Episode 95

Focus, Discipline, Success

with Howard Kern

January 12, 2023

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Howard Kern
CEO Emeritus, Sentara Healthcare

Howard P. Kern is among the most innovative healthcare leaders in the country. Throughout his 42 years of health care management, he has a strong track record of executive leadership success. He served as President and Chief Executive Officer (CEO) of Sentara Healthcare, from 2016 through August, 2022 and now serves as CEO Emeritus, advising the CEO and Board of Directors on strategy and policy issues and programs. Mr. Kern has led numerous strategic initiatives to achieve performance goals relating to significant organic and merger/acquisition enabled growth and financial success as well as improvement in clinical care, consumer experience, and operational outcomes at Sentara.

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There's a time for important decisions. And if you hesitate and you don't pull the trigger, oftentimes you miss that opportunity.

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Dr. Gary Bisbee: [00:00:00] Well, good afternoon, Howard, and welcome.

Howard Kern: Thank you, Gary. It’s a pleasure to be.

Dr. Gary Bisbee: We’re pleased to have you at this microphone. You’ve certainly had a distinguished career as a leader being at Centara Health for over 40 years. And why don’t we kick off with as you look back on your career, what were the major leadership lessons that you’ve taken?

Howard Kern: Well, the most important and first one I bring up Gary, is humility. I would tell you that my success is almost directly connected to my ability to have a great team to work with that does amazing things and delivers on critical results. And I learned a lot of that from two great leaders before me that I worked for Glenn Mitchell, who ran Sentera back in the early, from early 70, all the way to 95, and then Dave. who followed Glenn and was my predecessor. And I worked with both those guys and learned [00:01:00] different things from both of ’em, but they both shared really great leadership lessons that I have really adapted and into my own style. The other big one, and for me, is the importance of ethics and trust and in your ability to, not just talk about that, but role. You gotta do that. And too many people think that they can talk about it and set the, set that expectation, but then they’re cutting corners in their own behavior and their own leadership style. And that doesn’t wash, not in my book. So that’s very important. The other one that I’ve always focused on is the importance of being, an excellent decision maker. You, you can’t hesitate sometimes and. Deliberate too long. There’s a time and a place for important decisions. And if you hesitate and you don’t pull the trigger oftentimes you, you miss that decision and you miss that opportunity. And oftentimes it’s better to make a decision without [00:02:00] 99.9% of all the information you need, but then make a course correction along the way that is or even make a bad decision, but, and then fix it. But making no decision is. In my opinion, a leadership perspective,

Dr. Gary Bisbee: As you think about your team. , what were the main characteristics that you looked for in a senior executive that would be working for you? Howard?

Howard Kern: I look for a couple of critical skills. I look for their ability to have, have and take hold of and effectively communicate. Vision, direction, priorities. So they’ve gotta be great communicators, and that includes the listening side. The other is the ability to deliver consistent results. I think the team has to be able to have confidence in each other. If somebody says they’re gonna do something, they actually can do it and they deliver on it, then I think diversity is important, not just diversity of gender and [00:03:00] ethnic. But also diversity of thought and style is important when you’re building the team. I look for that very much in, in how to build that team. It’s very important to have all kinds of points of view at the table and people be comfortable expressing those views. And ultimately you make a decision, but you at least have had good perspective. People that aren’t comfortable sharing their point of view or taking the risk aren’t helping the team frankly, if they’re not doing.

Dr. Gary Bisbee: now, you made a successful move from being the chief operating officer to being the chief executive officer. Some aren’t able to make that transition. Well, what did you see as the differences between being a C O and A C E O? What did you have to focus on as a C E O?

Howard Kern: First and foremost is the realization that as c e o, more so even than coo, you have to be comfortable not. implementer you’re the visionary. You’re the setting up strategic priority and direction, [00:04:00] but then your primary job is to motivate and focus on how the team functions. Certain CEOs like to be at the center and everything comes through them. Others have a more distributed style where the team interacts and shares the executive on certain things, but otherwise goes on their own. I, my style is the latter. I didn’t. need to be at the center of every communication and decision process. It wouldn’t get much done that way. But it’s very important to have the ability to do that and to be comfortable with it. If you’ve gotta be at the center of every decision and drive every decision that more CEOs tend to be in that mode. As ceo, you can’t do that. The other big responsibility the CEO has is to be more. and I think that’s pretty much in the textbooks. What you’ll read about external in the context of board relationships and building trust and and communicating with the board and in the community the stakeholders outside the [00:05:00] organization, the health system. Very important for the CEO to play a very active role in building and sustaining relationships, trust, alignment with important stakeholder entities in the community.

Dr. Gary Bisbee: I think. Discussion of decision making is really important, Howard. And do you think that some individuals just have that capability to identify the need for a decision and make it, whereas others seem to kind of struggle a bit? What’s your view of that?

Howard Kern: The ability to synthesize and understand certain facts and characteristics and environmental dynamics and. be able to associate them with other decisions and outcomes you’ve made is critical. And good executives that can make great decisions do that. The decision may be a totally unrelated sector of the business or another critical area that’s unrelated, but two or three or five years back, they had a similar situation with different [00:06:00] kinds of circumstances. But, it had, it fits certain characteristics and they draw on those. to say, when I did this back there, back here, this is how it worked and this is what we did. I think the other thing, good c, really good CEO decision makers do, it’s a little bit like a chess game. They think 3, 4, 5, 6 moves ahead and figure out, if I make this decision now, what are the critical issues and impacts and how is this person gonna react and what are my competitors gonna do? And here is how I’m gonna handle.

Dr. Gary Bisbee: What was a really tough decision that you had to make? Howard? Just thinking back on the last several years.

Howard Kern: Probably the toughest decision I had to make really in the last several years. It goes back to 2008, 2009 with the recession. I think that was the first recession that, that I saw both on the provider side and the health plan side where. We were being impacted. Before that, I think everybody used to think healthcare was recession [00:07:00] proof. And I, I think really that recession, which was a very significant downturn for the country. And B we see the finally the effect of the sensitivity of the consumer to what they purchase and how they spend money. And back then they were making choices between getting food on the table. and getting going to the hospital or going to a doctor or paying for their insurance premium. And that was a real wake up call for many of us. And I realized very quickly that we had to make critical decisions to respond and not financially fall off the cliff. And one of the things, the decision I made, and I was I looking back on it, I feel very good about. Cause we’ve used this several times. We have never had a layoff at Sentera and that was a tough decision then. Cause a lot of people were pressuring me to on the board and elsewhere, shouldn’t we be looking to do that? And I said, Nope, we’re not going to. And it worked out fine.[00:08:00]

Dr. Gary Bisbee: let’s build on your comment about the board. I know from past discussions that you think that the collaboration between the c e O and the board chair is fundamentally important. Could you share your thoughts about that with us please, Howard?

Howard Kern: Ab, absolutely. And it is a critical partnership that I have been very fortunate to have some great chairs that understood that partnership and worked great together. I think the. , the CEO needs to be seen as the executive that runs the organization and the board fundamentally sets policy, approves a strategy is a big part of the external relationships in the community but is not running the organization. And I’ve had to remind board members here and there that they don’t have the authority to spend any money at Sentera. The bylaws don’t give them that they can ask me to. . And technically and theoretically I can decide not to, or I can agree with them, obviously if I don’t [00:09:00] agree and it’s, they feel strongly about it enough, they’ll get rid of me. But fundamentally, the board doesn’t have that authority. The board chair’s role is to fundamentally lead the board, provide the guidance to the board about, strategy, policy level issues, community relationship priorities and then doing that work with the CEO to execute on. Priority areas and to the extent that the board or the chair gets in the middle of operational issues, goes and meets with CEOs of other organizations, it really undermines the credibility and the effectiveness of the c E o.

Dr. Gary Bisbee: during the time that. Have been at Centara pr, particularly during a time you’ve been a coo, O and A C E O. The federal government has become the largest payer for healthcare and the largest regulator. How does that influence health system strategies?

Howard Kern: I think it’s been a huge influencer particularly with the affordable Care Act, Obamacare, and the influence that’s had both in [00:10:00] Medicare and Medicaid and the availability of insurance to those that otherwise couldn’t afford it. The Medicaid expansion program, and it’s been a very beneficial, I think, to the healthcare. Medicaid expansion has been a huge benefit to the, Virginia and it, we went for, a dozen years without implementing it frankly, and we should have earlier, but the legislature and the governor got around to it. And it’s been a huge enhancement in terms of access and better outcomes and health plan involvement. And I think Medicare also is critical for a lot of people don’t realize that Medicare. when you get Medicare. Okay, I’m covered. You’re not, you, Medicare gives you a lot of good coverage, but you still have a lot of out of pocket. I think the whole area of dual eligibles is gonna see a lot more growth. It’s a fairly small piece of our total governmental business right now, but right now it’s disproportionately getting more sp doing most of the spending the Medicare and Medicaid [00:11:00] individuals. typically disabled, typically, either Medicare eligible or aging into Medicare with disabilities. Very complicated, group to deal with. We’re gonna see more and more of that.

Dr. Gary Bisbee: You laid out a fabric of costs and. Which of course has become a bigger and bigger issue. What options do health systems have to kind of deal with the cost of care and the cost of labor and so on?

Howard Kern: I do think cost and affordability are intertwined and we have to solve. For the cost side so that we can retain access and affordability for the population. I think on the labor side, two things come to mind. One is we’ve got to get our arms around this inflationary spiral we’re in, where the, our, the rates of pay continue to go up. I think some of the rates of pay were appropriate after the pandemic to reflect the work and the complexity and dangers in working in a healthcare. . But I think it’s continuing to escalate and we [00:12:00] have to fix a supply problem. And the other thing that I think is critical is to utilize technology and artificial intelligence and data analytics to allow our care people, care workers to work at the top of their license and their credentials. We, we have so much of what nurses, doctors, therapists, pharmacists do that is not reflective of their. and we’ve got to change that. On the non-labor side we’re in the midst of, I think, a transition from offshore manufacturing and offshore supply chain models that we learned during the pandemic. We’re not reliable to more of onshoring, and I think we’re gonna have to let that transition flow and then start. Tighten it down, if you will, with more competitive solutions and pricing, and hope that the free market system will work. And we’ll have to continue to use technology and artificial intelligence and analytics machine learning[00:13:00] and a smarter level of electronic record to really enable more ef.

Dr. Gary Bisbee: This leads us into the operating margin issue. And as operating margins for health systems have been declining for multiple years. Centara has been very strong through the years. How did you keep the operating margins so strong at Centara?

Howard Kern: I think first and foremost, it was a discipline of always being focused on managing our. and our margins proactively. It’s easy to to do it in the years of plenty. But it’s more challenging when they’re tougher years. And through the pandemic, we were benefiting from both, good discipline, stable performance, and the government subsidies and support. The other thing I’ll just tell you is our business model with the health plan and the provider side has been a real I think strength to the organization economic. And [00:14:00] liken it to a hedge fund kind of model internally where and it’s it’s this, there’s a lot of truth to this. When the hospitals are busy they perform very well. Doctors perform very well. Health plan takes it on the chin a little bit cause the health plan’s paying out more fees and then the dot, when things slow down, like we saw in the pandemic, the hospitals and the doctors take it on the chin. But guess what the health plan is doing? Very, very well, So I think on balance we tend to see the organization not having the wild swings, but having a nice, consistent pattern of strong performance. And both sides of the organization are contributing it in different ways, at different times.

Dr. Gary Bisbee: The health plan you referred to as Optima Health and there must be maybe 10 or 12. Health system owned health plans of size, which Optima Health is. There were probably early days when the board had to hang in there and support Optima [00:15:00] Health. How important is Optima Health now? I mean, you made reference to it, but how important is Optima Health now to Sentara and will that continue in the future?

Howard Kern: very important. It’s a core part of our overall strategy, and not just on the financial side. It’s also part of our mission, also part of our effectiveness in delivering continuity and access across populations. Population health is much more doable when you have a health plan partner. , that’s you aligned totally with the organization’s objectives and goals. I wanna go back to your comment though. There’s no question that health plan provider organizations are few and far between successfully and the cultures there, I think for decades and, we’re not aligned hospitals felt like they needed to be able to give care. They saw health plans as just trying to skimp on care and just put profits into the insurance company. Coffer. The insurance companies thought that hospitals and doctors were just wasting and didn’t care about the accountability to [00:16:00] cost and performance. They needed to reign in these crazy providers and take cost out of the system. And we had to live within that, mindset. And I think that was existing coexisting within the organization. One of the things I did, When I led the implementation of the health plan back in 82 and 83. One of the biggest things I heard is you gotta keep the health plan in the hospital, not just ideologically separate, but physically separate and not let them com commingle because that cultural clash is so big and and we did that and it was a big benefit. I think today it’s very different. I think we. We can create more alignment because there’s more alignment elements in the way the Affordable Care Act and managed care is working in population health and other things. The other thing that I think we did learn and is you’ve gotta stay with it long term. It’s a long term strategy.

Dr. Gary Bisbee: Howard, how about consolidation? Hospital’s been consolidating for [00:17:00] 30 years, basically. And we’re still, seems like we’re still seeing that as a priority. What do you think? Is this going to continue for the foreseeable future?

Howard Kern: I think it’s an interesting dynamic that’s going on. Gary I believe in consolidation. , but only upon, a couple of critical elements. That there’s a good cultural alignment, that there’s a sound strategy that makes sense from a community perspective, business perspective, economic perspective, and and that there’s a clear roadmap to getting those, the strategy executed in the values created. Many too much many mergers don’t do that. And I think we’ve seen a. That have, I think, been counterproductive and end up breaking down the real value I see getting that we’ve gotten out of strategic, implementation of mergers has been the ability to create regional networks that make sense, the ability to really tap great resources across the organization. Mergers a lot of [00:18:00] times bring skills and competencies to the table that create more value for the organiz. Board and management and clinical leadership. And then last I think that mergers, if they’re done right, you can get economies of scale. Not just of, of back office, but also in terms of clinical and health plan business. You’ve gotta, but you’ve gotta, executing is very important.

Dr. Gary Bisbee: Howard, are you concerned about all of these large cap companies, the C V s, Walgreens, Walmart, now Amazon elbowing their way into primary care. Are you concerned about that as it affects health systems?

Howard Kern: I am I’m seeing them doing that in a major way. They’re already executing on it, and I think both the health plan side and the big pharma side are very well capitalized. , these are huge companies with, significant resources. And then you throw in Amazon and Walmart, they’re not exactly small time either. And the big question is whether they’ll figure out[00:19:00] a more effective model and execute on that model for working with physicians. There’s a big debate in the hospital industry or they’re biting off more than they can chew. And, doc doctors can’t be made. Efficient enough and productive enough, and you can’t keep ’em long enough to get the value out of that upfront end purchase. I think some of these organizations will figure that out.

Dr. Gary Bisbee: Howard as expected. This has been an absolutely terrific interview. We appreciate your being with us. I’ve got one last. If I could, over the years you’ve, I’m sure counseled many up and coming leaders. What kind of advice do you give an upcoming leader?

Howard Kern: These young people out there, they’re so energetic and they’re so idealistic. You don’t want to discourage any of that, but you wanna hopefully give ’em a little focus. The best advice I give young leaders is to look at their career. From a planning perspective on two fronts. One is the professional front and the other is their personal life perspective. [00:20:00] And it’s all up to them. There’s nobody else to be accountable to for this, but them themselves. But on the professional side, I liken their career to a, again, I’m going back to a chess game, and if you think about chess, there’s the opening game, mid-game, and. I said, you gotta think about your career in that context. And the opening game has certain components where you wanna get a lot of different experiences, maybe two to three year assignments. and really build a foundation of experience. The mid-career gets you focused to where you think you want to go and lines that up and you get a couple of longer term assignments in a component of the profession that you like and you think you’ll be good at. And that positions you for the end game, which is the, your career defining areas like coo, CEO was. on the personal side, I talk to them about the importance of figuring out your own personal life. What is important to you there. If you’re gonna get married and have [00:21:00] a family, you gotta decide this, but where do you fit that in all of this? And, or, how do you wanna, balance your personal interests against your professional interests and have some balance in.

Dr. Gary Bisbee: Howard, thank you again. Just terrific. We really have benefited from your wisdom.

Howard Kern: My pleasure Gary, and thank you for asking me such nice softball questions.

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