Q&A: Jefferson CEO Steve Klasko on Obamacare, Merger Mania

After four mergers in one calendar year, he's got a bold vision about the future of health care.

Steve Klasko, CEO of Jefferson.

Steve Klasko, CEO of Jefferson.

Steve Klasko has a bold plan: Fix health care in the United States.

For better or worse, the business of health care has changed since the implementation of the Affordable Care Act — and the CEO of Jefferson has made some bold moves to navigate those waters.

In just the past year, Jefferson merged (or announced mergers) with Abington Health, Aria Health, Kennedy Health and Philadelphia University. But a bigger Jefferson doesn’t mean expanding its Center City hospital, it means bringing care to where people need it most, and partnering with innovators trying to disrupt the space.

I sat down with Klasko to discuss Jefferson’s vision as well as the future of health care in the United States — a hot topic in the 2016 presidential race. (This interview has been edited and condensed.)

I’m sick of hearing partisan rhetoric about health care on the presidential campaign trail. Tell me now, is the Affordable Care Act good or bad? What needs to be changed?

There was a guy named Bill Kissick back in the 1960s that talked about an iron triangle of access, quality and cost. And if you think back to your geometry, if you increase one angle, you have to decrease another. So if you really ever want to increase access, you’re either going to increase cost or decrease quality.

I think all of the intentions of the Affordable Care Act were right. The problem is they said, “we’re going to increase access, increase quality and decrease cost and not fundamentally change the system or let the system fundamentally change itself.” That was the problem.

Everybody’s pandering towards their base, but everybody is right to a point. The Democrats are right, saying “we’re not going to go back to denying one-third of the population access.” I think Bernie Sanders is right in saying, “We didn’t really change the system. We just tried to pretend we can do this within the same system.” I think the Republicans are right, in some respects, in that the way we’ve implemented the Affordable Care Act is unsustainable.

We can’t keep pumping money into a system that doesn’t work. Medicaid is a great example. Somebody didn’t have insurance and we give them an insurance card and say, “mission accomplished.” Well, that’s nuts. We’ve now given access to everybody, and we’re amazed that the costs are out of control.

How do we lower costs for patients?  

Health care in Philadelphia is, I forget the exact statistic, but something like 25 percent more expensive than the national average. And we don’t necessarily have better outcomes.

You fundamentally have to disrupt the system. Medicaid and Medicare are not allowed to negotiate pharma prices. So, they’re paying three or four times as much as the government in France is paying for the same drug.

We haven’t come to a reconciliation of why a dermatologist makes 20 times what a family doctor does. In most countries, there might be a difference of five or six times between the highest-paid specialist and the lowest-paid specialist. Here, it might be 15- or 20-to-one. And you might say, well that makes sense for a neurosurgeon or whatever, but dermatologist, radiologists and others make five or six or 10 times more than a family doc or internist. 

Why is a bigger Jefferson a better Jefferson?

What we know, what I think everybody knows, is that if we keep doing the same things, we’re going to fail. For us, it’s not about scale. It’s not about how big are we. It’s about really looking at the things that are going to be obvious 10 years from now and starting to do them today. We also recognize that if five years from now we’re doing the same things, we’d be dead. So we started to look at not just how do we get bigger, but how do we start to get together with physician groups, the industry and other hospitals so we can bring Jefferson care out to where people are.

Why would you fail if you didn’t fundamentally change your business model?

Because at the end of the day, you’re not going to be able to survive as just a tertiary and quaternary hospital system. With deductibles, people are going to make decisions based on, “Where can I get the right care at the right cost? I can get my arthroscopy done at Thomas Jefferson University Hospital, and that’s going to be a $3,000 deductible, or at Aria or Abington with a $500 deductible.”

We say, “Look, there’s probably a lot of people who come into our ER who don’t need to be in our high-acuity ER with the top cardio-thoracic surgeons and the top neurosurgeons. They need to be in a place that is coordinated with Jefferson care. So we built an urgent care center a block away from our hospital — and it’s one-twentieth of the cost.

Are you concerned that with all the mergers, quality of care at Jefferson could be compromised?

I’ll tell you, there were a lot more deals that people either came to us with, or that we did due diligence and said: “This doesn’t have the Jefferson quality.” The three places that chose us [Aria, Abington and Kennedy] are A-rated, have great quality and are lower cost than Jefferson. They really had lots of choices of who they could merge with. There were other places that said “please, please, please — we really need somebody to bail us out” but we chose not to do those deals.

Were there any merger deals you wanted to make but couldn’t?

So far, that has not happened.

Would you ever do a merger with a hospital system that’s far away from the Philadelphia area?

I first said that there might be four or five super health entities in the state — that’s not longer considered impossible. Some people think that there might be seven or eight in the country. So if you think that we’re starting to move to a Verizon, AT&T or Sprint type of model, then you’re always thinking about the fact that somebody might create a super regional network or become a part of a super regional network.

Not to over-utilize the whole telecommunications thing, but Sprint and T-Mobile started out as, “Boy, they’re going to have to get bought to succeed.” But they actually became big players. I think some of that is true in health care.

The Aria deal got Jefferson into Northeast Philly. The Kennedy deal gets Jefferson into South Jersey. Are there other regions in the greater Philadelphia area that you’d like to expand to?

We want to make it very easy for people from every area, from every county, to access Jefferson care. It might be an urgent care center. It might be a primary care activity. It might be through tele-health. We ought to make it very easy to have people feel that they can partner with Jefferson.

We believe that health care has, frankly, nationally, up to this point not kept pace with the consumer revolution and we’re not going to just say, “Well, that’s health care” — which is what a lot of our colleagues say. We are going to partner with unusual partnerships in the pharma space, in the industry space, in the pharmacy space. Any place where care is delivered we think there are opportunities for Jefferson to be a part of it.

How are you closing these deals so quickly? I understand that you and Stephen Spinelli, president of Philadelphia University, first met just six months before announcing a merger deal.

I take a very obstetric approach. If you can have a baby in nine months, you ought to be able to do a deal in nine months. A lot of people talk about deals and they take forever to get done. Start with Abington. I talked with Larry Merlis for the first time in September. We had the letter of intent within four months. Part of the reason is because we’ve done these deals for the right reasons. I mean, when you’re doing true community mergers and you’re talking about a community board of directors and you’re not saying “I’m going to own you” — it really creates a different mindset.

I’m sorry, I’m still trying to get my head around the Philly U deal. A 192-year-old health science university merging with an undergraduate college?

It’s the biggest no-brainer we’ve done. They excel in design. They excel in interdisciplinary learning. When you think about the two places where health care needs an “extreme makeover,” it’s academics and health care. So my ability to partner with arguably one of the best — in U.S. News & World Report they’re the No. 10 design school — made it an easy decision.

Design is patient experience, and that’s what it’s going to be all about. For millennials, it’s no longer, “this is my hospital.” It’s patient experience — that’s design.

Apple is investing $6 billion in wearables. Well we’ve got the No. 10 design school in the country and we’re one of the top health science universities. I bet there’s not a combination in the country that they’d be more interested in.

Are there more mergers to come?

I think there’s more partnerships coming. We’ll actually be partnering with a hospital out in Texas that probably has more Latino patients than any hospital else in the country. We’re not going to merge with that hospital in Texas, but when we talk about our innovation partners, they will now not just be Main Line Health, Wills and Rothman, but will include that hospital as well.

So, I think you’ll see a lot of announcements about Jefferson-related creative partnerships — joint-operating agreements, entrepreneurial new companies and entities, and maybe some other full-asset mergers. But if we merge, we’ve only got on way to do it — all in. There’s no dipping your toes in the water.