From Personal Pain, The Motivation For Business Innovation….
Aetna’s CEO Mark Bertolini, on remaking the healthcare system
I had the chance to connect with Mark Bertolini at the WOBI World Business Conference in New York City and get his insights on how he is driving change in the industry.
The conversation was published in two parts in the Knowledge@Wharton website. See Part I & Part II here.
Roopa: So I am here today with Mark Bertolini, the CEO of Aetna which is now poised to be the biggest healthcare company in the U.S..
Mark Bertolini: Well, it depends on -- yeah, but we'll be close.
Roopa: Well, you're close.
Bertolini: We'll be big.
Roopa: You will be very big.
Bertolini: We'll be a Fortune 20 and a FTSE 30 company. So yeah.
Roopa: Fantastic. It's a nice place to start from.
Bertolini: It is.
Roopa: So you've been called many thing including "Healthcare's Mr. Fix-it."
Roopa: And how do wear that mantle given that you've been in this healthcare economy for a while now? You've seen it from your perspective in the trauma care center when you were working there and now you're a CEO. How is it evolving?
Bertolini: Yeah. Well, I think, you know, through all of my experiences, in a level one trauma center as an EMT, Emergency Department Coordinator and, working in the hospital industry, working in the early days of managed care back in the 80's and then my own personal experiences with my son and myself in the healthcare system -- I realized that it wasn't getting any better. And actually in the late 80's and early 90's I had a set of these acetates. Remember when we used to have overhead projectors with acetates?
Bertolini: And I pulled them out and I was talking about the stuff back then and it's nice to see, you know, almost 25 years later we're finally getting around to it and I think the issue is that we define health the wrong way and it became incredibly apparently to me when my son battled with cancer for quite some time and when I had my ski injury where I broke my neck the system wanted to fix the medical issue but wasn't at all concerned about the individual they put back into society. And so for me it was my pain and my limitations, my physical limitations trying to get my life back which you never really do. For my son, you know, it was his whole journey for a year-and-a-half, two years with cancer and then, you know, I gave him a kidney in 2007. It was just this whole journey where they just wanted to get rid of the cancer and once the cancer was gone they were done with him.
Bertolini: And so I came to this conclusion that were a whole lot of things wrong with that but probably the most important thing was -- what do we define as success? And success is really healthy individuals are productive, productive individuals are economically, culturally, socially and spiritually viable and viable people are happy. And if we can do that individual by individual and community by community we'd have a much better world. And so how do we a design a system around that is really the point, right?
Roopa: Right. And how does that change how you think of Aetna's products and services?
Bertolini: So one of the things -- when I put my son into hospice in July 2003, July of 2002 -- July 15, 2002 -- I had to admit he was going to die in six months and he couldn't get curative services anymore. And when I got out and he was home and he graduated from hospice and today, you know, he's 30 and a productive human being in society, I was working at Aetna and I went to -- I was working with Jack Rowe and I said to Jack, "You know, we should change the way our end of life care program works. And let's waive the requirement that you have to admit you're going to die and let's allow people to get curative services while they're in hospice." And when we did that, we did a study for two years with self-funded customers because we weren't sure what -- we weren't sure if it was going to be a run on the bank and what we found was that instead of 25 percent of the people dying at home, 75 percent of the people died at home and we saw an 89 percent reduction in inpatient bed days and we saw 75 percent reduction in costs. And the families and the feedback we got on the program was, "This is incredible."
Roopa: For non-U.S. listeners -- you're talking about employers who actually take some of the risk of insurance, right?
Roopa: You're really engaging with people who have a stake in this.
Bertolini: A stake in it. And it worked. And so now today every Aetna customer gets that product.
Roopa: That's amazing. How does the average employee who has an insight like this, has an experience like this -- surface an idea at Aetna?
Bertolini: We actually have what we called the "Aetna Way Excellence Awards," and we reward employees for our values, each of our values – aligning it to our values but also on being transformative in their thinking. And so every year we have employees nominate other employees. So it can't be management.
Roopa: Ah, nice.
Bertolini: And we have an employee committee that evaluates them and people get Silver Awards -- there are probably, you know, 1,200 people that get Silver Awards and then there's about 40 people that get Gold Awards which is a nice check and a plaque and a visit to Hartford for three days and dinner with the management team, that sort of thing. But then all those 40 of those folks with a significant other go to a cool place. Like last year was the Bahamas -- and for a weekend and we give away ten Platinum Awards which is a very nice piece of crystal and a $5,000-dollar check. And for these folks it's meaningful money, right? And it's all built around these things that people come up with that are just really great ideas.
Roopa: And you have a good history of actually implementing these ideas?
Bertolini: We do. They're easy to do.
Roopa: They usually are, aren't they?
Bertolini: They're very easy to do.
Bertolini: Particularly when they come from people on the front lines who are actually doing the real work and know what doesn't work, right?
Roopa: Right. And they can make it work. So, have you seen a difference in the type of people who want to work for you given the changes you're putting into place?
Bertolini: Definitely. I mean I -- when I joined Aetna in 2003 I worked for a sleepy, insurance company that was, you know, struggling to figure out whether or not it was going to survive and when I took over as Chairman in 2010 -- we were a $30-billion-dollar company and in July of next year we'll be a $125-billion-dollar company and part of that has been our ability to be a thought leader and go out into the community and talk about what could be better. And now we have students -- I mean healthcare is one of the biggest budget busting problems in the world, in every country and people want to fix that. And when you look at the millennials, they want to be involved in a big, hairy problem that they can actually an impact on. So we have people lined up to come to work. I just hired Gary Loveman, the CEO of Caesar's. Just came to work for me because he wants to be involved in the consumer part of the healthcare revolution. So all of a sudden all of these really big folks, and great folks, and smart people want to come to work with us because we're about solving a big problem and everybody wants to be a part of that.
Roopa: And so you're creating a bit of a roadmap that people can believe in.
Roopa: A key thing about healthcare is the interconnectedness, certainly in the U.S. and in many parts of the world -- the interconnectedness of various institutional players. Have there been partnerships that you feel have helped or others you like to see in play? What's going to be the next big shift?
Bertolini: So solution number one -- when you step back from the problem itself and you admit that your value chain is on fire which is what the Affordable Care Act did, you have to say, "Okay, if I've got an opportunity to grab one or two things out of my burning house, what do I do?" And I grabbed those things and I let the rest of the house burn and then I take those important things over to the new value chain. So it causes you -- when there is a disruption -- you can do two things when there's a disrupted economy or industry. One, is you can put your thumb in your mouth, get in a fetal position in the corner, cut your costs and hope you're the last person standing. That's what U.S. Steel did, that's what the auto companies did --
Roopa: … and they're still doing it!
Bertolini: They're still doing it. Or what you can do is you can say, "Okay, there's a new value chain. What is it? And what is it that I do in the current value chain that has some value and can be repurposed there?"
Bertolini: So when we did that we looked at the provider systems and what we could do to provide them with skills and capabilities that we had that they didn't and they couldn't afford to build on their own. And the view was that we had multiple economic models in the industry that didn't work well together. Doctors work on a cash basis, hospitals work on a revenue basis, device manufacturers, pharma and the insurance industry work on a margin basis. So it's a wonder any of that worked together. So we have to do is get people on the same economic model. And our view was -- is that every good organization regardless if it's for profit or not for profit, has to make a margin to continue to invest in its business fundamentals. And so investing in those business fundamentals requires you to generate that margin and let's get everybody on a margin model. And let's convince them that that's the best way to run their business.
Roopa: And how does that help the patient?
Bertolini: So the margin model -- the only way the margin model works in a hospital or in a doctor's office is that if I get paid upfront to insure the health of an employee or a person and I make the right investments to do that -- I get to keep the rest. It's a margin, right? And so versus the other way around which says I make a margin on everything I do and so if I do more things I make more margin and we know that doesn't work. That's way too costly. And so this whole idea of getting everybody on a margin model said, "Well, you know, what the hospitals don't know -- how to manage risk, how to underwrite, they don't have the risk-based capital like we do and access to the markets, they've got all this real estate," excuse me, "And so what can we do to share that with them?" And if we can build what I call a health plan in a box -- a toolkit for health systems to begin to make that change and doctor groups to make that change -- then we can make headway in changing the system.
So we have relationships like that all over the country. It's called value-based insurance design. We're doing that in Qatar, we're doing that in China, we're doing that in the Middle East as we start to show them how, you know, don't follow the West. Go to where the puck is going to be versus where it is now.
Roopa: Right. Leapfrog, right? Yeah.
Roopa: Absolutely. It’s been noticed that Aetna exited a few health exchanges. What does that mean for the big healthcare experiment that's going on in the U.S. right now?
Bertolini: So we're still the largest provider of health insurance exchange products and it was just that in those markets we could not provide a product that was valuable or affordable for people. And so why continue to provide it? We should be in the markets where we can provide something of value. And instead of expending our resources everywhere and trying to make it work everywhere. So we actually exited three markets but we entered two. And so, you know, we're just switching it around. I think the bigger issue with the Affordable Care Act is that in every other major social program this country has ever enacted -- we tweak it every year. Social security, Medicare, Medicaid, right? PDP.
Roopa: Yeah. You don't give it time to set in.
Bertolini: Right. And we have not touched the Affordable Care Act for five years because politically it's a third rail. And so if you open up any part of it -- everybody will rush in to change all of it or repeal it. And so this administration for good reason has decided that they don't want to do that. I think whoever becomes President --
Roopa: They should start there.
Bertolini: -- that they should start there and they're going to have make promises to get the Presidency because I don't think there are a whole lot of people happy with the program as it is. And I think that'll be the next big step. And so we're two years into it. It's six percent of our revenue. We don't make any money on it but it's not breaking our bank. So either -- why not continue to experiment and see if it works?
Roopa: Right. What we're seeing is whole new populations coming in. That six percent, I assume, is not cannibalized - six percent!
Bertolini: Right, right.
Roopa: So tell me a little bit about your vision -- so beyond sort of the payment equation, what else do you think needs to shift for us to see change -- in many ways with the advanced technology, our demographics, etc., our outcomes don't say that great story, right? So what else needs to change?
Bertolini: Yeah. So a couple of things. First of all, we waste IOM -- Institutes of Medicine run by doctors puts the waste in our system at thirty percent. So there's, you know, on a good day $900 billion dollars that if we got out of the system we could use to pay for everybody's insurance without raising the dollar or tax revenue, right? So why don't we do that, right? Number one.
Roopa: Right, right.
Bertolini: Number two -- people have talked a long time about racial and ethnic disparities in healthcare and, you know, Aetna was one of the first companies to come forward and say we needed to do that. In 2002 we did that. We collected the data. But the most recent study on middle-aged, white males and their rapidly rising rate of mortality is pointing to another important thing and it's a social determinance of health.
Bertolini: And the reason that alcoholism, drug abuse and suicide is increasing in the middle-aged, white population is a socioeconomic problem. It's not a racial or ethnic problem and if we look at that and then we look at countries around the world, the OECD nations, you'll see that the total spending on healthcare and social programs as a percent of GDP is about thirty percent.
Roopa: Okay. And for us?
Bertolini: And for us it's about thirty percent but we're ninth -- we're ninth.
Roopa: But that's right -- with the population we have.
Bertolini: We're ninth and when you look at healthcare -- healthcare's 19 and social programs are 11. So we've got the balance wrong. There's no safety net. And so back to the exchanges -- when we look at the people that are buying our policies -- they're not buying our policies so they can get a healthcare card and run off and get healthcare costs and get a prescription. They're buying our policies because they've worked hard to achieve a standard of life for them and their children that they don't want to lose if they get sick. So they're buying peace of mind. They're buying a home mortgage policy from us is what they're buying -- their mortgage insurance is what they're buying from us.
Roopa: Agreed. And it is strange to think about us as the most advanced economy in the world. So when you work with other emerging economies, for example, where are you seeing the most innovative spirit in the industries?
Bertolini: Middle East
Bertolini: Interestingly enough. And we went into Qatar four years ago at the request of Sheika Mozah bint Nasser, the Queen to help build out a maternal health program -- as the first program for universal healthcare in Qatar. So we think about that -- women, right? You know, in an Arab nation, in the Middle East and we've now grown that program to a full blown healthcare system that we're working with them on. So we're finding a lot of innovation in the Middle East. We're finding some spontaneous innovation in China but it's not quite there yet.
Roopa: In the community centers, yeah?
Bertolini: Yeah in the local provinces have seen a lot of interest. I think, Western Europe, the United States and South America suffer from very big entrenched economic and political interests that are going to be very difficult for us to change and I would actually proffer that we'll probably do something in the Middle East and China and in India before we get something done in the United States or the Western developed countries.
Roopa: Sort of backward engineering the innovations later to us.
Bertolini: Yeah. That's right.
Roopa: And I know that were in the news a year ago, where you tried to make sure that every employee of yours could afford your programs.
Bertolini: Yeah. That was January -- that was the beginning of this year. Yeah.
Roopa: So why did it take this long is a question one has to ask? But I know --
Bertolini: Well, so first -- first and foremost it was working with my own team to get it done. Because, you know, in any large organization there is a very strong resistance to dramatic change. And that there are a lot of people in a very large organization that try to protect the company from the nut in the corner office. And so just getting the data and going through the analysis was a very difficult thing to get done where I finally got frustrated -- it took us almost two years to get it done. But we got it done and now we have a, you know, a way of approaching it. We've shared it with other companies. Other companies have followed us and used our material and worked on it. But it was a long time coming, too long for me and I was talking about two years ago. I think incoming quality was not as a big deal in the, you know, in the economy but I think as it became more pressing, I think people, you know, people were finally sort of were receptive to the idea. And then when I pushed it it happened.
Roopa: So I had the pleasure of working, you know, with Jack Rowe who was CEO before you, and who brought you into Aetna.
Roopa: I'm going to date myself but at least about ten years ago, maybe 12. And I do remember the long halls and the fact that on average your employees had been around -- I want to say 20 to 25 years. Is that still the case? Has it since evolved?
Bertolini: No, it's not, interestingly enough. So I did an early retirement program when I took over in 2010. We had about 3,900 employees with more than 20 years. About half of them left at that time and then it's dwindled from there. So out of 50,000 employees -- we probably have less than 1,600 employees who have been with the company longer than 20 years.
Roopa: So it must be refreshing to have people with different insights?
Bertolini: Well, you know, there's always this fine balance between having institutional knowledge and a strong support for the legacy of who we are as a company. And so you have to find that right balance and when we did the ERP program in 2011, the beginning of 2011 -- there were some people that put their hand up and we said, "Oh, no, no. You can't leave." And we actually paid them more. [LAUGHTER]
Roopa: Well done. So what's it like? I mean so you've lived your life in this highly regulated industry -- have you ever dreamed or, you know, woken up thinking -- what if you weren't this regulated? Or has it been invigorating to innovate in this kind of space?
Bertolini: I think the -- so in 1983 as I was coming out of graduate school I, you know, was top of my class, finance and I had lot of opportunity in Wall Street. And I was looking at that and then a friend of mine called and he says, "You know, we have $12 million dollars of other people's money. Do you want to start an HMO?" And I said, "What the hell is an HMO?" And, you know, he sent me the red herring from U.S. Healthcare's Perspectives when they went public. And I said, "Well, this is pretty cool. I can go home to Detroit (which is where I was raised) and we started the company and my friends in graduate school said, "You're crazy. The big insurance companies control 97 percent of the market. They have all of the political and economic capital. They'll crush you guys." And a decade later most of the large insurance companies were gone. And it was -- I mean you could feel at that moment that there was going to be sort of this tidal change in the industry. This moment feels like that again. And boy, you don't want to get that -- you're lucky if you get it once in your career. If you get it twice, it's like really cool.
Roopa: Right. And is this all about the big data play? Is that what's going to be the driver?
Bertolini: I think it's really -- yeah, I think it's really about personalized medicine. I think it's about understanding the consumers of buyer-retail healthcare. It's about, you know, a fundamentally different service model. I mean it's a whole lot of things that, you know, very rarely do you see an industry go from B to B to B to C pretty quickly but we've got some good lessons.
Medicare Advantage is largely a B to C customer market. Prescription drug programs are a B to C market. Medicaid to some degree is a B to C market. So we have a lot of test beds out there that we've tried that have worked pretty well. I think instead of trying to create level risk pools, getting paid for the risk you're assuming is a whole different model in healthcare. And if you pay me for the risk and I really am about improving quality -- than I should be willing to take it. And so it's a very different way to run the business because you could actually say, "Well, and this is what happened with Medicare Advantage. 75-year-olds with three kinds of co-morbidities could be very profitable if you just took care of them.
Roopa: Right. But who -- are your stakeholders willing to go there? I mean are the doctors and hospitals getting there?
Bertolini: We're getting there slowly but surely. But we say that -- we can pay the DRG for, you know, DRG, XYZ. You know, no matter what it's the same number but if you got paid for the risk of the people you were taking care of?
Roopa: Right. Then will you behave differently?
Bertolini: And, oh by the way it's a better deal from a market standpoint.
Knowledge@Wharton: And the other consolidation of hospitals -- how is that affecting your own business?
Roopa: You know, everybody is consolidating because number one, we have too many hospitals. We don't have enough doctors. And so, you know, doctors are going to work for healthcare institutions and I'm not quite sure that's the right model. We'll see. But I think in the end analysis – a patient-centered retail market place will generate a very different delivery model. And I see a time when -- if you think about this and this is a Clay Christensen idea -- the cheapest place to provide healthcare is in the home. And the cheapest person to provide it is the family or a neighbor. And so if we were able to create an uber economy at the local community level and we were able to have nurses walk around the corner to take care of a neighbor and get paid for it as an independent contractor instead of having to go to work for a home health agency and collect a paycheck and pay taxes -- why couldn't that work for healthcare? And why couldn't that be a great way to reestablish community at the local level?
Roopa: So how do you, where to the core of what you do is managing risk
-- in a world where people are talking about 3D printing pills and ZocDoc's and, you know, all of that -- how do you manage risk and manage quality?
Bertolini: Right. Well, I think it's about managing quality. So in the past we've created level risk pools that allowed us to have a cross-structure that gave a price to clear into the market and allowed us to grow a little bit, right? So it's about balance risk pools. Today what we have is we have a model is that -- and in that model you controlled incidents -- so it was utilization management. In the new model it's about accepting the incidents as it is and managing the severity. And so it's a longer term investment in the individual and if you pay me for the rest and I do the right thing for the individual in improving the quality of their care, the quality of their life -- but if we margin in that they'll stay with me longer and I'll see the benefits from it. So it's a very different undertaking.
Roopa: Right, right. So you're making a long-term bet in many ways, right? Yeah?
Bertolini: Well, it beats the alternative.
Roopa: So, you know, we've got a few more minutes. I'd love to understand -- so what does Mark Bertolini, himself, do to keep the innovation spirit going? I mean what is it about your personal habits that keep it?
Bertolini: Well, you know, I have a yoga practice. So I get up in the morning and I do, you know, Viniyoga. So, you know, it's the more traditional -- my partner, she trained with Krishnamacharya in Madras back in the day.
Roopa: Yeah, which is my home.
Bertolini: And so, you know, when she was a Colgate student. So she, you know, truly, you know, helped introduce me to the eight limbs of yoga which is not about the exercise. It's about motion initiated by breath to still the mind and the body to be able to sit in mediation for a long period of time, to reach ultimately Samadhi.
Roopa: I'm impressed.
Bertolini: And so, I, you know, read the Upanishads, the Geetha and all of these, you know, the Panchabitha Hrudayam and all of the Tantric texts and all of those sorts of things. And I now, you know, and in this journey understand that all of this is illusion, right? You and I are the same thing. The journey is an inner one and if I understand that inner journey well and I treat others well, I'm treating myself well. And in that it makes me stress free. It makes me be much more considerate of others and their needs. And there is no good or bad. The idea is to find out what that person is trying to teach me that I don't understand and -- and, you know, losing attachment to things that are not material or everything. And in that whole way you come to your work very differently as a leader and as a person.
And the joy of my journey has been trying to help other people see that and engage in it and learn from it. But, you know, I also ride a road bike, I ride my motorcycles, I still ski, I do all of those sorts of things because, you know, the object is use this vessel up before I have to give it back. And so I'm getting rid of it a piece at a time. [LAUGHTER]
Roopa: Yeah. I see that you're pretty active on social media. It's not often that you see a lot of CEO's doing that and it's interesting to see all of the places you've biked to. Like, "Wow. That's seems painful. But good painful, I assume."
Bertolini: It is, it is. It's good for you.
Roopa Yeah. So the Knowledge at Wharton audience tends to be, you know, inquisitive, curious, you know, forward thinking -- one of -- I mean I think what you just said was very inspiring. Other things that you want them to think of and do as they think of their own industries?
Bertolini: So the secret to leadership and to being successful has nothing to do with who you work for and how you fit a mold. There is no prescribed ladder to the top. The ladder to the top is in building followership, being selfless for the organization and the people you lead, and having the courage to make decisions in spite of how difficult that may be. And in doing that you come across as authentic and authenticity builds followership and creates leaders. And a lot of people don't think that way. They think you've got to wear a tie every day and you've got to shave. And I don't do -- I'm authentic, this is who I am and there isn't anything to hide. And I think when leaders become too aloof and too remote and they're surrounded by security and they live these very sheltered lives and don't interact with the world around them -- I think it's a mistake. I would also say that in the educational environment we're not educating our business leaders really well because we're focusing on the short term, on a set of metrics that are not really relevant in the long run. And they don't really create value in the long run. And I think also we focus too much on the stem skills of business and not enough on the liberal arts and the whole idea that having heuristic in your head, an aesthetic in your head that's build on a level of worldly knowledge that is beyond the numbers that you've been taught to manipulate and the spreadsheets you've been taught to build is really the most important thing because in the end it's not the numbers. It's actually your ability to see the world in a very different way and when you see it in a different way, then you can start moving the numbers to help support that and then build a followership and make the tough decisions necessary to make it happen.
Roopa: Right. So last question then because that is a fantastic way to think of the world and sometimes tough to enunciate it in a way that doesn't make them think you're a kook, right? So what is it that was about the Aetna board, for example, when they saw you walking in the door that they said, "Fantastic leader." How did that happen? Because it's not the average board, is it?
Bertolini: No. And, you know, and I said to them that I wanted to do three things when I became CEO. One was -- and the company was 160 years old back then. So I've been CEO for five years. So I'm sort of getting long in the tooth for CEO's but, you know, I wanted to make sure the company was around for another 160 years. So part of my responsibilities, my accountabilities should be making sure that the company is on a glide path to do that, that I give it it's very best shot to do that. The second was that I really wanted to make healthcare reform work and so, you know, we were going to have make investments and take risks but I thought that that was important because it's criminal that this country has people that don't have coverage for healthcare. And then the third was I wanted to re-establish the credibility in corporate leadership in the eyes of the American public and that I was going to do things and behave in ways that probably wouldn't fit the mold. And that if they were comfortable with all of that - -then I was willing to do the job. Now performance matters. Right? And so the company was, you know, $29 dollars a share when I took over and we're $105 dollars a share today. We were $120, you know, three months ago. That performance matters.
And so that gives me a lot of latitude and a lot of room to be able to do the things I want to do because I'm delivering. So we can't underestimate that and my team's a great team to be able to help me do that. But, you know, it's -- in the end analysis, authenticity.