October 6, 2022
[00:01:00] Dr. Gary Bisbee: Well, good afternoon, Peter, and welcome.
[00:01:03] Peter Fine: Hi Gary. How are you?
[00:01:05] Dr. Gary Bisbee: I’m well, thank you. Let’s dig into Banner Health and your leadership. Congratulations On your 22 years as the president and ceo. When you started 22 years ago, did you think you’d be, do you think you’d be the CEO there for 22 plus years?
[00:01:22] Peter Fine: I’d never held a job for longer than seven years, so the answer is no. I didn’t think I’d be here that long. And, but you know, it was a company that was new, newly formed. It had lots of growth opportunity, had a really great board location. That for lifestyle was superb. And it was exciting, quite frankly, to take a newly organized company that came together through a merger of two equally sized systems and. Tried to achieve what the board stated they wanted to try to achieve when they formulated the company. You get into it, you’re excited, things change, you have opportunity, you modify things you reinvent along the way. And so it was caused us to stay. We became part of the community, part of the fabric of the community. And it was a company that was interesting in what the board originally thought they wanted to try to achieve.
[00:02:19] Dr. Gary Bisbee: do you remember the size? What was the revenue when you joined versus what it is now?
[00:02:26] Peter Fine: Yeah, it was about a billion and a half when I came. It’s just just short of 13 billion. Now this year will be just short of 13 billion probably 12.7 or something like that, 12.9. And Obviously significant amount of growth, an entirely different kind of company today than it was back then.
[00:02:43] Dr. Gary Bisbee: you were a leader in expanding beyond inpatient care. You mentioned that when you joined. Banner was fundamentally an inpatient care shop. What, why did you expand beyond inpatient care? Why did you set the wheels in motion for that strategy? Peter?
[00:03:00] Peter Fine: Well, when we started doing that a number of years ago the insurance piece actually came through the inheriting of a Medicare Advantage plan with an acquisition that we did in 2008 of a company called Sun Health and inherited their 20,000 member Medicare Advantage Plan. So it got us into the insurance business from that perspective. 2015, we did another acquisition of the University of Arizona Health Network and inherited a very good size Medicaid insurance company that now has oh, close to 300,000 members in it. And then a few years ago now about, I’m gonna say five, five to six years. We develop a partnership with Aetna that we now own 50% of Aetna’s commercial insurance business in Arizona. And they run the partnership of course, but we have 50% ownership of the company. And so we’ve and then we expanded into taking at risk business through taking percent of premium contracts with United and human. But in addition to that, as we became more integrated because we wanted to get first dollar coming in the funnel and then have people within our sphere of influence through our various services, we recognize. That we had to have more services that were consumer oriented, more retail services in which people could stay within our system. Didn’t have to go out this, out outside the system so that their unified medical record would have all these pieces in it that encompassed these various services. The focus had to be that how do we have more of these services outside the hospital environment to keep people linked into our basically integrated network. And we consistently are looking for more opportunities to create touchpoints for the consumer and link them into the network that we’ve.
[00:05:00] Dr. Gary Bisbee: You mentioned your board earlier by expanding beyond inpatient care the way you did it, certainly. Some pressure on the board, I would imagine, to understand healthcare more deeply. How did you treat your board? How did you bring the board along in your journey, Peter?
[00:05:17] Peter Fine: Yeah, I would tell you the board itself when I came in November of 2000 was one of the strong points and probably the biggest influencing decision factor for me to take the job at the time. And part of the reason for that is they were good listeners and they had become the board of a new company, not the board of their previous entities. So they weren’t constituency based. Over time, there’s only one original board member left today. The rest have moved on for various reasons and. We had to explain to them how the company needed to change for new environment. And so getting into the at risk business on the insurance side, both in owning and partnering getting into these. Various touchpoints that we have. If you look at our primary markets, or in Arizona where it’s probably 92% of our business five other states or more rural markets but in Arizona, we’ve. Got the whole community plotted out, and I can tell you where our next 10 urgent care businesses are gonna go and imaging businesses because we have them all time and population based. So we look at the population, we do that analysis, we look at the time, we want an urgent care that you can get to in 10 minutes. We want a surgi center that you can get to in 20 minutes. We want an imaging center that you can get to in 15 minutes. So we’ve got the whole community plotted out on where we are and where we go next, because that idea that we had to be closer to the consumer meant we had to have more frequent interaction with the consumer. And knowing how often somebody might go into a hospital, you had to get into these ambulatory businesses to create a relationship with the.
[00:07:06] Dr. Gary Bisbee: So the board is, has worked with you right along to broaden your strategy. And you’ve, as we mentioned, you’ve been a leader in that strategy, but the other point of leadership and you’re known around the country for, and that is your focus on an operating model, Peter, which you started basically when you began 22 years ago. Can you share with us, you’re thinking about why you did that and how that’s worked?
[00:07:32] Peter Fine: Sure. When I first came, literally in the first six weeks, I made some pronouncements to the company. And one of those announcements was that we’re an operating company, not a holding company. And here’s the essence of an operating company. And I started laying out the behavior model and the operating model for an operating company. And the reason we did that is we. Felt that we could have better control over our costs and we could move quicker if we were focused as an operating company and could make decisions easier. And we believed that we could run the company with less confusion. Basically, everybody would know who the decision makers are, how decisions are gonna get made. There was no ambiguity, there was no confus. And that was the approach. We decided to take, We still have it today as big as we are. Can we continue to be an operating company if we were twice our size? I don’t know. It gets harder and harder to do it. The bigger and bigger that you get.
[00:08:35] Dr. Gary Bisbee: Covid obviously challenged health systems all over the country. Were there any fundamental changes that Banner adopted because of Covid?
[00:08:45] Peter Fine: There was so much confusion coming from the government and the, that environment it basically became an untrustworthy source of information. So in the, about the first week of February of 20, I pulled aside Dr. Marjorie Beso, who is your chief clinical officer, and I said, Listen, this is gonna get pretty crazy what the public needs is a source of truth, and the public’s not gonna trust what’s happening at the government level. We gotta do something locally. So I pulled her aside and said, You’re gonna be the face and banner and it’s probably gonna be for two years. And she looked at me and said, Well, you’re the face of Banner. I said, No, I need a clinical face of banner. And that’s you. I think the important lesson that we learned, and Dr. Bessel supported this is. When all hells break and loose, those who stay calm are those that manage it best. Because when you’re dealing with in my mind, in this business generally, but certainly in the covid environment, you have to have a high tolerance for ambiguity and a passion for complexity. That is the only way to survive in this business. And if you like complex decision making and you. Manage comp manage ambiguous environments. And when you look at Covid, it was both of those things. It was highly complex and it was highly ambiguous. And if you can stay calm in an environment like that, you really can manage the process a lot better. We coined that term at the time we put her in that role, we said we need a wise guide. And you know, it got interpreted periodically as what Wise guy and said no wise guide and the public needed somebody that was trustworth. That they felt had experience and wisdom that was gathering information and making the best decision, not from a political perspective, but from what is in the best interest of the public and the best interest of our employees to keep them safe so they could take care of the public. And the goal was to make sure that we came across as a trusted.
[00:10:53] Dr. Gary Bisbee: Yeah. Will the CDC ever reestablish itself, do you think? As the trusted source of information that we all remember that it used to be.
[00:11:03] Peter Fine: Yeah, you could say that about the fda. Also, I guess I, I think the only way to do that, you have to critically look at yourself and absolutely look for things that don’t work. So in our environment here at Banner, we do a lot of self-analysis of the company and the whole goal in our minds what we do can be done better. We just haven’t found the way. So we’re constantly looking for the way, a way to do it differently. If you get too caught up in the way I’m doing it. Is the only way that it can be done well then you never really change. You never really look for the better way. I think the CDC has to become a company that is saying, This didn’t work very well. What are the lessons that we learned and how do we transform ourself into a company that, or an organization that isn’t going to go through this a second time the way it went through this.
[00:12:02] Dr. Gary Bisbee: Yeah. Yeah, that’s the key. Peter, you talk about testing and your testing lab conducted a large percentage, 40% of the. Thing in Arizona you’re very active in vaccinations providing information. So how do you feel about the role that Banner played that might have been viewed as a traditional public health role some time ago, but public health just simply isn’t resourced enough and isn’t plugged in enough to do that. How do you view that going forward? I mean, will Banner continue to play this. Kind of public health role in effect.
[00:12:44] Peter Fine: You know, I don’t think we will to the extent that we did. We got out of the testing, we got out of the vaccination environment once the state stood it up themselves and created mass ma vast mass vaccination sites and one and when there was enough vaccination material that the drug stores could start taking that over. And we removed ourself cuz it’s not our business. I think there has to be. I a better line of communication with the public health departments, both at the county level and the state level. We pulled together the chief clinical officers of Mo, the major systems in Phoenix and began meeting with the health department, both county and public on a pretty routine basis through 20 and 21, so that everybody kind of would know what they were. We with the state pulled together a transfer service that actually banner helped the state stand it up from a technology perspective, so that as all of these smaller facilities around the state didn’t have the capability to handle the volume, they would call into this transfer service. Who would know where all the available beds? From all the big systems and the hospitals that we had and could allocate those patients. So it wasn’t overloading everybody. No other state did that until we did it. There may have been some that after did it, after we did it, we were the first state in the country to pull in that trend, that state operated transfer service, which was a lifesaver at the time that we did it. So nobody got overloaded.
[00:14:20] Dr. Gary Bisbee: Peter, during the time that you’ve been the CEO at Banner, we’ve seen a enormous growth in federal government expenditures in healthcare, and now almost 50% of the population of this country are on either Medicare or Medicaid. How has that affected the banner strategy? How have you reacted to that over.
[00:14:45] Peter Fine: Well, it’s problematic because the federal programs of Medicare and Medicaid don’t pay our. They pay something less than cost. Well, if somebody’s paying something less than cost, somebody else has to pay more than cost. And it’s a transfer to the insurance world as because of the under payments in the federal world, it’s always been there. That’s nothing new. It’s been there for, and it’s gotten exacerbated and it’s become harder to. Because the insured world doesn’t want to cover those shortfalls anymore. In a, in an inflationary time like that, you see all over the place. A lot of companies are increasing their prices. Well, I can’t negotiate with the federal government. I’m told what I’m gonna get paid. So for almost 50% I business pricing isn’t a factor. And it’s hard to do on the insurance side when you have multi-year contracts. So it’s become very, an inflationary environment. It becomes very difficult to operate these large health systems which make very small percentages, you know, two, 3% operating margins. Not even enough to reinvest in serving the public out into the long term future. So it’s a very tough business to, to operate right now. Be because of that.
[00:15:56] Dr. Gary Bisbee: Yeah, I mean the operating margin issue is a big issue And you talked. Making enough at the operating level to sustain capital expenditures. But how do you think about even the rest of this decade? Our operating margins going to continue to shrink as they have in the past. I, they must have taken a huge hit during your covid days. So how do you see this working out over the next five plus years?
[00:16:24] Peter Fine: Yeah. And they will take huge hits. They did in Covid. Obviously we got government money to help supplement those net op negative operating margins or barely positive operating margins. And now that we don’t have government money to cover that, you’re really seeing systems all over the country. Having significant losses that have been reported all through this year and some that were making a lot of money in the past are making half their operating margins. I don’t see that pressure stopping because the wage pressure has gotten extraordinary, and so there, there’s, I think it’ll be a very difficult. Process in trying to staff many of these healthcare environments primarily because of the labor issue, which I think is gonna put huge pressure on organizations that really can’t make that up through a pricing structure.
[00:17:14] Dr. Gary Bisbee: One of the reactions to those pressures that you’re referring to. Consolidation what’s the banner? Thinking about consolidation, both vertically and ho horizontally.
[00:17:26] Peter Fine: Right. Well, certainly If you look at the history more recently that’s been heating up and I think it’s gonna continue to heat up. I think there the pressures are clearly going to force more organizations. To come together from a scale perspective, the question is, how’s the federal government gonna respond to that? Clearly, their traditional response around overlapping geography was pretty well known. But now this, looking at things that have no overlapping geography, now it’s a little bit curious. What does that mean for organizations coming together? And what does that mean as it pertains to how the FTC will respond? But clearly I see no pathway other than organizations becoming much bigger in scale because of the cost structures that exist right now and the need to look for opportunities to affect their cost and grow their business.
[00:18:24] Dr. Gary Bisbee: Well, speaking of m and a, what you’re thinking about the large companies, the cvs, the Walgreens, now Amazon. Optum elbowing their way into the ambulatory primary care world. How’s that going to affect Banner and other health systems?
[00:18:40] Peter Fine: You see the more strategic decision making around the big players of Optum and cvs and so forth that are trying to reinvent their models. Why? Because healthcare is where the money is. It’s a gigantic business with so many players drinking at the trough they, there, there’s opportunity either by reinventing the business which sorely needs to be reinvented or looking for opportunities to identify revenue sources by doing it. So it, it’s gonna take some very adept. Systems to think through how they respond and how they relate in some cases to organizations like
[00:19:21] Dr. Gary Bisbee: Well, what’s the asset that the large health systems have? Compared to some of these some of these larger well financed organizations.
[00:19:31] Peter Fine: Well, we have the business that they don’t want to have. We have the expensive acute care businesses. They’re still gonna be needed. I go back to 1984, something like that, when DRGs came out and everybody said half the hospitals will be closed in 10 years. Well, that never happened, and all you had to do is look at the demographics to, to understand why that wouldn’t happen. And so certainly for the next 25 years, we’re gonna have this huge bolus of people going into an age category where they’re gonna need a lot of resource. And hospitals are going to have to be there to take care of the sickest of the sick. We have a business that they don’t want to have because it’s a low margin business for the most part, and they wanna strip off the high margin businesses associated with that. And so we’ve moved into population health because we see our, the expertise suite built that we can actually manage populations and do it at a profitable.
[00:20:30] Dr. Gary Bisbee: I’ve got one other question, Peter, if I could ask you, and that is for the younger. Up and coming leaders in healthcare what advice do you have for.
[00:20:40] Peter Fine: I would say a couple of things. One, the healthcare arena has so many pathways in it today, more than when I came out in the middle seventies. There are many different pathways in which you can be in the healthcare environment that didn’t exist, you know? 40 years ago, so when I was going to school. And so you need to be highly flexible in your thought process of where you fit and where you wanna fit within the healthcare industry. Second, you need to create a capability with skills. You have to understand the skills that are needed today, which are way different than the skills that I needed in the mid seventies. The skills are different. And you need to make sure that you’re enhancing your skill set so you become much more attractive to these new opportunities that exist out there. And the last thing I would say you better understand how people think if you really don’t understand people, because everybody wants to think this is a tech business. But at its core, it’s a people business
[00:21:48] Dr. Gary Bisbee: For.
[00:21:48] Peter Fine: And you gotta understand people and how they think, how they relate, how they want to use technology, where technology can appropriately be used. But if you’ve grown up in the tech environment too much, you sometimes lose sight of the fact that it’s really a people business and you have to be able to understand people.
[00:22:10] Dr. Gary Bisbee: That’s great advice, Peter. Thank you, sir, for your time. This has again, been a terrific interview.
[00:22:16] Peter Fine: Happy to do it, Gary. Thank you. Bye.
[00:22:18] Dr. Gary Bisbee: Hi.