Episode 4:
Deconstructing Providence: Next Steps in Organization and Delivery
Mike Butler, President Operations and Strategy, Providence
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In our latest Fireside Chat, we sat down with Mike Butler to talk about scaling a healthcare organization, how deconstruction leads to growth and managing affordability. Mike Butler is the President of Operations and Strategy at Providence St. Joseph Health.

With over 22 years as President of Providence, Mike Butler led the organization to become the 3rd largest health system in the US increasing revenue and market-share from $2b to $25b. Also served as Providence’s CFO & COO including leadership accountability over finance. IT, digital & clinical innovation, supply chain, health plan, population health, and professional people development

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Mike Butler 0:02
Our goal is that no market will have less than 30% managed care capitation business because what we have found is once we hit that threshold of 30%, all the alignment is there.

Gary Bisbee 0:14
That was Mike Butler, President of Operations and Strategy, Providence. And I’m Gary Bisbee. This is Fireside Chat. Providence is one of the largest two or three health systems in the country with annual revenues of 25 billion, the same size as Starbucks, another Seattle company. Mike has been with Providence for 22 years in both administrative and financial roles. He’ll describe how Providence went from near bankruptcy 20 years ago to a financially healthy organization today. We asked Mike about where scale matters and the necessity of managing risk. Stay tuned for his description of how and why Providence is deconstructing itself, and why the commitment to housing for the disadvantage. Mike is a highly engaging and knowledgeable executive. Welcome Mike Butler to the show.

Mike Butler 1:03
Hey, good afternoon. It’s good to be with you, Gary. Good to be here in Laguna Beach.

Gary Bisbee 1:06
It’s always good to be in Laguna Beach. Mike and I are working out in the Pacific Ocean right now. So Mike, you grew up down here in Los Angeles. So do you like the water? Did you get out and surf? What was your sport?

Mike Butler 1:20
You know, I I did a lot of sports. So I was born and raised in the East Los Angeles area. So I played baseball, I played football. I surfed and skateboarded. I would say my favorite sport is surfing. And the sport I actually still do. I don’t play a lot of baseball anymore. Or a lot of football, but it’s still my favorite sport, I would say surfing. And it’s interesting. Having been born and raised here and moving to the northwest, I immediately took on snowboarding. So I’m able to do that all the time living in Seattle area now.

Gary Bisbee 1:50
So you spend time down here saying roughly a third of Providence St. Joseph health is down here in Southern California, Orange County. So do you still get out and surf?

Mike Butler 2:00
Yeah, you know, it’s interesting as a kid growing up and I would take a bus down to Huntington Beach and ride my skateboard to go surfing. And being blessed with my time and Providence, I have actually had a second home in Newport Beach. Okay, one block off the water. At one of my favorite surf spots has grown up as a kid, which I would have never dreamt would come full circle like that.

Gary Bisbee 2:22
Now we’re gonna do a fireside chat tonight with the CFOs. So please don’t be out surfing.

Mike Butler 2:27
No. There’s no waves today.

Gary Bisbee 2:29
So Cal State Fullerton majored in accounting and finance. Where did you develop that interest?

Mike Butler 2:35
You know, it was interesting. And I grew up in an, you know, average family. So I didn’t have a lot of choices for college. So it was pretty inexpensive. And, you know, bottom line, I was always interested in math. And so when I went to school, I decided that’s what I was going to do. And that’s what I did. What about health care?

Gary Bisbee 2:55
What about health care?

Mike Butler 2:57
I tell my I tell people, if you love me, you can thank my wife, if you hate me, I wouldn’t thank her. And the reason being is I was dating her, and she was getting her degree in Public Health at Cal State Long Beach. And I’d already had a job in a tech company and I was bored to death. And I just, you know, she started talking to me about health care and what was going on public health and how complex it was. And so you know, so age me, but back in those days, and I responded to an article or an article and ad in the la times for a company called American Medical International, which was a for profit with Wally Wiseman. I got a job there. So I give my credit to my wife for really directing me into healthcare, and it served my needs almost instantaneously, I was at the corporate office, and for six months, and then they asked me to go be a CFO of a hospital. So I literally have been out of school less than two years. And then on the for-profit side. What was so great about it is they had a CFO and a CEO, and that was it. And so I really had an opportunity, I was assigned to a third of the medical staff to get to know them as people and what made them tick. And so what I really found was incredibly, amazingly smart people to work with incredibly complex because I love solving problems. And obviously a great purpose.

Gary Bisbee 4:16
When your career has evolved, a lot of it seems to be kind of blending operations and finance and now strategy as well of course, together. Did you do that consciously? Or did that just kind of evolve?

Mike Butler 4:29
It evolved when I moved to Seattle 30 years ago, and I went to work for a guy that worked at AMI and we were brought in to turn around a small company called safe care and actually sell it. What we ended up doing is we actually turned it around in three years. We actually merged it with a company called merinda health with Charlie Martin and took it public. It wasn’t part of it. So when I did that, that was for profit. So we did really have a COO in many cases, you know a CSO. And then when I moved on, when I decided not to move to Nashville, I had to be close to the water here on the west coast. I took a job at the Franciscan health system. And my boss actually came from HCA. And so when he and I came together and had to rebuild the new team, in a bottom line, we said, we really don’t need an operations person or a strategist because we felt like C suite build strategy make strategy. And so it’s kind of always evolved that way.

Gary Bisbee 5:29
Looking back on it, you spent so many years in the nonprofit sector, but looking back on those few years and the investor own sector, did you learn something there that really has stuck with you?

Mike Butler 5:41
Yeah, I think for me there, what I learned was this the discipline, you know, I mean, it was interesting, every place I showed up, after being a for-profit, you know, I didn’t have productivity systems didn’t have all the kinds of systems you need in place to run a good business. You know, it’s interesting, I found, the clinicians I worked at in the for-profit, were awesome, just like the ones I work with here. They had, you know, they were working for the right cause. But this all the discipline, you know, it’s interesting to think about where we are today, you know, 30 plus years ago, the minute the GL close was done, I got an email, you know, from the corporate CFO of you know, here are the 10 questions, and the data was there for me, you know, and coming into the nonprofit sector was hard even get the data first on, you know, so I think it was all the discipline, I also think, I think the training and the investor own of how important physicians are to an organization and being assigned a third of the medical staff as a CFO. That really was awesome for me, because it really allowed me to get to really understand what made doctors tick and how to, you know, how to engage with them and help them grow their practices and grow market share together.

Gary Bisbee 6:43
Yeah. So you joined Providence 21 years ago.

Mike Butler 6:48
Yeah, I started my 22nd year in October. But again, first of all, when we moved to Seattle, my wife and I it was three years and then we were going back. Okay, so we made that miss that tenfold? You know, it’s interesting. I really didn’t think about it from that expectation. I always knew I wanted to stay on the west coast and be in the Northwest. And this the culture of Providence is why I’m a lifer.

Gary Bisbee 7:14
It’s an awesome place to work. So size-wise, Providence has now roughly 25 billion which is roughly the same size as another Seattle company. Starbucks, right, and actually one of the drug companies, Eli Lilly. I mean, did you ever when you started 22 years ago, think that you’d be running the hundred and 25th largest company?

Mike Butler 7:37
When I joined it, it was a bit of a turnaround. You know, we didn’t have regions. We were successful in Oregon, successful in Alaska, and really failing in the state of Washington, and the failure in Southern California. In fact, when I joined, I had to sell two of our hospitals in eastern Washington, I had to literally sell our dialysis company in Western Washington to make the last payroll of the first December I was there. Because we didn’t share money as a system then. And then I had to, you know, sell our hospital in Seattle, to Swedish you know. Now roll forward. 10 years later, I got five back on top of it. But what was interesting was everywhere where we were left, we were number one. And what we did and the reason we had a downside was to be able to recapitalize in communities like Anchorage, Portland, Torrance, kind of on and on. And we had an incredible product, an incredible group of assets and incredible physicians. So we said we’re just going to start over and contiguously, build this, and begin to talk to everybody in contiguous communities about what’s possible together. And that’s what’s really been what we’ve done, you know, and continue to do that. And everything that we do in the organization today.

Gary Bisbee 8:56
So, Sisters of Providence, is that would the entity was called when you arrived?

Mike Butler 9:01
When I joined, it was called Sister Providence, it quickly turned to the Providence health system. Then we did a merger with the other Providence on the eastern side of the Cascades and Washington, became Providence health system than St. Joe’s became proud of St. Joseph’s health. And now it’s Providence.

Gary Bisbee 9:24
St. Joseph itself was probably three or four or five acquisitions or mergers? To get to its size? Just in terms of scale. Where does scale matter?

Mike Butler 9:42
I think it matters a lot of things. I think it matters in clinical performance. Last year, we had 74,000 kids born at Providence and no maternal deaths. Our average cost to deliver a baby is under the average Medicaid payment. Pretty phenomenal. And I think our NICU babies were down like 31%. So we’re doing great prenatal care. So it’s what we try to figure out, it’s everywhere, you know. And so in that example, how we built that was not by employing every OB in every community, but by bringing them together and giving them the goals that we talked about how the doctors benefit from that, as the market share that they gain. So I think it matters there it matters in, you know, in the supply chain. I also think if you do it, right, it matters in the quality of people you can bring in. Oour goal was always to hire the brightest minds and the biggest hearts. You know, and I think if you see all the people we’ve hired across the organization, whether it be on the clinical side, in terms of incredible clinicians out in the field, in all the ways to finance it, innovation, HR, I think it’s an advantage there as well.

Gary Bisbee 10:50
So you mentioned earlier that you’re actually deconstructing. Can you describe?

Mike Butler 10:56
So we stepped back about three years ago, looking how the industry was, you know, continuing to go more and more rapidly towards ambulatory, the aging population. So the growth in home and community care, as we continue to take on more managed care capitation, what we did, is we said, we’re going to deconstruct the health system. And there are no sacred cows in this. And so what it meant is looking at our ambulatory care network services, so our express care retail clinics, our Express care at Walgreens, our urgent care or exercise, our ACS, etc, of which we have about a $6 billion company there. And so we literally pulled it all apart, and created a new management team that’s accountable for it. Just to give you a sense, as an example, we have 73 ACS, of which 48 were in joint venture. So we found insane complexity. And what we said is, this isn’t just about, you know, designing, you know, pulling them apart and running them better. It was about one, you know, an urgent care as an example, making it a profit center, not distribution center sent channel, so it was looking at, you know, cost models, looking at governance models, etc, etc. In fact, what we’re finding is, if you start out and you search to bring somebody in to be in or tech and work in Asr, if you do it right, I guarantee you can hire him for six $8 less in a hospital, because there’s people who would want to do just that work. And then you got all these legacy in hospital comp models. So it’s all that includes governance. So in our physician enterprise, we now have a governance structure in every market, that all of our physicians are accountable to. So they’re involved deeply with comp models deeply with contracting models deeply with supply chain models, marketing, the whole nine yards, it you know, we used to take a million priorities in epic, you know, and just go down and do almost all modern acute care. Well, now we have dedicated resources, an amatory care network, physician enterprises, and then Home and Community Care. The reason that we dissected that one, which really was the first one was just because it’s such a rapid growing marketplace, and you don’t necessarily even need to have a hospital or clinic to utilize it. And we happen to have a great reputation growth there, that we think we’re gonna triple that in the next three years set,

Gary Bisbee 13:04
Is that profitable?

Mike Butler 13:07
Yeah, absolutely is. Yeah. And it’s interesting because it’ll in three years, it’ll be bigger than the Providence I started with our home care company.

Gary Bisbee 13:15
Wow. That’s pretty amazing. So do you think just looking across the country, do you think that there will continue to be consolidation?

Mike Butler 13:26
Yeah, I think there will be. I wish it WAS done differently. To be really honest. I think regional-based systems work the best. And the reason I think that is, is the ability to bring together like minds and like marketplaces. You know, like when we bring together our physicians for our clinical institutes, you know, that it’s from all up and down the West Coast, from neurosurgery to cardiology, a lot of them trained together a lot to know each other. They’re in the same time zone. You know, I was talking to Amy Compton, Philips medical officer who was given an update the other day at one of our meeting and said at 6:30, on Monday or Tuesday morning, we had 60 trauma surgeons on the table work there on the phone working on a single contract. You know, you can’t do that unless you have cohesiveness. And we really think the geography is much more cohesive than dealing with, you know, three other time zones dealing with different cultures dealing with different, you know, the way people went through medical school, etc. So, you know, we think it ultimately needs to be to, I think, have more and more consolidating, but much more at the regional marketplace level, where you have that continuous ability to do the kind of things I’ve described here, we’re saying you really feel it empowers the physicians, absolutely. One of their problems. Yeah, I can’t say what they want. In this day and age they want to be with the system that wins the contracts so that they get there, they’re doing less cases, you know, for a few dollars per case. They want to have higher market share, and that’s what a lot of this stuff has been leading to.

Gary Bisbee 15:00
So, Mike, what percentage across the board is government paid?

Mike Butler 15:07
I want to say it’s about 68%. Right now. It varies. I mean, we have one market that’s, you know, 61% medicaid. We have another market that combines Medicare, Medicaid 83%. So it varies by community.

Gary Bisbee 15:23
So it’s somewhat higher than the national average, at least among our largest system is probably 55, or 54%. But what do you think about the lack of pricing elasticity that that suggests? Is that going to be a problem going forward? I mean, you’re pretty much almost 70% of your revenue is basically public utility found?

Mike Butler 15:46
Medicaid and Medicare combined, I think we lose $1.5 billion a year, we’ve reduced it by about a half a billion over the last three years. What we think the opportunity is to get at that is, you know, continue due to the great work we’re doing clinically, around standardization, by example. Ob, reducing the cost of delivery to Medicaid, and yet being safer. And then also just getting further up the food chain as it relates to taking, you know, the premium, you know, and so, our goal is that no market will have less than 30% managed care capitation business, because what we have found is once we hit that threshold of 30%, the physicians at all the alignment is there. Today, we range from zero to 78%, and I can tell you, where we have 78%, we make money on Medicaid and on Medicare. The most interesting managed care market in terms of success, in my opinion with the country, one of them is in Fullerton, California here, and it’s the Hershey Medical Group that started 30 years ago. That is just completely dialed in on this, you know, on this book of business and how to treat these patients. And if you look at their organization, they have the highest physician satisfaction, highest patient satisfaction, highest Net Promoter Score, highest caregiver engagement score, and in our annual survey, by far the lowest burnout rate. And then they’re based on pure primary care, they breakeven and then the risk pools, you know, add to that. So more and more value-based care. I think there’s opportunities to take a lot of as I mentioned earlier, we designed the hospital system to be number one in every market. That’s the same thing we’re doing with the physician enterprise, an amatory care network, and we found huge gaps, you know, in an amatory care network where we think we can grow dramatically. In fact, one one marketplace Puget Sound, this will blow you away, get a bunch of focus groups recently, and 48% of the people with commercial insurance are unaligned with any health system. 48% and here’s a community that’s growing by 50,000 people a year, half the people don’t align. And that’s the whole idea we have is we have the same 15 access within 15 minutes, 15 million people, because that’s kind of our primary market. And so we believe the combination of taking, you know, capitation really manages the lives well. And the ability to grow much faster than our competitors will allow us to continue to deal with that dynamic.

Gary Bisbee 18:14
Mike, what about managing risk, which you don’t learn in medical school? So what do you do to help your both physicians and you know, all your people to learn how to manage risk?

Mike Butler 18:25
I think to a certain way, we’ve inherited it a bit. You know, some of us have the experience and the first hospital I worked at had 100,000 capitated lives and I used to have to drive all the way to LA on a Friday, get my cap checks because of how bad things were. Health Net and Taurus. But so I’ve gone through it all. But if you look at it, the Medical Group in northern Karen, Northern LA County, they’ve been in the business 50 years they’ve been in, I think longer from a pure risk than even Kaiser. You got heritage, who’s been doing this, you know, 20-30 years. Our health plan has been doing this for 30-40 years in Oregon. So by deconstructing the health system and having it under one person, we can quickly move, you know, all of the systems and structures out there. There’s also great technologies to get a sense where you’re at. This company called roadmap that goes in and ranks physicians, from a scale of one to five, 5 million, you’re pretty big time over utilizer. And to be able to be successful, we think you have to have a score of less than 2.7 2.7 for all the markets that we’re in except one that has that even though we haven’t moved to risk based contracting. So it’s, you know, we’re blessed to have all the systems and structures. The hardest part we have is convincing a plan to move us to give us the premium. You know, and what they want is they want a price reduction on the front end and I’d rather give a price reduction on the front end to get the premium if I know I can manage utilization down by 20%.

Gary Bisbee 19:55
Right. That makes good sense. Mike this kind of a question is tough to answer. But I’ll ask it, which is what happens 20 years from now? Do you think this model is going to be pretty much up and down the country with our health systems managing more and more risk? Or do you think it’s more localized with systems like Providence that can actually do it?

Mike Butler 20:20
I think two things. I think it’s an imperative that it gets there. Because, you know, one of the things we’re, I think we’re gonna be able to do also, by deconstructing the health system, you know, I mentioned how we’ve deconstructed revenue cycle on the hospital side, you know, we’re beginning to deconstruct revenue cycle around, you know, bundles around capitation, we actually think we could take not only reduce utilization, but also take a ton of administrative cost out. So I think it’s an imperative that this be the model going forward? If you look at the profitability of the Medicaid plans out there, and some of the Medicare plans, and all that is going back to shareholders now, all of that can be pumped back into the communities, and to compensate for the fee for service that remains.

Gary Bisbee 21:07
So where does this leave the health insurers?

Mike Butler 21:09
Yeah, I mean, I think they’re an unnecessary middleman in the long run. I mean, I really do. You know, the challenge is to become so big and well-capitalized. It’ll be interesting to see. We own a health plan, it’s very successful, but it’s in one market. You know, we’ve done very well in other markets where we, you know, take premium eat, we’ve gotten the payers there,

Gary Bisbee 21:31
Over the long haul for insurance: companies are intermediaries. They tend to get squeezed out and low margin businesses. So 10-20 years from now, do you kind of think it’s going that way? What about a common term today is affordability. And that is part of costs kind of a second-order of costs. So how do you think that’s moving? In general terms? And Providence? Are you thinking about affordability?

Mike Butler 22:00
I think the hardest part of managing affordability right now are these high deductible plans. Because what’s happening is they’re just shifting more and more of the risk to the patient, you know, and so affordability really has to go back to the patient. You know, it’s introduced giving one great example, my daughter owns her own business, you know, and so she goes into the exchange, you know, to get insurance, and she’s doing it as we speak right now, and I was walking through with the other day. And so the cheapest plan she could buy is like a Molina plan. Well, it’s like a $9,600 out of pocket. And then when you read the fine print, it’s like, well, if you have a baby, you know, we only cover $2000 of the 10,000. It’s insane. So I think the insurance industry has really shifted all of the risks, you know, to, to the individual. I think the challenge with that is, they also know when they sign somebody up who can afford to pay out of pocket and not. So, the drive that we’re trying to figure out is our affordability has to go as it relates to what’s coming out of people’s pocket. You know, and it’s interesting, I think we’re making great, great strides on it. But I just think the way the model works with these high deductible plans, no one’s ever going to say there’s affordability.

Gary Bisbee 23:18
I mean, it’s leading to a lot of the discussion of Medicare for all and that kind of thing, I think, right? Underneath all of that seems to be affordability. Yeah. Let’s, let’s wrap up. Thanks a lot for being honest. A lot of health systems haven’t really thought about data as an asset of the health system, either to help them modernize their own care, or possibly there’s some revenue potential there. But what do you think about that? Yeah, I

Mike Butler 23:50
I just ran into Amy, our CMO a little bit ago. And I and I’ve learned a little lesson this week. You know, we started a company about five years ago called multi-scale. And it was the guy who was actually the first Chief Technologist for Amazon. And the idea was, how do you take an instance of epic myriad, completely, put it in the cloud, and then put 10 more instances of it and draw data out of it to make the decisions that we can be making faster? And the interesting thing about it was when we started this process, we created a joint venture company, you know, six months into it, people like me are saying, Well, why aren’t we using it yet? And here we are five years later, and actually, the technology works now. And so I think the interesting thing is we want data, we want it now. I think we’re gonna have to learn to be patient on how it gets extracted. But I think there are so many incredible great uses. There’s all these small key use cases that are just remarkable. We just got to figure out how to extract it faster. You know, and I think the technologies are being built to do that.

Gary Bisbee 24:51
Mike, you’re a great leader here today to be appreciated.

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