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November 8, 2016
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One-On-One: UK Healthcare Grew Jobs, Revenue by Caring For Ky.’s Sickest

Executive Vice President Michael Karpf says improving care, partnering with region’s hospitals, fueled ongoing growth that’s led to billions in investment

By Mark Green

Dr. Michael Karpf became executive vice president for health affairs at the University of Kentucky in October 2003.

Dr. Michael Karpf became executive vice president for health affairs at the University of Kentucky in October 2003.

Editor’s note: This is a longer version than what is in The Lane Report’s November issue. 


Mark Green: You have overseen unprecedented physical and revenue growth, expansion of services and realignment of strategic relationships, and done so with a great deal of success. UK Healthcare is solidly profitable coming out of a period of industry disruption that left other major provider systems less financially healthy. Have you considered what the reasons are for your successful administration?

Michael Karpf: We spent a lot of time thinking about what we needed to do. How do we serve Kentucky? What is our role? How do we improve healthcare in Kentucky? As the president has said, we originally decided that what we needed to do on campus was really build the subspecialty services. Folks had not seen what a major academic medical center can do for healthcare prior to 13 years ago. We also understood that we needed to develop relationships with other providers. We needed to focus in on quality, safety and efficiency.

So we built up these programs that just weren’t available in Kentucky, and we built these relationships to help other hospitals. Because of that, when they had troubles, they sent patients to us. So between new programs and between relationships, we’ve essentially doubled the discharges from 19,000 to 38,000; we’ve gone from a $300 million budget in the hospital to a $1.5 billion budget in the hospital. More importantly, in 2003 we had 1,000 transfers from other hospitals of patients they couldn’t take care of and in 2016 we had 18,000 transfers.

What we’ve been able to do is develop the programs that were missing, that are the underpinning of the healthcare system, and taking care of the most complex patients in the state while helping local facilities become stronger, enhancing the transplant program, enhancing the cancer programs, making pediatrics stronger, enhancing neurosciences and building relationships so that other hospitals use us as their support system. That’s fueling that growth.

MG: Where did the vision to do this originate? Did your previous experience in multiple markets and regions give you a strategic administrative advantage as you came here to Kentucky?

MK: I’ve been very lucky. I’ve been at excellent institutions. I’ve learned from every job I’ve had. Two things coalesced for me that contribute to our success. One, I’ve spent my entire career in major academic medical centers, so I know what they do; they do the things that other places can’t do. If you look at where hospitals are going, many hospitals are going to be essentially intensive care units and step-down units. Chandler, in 2003, didn’t project the image nor did it do the services that major academic medical centers need to do. A lot of academic medical centers built on a subspecialty; that’s part of their coordination.

What was a little different is my desire and willingness to partner with other institutions to help them in their communities – like Norton (Healthcare system in Louisville), like ARH (Appalachia Regional Healthcare operates 11 hospitals), like St. Claire (Regional Medical Center in Morehead), like (The Medical Center at) Bowling Green – help them become better providers and keep more of their patients local. Therefore, they felt comfortable that when they need to send somebody for a higher level of care, they can send them to us. We weren’t competing with them; we were helping them. It was a win-win partnership.

A lot of academic medical centers are now focusing in on those kind of partnerships. When we started 13 years ago it wasn’t unique, but it was different than most academic medical centers; a lot of them were competing with the community. I didn’t come in here to compete with Central Baptist (now Baptist Health Lexington) or St. Joe’s (two Lexington hospitals, now part of 20-hospital KentuckyOne Health system) or any other place. I said, I’m going to do something different and special, and if I can help you, I’ll help you; we’re going to start developing win-win partnerships.

MG: Since 2004, outpatient visits are up 65 percent (from 665,000 to 1.1 million) and annual hospital patient discharges are up 88 percent (from under 20,000 to nearly 40,000). How does that translate into revenue dollars?

MK: Our operating budget in 2003 was at $300 million, and our projected operating budget for FY2017 is in excess of $1.5 billion. So our operating budget and revenues have had a fivefold increase. Part of that is increased complex cases, because revenues on those cases are much more substantial than routine cases, and part of that is rate increases. But that growth in operating budget has been fundamental in developing resources to continue to fund our transformation and fund our growth.

MG: UK Healthcare has remained financially sound as it invested about $2 billion since 2003 in program development, faculty recruitment, technology acquisition, and bricks and mortar. What advice do you have for others who would aim to duplicate this success?

MK: It is fundamentally important that you understand what role you’re going to play, that you understand what capabilities you have to generate resources, and to understand if the role that you want to play, you actually can play. Hospitals, whether they’re academic medical centers or not, can’t try to be something that they can’t be, that they shouldn’t be. We were fortunate enough that we set a plan, and the environment was such that we were able to realize the benefits. Had we not grown, we couldn’t have done all of this stuff. The reason we could grow was, Kentucky was underserved in certain areas and in certain kinds of programs.

We’ve now gone back to do some quantitative analyses of what it will take for us to sustain our growth and continue to improve in our programs. A major academic medical center such as ours, with all these highly complex cases, needs a catchment area of 6 to 8 million people. So we have to extend even beyond Kentucky. When we looked at the competition, it was (medical centers at) Vanderbilt (University in Nashville); Wash(ington) U(niversity in St. Louis); Indiana (University in Indianapolis); Ohio State (University in Columbus); UPMC in Pittsburgh; and the University of Virginia ( in Charlottesville). If you draw a line connecting those, there’s 9 million people in there, so there was a place for us. But there are multiple academic medical centers, so it was very important for us to get that head start.

We knew what we wanted to do. We knew it would take a lot of resources, knew we’d have to grow, and very carefully tried to understand our clinical space to make sure we had the geographic reach and the population reach to accomplish that. To try to accomplish what we’ve done in a very different environment isn’t going to work without the growth. Without the potential of the growth, you’re not gonna make it.

MG: As you proceed through this large transformation, how do you get people to invest and believe in your plans and vision?

MK: It’s an interesting process. When we decided we were going to focus on subspecialty care, the next question was, will our facilities support the kind of patients we’re planning on bringing in? It was pretty clear that the old Chandler wouldn’t do that. And that’s when we started planning (the new hospital’s) Pavilion A. We planned Pavilion A in an incremental fashion. The first plan we floated was for $450 million, and as we were developing that plan, we started seeing growth very quickly. That original (building) plan was for a platform with one tower in it, and the tower had six stories. When we saw the growth, we said, uh-oh, we’d better plan for the future! So the next plan was for $530 million, and that was two towers with six stories. And then at the last minute, because we built into the planning the ability to add two additional stories, we continued to see growth so we did the platform and two eight-story towers.

We signed off on $543 million, and we knew we’d be building a garage and building 1.2 million s.f., but fitting out 600,000 s.f. We knew we were only doing half a project. If anyone had asked what would it cost at the end, I would have told them probably close to $1 billion. But we set it up so we could do it in stages. I originally assumed it would take us 15-20 years to fill out the rest of the building, but because we continued to grow as quickly as we did, we’ve been finishing it out much faster.

What got people comfortable (with the overall plan) was, when we started out talking about the smaller plan they saw very substantial growth right in the beginning and saw us needing (to obtain) Good Samaritan Hospital. We very quickly went from a plan for 489 beds to, when we acquired Samaritan in 2007, having 825 beds, and then a couple years ago we obtained state authorization for 945 beds. They understood we were doing it in an incremental fashion so that if for some reason we couldn’t do it as fast as we wanted, we would see some benefit but we wouldn’t be obligated to spend $1 billion. As we continued to grow and have strong bottom lines, it got easier and easier for the president and the board of trustees to approve additional projects. So where we stand right now is, we will be close to $1 billion at the Pavilion A, we’re fixing up parts of (Kentucky) Children’s Hospital, and Pavilion A in 18-24 months will be 99 percent complete. But it was that incremental approach that people were willing to gamble on, because they saw substantial growth right at the beginning.

MG: In your administrative role, who are your key constituencies? Do key decision makers in the state understand what you are doing, and why, and how?

MK: I report to the president of the university; I reported to Lee Todd directly, and I report to Eli Capilouto directly. They’ve both been extraordinarily supportive and have been partners and cheerleaders of the process. When we started to see growth and we started the building project, the University of Kentucky Medical Center had not borrowed any substantial amounts of money, and we recognized that we couldn’t pull this off without selling bonds and paying for bonds. So it was critically important that we engage and get the support of Frankfort. At that time, Harry Moberly, who was in the House of Representatives from Richmond and a very engaged guy, understood the value that a major academic medical center would bring to the state. We had meetings with Gov. Ernie Fletcher and his Finance Cabinet, and they understood it. Between Harry Moberly, a Democrat, and Fletcher and his folks, they got the approval for the first $200 million in bond issuance. That got us going, and the rest of the money, at that point, came from cash flow.

When we continued to do well and we wanted to do more, and the state saw that in fact we’d become a major economic engine for the Commonwealth, getting additional borrowing capacity became substantially easier. The last time we went for bonding capacity, Gov. Beshear, Sen. Stivers, House Speaker Stumbo, they were all aboard.

We’ve gotten to be a better and better healthcare facility, and a lot of the legislators use us for their families and their constituents for complex care. Sen. Stivers talks about us saving his best friend, so he understands the value of having a major academic medical center here. As we grew and it became clear that an important benefit of our growth was our economic development for the region, folks like (Central Bank Chairman) Luther Deaton, Mayor Jim Gray, Mike Scanlon when he was vice mayor, were critically important in helping us get this project under way.

MG: How many employees does UK Healthcare have today compared to 2003?

MK: UK Healthcare includes the hospital and the College of Medicine and the practice labs because they’re financially and strategically interlinked. We had something like 5,500 employees in 2003. We have over 11,000 employees now. Our personnel salaries and benefits in 2003 was roughly $340 million; our number budgeted for FY2017 is close to $1.1 billion, and it will exceed that. We have doubled our employees, and we have threefold increased the salary and benefits number. We have been a major economic boon to this community.

MG: City budget officials must like you.

MK: They know how much we pay in (occupational, income and other) taxes, as do folks in Frankfort. We didn’t do it for economic development; it just happened because of this massive growth. To do great clinical care, you’ve got to have strong science to support folks who want to extend care. To have strong science, you have to have good clinicians whom the scientists can collaborate with. In indirect ways, as we develop our research profile, that’s going to have financial spinoffs in terms of startup companies, patents and stuff like that.

MG: You have very high levels of responsibility: thousands of employees, more than a billions dollars in budget and, of course, literally the life and death of tens of thousands of patients. How do you organize your time? Do you delegate this to an executive assistant, use digital tools or technology, have any rules of thumb?

MK: I was fortunate that when I got here I inherited some very strong people and recruited some very strong people. I’ve been able to, as they’ve retired, keep a very strong team beneath me. I’m a pretty good delegator. But the way I try to function is, I’m not a CEO who’s “at 30,000 feet” all the time, looking to see where the world’s going; I spend some time there. I have a lot of flights in airplanes, and that’s when I write papers: That gives me the opportunity to review what I’ve done, and do I feel good about where we’re going? Do we need to change direction? I spend a little time at 30,000 feet, but I spend a lot of my time “hovering above the mud.” I don’t try to be a micromanager, although if it becomes necessary I will do that. I like to sort of hover above the mud but be able to get into the mud when I need to.

I’m not somebody who can sit in an office 10 to 12 hours a day. I generate my own energy by being in the hospital. Every day that I’m in Lexington – I don’t travel much – I’m at this hospital, whether it’s Saturday, Sunday or a holiday. I start my day in the emergency room. I can walk around the ER and in 5 minutes understand how busy the hospital is, where the stress points are. I visit patients every day. I also get feedback on how we’re doing because thousands of people in this town have my cell phone number. They don’t abuse it, but in the early days that was important to send a message of access. It’s also a way of doing quality control and understanding how we’re doing because I get feedback from people directly.

My direct reports may describe me a little differently; they may say I’m more impatient than I think, and they may say I am more directive than I think I am. But I have a lot of respect for my direct reports, and I give them a fair amount of latitude, and they’re not uncomfortable giving me feedback. So it’s not an individual effort; it’s a team effort.

MG: Is starting the day in the ER something that you came up with? Did another administrator say that was a good way to start the day?

MK: I’m a doctor first and foremost. I started out as a hematologist/oncologist, got interested in educational systems, then I got interested in change processes and where healthcare’s going to go and how academic medical centers are going to fit in. From 1979 to 1996 at the University of Pittsburgh, I was an academician and I saw a lot of patients; I left 2,000 patients behind in Pittsburgh, and there are still probably 50 people in Pittsburgh who won’t have anything done without checking with me. First and foremost, I’m a doc – who’s interested in trying to figure out how the medical system of the future’s going to work and particularly how academic medical centers are going to survive because I think they’re critically important to healthcare. When I don’t see patients or get phone calls about patients, my wife wonders what’s wrong with me! That’s where I get my energy. I’m used to roving the halls of a hospital.

MG: What kind of patient interaction do you have right now? Do you have your own personal patients?

MK: No. I don’t “practice” medicine, and I don’t go into people’s charts. The patients I visit are folks who have been benefactors to the university and the hospital, long-term employees or people who have complained, and occasionally I’ll visit random people. That gives me a sense of how the hospital is working. When people who have my number call me, what I do is get them into the system, and I try to make sure the system works for them. If they’re in a situation where they have multiple doctors involved in their care and they’re getting conflicting opinions, I try to help them sort out the issues and come to a conclusion. Or if they’re feeling uncomfortable that they haven’t gotten all the information they need, I try to help them do that. When I took care of patients at the University of Pittsburgh, I was the internist who you went to if you had four or five medical problems, lots of doctors, and they were confused as to what you needed to do. I was the guy who tried to parse stuff out and say, hey, we can do this, this and this; if it was me, I would do this, but if you want to do this, that’s reasonable…

MG: What advice are you providing, or expecting to provide, to those involved in the process of selecting your successor? What do you see as the keys to success for a UK EVP for Health Affairs?

MK: President Capilouto understands it’s an important recruit. He’s trying to get as much information as he can from various constituencies. I’ll give him whatever advice or help he wants, or I’ll stay out of the process if that’s what’s most appropriate. And when a new person arrives, some want help from the old person, and some say I’d rather do it on my own; that’s going to be their choice. Dr. Capilouto and I have had numerous conversations on what are going to be the challenges for a new person and what skill sets are they going to need.

We’ve done a lot in building up our subspecialties; we are a very strong clinical program now. We need to keep getting them even better, and we have a process engaged in that. We’ve built up relationships with other hospitals; that’s real important. And if you followed what happened with the Kentucky Health Collaborative – that’s 10 major systems, 52 or 54 hospitals coming together – maturing those relationships is going to be critically important. The position is going to need someone who understands how to partner with other organizations and how partnering may take on different forms in the future – it may be virtual; it may be even more real partnering.

The real issue is: We will practice healthcare differently in the future. We have to. Healthcare has to continue to focus on value, outcomes and costs – costs have to come out of the system. The organization is going to need somebody who has an engagement on how healthcare has to evolve, has a philosophy where they want to take the place, who thinks about public policy issues and how it’s going to affect the evolution of healthcare, and how they’re going to work with our faculty to change their mindset. We’ve made a lot of cultural changes, but there will be very substantial cultural changes that have to occur over the next 5-10 years, so maybe (they need) somebody who’s different than me. Dr. Capilouto tends to cast the net pretty widely, and he is working very hard to come up with a vision of what kind of skill set and what kind of person he wants to recruit.

MG: A new type of MBA degree focuses on healthcare. What category of healthcare professional would benefit from this?

MK: When I evolved in my career, I didn’t acquire any professional trainings. I didn’t get an MBA; I didn’t get an MPH (master of public health) or an MHA (master of healthcare administration). At that time, there weren’t many physicians getting into administration to the level I was, so I could get away with it. As folks think about their career, if they think they want to get into running a $2 billion organization, having additional formal training probably is going to be of value, whether it’s an MBA, MHA, MPH or some combination thereof. There are programs directed towards healthcare and some that are directed towards executive-level stuff.

I came to realize about 20 years ago that I was interested in change processes. That’s driven me: the need for change and how I could participate. There was a real benefit to me of having been an academician and having been deeply committed to clinical care. If somebody wakes up in the morning and says, I want to help take a place through healthcare change so that they’ve viable in a new healthcare environment, an MBA would be helpful, but having roots in clinical care and academics are probably also going to be essential.

MG: There has been tremendous change in healthcare technology in recent years. How important is it to have tools such as Chandler’s hybrid operating room, which provides real-time scanning images to surgeons, plus live remote viewing?

MK: For what we do, technology is fundamental. Besides the rooms being small, the reason the old Chandler couldn’t carry us into the future is because it couldn’t support new technology. For what UK Healthcare wants to do, we need to be at the leading edge of technology. That’s the only way we can recruit outstanding individuals who are going to (ital)change(end ital) the standard of care rather than (ital)practice(end ital) the standard of care. In certain places, we want to be at the bleeding edge; we want to be innovative. And in other areas, we want to make sure we don’t get ahead of ourselves. There are some technologies that are very expensive that we’re just not going to get involved in – (such as) Proton Beam (radiation treatment). But when look across the spectrum of what we do, given the complexity of our patients, we have to be among the most technologically advanced facilities in the country. That costs a lot of money.

It’s all about tradeoffs. From 2004 to 2016 we spent about $2 billion in bricks and mortar, technology investment, and investment in recruiting people. Our plan moving forward requires us to generate $200 million of cash flow to continue to reinvest every year for the next five years. I’m certain my successor will also have a plan that’s going to require at least $200 million a year. So staying in this business of being in a research-intensive, pro-academic medical center, and changing the standard of care, is very resource-intensive. That’s why not everybody can do it. A lot of folks think that they want to get involved in it but don’t understand the entry price. We couldn’t have done it without the growth.

MG: How did you come to decide that art has a strong role in healthcare and healing?

MK: My wife told me! At UCLA, we had an art program that I thought was beneficial. They were just starting to have a music program, and they had a dog-therapy program. And I would see the impact on patients at UCLA. To me, it’s about creating an environment that’s empathetic and supportive. How do you take a place that has patients who are incredibly sick, families that are all stressed out, employees who are working as hard as they can be, committed to doing really good stuff, and try to create an environment that gives them a little breathing space?

The way you do that is through the architecture. The new building has all those little seating areas. At lunchtime, all those seating areas in that atrium are occupied by patients and their families, by employees, by docs and residents. It’s a living room; it’s not a transit space. So we decided we’d get involved in art and got such positive feedback that it’s become pretty central to the ambiance and the environment we want to create. You come by on a Tuesday and hear a bluegrass band and see 50 people listening, stopping and relaxing for a couple of minutes, or you come at Christmas and hear Christmas carols.

Or take a walk with my wife and my dog Clyde when Clyde is visiting the Children’s Hospital. Almost everybody in that building knows me, from the janitors to the kitchen staff to the nurses; everybody knows my dog. He’s had wonderful experiences. My wife has taken him into rooms where she’s been told by the nurse, “That child’s not responding to anybody, so go to the next person,” and Clyde would go in there, and he’d have this sense that this child needed something, and he’d put his head in the child’s lap, and within 20 minutes, that child would be playing with the dog. That’s happened innumerable times. All those things add up.

I’m all about the science that we do; it’s absolutely critical. I was trained as an oncologist. When I practiced oncology, my first goal was to cure people; my second goal was, if I couldn’t cure them, to get them into remission, to get them some quality time. But when I couldn’t do that, then my job was to get them and their families through their demise. And that took putting hands around shoulders, took talking to them and I think creating an environment that supports getting people more comfortable, giving them a couple of minutes to decrease their stress, is pretty valuable. And as I said, in the end, my wife told me that was what we were going to do, so I did it.

MG: To what degree does a facility’s or a system’s ranking in “case complexity” equate with profitability or financial stability?

MK: We measure case complexity is through the case mix index. CMI is a Medicare measure. We have one of the highest CMIs of any academic medical center in the country. We take care of very, very sick patients. That’s our role. But we partner with other facilities to make sure they can take care of patients who are appropriate for the community. Now if you take a look at our financial performance, about 7 percent of our cases – the most complex cases – drive our bottom line. So with a CMI of five, which is a very high CMI, our average reimbursement would be between $80,000 and $100,000 for that case. With a CMI of less than one, our reimbursement will be $3,000. So about 7 percent of our cases are quite profitable for us. Those are the most complicated cases that we particularly are good at taking care of. The less complicated cases, we don’t get paid very well. We lose money on those. And for the vast majority, it’s a wash.

Our function is to take care of really sick patients. When we do that well, we get paid and we’re profitable. If we don’t have those patients, then the place isn’t profitable. So the financial strength of this place has been the growth in our ability to take care of patients who nobody else in this region can take care of. And that’s what drives our financial performance and what’s made it possible for us to reinvest to continue our transformation.

MG: What are the key new elements from the 2014 updated strategy for the system: Rationalizing Health Care in Kentucky: 2015-2020 Strategic Plan?

MK: We’ve had three strategic plans. And they’ve all been maturations of the original strategic plan. In 2004 we said: complex care on campus, relationships with other providers, and focusing in on quality, safety and patient satisfaction. In 2010 we said, we’re going to get even stronger in subspecialty care, get even stronger in our relationships with other providers, and focus on efficiency, quality and safety.

Between the 2004 and 2010 plans we came to understand that, in the future, there will be qualitative and quantitative standards for these high-end things. So if you want to be a center for liver transplants, you’re going to have to do at least 30 or 50 of them, and have a certain level of results and survivals. And if you want to do bone marrow transplants, you’ll probably have to do 100 to be a center of excellence. Everyone’s coming to the realization that the more you do, the more likely you’re organized and the better your outcomes are going to be.

We came to realize that our original focus in 2004 on the eastern half of Kentucky, which involves 2 million people, was insufficient. By doing arithmetic, we came to realize that we had to have a catchment area of 6 million to 10 million people. That’s when we said we need to start building relationships in the rest of Kentucky and building relationships in West Virginia, in Cincinnati, in Ohio. The way we defined our area is we said, Vanderbilt’s going to survive no matter what happens; Wash U’s going to survive; Indiana’s going to survive; Pittsburgh and Ohio State are going to survive. Is there a place for us? We drew a map (between them) and there’s nine million people. This is where we need to compete. So we started doing that.

In the 2015 plan, again: We have to continue to make our subspecialties stronger. So now we have to get quantitative – put on a website the volumes that we do and the outcomes that we have. We need to strengthen the relationships – launching the Kentucky Health Collaborative was that major initiative – and we need to figure out what more it’s going to take the next 5-10 years to coalesce those relationships so they are strong enough that they’ll withstand whatever economic pressures come along. Then if we get to narrow (health plan) networks – the where people compete on a network basis like standard HMOs – then we have that capability.

The other thing that came out of the 2015 plan is our focus on medical management, our understanding that we’ll be practicing differently tomorrow than we’re practicing today. That means we have to understand how we practice today; that’s getting data about what we do, turning that data into information and then using that information to change the practice patterns of our physicians. We’re going to be moving away from fee-for-service medicine, where you get rewarded for how much you do, to getting rewarded for doing the right thing. That’s a whole different mindset. If we can have that strong subspecialty hub, if we can have these relationships that span and go beyond the state, and if we can change how we practice medicine so it focuses on outcomes and efficiencies, then we’ll go a long way in developing a rational system of care for Kentucky. And Kentucky will need a rational system of care; that I can promise you.


Mark Green is executive editor of The Lane Report. He can be reached at [email protected].

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