Hello everyone and welcome to our sixth episode of Risk Playbook. I'm Mike Mitchell, Vice Chairman of Graham Company, and today I'm joined by Kevin Mahoney, CEO of Penn Medicine, a world renowned academic medical center, with hospitals ranked among the top in the nation, and number one in Pennsylvania.

Kevin has been with the health system for over 25 years, and was named CEO in 2019. Less than a year into his role, the COVID-19 pandemic hit. During that time, Kevin continued to position Penn Medicine as a leader in the Philadelphia region by standing up the largest testing program in the area. Penn Medicine also received worldwide acclaim during that time as they had developed mRNA technology which serves as the foundation for the Pfizer and Moderna vaccines.

Kevin has also led several transformative projects for the health system, including the opening of the Pavilion in 2021. It's the hospital of the future and the largest capital project in Penn's history.

Kevin is an incredible leader who has positioned Penn Medicine as the institution for quality care in the region and beyond. He also has a special ability to connect with people, making everyone who meets him feel like a good friend. I'm really looking forward to speaking with him, and I know our audience will take away valuable lessons from this discussion.

Kevin, it is my honor to have you as our guest on Risk Playbook.

Mike, thanks so much for that introduction. I'm blushing. You used a lot of Kevin did this and Kevin did that. The 40,000 plus employees at Penn Medicine are what make all this possible. And they are a dedicated crew that shows up every day, and I'm grateful for all their work. I like getting the accolades, but they deserve it.

Well, I'm not surprised by that comment, Kevin. As I've gotten to know you, you're an extremely humble leader. Your skills as a leader are tremendous. Hats off to you for recognizing those 40,000 plus employees that deserve a lot of the credit.

With that, I always like to start these discussions off with the career journey. I know, as a young man, you were involved in a major tractor accident. I understand that it was really a game changer for you. Can you tell us about that experience and perhaps how that led to your career in healthcare?

Sure. Michael, I'm going to take a step just prior to that, and also let you know, people often ask me about my career. I come from a family of 10 of us – like a lot of large families, not enough bedrooms and one bathroom. I think I was negotiating in utero, for my next place in line. So, I have learned at an early age to make sure that we were functioning as a unit and try to be part of the team, which in that case was my family.

I grew up in Berwyn, just about 25 miles west. Things were so easy. I went to college. I made the Dean's list and often tell people that it was the Dean saying, “1.98 is not a sustainable grade point average and you have to go home.” I knocked on the door and told my dad I was back and he said, “You’ve got to go get a job.” So, I went to work for a local landscape group.

It was the summer of ’78 and three things happened that put me on this path to where I am today. The first is that I met Bill Rouse. Bill was a visionary. He was telling me how he was going to convert this cornfield, that my brothers and I had been pheasant hunting in that Fall, into an office park. I laughed. I told him that wouldn't happen, that people work in Center City and they sleep in the suburbs. He said that's not a rule, that's just a guideline and guidelines are made to be broken. I credit Mr. Rouse, in a very short period of time, teaching me that painting a vision – what he saw in that cornfield was an office park, I saw corn stalks. I've tried to use that ability as I move forward in my career to paint a vision of where we could be.

In rapid succession, he then said, “Could you cut down the cornfield? I'm going to have a party to celebrate the opening of the office park.” While I was cutting it down, I fell off the tractor, under the tractor and the tractor ran over me. I ended up in Paoli Hospital for many, many months. I tell everybody, that's where my love of hospitals came from. It's kind of weird that a patient experience would lead to a career, but the angels that took care of me from the doctors, to the nurses, to the person who brought my food. I wanted cheesesteaks and they were trying to talk me into salads, and they were just so concerned about my care. It made a great impression.

We already know I’m not a very good student. So, going back and becoming a nurse or a doctor was out of the realm so I picked something easy like hospital administration and becoming a CEO.

Then the last thing that happened that I give a lot of credit to is, I met my wife on November 10, 1978. We've been together ever since. She is the yin to my yang. I am Irish and hot, and she is calm and cool. She keeps me balanced.

It was a formidable accident, but it put me on a great career path.

It's an inspiring story to hear you talk about your family, one of 10. Then of course, your wife and the influence she has. Matter of fact, she actually talked you into going back to school, correct?

She did. You got a great memory, Mike. We went to Millersville. I said, “They're not going to let me back in,'' and she said, “It's not Harvard, Kevin, I think you go in and say you'd like to come back, they’ll let you.” I was nervous as a cat on a hot tin roof. I walked in, and they said, “Sure, you can come back.” It was also an important lesson that sometimes you imagine things are worse than they are.

Look now, things worked out. You're the CEO of a nationally recognized health system. It sounds to me like you're the perfect example of the A students are working for the C student, right?

Or the D minus students.

I'm sure it wasn't that bad.

Let's talk about your industry a little bit as we shift gears here, some of the hot topics related to the healthcare industry. Clearly, you've remained in the forefront of the industry.

Of course, top of mind for me, I can't help but think of the rising cost of healthcare, and what that means for an organization like yours, because you have to have margin in order to accomplish and carry out your mission. At the same time, the users of your services, sometimes maybe are frustrated, or maybe even concerned about the future affordability of healthcare. How do you navigate that as a CEO? What are some of your biggest challenges when you think of the rising cost of healthcare?

Great question, Mike, and it has two parts to it. The one you pointed out, which is most important, is the burden of the cost of the American healthcare system on small businesses and businesses in general and the drag on the economy. As we head into what many people predict will be a pretty rocky recession, we have to keep in mind that, just as you said, our revenue is an expense to the federal government. It's an expense to employers, and it's an expense to our patients.

At Penn, we're dedicated to trying to drive that cost down. An example of that is soon we will announce a partnership with Independence Blue Cross, where we're going to take more of the risk off of the employer and they'll pay a set fee and we’ll be responsible for the totality of the care as we move forward.

I think the solution is to use a lot of tools that other industries do. If I want to buy something on Amazon, I get on, and a couple clicks, and it's at my doorstep. Healthcare is still so paper intense and antiquated regulations. We're going to try to work with Harrisburg to reduce the amount of regulation. We're going to take pages out of other industries' playbooks to get our costs down. I can't take it away from bedside. When you're sick, you need all hands on deck. But do I need as many people doing billing, as many people doing logistics, as many people doing regulatory review? That's where I'd like to take some of the cost out.

The partnership with Independence Blue Cross, you're talking about having skin in the game now. Explain the risk reward there, Kevin, how does that help you?

We have a little bit of skin in the game now, but we're going to take it and amp it up significantly. American medicine is traditionally based on fee for service – the more the doctor does, the more they get paid, the more the hospital does, the more the hospital gets paid.

Under this model, we are incentivizing the physician in the hospitals to be more efficient. But right now if they're more efficient, they just don't get paid. Because it's a fee for service. So, if you reduce service, you don't you don't get the revenue. This new model will shift more money to outcome and efficiency as opposed to fee for service.

It's a great credit to, we started this conversation with Dan Hilferty and we've expanded it with Greg Deavens, the new president of IBC, he’s become a fast and ready partner, and we're making great progress on it.

Do you see this being one of the waves of the future?

For sure, definitely. We're also doing this in chronic kidney disease.

Right now, just a very quick example, if the physician puts a patient on dialysis, the federal government pays for that dialysis. There's no incentive for the doctor to keep the patient off of a dialysis machine. So, if we're able to reconvert some of that money that's currently going in dialysis to early transplantation, and people won't be on the dialysis chair for their lives, the physician will be rewarded for that.

It's complicated, but you start out that this is a risk podcast and we're shifting the risk to the provider and if they do well, they'll get paid if they don't do as well, they're still gonna get paid just not as much.

That makes me think of consolidation in your industry like there is in almost every industry today. Oftentimes, consolidation is for market share.

I know in one case you acquired a Philadelphia area, smaller hospital, I'll call it a safety net hospital or a neighborhood hospital. Mercy Hospital was the name of it. I think of perhaps hospitals like that, not having the ability or the quality care to do what you're talking about and having skin in the game. So the strong survive, and in this case, what's the risk vs. reward of you acquiring an organization like that? How do you balance the risk and reward with that?

Sure. When we do our consolidation, gaining market share is certainly important. But more importantly, it fits our strategic plan of meeting the patient where they are, which is increasingly in an ambulatory clinic, or even on the iPhone, not in a hospital, and we need to have more geographic spread. So we go from Eastern York County now to the Atlantic Ocean, and everywhere in between, and patients that want to access Penn Medicine can do it easily.

What we thought about in Mercy, the hospital was slated to close. We could have let it close, it's 20 blocks from there to the hospital, University of Pennsylvania, and we could have absorbed those patients at HUP. But it wasn't the right thing to do. Because it's two and a half miles. It's 30 plus lights. It looks closer than it actually is. So we wanted to keep it open. But we want to keep it open not as a hospital, but as a healthy village. One stop shopping for the community to get care access they need.

So, we've reopened primary, working closely with Children's Hospital, Blue Cross again and Public Health Management Corporation. We have a dental program, we have primary care offices we've opened, we have Crisis Response Center that we're reopening, kept the emergency room open. Again, provide access.

If you need surgery, you still come to the main hospital, but for day-to-day healthcare activities, not just medical activities, but healthcare in general, nutrition counseling, etc. You get it right there in our healthy village concept.

Kevin, you are outspoken about health equity, meaning providing access and equity within healthcare. Is the Mercy acquisition part of that passion?

I think it's a prime example. So far in two years, it's cost us about $67 million to keep that open. But I think it's the right investment. Because without it, it's too hard for a single mom, it's too hard for an elderly patient to get access over at the main hospital.

Health equity, I think, starts with improved access to care. We've expanded that.

An example is we started about six companies together with Wharton that are focused on reducing social determinants of health. So, food insecurity, tardiness at school, we have a virtual rehab program. We're trying to use all the tools in the toolset.

Then internally, health equity also starts off with economic security. So, we've increased our internal promotion rate by 10% minority employees that are getting promoted within Penn.

The word I use is intentionality. We're trying to go about everything, looking through a health equity lens, but with intentionality to accelerate the improvements.

$67 million, that's a lot of money. There has to be a return on investment there that may not be dollars, I'm assuming, right?

Remember, we are large, for sure. $8 billion a year revenue. But we're not for profit. So everything doesn't have to have a financial return. But it has to have a societal return. I think Mercy represents that.

We dedicated ourselves. A stain on American medicine is Black females still die in childbirth, and maternal morbidity and mortality is almost virtually eliminated in white patients, but not in BIPOC patients. So we put into the executive management pay the elimination of maternal morbidity and mortality in BIPOC patients.

We put into the executive pay increase in colorectal screening in black males after the Black Panther actor who died so young, we know we have to do a better job of getting colorectal cancer screening rates up. And if we do the payback is that people aren't going to die. And that's why we're here.

And that helps your culture, it helps your brand, it makes you an industry leader, it makes you change the world for better, all those things. So that would be my ROI for sure.

The other thing that's so important, Mike, and we both love our city, we gotta get our mojo back. Gun violence has just been awful. If we can give people hope back into their lives. If we can create jobs, if we can provide easy access, equal access, to healthcare, it'll be a step in the right direction to getting the city back.

As a leader, Kevin, you're not just talking to talk, but you're walking the walk.

Let me switch gears here for a second. Innovation and technology is everywhere. If you don't have that you're not going to survive. Perhaps some of that is the result of Amazon and all the things they’re doing, you mentioned that. But I want to ask you about the Penn Medicine Co-Investment Program. You've invested, as I understand it, $50 million in promising biotech and life science companies. To me, that's fascinating. Can you tell us about creating this program?

Sure. So, we sat with the leaders in Philadelphia – Craig Carnaroli, David Cohen when he was at Comcast, John Fry, representatives from PIDC (Philadelphia Industrial Development Corporation) – and we talked about an innovation district, and how we would create that.

We referenced Kendall Square a lot up in Boston, and we all concluded you don't want to be the second Kendall Square, you want to be something unique. What's unique in Philadelphia – what Penn and Children's Hospital are able to develop in cell and gene therapy, and Jefferson has now started a college degree in cell manufacturing.

So, we coined the phrase “Cellicon Valley,” and we put up $50 million and that $50 million has attracted over a billion dollars of venture capital into Philadelphia. We continue to get FDA approvals, we got another one on a type of lymphoma that is now going to be cell therapy or be approved to treat that.

Our idea is to cure cancer, eliminate disease, create jobs, but do it here, don't do it in San Francisco, don't do it in Boston, but do it right here on Market Street. And if you've driven down Market Street lately, the number of cranes are pretty remarkable.

Spark Therapeutics is another example, not of our co-investment, it's based on Penn IP, but Children's Hospital funded that. So institutions trying to step outside of our normal bounds, maybe, of education and research and clinical care, and be more of an economic driver is what we're trying to achieve.

Wow, it's exciting for what's going on. It's also encouraging to know what it is you're working on, and trying to cure cancer and everything else. It's great for our audience to hear some of that, to have some optimism to know that things will continue to get better. So, thank you to you and your 40,000 plus employees for trying to change the world and make it a better place in terms of being healthy.

I want to move to, I mentioned this in the opening, the historic Pavilion, which just opened a year or so ago, a $1.6 billion project. According to my notes here, one of the largest hospital construction projects in the United States, certainly the largest capital project in Penn's history, and it’s massive. 1.5 million square feet, 17 stories, 504 private patient rooms, 47 operating rooms. Talk about the project, and what are you most proud of?

Sure. I often reference for everybody just in terms of size, the new Comcast tower has roughly the same amount of square feet as the new Pavilion. One is tall and slender, and the other one is short and stout. But it is a massive facility, as you mentioned.

What I am most proud of is, we use a different method of construction. It's called Integrated Project Delivery. It was putting everyone that was involved in the project, including the owner, at risk. So we gave a set of conditions, we wanted to be LEED certified, we're proud of our position on climate change, and we're pushing hard to become carbon neutral. So we wanted the building to get LEED certified. It achieved that LEED goal. It had to have at least 500 rooms, all the things that you talked about.

We wrote down these conditions of success, and we turned it over to the architect and the contractor and said, “Give us a target price.” They did, it was $1.5 billion. The extra $100 million you reference is a COVID related charge, but they kept everything below $1.5 billion. They helped pay for everything over $1.5 billion and incentives work. So you never saw more cooperation between an architect and construction company than you did when there was money on the line. That led to enormous innovations. So about 30% of the building was built off site in West Philadelphia and had been brought in at night. It helped with our traffic, it helped with our workplace safety. Because people you know, they weren't all banging around in the same spot.

We built a 30,000 square foot mockup life size, we brought in actors to be patients, installed GoPro cameras all throughout the day, and we did a code and we delivered food. We actually re-enacted what a day in the life of the patient would be and then based upon all that video, then we sat down and designed the building.

Michael, you're a great example of innovation. Graham Company helped us out with an Owner Controlled Insurance Program, and it saved us not quite $10 million, but it saved us millions. Safety became a watchword on the project. It was the right thing to do. Employee safety, workplace safety is just critical. But if everybody pulled together and we saved money, the money went back to the owner, went back to the contractor, went back to the architect, it didn’t go to the insurance company. So these are just bold moves. But I think they paid off, I think it’s a great building.

We're proud of our trying to bring art and medicine together. We commissioned a lot of artwork, including Maya Lin, who's famous for doing the Vietnam Memorial down in DC. She created a beautiful two-story sculpture that she calls “Decoding the Tree of Life.” It gives families and our colleagues a moment of respite in a pretty emotionally intense building and we're very proud of that.

Very, very progressive. Congratulations. It's a great project. Thank you for the opportunity for Graham to be involved. 

And by the way, it's been a pleasure working with you and your team on the risk management side, especially Ben Evans, Associate Vice President of Risk Management and Insurance. You have an incredible team there.

I am familiar with that Integrated Project Delivery method. It really is true partnership where there's shared risks on all sides. And it's not there to try to squeeze somebody, it's there to create opportunity if you do a good job.

Mike, one of my favorite Pavilion stories is related to COVID. So, back in March of 2020, April, we weren't sure what was going to happen. We were watching tents being built in Central Park in New York City and patients being treated in tents. We talked about putting one on Franklin Field, etc.

I went to Stephen Greulich in the construction team and I said, “How many beds can you get me ready in three weeks?” And they said 150. They delivered. By April 11, they had 150 beds ready to go. Fortunately, we never had to use them. But every seam fit, every electrician, everybody was working 24/7 to get those open. It was a great example of a city coming together to take on a common problem, which at the time, again, unknown, but it was remarkable how many people pulled together.

Well, I don't think you know this, but my son and his wife are both nurses in that building, and they have not stopped talking about it. They're thrilled and appreciate the opportunity to be part of the 40,000.

You mentioned COVID, mRNA vaccine technology. That's a tribute to Penn Medicine. Obviously, it's part of the Pfizer, Moderna vaccines. Can you talk a little bit about that? Is there anything special that you do as an organization to foster that culture of innovation?

I refer to Penn as the greatest show on earth. I think Drew Weissman and Katalin Karikó, who are the inventors of the messenger RNA vaccine, they've won so many awards over the last year. But they made it possible for us to hug our grandkids again and to get back into the world.

It was about 20 years ago, they met at Penn over a copy machine, didn't know each other. “What are you working on? I'm working on mRNA…I'm working on that as well.” They began to collaborate, and this is what the result is.

I think our secret sauce to innovation is to attract talent, to put them in buildings where you can have these casual interactions. It's not like assembling a football team where you need one of this and one of that, you need the very best talent you can get. Then when they start collaborating, that's when magic occurs.

We're so proud of Drew and Katie, and what they've accomplished. That story is repeated many times over at Penn.

Well, when you talk about attracting talent, in today's world with the Great Resignation, wage inflation, all those kinds of things, we're all struggling to retain what we have and attract new talent. Is there anything in your special sauce that helps you get there?

I think people are attracted to Penn that have a mission orientation. Pay is foundational, and we continue to lead or be very close to the top at the pay rate for any position. We're going to continue to do that.

People don't just work for pay, they also work for a sense of mission, the intrinsic reward they get from their job. So, in addition to the pay, we've been providing free SEPTA no charge SEPTA rides to our employees – and we'll do that for another six months trying to help with the cost of gasoline.

We sent 20,000 people to the Phillies games over the last couple months just trying to bring your kids, get a diversion. We try to build a culture that is family oriented and mission oriented. Again, I can't say enough about the stress every employee has been under.

Workplace violence is increasing, so we're putting weapon detecting systems in Pennsylvania Hospital and other places so that people coming into the facility, we're checking to make sure that they're not going to bring violence against our employees.

I'll wrap it up, Michael, in the following way. I just went through a mission orientation, went through some of the things we're doing to make our workplace safer. One of the things that’s unique about Penn, though, is 60% of the health systems bottom line funds research. Very few systems in the country are owned by a University, and we are.

That means your son and daughter-in-law are researchers, not just nurses. Because if they can treat a patient faster and more efficiently, and we make more margin, it doesn't go into my pocket, it goes into the research bucket. So, when Carl June and Drew Weissman and Katie Karikó win the Nobel Prize, all 40,000 of us will have played a part in that occurring. I think that is our secret sauce and I hope the employees feel that because the jobs are increasingly difficult.

At my company, we have 225 employees, and you try to build and create a culture and I can't imagine trying to figure that out with 40,000.

Your leadership style is amazing. Tell me about that. What is your leadership approach?

My leadership style is, first I recognize that I am blessed. I am not better than the 39,999 other co-workers. I am blessed and I’m fortunate.

My style, though, is I try to paint a vision of optimism, but realistic optimism. I think we've achieved that. In the late 90s, we were losing money faster than we could print it. We looked out the window and said someday we're going to build a new hospital, a new medical center here – we were able to do that.

With proton therapy, we built the world's largest Proton Therapy Center. We said, we're also going to invent it small enough that we can do it in the suburbs. And this fall, we're going to open one in Lancaster County.

Realistic optimism is what I would put down as my leadership style. I recognize you may have bad days, you may have a bad week. But if we stick together the good days are going to outnumber the bad days and the good weeks are going to outnumber the bad weeks. Before you know it, we're getting another FDA approval for a new drug that'll change people's lives.

Well, I'm so impressed with your down-to-earth personality. You started off by giving credit to your people, and perhaps that stems from the roots of 10 kids in a house with one bathroom.

Let me close by asking you this. Kevin, just curious, you look into the future 5-10 years, as it relates to your industry and healthcare in general, can you paint that picture?

Sure. You mentioned it, it's going to be all about technology, and it's gonna be delivered more at home, it's gonna be delivered more virtually, more outpatient.

Right now, as much as we talk about the Pavilion, 60% of our money comes from outpatient centers across the Delaware Valley. That's only increasing and increasing rapidly.

We do most of our chemotherapy and infusions at home now. That's just going to continue to grow and accelerate, and technology makes surgery more minimally invasive. It'll be an outpatient surgery center.

So I think, did you give me 2030? What was the date again, Mike?

Five to 10 years, whatever that is. I wasn't good at math, either.

We'll go 10 years out. I think you'll see half the hospital beds that we currently have in Pennsylvania because people will be getting access to their care more efficiently and closer to home.

We'll still need the Pavilion because we'll still be doing advanced medicine. But more and more things will be done in an outpatient and home setting.

In most businesses, when you say you're gonna have half of what you have now, that's a bad thing. But in the case of healthcare, that's real progress.

There's a great video, if anybody has a chance to look for it. It's about a young family, unfortunately, who had cancer, and they received all their cancer care at home. Who wouldn't rather be sitting in your favorite chair with your puppy beside you watching your show, than having to drive the expressway and get into the main hospital?

Penn Medicine is always going to be there. But as I said, increasingly meeting the patient where they're at, which is home and virtual.

Kevin, that's a great way to wrap up our conversation. Thank you so much for joining me today.

And as always, thank you to our listeners for tuning in. To our listeners who want to learn more about Penn Medicine, please visit www.PennMedicine.org.

Until next time, I'm Mike Mitchell, and this is Risk Playbook.