At the Helm

From the seminary to the C-suite: How IU Health CEO Dennis Murphy is redefining the AMC

by Eric Larsen, Managing Partner, larsene@advisory.com

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, Dennis Murphy, president and CEO of IU Health, talks about his "Forrest Gump" journey from the seminary to the C-suite; IU Health's planned consolidation of two century-old, iconic hospitals; and the key skill every leader—and mentor—needs to succeed.

Dennis Murphy
Dennis Murphy, president and CEO of IU Health

Question: Dennis, I'm excited to dive into IU Health's continued evolution as a $6 billion, vertically-integrated academic medical center (AMC), your commitment to Indiana's population health, and more—but first things first, I have to ask about the priesthood. You joined a seminary when you were a teenager?

Dennis Murphy: Yes, when I hit seventh grade, a priest visited my parents and convinced them I might be a good fit for the Capuchin seminary—what I call the kinder, gentler Jesuits. Up until then, I had actually thought carpentry was going to be my career, because my uncle—who I idolized—was a carpenter and my parents' friends were in construction or the building trades, like bricklayers and painters. I always enjoyed working with my dad on big projects so this just made sense. 

But I ended up spending a weekend at the seminary, and I was hooked. I left home when I was 14 to go there. It was life-changing for me; I saw things I would've never seen had I stayed in my neighborhood. And it was also life-changing to be away from my big Irish family; I was used to doing everything with my siblings and cousins. My parents ingrained in me and my siblings really early on this idea of, "Don't just do something with your life. Do something meaningful. Make a difference. Give back"—but it was hard to think about that when you're an immigrants' kid growing up in the middle of a big city and looking at your options. The seminary opened my eyes to options. 

Once I finished my schooling at the seminary and while attending college, I worked at what was then the state's Northern Indiana Children's Hospital for Disabled Children where I cared for autistic teenagers, across an eight-hour shift.

So, it was really the experience at the seminary that led to that first imperative to serve. My education there was completely geared around, "You're put on this earth to do good, to serve, to get out in your communities and be really active there." Ultimately, I left the seminary because I realized that I really wanted to have the kind of family that I grew up in.

Q: That altruistic and service impulse has stayed with you, as we'll clearly see as we get into your career path. Let me first ask about "intentionality" on that path—both academic and career. How much was premeditated and how much was happy accident? Notre Dame, Duke University, and then Johns Hopkins, University of Chicago, then Northwestern, and now IU.

Murphy: I'd say it was a version of both, Eric. There are times where I think I'm a living Forrest Gump example. Stuff just happens, but stuff also happens because you are ready for it.

During my undergrad at Notre Dame—where I went from 28 people in my entire graduating seminary class to 500 people just in freshmen chemistry—I thought for a while that I would become a physician, but I eventually realized that it wouldn't make me happy. And I still didn't really know what I was going to do after I finished undergrad, but a friend's father suggested health administration, and I eventually enrolled in Duke University's graduate program.

Johns Hopkins was similarly unplanned. I had intended to go home after Duke—I had accepted a job in Chicago—but a really wonderful faculty member at Duke said I should apply to Hopkins' new Administrative Fellowship Program.

Of course, by that time, it was March of my second year. I was really late to the game. But I applied, and ended up getting the last slot on the interview schedule. Of course, the interviews all run late. Steve Lipstein—the man running the Hopkins program—had a flight to catch. So he said, ''I'm sorry. I can't interview you. I've got to get back." So I said, ''How about I drive you to the airport?''

Q: Very enterprising.

Murphy:  Yes! I think it was 1989 and I had a 1975 Volvo. It was a beater. And I had my interview with Steve in that car. But I ended up getting asked to go back to Hopkins for a final interview and ended up being one of the two first fellows at Hopkins.

Redefining AMCs: IU Health as a 'distributed' AMC

Q: Let's time travel forward to today and talk about IU Health, where you've had the privilege of serving as president and CEO now for a couple years. AMCs as an institution are in a somewhat precarious state, but IU Health is one of a rarified few that are doing well. Last year, you had a billion-dollar surplus. What makes IU Health's experience distinct from other AMCs?

Murphy: Thanks. Let me just start by clarifying that while IU Health had a strong year on many fronts in 2017, a significant portion of our financial gains were related to non-operating items.

We're very declarative about IU Health's identity as an academic health system. We're not a health system that has an academic institution; rather, we expect education and research missions to be carried out everywhere in our system.

That declaration is particularly important for our rural patients. When I came here, I learned quickly what personal care is like in rural areas, because the provider either lives next to you or next to somebody who's next to you. It's all one degree of separation.

That's why our integrated approach is so critical: All of our major campuses—Bloomington, of course, but even the smaller communities like Bedford or Jay County—are a part of the strategy. If trainees can get experiences in those communities, they have a better understanding of the situation. And we've seen better opportunities to recruit people to those small communities when a medical student goes out to a rural community.

Q: Let me make sure I understand your thesis. You're saying while other organizations have a sort of concentrated Mecca for academics and research—plus a hub-and-spoke program that feeds back to the mothership—IU Health's academic mission pervades all of your sites. It's distributed. Fair characterization?  And if so, how unique is that approach compared to peers?

Murphy: Yes, very fair characterization but also a work in progress. And while I think there are other AMCs that are trying that approach, none is doing so at our scale. We have some natural advantages to help with the implementation of that type of strategy.  There is only one allopathic medical school in the state—Indiana University, with nine campuses. I don't know of any other medical school with that sort of scale in terms of the number of different locations and number of students.

And the School of Medicine just went through its accreditation, which requires that the education is the same throughout all of the university's sites. So we have trainees spread out in Bloomington, Lafayette, Muncie, Fort Wayne, Evansville, and downtown Indianapolis.

Overall, it's worked out really well: One of the shared missions for the medical school and IU Health is creating a workforce for the state, and, in fact, roughly 50% of all the physicians who practice in Indiana got some component of their training with us.

Q: Does this unique structure lead to a similarly distinctive approach toward patient care and being able to meet your patients in their communities?

Murphy: Yes, it's the same thing. Our precision oncology program is a good example. You can go to Bloomington, Lafayette, or Muncie, the providers will type the tumor, consult with a tumor board—including an oncologist focused on personalized medicine—via telephone or telemedicine, and then say, ''Here is the right treatment, and you'll stay in your community.''

The approach has been particularly distinctive for our branding. When we do brand loyalty testing, more than 60% of the state population say IU Health is the place with the best care, the best physicians, and the best nurses. And that's not just downtown. It wouldn't be a success story if it was just in Indianapolis at the Academic Center; the perception and the brand must carry throughout the entire organization.

Q: Some might say that changes the AMC approach completely.

Murphy: I think it is unique. In fact, when you look at IU Health now, about 40% of our business is actually in the traditional academic center, the original three hospitals in Indianapolis. We are as diverse an organization as any non-academic  system, because we've got a big health plan, we've got suburban hospitals, community hospitals in other Indiana cities and rural critical access hospitals, as well.

Asset rationalization

Q: I think one factor behind that success is your remarkable willingness to undertake the hard and (and often unpopular) path of "asset rationalization." You've consolidated EDs, you've taken a hospital and rightsized it into an ambulatory center, and now you're consolidating two iconic hospitals: University Hospital and Methodist Hospital. I'd like to learn more about this consolidation, because it is one of the most exceptional projects in the country right now. When did the vision form?

Murphy: The discussion probably goes back to when IU Health was formed in 1997. University Hospital in 1997 was the teaching hospital of the IU School of Medicine with academic faculty, while Methodist was a private practice staffed facility but also had training programs. At the time, it was just too hard to figure out how to develop a common culture between them.

But that's led to this lingering duplication of services at the two hospitals—we affectionately call it "Noah's Ark." And we can't afford to keep doing that. We need the economies of scale. It's also not good for patients: If you're a cancer patient and you're seen in our Simon Cancer Center and you have neuropathy, you can't go to another clinic on the University campus, because all the neurosciences people are a mile-and-a-half away.  We knew we had to make a change.

Q: It takes courage to act on asset rationalization, especially as decisions like this are usually greeted with picket lines and scathing editorials. How are you addressing pushback?

Murphy: It's an interesting management dynamic; we're trying to figure out how much change the organization can handle, and how much more change it can handle when it's pulled versus when it's pushed.

For instance, we're one of the few systems of our size that has a single pathology lab. We run a courier service that's almost like FedEx; we have people going all over the state collecting samples. And when we bring new entities into the system, we've made this a requirement—their hospital is going to use the same equipment and systems as everyone else. But, as people experience the benefits of a common approach, better performance, fewer staffing issues, etc,  it's become much more of a pull … they want to be part of the system standard.

How IU Health is approaching risk

Q: Let's talk about IU Health as a vertically-integrated health system, with an array of provider-sponsored health plan offerings. I think of IU Health as really at the vanguard of this movement, and one of the more sophisticated systems in the country in this regard. I'd be curious to hear your thoughts on IU Health's experience here across ACOs, Medicare Advantage, and Managed Medicaid.

Murphy: We're invested heavily in this space, and in population health more generally. In fact, one of the aspects of IU Health that appealed to me when I joined was that it fundamentally believes this is a better way to take care of people.

If the ultimate goal is making the state healthier, then this approach is a better model than the traditional model, because it puts the resources where they are most needed. Of course, sometimes the lessons have been painful.

Sept. 27 webconference
Understand Medicaid managed care

Q: For instance, IU Health Plans are no longer on the exchange.

Murphy: Exactly. Like a lot of people, we just couldn't make the math work on the exchange: We did really well on managing the PMPM expense, but when they risk adjusted, we had to give back everything we made and more. So we've gotten off the exchange.

That said, over a three-year period, we broke even. We did well the first two years, gave everything back the third year, and at that point said, ''OK, we've learned a lot in this process, but we're going to let someone else take the rate-setting and the underwriting risk because the business model is too complex."

Q: And from the Medicaid side? Even though about 80% of Medicaid beneficiaries are in a managed care program, only about 50% of Medicaid revenues come from managed care, and that's largely because states are only now moving their high-complexity and high-acuity populations (ABD, duals, LTSS) into managed-care arrangements. I'm interested in IU Health's approach.

Murphy: We had a Managed Medicaid joint venture, MDwise, with Eskenazi Health—the county health provider here in Marion County—but we both agreed from a risk standpoint to get out. A lesson learned there is that the big Medicaid risk companies around the country can make the math work because they're in multiple states; if they get a bad year of underwriting in one state, they can tolerate that because they'll do okay in other states. But if you're a state-based system, like us, if you get one bad year of underwriting, you've got nothing else to offset it.

That said, we're still one of the biggest managed Medicaid providers in the state. When we were partial owner of the managed Medicaid plan, we took risk on all of the patients assigned to us and for entities unwilling to take risk.  When the rates got tight, we just said, ''We can't bear the risk of a Medicaid provider who's not part of IU Health and doesn't want to take the risk. ''

Q: That's a really material distinction. You and Eskenazi built and operated MDwise for more than a decade—with about 360,000 lives at the high watermark—before selling to McLaren Health Care in Michigan. What was the thinking around that sale?

Murphy: McLaren was a great partner. They were committed to taking on care and risk of managing and treating those patients. But the decision ultimately comes down to asset rationalization: We know where we want to have an impact, and we weren't willing at that point to go out of state to diversify our risk. Our core mission is to improve the health of the state.

But we're still assuming delegated risk on managed Medicaid for those lives we treat within IU Health, including downside risk, and we're doing okay on those lives so far this year. But I would tell you that we—and when I say we, I mean every Medicaid managed care plan in the state—went back to the state, and said, ''All of us are going to be gone if you don't change the way you do this.'' The state has been a fair partner and I think a better rate-setting mechanism has helped this year

Q: It sounds like you're engaged in R&D, essentially. The exchange experiment—not so great. What's been a winner for you?

Murphy: Yes, and I would say for the exchange experiment, the lab animal died—but we learned a ton from that experience. The contrast here is Medicare Advantage, where the rules are well established. We know how to operate within that model, and we do well. We have about 14,000 MA lives now and we plan to grow aggressively over the next few years.

And even though this is risk format, we know the rules, so we're able to manage it. Overall, about 20% to 25% of our business is in a risk format. And almost all of that is full capitation because we're in the Next Generation ACO program, and we've got our own employees and dependents. We also have commercial clients in our health plan, although a decent part of our commercial business is TPA.

Mentorship and leadership

Q: Let's return for a moment to your career path, Dennis, and how you've approached leadership at IU Health. Your predecessor, Dan Evans, had a focused, growth-oriented mindset; he took a three-hospital system in 1997 and built it into this $6 billion-plus system that had, at one point, 18 hospitals. But he was also self-aware enough to realize that making this far-flung entity cohesive and viable might require different leadership.

Dennis, you've described your own leadership approach as one of stewardship—but it feels overly simplistic to say the leadership differences between you two to "growth" and "stewardship." How do you balance yourself on that scale?

Murphy: I worry about generalizing a polar difference between growth and stewardship, because life is never that way. Dan was growth-oriented but also cared deeply about the culture.  Given the pace of growth, there was no time to go back and say, "Is this organized and integrated ideally?" But the flip side for me is that while I do that sort of stewardship reflection and assessment naturally, the system still has to grow. If an organization isn't growing, it's doing the opposite—and I don't know of anybody who's shrinking to success.

So the question in health care isn't, "Do we need to grow?" It's, "What does good growth look like?" It may be in our health plans, it may be in telemedicine, it may be in different lines of business than what were traditional growth areas for AMCs—figuring that out is the exciting part of the equation. Ultimately, though, I don't think you need to sacrifice one for the other; with the right team, you can do stewardship and growth. That's why it was great being here as COO. I got to focus almost exclusively on integration for my first few years here at IU Health.

Q: Listening to you reflect on your career, I'm really struck by the role that mentors have played in your professional development and success. Beyond Dan, you've already mentioned Steve Lipstein's key role in your career. Anyone else who's particularly shaped your approach toward leadership?

Murphy: Steve has been a phenomenal mentor to me. In fact, after my father passed, he was really just kind of a touchstone and example for career and personal advice. But in addition to Steve, I'd say Ron Peterson has really shaped my leadership style.  He was president of Johns Hopkins Bayview, Hopkins' first additional hospital, and I worked with him during my fellowship program and the remainder of my time in Baltimore. He was a great role model because he demonstrated that somebody who's more quiet and introverted can be a great leader. I admire how unbelievably smart and principled he is at all times. 

I still remember in 1989, I was on a team writing one of the first grants for an AIDS treatment center, and Ron wanted to see it before it went out. The next morning, he asked a question about a number on page 98 or something like that—he had read the whole thing, all 300 pages or so. To me, that was a great lesson on how the details matter, regardless your role. You never get beyond the need to pay attention to the details. And I think my team here knows that as well: If they give me something, I'm going to read it and respond to it.

Q: Your description of Ron as a quiet, introverted leader is fascinating because a lot of the folks whom we've been talking about—like Steve—tend to be more extroverted. Would you characterize yourself as an introverted leader?

Murphy: I'm probably an introvert by DNA but I also have a big, crazy (in a great way) Irish family.  I'm the first generation to be born in the States.  And in that kind of family, you're not allowed to be an introvert.  It's loud, it's noisy, and people aren't going to let you out of a discussion.  I love being in that environment with the people who know me best. 

At work, I'm more likely to leave a big room feeling the need to recharge, which is more typical of introverts. That being said, I understand that as a leader, you can't be that introverted. You have to put yourself in a space where you're more verbal than you might normally be, you have to be the open hand to greet people and make them comfortable. That's part of the job.

For me, ultimately, my level of introversion depends on the setting. I get exhausted anytime I have to go schmooze—I could skip the networking part of the job and be just as happy—but I also do these employee tours around the state, and those are completely energizing for me. It's all day in the hospital or one of our support areas, my natural environments; it's our people; and I feel like I'm learning a lot. I like that idea exchange and it feels like family to me. 

Q: Let's tease this out. Is there a particular skillset that you struggled with, being on the more introverted side of the spectrum? How did you develop that skill, and how would you advise your own mentees to develop that skill?   

Murphy: I think the public speaking part is interesting. I knew it was not something I liked or felt comfortable with, so I got coaching while I was at Northwestern. Dean Harrison, another really great mentor for me, articulated it well. He said, ''We all have stuff we've got to work on. We all have to keep sharpening the pencil, keep getting better."  He genuinely cared about me, invested in me and appropriately pushed me. 

I always tell mentees, "You've got to have probably three rooms to work well. You have to do one-on-one really well. You've got to do a conference table—maybe 6-10 people—really well. And then you got to do 200, 300 people—or in this job, you know, 3,000 people—really well." Throughout your career, you develop those communication skills sequentially. Nobody's going to put you in front of 3,000 people when you're at the start of your career. But you've got to do that eventually.

Q: This reflection on mentorship and leadership is interesting because CEOs have to balance assertiveness and confidence versus self-awareness and introspection. These aren't just different things—they're often highly incompatible things. It's a rare individual who can embody all these characteristics.

Murphy: You know, Eric, when I was looking through your reflection on interviewing 50 health care CEOs, I think the common thread is not whether you're an introvert or extrovert—it's whether you're genuine. Trying to be somebody you're not never works, and I think the more you can be wholly who you are and say, "Here's are my shortcomings, here's where I need people to help me, and here's where I'm really good," the more you can resonate with people. People will follow you because of that.

And I've tried to be authentic in my own career. Early on with my senior leadership team, I wrote out a list that said, "These are the things that are important to me: If we're going to talk about brand, about strategy, I have to be in the room—not for all of it, but for these specifics." And then I listed the other stuff in the business that I need to know about, but that I'm going to entrust to other people to lead. And I think every leader needs to figure out their columns. Leaders also need to understand that people are starved for feedback and really good mentors give you constructive feedback. Steve had no qualms telling me what I needed to focus on or do differently and it always made me better. It also mattered that he cared about me as an individual. I try to do the same thing with the folks I'm managing. Some of those conversations are harder than others but if you're honest and are coming from a good place, it makes people better.

Q: I think what you're saying about authenticity is right—but authenticity isn't an overly-common attribute. Not that folks are inauthentic. They just get preoccupied and the demands of the job get intense. The paradox is that the more authentic you are, the easier those external things become, because you already know your response and how you'll navigate them.

Murphy: I always say that's what I have my family for. When I see my family back in Chicago, I'm not the CEO of anything. I'm just one of a really large group of truly great people. And it's also good to come back to work and then just say, ''Okay, don't get so full of yourself." Because the job isn't about leading so much as embodying the spirit and the will of the place—you gather all of that up and say, ''OK, this is what we want to do.'' Now, you may clarify that, you may move it three or four degrees, but at the end of the day, a lot of that is innately in the place, and your job is to absorb it and then communicate it.

Q: A final question, Dennis. You've had a great run and have been privileged to serve in some outstanding organizations. What are you most grateful for as you reflect on your career?

Murphy: I think just the opportunity to work with so many wonderful people. I have amassed a set of friends and colleagues across the industry—and not just the Steve Lipsteins and the Ron Petersons, but the incredibly talented people at all levels of the organizations where I've worked. It goes back to why I got into this in the beginning. I feel like I've been able to make a difference, and I'm extraordinarily grateful that that happens every day with patients, but it happens because of the people I work with. I get to serve every day, and that's incredible.

Questions or comments about Lessons from the C-suite? Email Eric at larsene@advisory.com.

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