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The role of academic-based health systems: An interview with Catherine Jacobson and Thomas Zenty

Catherine Jacobson, president and CEO of Froedtert Health, and Thomas Zenty, CEO of University Hospitals, explain how their academic medical centers and academic-based health systems are finding their niche in the healthcare ecosystem. As these centers develop, how do changing consumer expectations and social determinants of health change their vision for the future?

DISCLAIMER: The views and opinions expressed are those of the interviewee(s) and are not necessarily those of McKinsey & Company.

Following is an edited transcript:

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POOJA KUMAR, M.D.: Cathy and Tom, thank you so much for joining us.

Today, we’re hoping to focus on the role of academic medical centers and academic-based health systems in our broader healthcare ecosystem. This is a topic that I’m personally passionate about, and I know that these two leaders are as well. Tell us, what brought you into the academic space? Was it something you always wanted to do?

CATHY JACOBSON: Sure. I never intended to go into healthcare. I kind of fell into it. I’m a CPA. I got my accounting degree and went up to Chicago with one [of] the big accounting firms. And when you get up there, they give you this list of industries, and I checked off hospitals.

[The reason was] My mom was a hospital Registered Nurse. My first job in high school was washing dishes in that hospital. [I know hospitals] actually freak out a lot of people, especially accountants. 

I started on the health plan side, and was there for about eight years, and then went over to the main medical center working in the C-suite. Originally, I became the CFO, Chief Strategy Officer, and it went from there. I had no intention of going into academic medicine. Actually, when you start on the health plan side, you don’t look at it through a very good lens, because it’s expensive, and that’s exactly what you don’t want to have when you’re on the health plan side. [I had a] completely different view once I got on the inside over at the academic medical center, and was actually able to see the specialization and the differentiated services. 

TOM ZENTY: I had a slightly different path. I’m a little bit atypical, in that I knew what I wanted to do from the time I was 15 years old. I wanted to be a hospital administrator, which is a really geeky sort of thing to do at the end of the day? But I never wanted to get into academic medicine, and the reason for that is I grew up in a really small town and the local hospital administrator took an active interest in me. She was a fascinating leader, and very powerful woman, and someone who I’ll never forget. She had a big impact on my career.

I had to do an undergraduate internship, and I worked in a small, 200-bed non-teaching hospital. But then coming out of graduate school, we had to do an internship. I interviewed at ten or eleven places. I read the theses of the previous students, where they did their administrative residencies, and those that did them in non-academic medical centers.

What I found is people who went to the academic medical centers had a very narrow slice of something that they were responsible for. I didn’t want to get lost in the complexity of a very large, complicated organization where I wouldn’t have an opportunity for a breadth of experience. I chose to go into the non-academic world to begin with, thinking that I could always work my way up, which is ultimately what happened.

POOJA: Those are very different paths. What would you say is the hardest part of your job right now?

TOM: It’s what everybody talked about today. It’s going [to] resolve around one issue, if we can ever figure it out, and that’s culture. But I must tell you, everything that I heard today was consumerism, consumerism, consumerism, consumerism.

Academic medical centers are not designed to be consumer-centric. What I find to be the most challenging is changing the culture that has been ingrained and taught for over 100 years. Now, people are very responsive, and we’ve made terrific progress. But there’s always some challenge in an academic medical center, because you try to balance a tripartite mission of research, teaching, and clinical care.

We put something in place about six or seven years ago called CARTS. We began to break up some of our faculty’s activities along Clinical, Administrative, Research, Teaching, and Service responsibilities.

When you begin to parse that out, it’s not quite so easy. If someone’s busy seeing patients, they don’t have time to do their research, or their teaching. At the same time, if you look at their clinical productivity, and it’s 9 percent, you know that there’s something not quite right in that formula. By breaking it out, it made an enormous, positive impact.

There are over five and a half million people in the United States that work in hospitals: I can assure you that there isn’t one who wakes up every morning looking to make a patient’s life more difficult. It’s a very dedicated, committed group of people, and the responsibility really resides with us. [We try to] create the culture, provide the resources, do the things that we need to do to make hospitals a more effective, more efficient, high-quality, better-outcomes environment. Which is really what I think we’re tasked with the responsibility of accomplishing, and not just today, but in the years to come.

POOJA: Cathy, I’d love to understand, what are tactical things that you’ve done when you’ve tried to start to shift some of that culture, at least even shift priorities?

CATHY: I think Tom summed it up really well: We work around culture. And exactly the way I do it is around priorities. We have the same priorities as the faculty do, in terms of seeing patients, research is important, educating students, service. All the priorities are shared.

But the priorities are not necessarily the same, in the same order, on the same day. Because we have to take care of patients, we have to do research, we have to do teaching. I need to make sure my patient doesn’t wait 270 days to get into care. What we’ve really worked on is to how you move the change management, and explain the why. Explain the why, over, and over again about how the world is changing, and that people are not going [to] wait 60 days for you anymore.

[Patients] actually do want to schedule their appointments online, and yes, that will require that you use a standardized scheduling template to do that. How do you explain to somebody who is very interested in research and their program that you need to be able to have patients to provide that research?

[It means] explaining it to our administrators who are working with our faculty, talking to the chairs, talking to our service-line leaders. You get physician champions behind you to help lead that charge. That’s how you start to make the change.

TOM: We reward for meeting those metrics. I get a lot of patient letters, a lot of patient emails, and a lot of patient visits. The biggest complaint I hear was the bill. I get very few complaints about the clinical care. Virtually everything is in what we do that’s customer facing. They love the care, they love the outcome. Ninety-nine percent of the complaints I get are around billing. Why is that? Well, for 100 and some years, we’ve been focused toward not billing individuals, but by billing insurers. The problem is if you get a bill, it’s totally unintelligible. The first thing it says on the top of the bill is, “This is not a bill.”

You ask the question: Then why am I receiving it? Well, rather than talk about the Medicare requirements, why we have to do that, we send a follow-up. That says, “This is not a bill.” The point is, you need a Rosetta Stone to figure out a patient bill. We have to move in that territory of consumer facing in ways we’ve never done before. We’re getting a fair amount of consternation about is this an issue of margin over mission?

The culture is what we really have to manage. We need to be more psychologists than business people. Because this is about leadership, it’s about buy-in, it’s about ownership, it’s about participation, and it’s about changing the culture.

POOJA: How do you as leaders think about investments that you’re making, or how you spend your time, when you think about the academic, clinical, and research missions? How do you see that changing, let’s say, ten years from today?

CATHY: It’s really like any other business; you have to make enough investments that have return, but you have to understand that you have to have investments that are infrastructure, as well. For example, I believe, and it’s becoming more and more prevalent, that academic medical centers are kind of owning the cancer space. A lot of that is because it is so dependent on research. That’s what we do, and we do that better than anybody else. Of course, whenever we go to focus our research investments it tends to lean towards cancer. At the same time, they can’t do their research and clinical trials, and some of the things they’re doing unless you’re investing in very robust, basic science.

There might not be a dollar-for-dollar return on that investment that we’re putting into basic science. There never is. But you have to have enough infrastructure to be able to support the things you’re doing in clinical research around cancer, heart and vascular, neural sciences, transplant, and so on. You just have to balance that, and make sure that enough of your investment are going to be ROI [return on investment], because it does all come back to clinical revenue, which funds all of your investments in research and education.

How much research can you really do that’s productive, if you’re focusing on clinical care? How do you balance that with faculty who went into academic medicine for a reason? They went into that because they like the teaching environment, because they like the research and the discovery. How much of that can you actually balance?

That’s the other conversation that we’re having. One of our departments has every single faculty member is 20 percent productive time, or protected time for their research. It’s kind of challenging as every single faculty member are on a balance in terms of your department. I think it’s the other way we’re looking at balancing mission.

TOM: The only thing I would add to that is sometimes in adversity, meaning when there’s a competition for funds, creativity becomes paramount. One of the things that we don’t do enough of in our industry is effective philanthropic support. I’ve been in the organization where I’m working now, for 17 years, and 16 years ago we started a big program in philanthropic support for our research and our teaching mission.

Faculty said, “Well, this is not a rich community.” I work in Northeast Ohio in the Cleveland area. If you fast-forward to 2019, we went from having a virtually zero academic chairs, to now having 140. It’s $1.5 million to fund a chair. We’ve raised, in the past 15 years, almost $2 billion, predominantly to support a research and our teaching mission. We went from, “No, that’s impossible,” to all of a sudden, “We need more people in our department of philanthropy,” because we know we can raise more money.

There are other forms of finding resources in which to make that happen. In our area of research, we created something called the Harrington Discovery Institute. It’s a way to get promising research across the valley of death, and to get funded with additional support from us, and from others.

We just created a relationship with University Hospitals, Harrington Discovery Institute, and Oxford University in England. We bring in 20 researchers per year, whose research is now going to be oriented less toward basic science research, and more toward commercialization. Things like intellectual property, make a big difference.

Having an appropriate sharing program, in the event that something becomes brought to market, creates personal opportunity for the researcher. We’re working on a partnership with Morgan Stanley. They have now, 17,000 wealth advisors across the United States who are advocating Morgan Stanley Gift Cures. Which it would be a tax-deductible donation to the Harrington Discovery Institute, focused on finding cures predominantly for rare diseases. So, there are things we could do.

POOJA: One of the other themes that I think has come up in several of the discussions is entrepreneurialism that exists in the broader ecosystem towards, parts of the healthcare continuum that AMCs traditionally have not focused on. Social determinants of health, shifting health to the home, other things of that nature.

Where do you envision AMCs playing a role, if you look ten years out? Do you see that shift continuing with a push towards home? What will be the role of academic medical center?

CATHY: Our academic medical centers are like 99 percent full. When you are like that, though, you have immense motivation to get patients out of the hospital. We have actually been very, very thoughtful and intentional about working in population health, working in risk-based scenarios, about moving patients, first from inpatient to outpatient, and then outpatient to clinics, and then clinics to home.

I think what you’re going to see in the future of the academic medical center is, I do see a trend towards aggregation around specialists, because we do more of that than anybody else. We are starting to demonstrate, the value that, because we do more of it than anybody else, we can do it better, better outcomes. We can do it at less cost.

Our challenge is to be able to do that. At the same time, we have to be very, very diligent about moving out the things that don’t belong there. We treat over 90 percent of the sickle cell patients in Wisconsin, because we are the urban academic medical center where that’s congregated.

About six or seven years ago, we opened an outpatient sickle cell clinic, and dramatically reduced inpatient’s readmissions, emergency room visits, and saved a lot of money for predominantly the Medicaid program in Wisconsin. We run a 24/7 cancer clinic because we are the biggest cancer provider in the area. They can go to a clinic, 24/7, if they’re having an emergency, with the clinicians who know them, the nurse practitioners who know them, and they’re not in the emergency room. And they don’t get admitted.  

TOM: It will depend on the month, but I would say on average we are actually transferring out about 100 patients a month to one of our other 18 hospitals in our system. Closer to home, closer to where the patients live. They don’t need an academic medical center to receive world-class care. To your point about social determinants, I think as an industry, we take this very seriously. We all do community-benefit analyses, community-needs assessments, and so forth. We just did an example where we looked carefully at why our neonatal intensive care unit was so full.

We found many academic medical centers are located in inner city locations, which by many measures are economically challenged. Why is our NICU so full all the time? What we found is that, the vast majority of babies who were coming to our NICU were coming from that neighborhood. Many of the moms who came to deliver had no prenatal care whatsoever. Back to philanthropy, we went out to raise $26 million to create a new outpatient center that would be focused on well-baby care, prenatal care, family care.

We’ve done a lot of other things that are more community based. But at the same time, there has not been a grocery store in that ZIP code for probably 30 years. When we were building the center, we said to a developer, “Would you be willing to build what could ultimately become a grocery store, a 50,000-square foot grocery store on this campus?”

The good news: About five months ago a 50,000-square-foot grocery store opened in that location with educating people how to shop, because they’ve never shopped in a grocery store. They were getting their nutrition from gas stations, convenience stores, and fast food. We asked: Is there an opportunity for us to reduce the number of neonatal intensive care, admissions? It’s still a little soon to tell, because we just opened up this center about ten months ago. We’ve now seen over 55,000 people in that center in ten months. That’s just but one example. Other academic medical centers around the country are doing similar things.

Emphasizing philanthropy, in our world, is critically important to further the mission. One concern that I have is, if we’re going to drive down the cost of care, which we need to do, who’s going to pay for training the next generation of physician, nurse, pharmacist, speech therapist, fill in the blanks, right?

We have to make sure that we’re going to find ways to offset and have an ability to continue to provide the research and teaching that we need to do. Philanthropy is one in which we can focus on in that regard.

POOJA: AMCs now are covering approximately 40 percent of uncompensated care across the nation, by the latest estimates, in that range. How you think about that as part of how you plan where you focus your services? And where do you see that shifting in the future?

TOM: When we begin to think about high-deductible health plans, I think we’re going to see a continued proliferation. We’re seeing patients right now with $50,000 deductibles. That’s a big problem, because it’s catastrophic insurance. The problem is more than likely going to be growing. Especially as we move into things like bundles. There’s no way an academic medical center can provide a bundle at a competitive rate, to what you’d find at a community hospital, or a non-teaching hospital.

CATHY: I would agree. I think number one, our location usually puts us in urban settings, where poverty is located. We’re going [to] always do that, and we tend to be the Level 1 trauma centers. Those are the things that tend to bring in the uncompensated care.

It gets back to social determinants, and how do you address upstream on that? It is going to be a continuing cost of carry, that we’re going to have to do, and that we are going to have to continue to find solutions for. Our high-deductible health plan concentration was 20 percent in Chicago, it was 30 percent in Milwaukee, and it is all falling to bad debt. That’s real, about what’s going on with the high-deductible plans.

POOJA: Where do you feel like there are more opportunities for engagement?

TOM: Every hospital has a patient bill of rights. About a year ago, we began to create a patient financial bill of rights. There are in our case, ten. Six of the ten don’t relate to us. But we have to make sure that we’re going to be protecting the patients who come to us for care.

One of them is, a patient’s right to know who’s in network, and who’s out of network. We won’t know that, because that’s going to change on a pretty consistent basis, right. But we don’t make that determination. A second is, no surprise billing. If someone gets brought to us, to our Level 1 trauma center by air ambulance, we didn’t call the air ambulance.

But we’re the ones who bear the brunt of the $60,000 transportation bill that we had nothing to do with. So, the point is, if we could get aligned as an industry on a patient’s financial bill of rights, that to me will set the tone, and create the culture upon which we can work effectively with our payer colleagues and others, to make sure that we’re going to be keeping the patients in the front of everything that we do.

CATHY: I think the other plea that I would make is, we’ve got to get over the price-per-unit conversation. Because if I can keep a patient out of the hospital, why am I arguing about the extra 10 percent that I get on the stay?

We’re working to take the utilization out, working to take the length of stay down. We’re working to push [them] into the outpatient. I want to stop having the conversation about the unit price, we have very consciously done at the academic medical center is shift, we are now at, or below, the market on most of our outpatient, and we’ve increased on the inpatient, where we do the things that only we do.

But then recognize the fact that we’re doing that, and that for commodity-based services, I can match my imaging in the outpatient with any hospital, and, a lot of the outpatient centers. [Because] we very consciously have made that move. We can prove that we do it at a national level with outcomes and with pricing. So, I just would rather have a conversation about the total cost of care, risk recognition.

POOJA: I think that’s it for the time we have. Thank you both for your thoughts here, and we look forward to more conversations.

About the author(s)

Pooja Kumar is a partner in McKinsey’s Boston office.