Q&A: Providence St. Joseph's Venkat Bhamidipati on consumer-centric approach, tech

In recent years, Providence St. Joseph Health has shifted its focus to expand ambulatory services. Since then, the 51-hospital health system based in Renton, Wash., plucked its chief financial officer, Venkat Bhamidipati, from Microsoft. He started his position in July 2017, bringing decades of expertise from the tech world into healthcare at a time when rapid technological advances and shifts in consumer demand are transforming care delivery. At Microsoft, Bhamidipati helped lead the cloud transformation that accelerated the company's growth. He sat down with Modern Healthcare finance reporter Tara Bannow to discuss making the transition from the tech industry to healthcare. The following is an edited transcript.


MH: What did you do at Microsoft and did that experience transfer to healthcare?


Bhamidipati: I was in Silicon Valley for about 13 years and Microsoft for about 13, 14 years. So, if you look at my career, it's been 26, 27 years at the confluence of tech, business and rapid business model disruptions. At Microsoft, what I learned that would be transferable into other industries—not just healthcare—is the notion of a customer-centric approach. We invested in the cloud capabilities, which ultimately helped us increase our share of wallet with the customers. In return, the customers were benefiting immensely as they got more value at a lower cost. The same thing applies in healthcare, where certainly my impression is that the costs are growing far faster than our ability to afford, so we needed to step back and say, “What's the root cause?”

Ultimately, healthcare is about creating value for patients. How do we deliver the best outcomes at the lowest cost?

The second thing I'd say is understanding what I call customer lifetime value. In the tech world, we used to sell licenses every few years, and customers would renew them. We had an understanding as to how much they were using, but not our revenue or our success. Microsoft's success was not completely dependent on their usage. If you shift to a cloud world, the customers pay via service model, and they only pay when they receive value. So we had to change our model to make sure that our value propositions were aligned. We were going for the highest value that the customer would derive from the usage, and we wanted to make sure that they were actually consuming the service, and that became very important. Tech companies are relentless in trying to make sure that they draw the lowest production cost. That's something I think we can bring to healthcare. People get confused between cost-cutting and lowest production cost. It's applying the learning curve on a continuous basis. Applying not just technology, but also profit efficiencies to be able to drive to the lowest production cost.


MH: Your CEO said last month that you will announce Providence St. Joseph Health's reorganization plan. Can you share details on that?


Bhamidipati: I don't have any specific announcement to make, but if you take a step back, one of the beautiful things we have for PSJH is certainly we're one of the largest not-for-profit health systems in the country with over $23 billion in revenue and a vast geographical footprint across seven states. In addition to that, we certainly have a leading position in all of the markets we serve, our research and innovation concepts are strong. Given our investments in systems, Epic, over the last several years, we have large, longitudinal data sets to help us understand our patients better. If you combine that with the assets and investments we have made in digital genomics, precision medicine, artificial intelligence and machine learning, we think we have a really good platform to transform ourselves and meet the demands of our population.


MH: PSJH is pivoting toward becoming an ambulatory network. What proportion of patient services revenue comes from the outpatient side and how would you like to see that grow?


Bhamidipati: With respect to ambulatory, the thing I've mentioned is how the customer and patient experience is going to change. Ultimately our goal is to take healthcare into patients' homes, and be able to provide the care where and how they want it.

That being the backdrop, we want to be able to improve access as we see opportunity to reduce costs for consumers and employers. In 2019, we're looking to launch about 100 new sites across Express Care, urgent care, ambulatory surgery and imaging centers. We expect our ambulatory visits to double to about 5 million in 2022. Our goal is to grow the network to be No. 1 in all our markets, very similar to our acute-care footprint.


MH: It sounds like the transition will involve potentially divesting non-core assets of the health system. What might that entail?


Bhamidipati: Certainly we see our acute-care facilities being important and pivotal. We do see augmenting our acute-care and medical groups with greater ambulatory facilities as important, to provide the right care offerings. We're also looking at the entire portfolio of assets we've assembled over the last decades. We're taking a deep and critical inventory of all our assets. Some are super core to our mission; we're also taking a look at assets that are not as core, and saying, “Can we deliver the same in a partnership model, and do we need to be natural owners of every asset that's sitting on the balance sheet?”


MH: What might some of those non-core assets be?


Bhamidipati: We own hotels, land, parking lots, mineral rights. We have a pretty broad portfolio of assets across the board, and we're going through a thorough review of all these assets.


MH: Health systems are very focused on cost-cutting. Labor is a huge expense and growing for a lot of systems, for example. Where are you looking when it comes to 
cost-cutting?


Bhamidipati: I think slightly differently, given my technology background. One of the things you can expect in a tech company is price deflation. In other words, everything you buy is going to deflate in price the next year. And clearly having the highest levels of patient or customer satisfaction is important. So we're not going to degrade the patient or customer experience. That's kind of the fundamental framing of how I think about it.

Having said that, one of the things we've been focused on is not so much cost-cutting. I think reducing the lowest production cost is a definite outcome we're looking at, but more about modernization. How do we modernize our processes? The approach we do not take is standard, peanut butter cost-cutting. I'm not a proponent of everyone take a 5% cut, because when you do that, you're basically preserving all the inefficiency in the system.