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Becker’s Healthcare Podcast
Healthcare Transformation, Leadership, and Building Kaufman Hall with Ken Kaufman
00:24:47
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- [00:00]
A
This is Scott Becker with the Becker Healthcare podcast. I'm thrilled today to be joined by a brilliant leader who has been an inspiration to myself. We're joined today by Ken Kaufman. Ken is a brilliant economist, thinker, founder leader, all wrapped around the healthcare and health system space, but also founded his own company which is in the financial consulting, investment banking and other areas. He'll tell us more about it. He's the founder of Kaufman Hall, a household name in healthcare. Ken, can you take a moment and tell us about your backstory, how you ended up starting Kaufman hall, how it developed become such a legendary consulting and investment house. Talk to us a little bit about Kaufman hall and the founding and how you got started.
- [00:50]
B
Thanks a lot, Scott. And thank you very much for asking me to be on. It's a real honor to be on with you. So Kaufmanhoe was founded in 1985 and there were only three of us in the beginning. And we just decided that we thought we could start a great consulting firm. And we had some ideas and some principles to start of doing things a little differently. And we wanted to be an entirely client centered organization. That was an important principle of starting the company. And, and 41 years later, it's still an important principle of the company. As you indicated, we started as a debt advisory firm. That's sort of how we got the reputation of being a financial organization. And we grew very slowly through the years. We were very careful. We never wanted to get to a size too fast that would compromise the quality of our work for our clients and the hospitals that we work for. And so the first product was our debt advisory practice, which is still a very important practice at Kauffman hall, even all these years later. Then we added corporate financial planning, which was a story all in itself. And then after that, our clients began to come to us when they saw the kind of capital skills that we had and asked us to do other things. They started asking us to work on mergers and acquisitions and we started to do that. And then we got really interested in adding strategies. So today we have a very, very strong strategy practice. And then after that we started adding operating capabilities. So we have now the ability to do a lot of work in clinical areas and operating areas. We have strong treasury services as well. And clinical documentation is one of our most important practices right now. We really are the gold standard in that area. We have over 700 consultants today. And of course we're now part of Vizient, which gives us even more capability. And that's sort of the history of how Kauffman hall happened and where it's ended up. We're very excited and very proud of what we've accomplished.
- [03:19]
A
And I'm going to ask you two follow up questions to that. The difference in the healthcare industry and world, and this is obviously a large question, but give me a few overriding thoughts. The difference in the healthcare sort of System World Today versus 1985. Tell us, just because you've had that history of watching over those 40 years in a really close way, talk to us about how much that's changed over the last 40 years.
- [03:47]
B
Oh, it's been, it's, it's been incredible. So, you know, it was really back in 85 even, it was really still a cottage industry. There were some large developing organizations but, but by and large they were, there was, you know, the country was dotted by small community hospitals. It was sort of like high schools. Every town had its high school and they were really proud of their high school. And every town had their hospital and they were really proud of their hospital. But as things went on and healthcare began to get more complicated and doctors could do more and the power clinical work became much more of a powerhouse situation. Organizations needed to have more resources, they needed to have more financial capability. They had to really think about how to be corporate finance organizations and do it well. And as they started to do that, they began to get bigger and bigger. And as they got bigger, they attracted more patients and they were able to do more things from a capability point of view. And if all that worked from a competitive perspective, then they even got bigger. And then of course, they began to lean towards adding other hospitals. And instead of just being a single hospital organization or a single academic medical center, they became systems of care. And now, of course, we have, you know, 95 regional systems around the country that are very dominant. They range from anywhere from having, you know, five hospitals to 25 hospitals. And they in many cases dominate their service areas. The other thing that happened during that same period of time is the academic medical centers really figured out a strategy and it turned out to be a winning strategy. They said, what do we have going for ourselves? And the answer was we have the best doctors in the world. And if we let everybody know that we have the best doctors in the world, then patients will flock to us. And then over the last 30 or 35 years, that's exactly what's happened. And so now, in addition to the powerhouse regional services that we have, we also have, you know, 50, 75 academic medical centers that really have great size, great capability and they're very strong competitively in the marketplace.
- [06:26]
A
Thank you. And take a moment to the moment that Kaufman hall, in founding the company, when you started to feel some momentum, that the starting this company, which has grown into this incredibly successful effort and now sold to Vizient through private equity and division and so forth. Incredibly successful. Ken, at what point in the early goings did you start to think, hey, this is going to work, this is actually going to work, that we're going to be able to turn this advisory firm, this debt advisory firm, this consulting firm into a successful operation in business? Was there a point in time where you sort of said, wow, this is going to go okay?
- [07:07]
B
Yeah. I think that two things happened in the late 80s and early 90s is that after we got off the ground with our debt advisory practice, we realized that we couldn't sustain a growing business just on that practice alone. There wasn't. There wasn't enough work. Hospitals weren't doing enough debt transactions. We could stay in business and we'd be fine with that, but we wouldn't grow. We wouldn't become more relevant. And at that point in time, the three of us who founded the firm, myself, Mark hall and Terry Wareham, we were all graduates of the Booth School at the University of Chicago. We'd all gotten our MBAs there. And of course, the thing that the Booth is most famous for is the invention and development of corporate finance principles. So we had learned that, and we took a look at what was happening in the hospital business, and we said, you know, just the way corporate finance is super relevant to the Fortune 500, it's going to be really relevant to these growing hospital organizations as well. And when we started talking about it, we realized that a lot of people inside of hospitals didn't really. They weren't educated in corporate finance. They didn't really understand it. They didn't know what the application was going to be. So we did everything we could. We had a great. We put together a great corporate finance product, but it wasn't commercially viable until we went out to the industry and started to talk about this. And we. We went everywhere we could, giving talks, and we wrote a couple of books and we wrote a lot of articles. And we said, what is the backbone of commercial success in the corporate world in America? And we said, it's corporate finance. And when you understand corporate finance, you can make better decisions and grow your organization on a more orderly basis. And we said, this all applies to hospitals now. And for a while, people were, you know, like, what are these guys talking about. But then eventually it really began to kick in and the corporate finance practice took off significantly. And at that point, you know, not only did we have more work and did we start to grow and add people, but we also see more intellectually relevant in the industry. And that was the turning point.
- [09:39]
A
Ken, two follow up questions. One, you had mentioned that you were a Booth graduate, the University of Chicago. I would say that if you're more intellectual and analytical, you give Booth the nod over the Northwestern Kellogg School. If you smile nicer and more and are more marketing oriented, you give Kellogg the this sort of not only University of Chicago booth school. What is your take on that? How do you compare University of Chicago to Northwestern Kellogg School of Businesses? It's a common discussion in Chicago and even nationally. You know, those of us that are snobs towards education think University of Chicago is it. Others who are snobs towards marketing think Northwestern is great too. What is your take on Northwestern versus University of Chicago?
- [10:29]
B
Oh, I think, you know, I, I think honestly they're both great business schools. They've been in the ranked in the top five nationally for years. It goes up and down. Some years Northwestern's ahead, other years Chicago's ahead. They have different orientations. Northwestern, I think, has been more of a corporate organization, as you indicate, extremely strong in marketing and other related topics. Chicago was built on corporate finance and the first theoretical papers that were written on this were in the mid-50s and they came out of the Chicago Economics department and Booth school. And that was a strength in the graduate school and ran with it. And so I think over time, Booth became known as more analytical, more quantitative. And people who were really good with that and really drawn to that wanted to go there. And Northwestern was sort of a more managerial, corporate kind of school. And people who saw their strengths there wanted to be at Kellogg. But there's no doubt that the city of Chicago, the Midwest and the nation have benefited very significantly from these two strong performing business schools over a long period of time.
- [12:02]
A
This is why Ken is a quintessential leader. He's able to hit that answer right down the middle where I show my bias towards the University of Chicago. No offense to some of my very, very smart Northwestern friends like Joe Gutman, Dave Staffman, Howard Sutner were very bright in and of themselves, but not necessarily University of Chicago caliber. Ken, let me ask you this question about health care specifically. Tell us about health care. You know, so many challenges, only a million doctors, 350 million people, access and equity challenges. The costs are going up Are there reasons for optimism in the long term about health care in the United States?
- [12:44]
B
Yeah, well, there's definitely reasons for optimism. I think, you know, you know, you know, health care gets, gets beat up on a pretty regular basis. And there's no doubt that we have these equity issues, we have access issues and other related situations. But we also have an absolute powerhouse medical community in terms of what we can do. And the level of innovation and increase in capability and skill set in the hospital and medical community has just been going up very quickly over the last 10 to 15 years. There's a whole range of disease entities that were basically untreatable 10 or 15 years ago. Now that there are, there are, if not cures, there are ways to, to treat these and make these situations better. The reduction in deaths, heart disease mortality, has dropped significantly over the last 20 years, and the same is true for cancer deaths as well. So, you know, we're not 100% to where we want, but where the system doesn't work in certain areas, it certainly works in being able to take care of people who a number of years ago we couldn't take care of at all. And so that's progress and that's optimism. But without a doubt, we have to work on the other areas of weakness, and we have to figure out how to deal with that.
- [14:29]
A
No, thank you so much. And so how does a guy like you, who's got this incredible motor, who served as the CEO of really the leading sort of debt advisory from this area, consulting from this area for so long. How do you keep yourself energized now? What are you focused and excited about now? You look as young as the last time I went to go see you in person at the old Kauffman hall address about 30 years ago in Skokie. But. But how do you stay energized and active today? What are you most focused and excited about?
- [15:00]
B
Well, the thing that I'm. The thing that I'm most excited about is that I've been writing blogs, which I think probably everybody in your audience is aware of, for probably about 30 years. And I've written hundreds and hundreds of blogs and very proud of that. I've always been very, very interested in the intellectual and communication side of the business. So I've written hundreds of articles, I've written eight books, I've written many blogs, and I've given over 600 speeches across the United States. And I'm still speaking not as much as I used to, but I still am. But the thing that's most Exciting to me personally right now is that, is that I've moved my blog to Substack and I'm sure everybody in your audience knows what Substack is all about. It's a great platform and I started writing on Substack about four months ago and I think the quality of the output has been really good. I have some people that I work with and I think we're doing a great job hitting really important topics. And hopefully people are reading those blogs and it gives them something to think about and some ideas about how to better run their complicated organizations.
- [16:17]
A
Ken? No, it's truly remarkable. And so one last question, Ken. What advice would you give to. And you have a choice. You could talk about a hospital CEO here. Cause you work so much in your career in advising hospital CEOs, but you're also yourself a brilliant founder entrepreneur. So I'm gonna give you one or two lanes to go down. What advice would you give to either a founder entrepreneur or to a CEO of a health system? Either Wayne, or both.
- [16:47]
B
Any advice? I'm gonna go down the hospital lane because I think that's so important. I think the challenges for hospitals right now are just, I mean, I've been doing this for 50 years and I don't think the challenges for running hospitals have been any greater than they are right now. And so I think competitively, hospital CEOs not only have to figure out how to run their organizations on a day to day basis, but how to compete effectively in their marketplace depending on what their organization looks like, how big it is, and all of that. And I think there's three important roads here for establishing long term competitive position of a hospital organization. The first is that we really have entered into an era now where your organization to be competitive, it just has to be offering high quality services. And you have to be able to prove it to your patient population and to the general patient population. And that's just a reflection of what's happened in our Internet society over the last 10 to 15 to 20 years, is that people can find out information that they can never find out before. So there are a lot of organizations who would always say, yeah, we provide quality services. But they never had to prove it. And in some cases it was maybe perhaps mild exaggeration. Well, now it's, it's, you know, it's, it's being the Amazons of the world and whatever, you've got to figure out how you work with that. And you have to very, very much organize your hospital around providing consistent quality, being able to, to understand those patient outcomes and then communicate those patient outcomes to the patient population so that when those people have a particular problem, they will see that quality and they will pick your organization. The second thing that I think hospitals really have to focus on is making sure that their medical staff has the highest skill and talent possible. That's the kind of. It's the kind of place we live in in the world and in America in that we see organizations that succeed, they don't succeed accidentally anymore. They succeed on the backs of extraordinary skill and talent. And you see this every day. If you read the business news and the capability, I mean, you take organizations like Apple or Goldman Sachs or others, the amount of talent that is in those organizations is off the charts. And those organizations do everything they can to recruit and retain that kind of talent. And a hospital can't be successful anymore going forward unless it has a medical staff looking like that. And I just use the analogy of, you know, the Los Angeles Dodgers have won two consecutive Major League World Series. And you go and, well, yeah, you know, they've got a lot of advantages, they've got a lot of money, they've got aggressive ownership, but, you know, you had to win those, those, those, those. Those championships on the field. And who won them on the field? It was Mookie Betts, it was Shohei Ohtani, it was Freddie Freeman. If those guys aren't on. On the roster, then no matter what the Dodgers have going for them, they don't win two World Series in a row and maybe going for a third this year. And the same is true the medical staff. If you're a CEO, you have to ask yourself, who is the Freddie Freeman on my medical staff? Who is the Muki Bets? Who is the Shohei Ohtani? And so I think, you know, these are questions that I don't think hospitals ever really addressed that directly in the past. And then the final point I want to make in terms of recommendations, the whole concept of welcoming journey. Everybody knows how hard in the past it's been used to use hospital services, to use doctor services. It's been really hard. If you go to a cocktail party, Scott, and you go to a cocktail party and you tell them you're Scott Becker and everything you've done, the next thing they'll do is look at you and then they'll tell you a story of how they had to go to the hospital in the last couple of months and what a very difficult experience it was, and why does it have to be that difficult? And they want you to Answer that question for them. So I think, you know, the concept of a welcoming journey through the care experience for all patients at all times. We have arrived at that moment and hospitals have to solve that problem if they're going to want to continue to attract and develop and create the trust with the patient population in our country.
- [21:48]
A
Talk for one second. Follow up on that last point you made for one second. Access to the right specialist is getting harder and harder.
- [21:56]
B
You bet.
- [21:57]
A
So whether you're highly connected to the ecosystem, you've got a better chance to, if you're not connected to the ecosystem, very hard to get the right specialist at the right time. Are we making a mistake by not training a lot more specialists in our country? Any thoughts on that from a specialist and sub specialist perspective?
- [22:17]
B
Well, we need a lot more doctors, period. And it isn't just the specialists. We definitely probably have not enough specialists in certain places, but we also don't have enough primary care doctors. And the primary care problem is a real significant access. You talk to any of your friends? I'm on the older side, and so my friends have a lot of older doctors. And those older doctors are retiring. And when your primary care guy or gal retires, just try to get into another practice. It's almost impossible in the Chicago metropolitan area. So the question of access is super complicated. It can be related to whether we have the right doctors in the right place at the right time. But it also has an awful lot to do with the bureaucratic processes that are in place, how we do scheduling, how many appointments there are, how well that the doctors make themselves available. And then in addition, there's just an enormous quantitative work around that issue that's required in order to, I'm not going to say solve the access problem, but improve the access problem. And you're right. You hear the stories all the time about somebody who, for instance, needs a neurologist for a particular problem they've had. And you know, it's. It's August and they call and the person answering the phone says, I can get you in March. And so somebody's got a very worrisome problem and. And the first neurology appointment they can get is seven months away. Completely unacceptable from a medical care perspective.
- [24:03]
A
No, I completely agreed. And we see that so much. The one neurologist serving 500,000 people in Texas, the one dermatologist serving 500,000 people in medicine. Exactly. Just numbers that just don't work. Ken, it is a pleasure to visit with you. It's one of my favorite things to do one of the brightest people I know. Thank you so much for joining us today on the Becker's Healthcare Podcast. You're an inspiration and as good as they come. And you still look 35. Like the last time I had a chance to visit you in person before I ran into the UPS store recently. No, Ken is the best. I've had a chance to interview him several times at Becker's Healthcare meetings over the years. He was a mentor to myself and just a fantastic leader. Ken, thank you so much.
- [24:40]
B
Thanks, Scott. Great honor to be on with you. Great honor.
- [24:43]
A
Thank you.