Since taking over three years ago as CEO of Providence Health & Services in Renton, Wash., Dr. Rod Hochman has aggressively pursued a population health management strategy for the 34-hospital system, which spans five Western states. Its proposed merger with St. Joseph Health System, whose approval by California Attorney General Kamala Harris could come any day, would have major implications for the competitive landscape in the Los Angeles basin. Modern Healthcare editor Merrill Goozner recently spoke with Hochman about his strategy. This is an edited transcript.
The Federal Trade Commission has already approved the merger with St. Joseph. Why did you pursue that merger?
It's really a match that makes a lot of sense for us. Our philosophy is to be deep in every market. We don't want to be just a hospital or clinic; we want to have outpatient, inpatient, post-acute care … to be able to serve patients.
What is your approach to population health management?
We've had a health plan in Oregon for over 30 years. We have 600,000 members, and that has really helped inform us. We've been able to keep the medical trend for public employees flat for over three years. We're known for how we do medical management. We have a comfort level with it. We also have a number of ACOs in development across the system. We've done a number of things with Medicare Advantage. There are varying ways we take risk and responsibility for patients.
Are you having success with the ACOs?
We've worked with Boeing and with Intel in Oregon with an ACO that was built around an employer base. Boeing is going to be the toughest customer you're ever going to have. We've learned a tremendous amount about dealing with an employer population. Besides great care, they are really interested in how we are going to serve the customer. We were able to bring up a web portal for Boeing employees within 45 days. It's been challenging financially. But as an organization, we've really learned to redesign care based on what the customer wants.
What's the compelling reason for merging with St. Joseph?
Just getting bigger for bigness sake isn't what matters. It's a question of where you can leverage your scale. We recently announced a platform for genomics with Lee Hood at the Institute for Systems Biology based in Seattle. He's now our chief scientific officer. I can leverage someone like Lee and what his capabilities are. A second area we've spent a lot of time on is palliative care. Dr. Ira Byock is one of the leading voices in end-of-life care. We can leverage his abilities over the entirety of our health system. Then there's what we're doing with our clinicians. We put 50 surgeons in a room to redesign care. Some are employed; some are independent. We've tasked these different groups on how to redesign neurosurgical care, for instance. We've had tremendous traction on getting agreement in what are the best practices; what are the best safety measures. No one has shown that you can do it over that scale. Some regional systems have done it over a smaller geography. We're trying to show that you can do it over a huge swatch of the western U.S.
But how do you make it work in a fee-for-service payment system?
That's where scale comes in. If I'm in a smaller system, I can't put the investment in development or take on the risk of moving toward value-based care. In a primary-care office, as a physician, it's really difficult for you to live in both worlds. Most physicians, their major dissatisfiers are that they feel they're on a treadmill and they get paid for every widget, which isn't often the best care. We have to change that paradigm. We employ well over 5,000 physicians. We created a pseudo cap for our primary-care offices. Regardless of what their payer mix is, we're going to pay them as if they're capitated and allow them to practice the way they want to practice, whether it's on the phone or online. They'll know what they're going to be paid at the beginning of the year. I can do that because I'm a $21 billion healthcare system. I can adjudicate on the back end, whether it's a Medicaid patient or a Medicare patient, and not have a doctor worry about whether or not they're going to get paid when they bring a patient into the office. The excitement we have among our physicians is amazing. That is how we think we can transform care.
How far are you along in this process?
We've started with six or seven sites. We developed a team from Amazon to work on strategy … simplifying the front end for our caregivers and our patients (by) developing tools for making it easy for people to access us.
Do you generate most of your innovation in-house?
We created a $150 million fund, but we only want to use the money to invest in technologies that really make sense for us. It's a swarm out there. At the same time, we have our developers that work for our patients and our doctors. We want to look at both ends—to see what's out in the marketplace, what companies we think are innovative, put some of our money in there.
You spoke about leveraging your investment in science. What do you see as the reality of personalized medicine, and what do you see as the hype?
That's why we took (Dr.) Lee (Hood) on. He's a whole breath of fresh air in an area where there's a whole lot of noise. What we're going to be able to see, particularly in the neurosciences and cancer, is what therapies are going to work and, more importantly, what therapies are not going to work. There's some real stuff that's going to happen in the next three to five years. It's going to change the way we do cancer care. But it's just as much about what's not going to work. We should stay away from what's hot … like the Theranos thing. People are like lemmings in healthcare. Someone says something and everyone runs in that direction. Being smart and cautious is the right way to go.
Do you see more acquisitions on the horizon in your search for scale?
There are new ways to achieve the scale without as much investment, like our partnership with Walgreens (opening Providence express care centers inside Walgreens stores). There's also the opportunity to leverage care through telehealth and virtually. We have a company that provides our Epic EHR services to small critical-access hospitals. That's the way we can leverage the scale we have in a more effective way. If someone approaches us (about a merger), and it makes sense and they buy into what we do, we've taken a measured approach.