the Clinical Research Center in Psychiatry at the Palo Alto VA, and we discovered physostigmine, which increases brain acetylcholine and—according to research at the time—appeared to rapidly reverse mania.
Now, because of an observation made by one of our subjects, I thought memory might also be affected, so we tested it on Stanford students, and we found a statistically significant enhancement of learning in the kids who got physostigmine. We actually made people smarter, and nobody had ever made people smarter. The paper wrote itself, it got accepted in Science, and it became a big story, leading to a whole bunch of Science papers.
Q: And this launched you to test physostigmine on Alzheimer's patients?
Davis: Exactly, and it quickly became apparent that we were getting them to learn more words. I mean we're getting them to improve a little bit. But the problem with the drug we were using then was it was IV, and I needed a pill. So my laboratory then helps Sandoz develop Exelon, Pfizer develop Aricept, and my wife and I developed Galantamine. I then eventually conducted the first multicenter national study on a drug in Alzheimer's. And that was the beginning of gazillions of dollars of grants in Alzheimer's disease.
Several years later, I had another 'aha' moment as the chair of psychiatry at Mount Sinai. We completed the first study on post-mortem schizophrenic tissue with a GeneChip, which lets you look at the expression of genes in the brain. And we essentially identified some critical new pathways in schizophrenia.
Q: Let's fast-forward to today, and the rather distressing state of the union for Alzheimer's and neurodegenerative diseases, which combined cost Medicare and Medicaid about $200 billion a year. By 2050, that's going to be $700 billion. You've said before that if we are able to slow the onset of symptoms by just five years, by 2050 that will save $450 billion a year. Is that correct? Why aren't we as an industry and society mobilizing around this?
Davis: We tried to put into the 21st Century Cures Act something focused on Alzheimer's, but lawmakers said they couldn't do it because every disease-related lobby would want their own specific legislation. I argued that Alzheimer's and type 2 diabetes are different in kind because other diseases aren't going to bankrupt the American health care system—Alzheimer's and type 2 diabetes will. These are national emergencies.
Ultimately, it may be that genomics and proteomics and precision medicine help us. Because we know now with Alzheimer's, the changes in the brain start 25 years before you're symptomatic. So if we can develop something like what we have for cardiac disease, you know, a statin for the brain that slows the buildup or facilitates the clearance of amyloid by 50%, then instead of taking 25 years to get Alzheimer's, it takes 50 years to get Alzheimer's.
From research to leadership
Q: Let's pivot to your transition to CEO. Here you were with these huge breakthroughs in your clinical research; you'd moved from Stanford to the Bronx VA to establish a schizophrenia biological research center, and then you moved to Mount Sinai as the chair of psychiatry, which subsequently became one of the most successful departments in the system. But then Mount Sinai had some abrupt executive leadership changes.
Davis: Yes, in 2002, the deanship here opened up, and the CEO quit too. I applied for the dean position, and by November 2002, I was told I'd gotten the job, which meant I would still have an opportunity to do science with half of my time.
But as that happened, Mount Sinai—the hospital and the school—was hemorrhaging money. Things were getting really, really bad. After about three months of meetings, the hospital still wasn't getting any better. And the chair of the board, Peter May, said he wanted me to be CEO, to do both jobs.
Q: They wanted you to do both jobs—and that meant no time for your research.
Davis: Right, so I had a very, very difficult decision to make, because being CEO and dean would mean the end of my scientific career.
Ultimately, two key factors influenced my decision. One was David Hamburg, the chair of psychiatry at Stanford when I was there, who has said, "Life is too short to do the same things all the time. I had a major change in my career every 10 years, I never look back. My life has been richer for it."
The second factor was an article in the New York Times on Mount Sinai called "How a Great Hospital Lost Its Way." I read the article and I started to cry, because this was not only where I worked, it was where I'd gone to medical school, where I'd been a patient as a kid, where my aunt had worked as a nurse, and now the newspaper was talking about how a great hospital lost its way. And I thought, these jobs they're asking me to do—this is probably what I should do.
Q: So you became CEO of a near-bankrupt hospital in 2003. Here we are in 2017, and Mount Sinai is profitable, stable, and the research accolades are stacking up. You're No. 1 per investigator in NIH funding, you have 23 IOM National Academy of Sciences winners, etc.—not a bad run. How did you and your team architect that turnaround?
Davis: On my first day as CEO, I met with our analytics team to figure out where we're losing money, and I find out that Mount Sinai has a tradition of being a great hospital for internal medicine, that we prided ourselves in the iconic figures here who were largely internists – but while we also had a nice surgical group in every specialty, they weren't as strong. So I made a couple of decisions. Once decision is that in a city as competitive as New York, you can't be a 'B' institution, and we're not going to be an 'A' institution unless we recruit the right people. So I bet the ranch: I asked the board—this is in 2003—for access to the $90 million of unrestricted money left in our endowment to recruit, and they voted unanimously to do it. But after the meeting, one of the board members turned to me and said, "Ken, you better be right about this plan because if you're not, you'll be the last CEO of Mount Sinai."
Within about a month of becoming CEO, I also replaced almost everybody on the management team. And the new team had the right values—people who were transparent, who saw problems as an opportunity, and who trusted each other—and we started to see a turnaround, and that changed the morale. Then the board came online and raised a lot of money for us, and we were able to recruit, recruit, recruit, and we have surpassed our wildest expectations.
A principled, defensible shift toward population health
Q: One of the more remarkable things about Sinai is your declared shift—as a big-time academic medical system with world-renowned subspecialties —toward population health, perhaps best encapsulated by your recent ad saying 'If our beds are filled, it means we've failed.' And it is particularly interesting that you, as a clinician CEO, are essentially arguing to empty your own beds. Can you share some of the thinking behind this?
Davis: About a year after we made a commitment to population health, we got approached by Continuum Health Partners to merge and take over their system, which included Beth Israel Medical Center and St. Luke's Hospital and Roosevelt Hospital.
The merger posed a lot of upsides—more primary care physicians, a much larger distribution, a much larger market share, and the prerequisites that we needed to be in population health. But there were also downsides: This was a system with a lot of very old infrastructure, with hospitals that had to be rebuilt, with payer mixes that were really disadvantageous and some massive losses.
And with that merger, we began to realize we needed way fewer beds for a couple of reasons: First, Manhattan was hugely over-bedded, and second, in medicine, quantity equals quality. So we took advantage of having all these hospitals and saying, we don't do orthopedics everywhere, we don't do pediatrics everywhere, we don't do cardiac surgery everywhere. We aren't going to build a new, billion-and-a-half dollar facility to replace Mount Sinai Beth Israel Hospital. Instead, we're going to have centers of excellence at our existing hospitals that better serve the local community.
Then we began to add to those centers of excellence something called the "hospital-at-home." As many as 40% of medical admissions can be managed at home—conditions such as asthma, COPD, pneumonia—as long as you have the right staffing, apps, and telehealth, and it produces better outcomes and happier patients.
But the new, smaller Beth Israel facility will have a very robust ED. My mandate was that if we're going to be an ED, it has to be an honest ED—I don't want to have a sign that says "emergency" and not be able to take care of strokes or chest pain. So we've got to have the Mount Sinai Hospital's Cardiac Catheterization Laboratory, and we've got to have the neuro-interventional suites, and we've got to have some ICU beds behind it.
At the end of the day, it's going to be kind of a different small hospital, and it may be that this unusual small hospital is the future in large health systems like ours.
Q: What you've just described is this this elusive concept of 'asset rationalization' and moving from acute-care centricity to a more ambulatory platform. A lot of CEOs talk about this, but not on the scale you're undertaking with the transformation of Beth Israel: closing an aging, outmoded 825-bed facility and replacing it with a $500 million investment in primary, specialty, behavioral and outpatient surgery network. Has it been hard to get everyone on board with this?
Davis: It's not easy, and there are people on our board who, given what's happening in Washington, have tremendous doubts as to whether we should take this risk. All in all, we're going to spend over a billion dollars across the system. And the board appropriately says, "If Obamacare is repealed and if all those 3 million people in New York State who are now been covered are gone, then we're going to be overwhelmed with uncompensated care."
I say, our finances are such that we'll find a way to make those investments. We're also entering a philanthropic campaign. We're spinning off some companies that we think are going to have a very big initial public offering, and we own 80% of them. So down the road, I know other places where we can find some money, but if we don't do this, I mean, we're not prepared to take risk.
Q: You've mentioned you're targeting 500,000 lives that will be under some value-based compensation by end of this calendar year. Let's talk about the options you have at your disposal to manage these lives. One option you've explored is launching a provider-sponsored health plan. I believe you launched an MA plan in partnership with a payer last year. How did it go?
Davis: Well, frankly, it didn't go too well. It didn't enroll that many patients, just a couple hundred. But in 2018, we hope to be launching a much bigger effort with Bright Health in Colorado. We're going to be their network for managed Medicare in New York.
We're also going to work with Bright to offer a vehicle for small employers, and we'll see what else we do with them. But all our contracts are slowly moving to risk—just upside—with contracts assuming full risk probably around 2021.
Science of the breakthrough
Q: Ken, I've got one last question for you. As you were discussing your career, you described these 'aha' moments in your work. And I'm just curious for you to describe the science, if you will, of the breakthrough. Because as you describe them, they came as flashes of insight, but obviously what preceded them was backbreaking, laborious work.
How do you think about 'earning the right' for those discovery moments or creating the circumstances where the moment arrives?
Davis: Well, it's like staring at all the data and then suddenly realizing the unthinkable is really true. I guess it's the contradiction between what you expect and what you found. But it's also It's an awareness that some breakthroughs take decades of preparation, like with the schizophrenia genes study. I mean, that was a dream that was fulfilled only after 20 years, when we could ultimately find the brain tissue needed for the study, get access to the tissue, and, with GeneChip, get the technology needed to bring it to that level of insight.
You know, the big discoveries – it's the way Bob Dylan says when he writes songs, the words just come out. The tough stuff is more like Bruce Springsteen, who says he sometimes has to write 80 versions.