This interview with Steven Lipstein, President and CEO of BJC HealthCare, was conducted by Eric Larsen, managing partner, and condensed by Kate Ackerman, contributing editor.

Question: What were some of the 'wow' moments along your path to choosing health care as your vocation? It struck me that when you were 18, you actually worked as a swing in a nursing unit.

Steven Lipstein: I went to Emory University in Atlanta. Almost directly catty-corner across the street from my freshman dorm was Emory University Hospital, which was the largest employer on campus.

I became a nursing unit clerk on a urology floor. I worked Saturday and Sunday evening shifts during the school year, and then I worked full-time in between freshman and sophomore year and sophomore and junior year.

Wow moment number one was: Here I was 18 years old, and I felt like I was doing something important. Wow moment number two was when I realized that not a single patient on that nursing unit wanted to be in the hospital. They would rather be anywhere else.

I'll always remember two of the nurses who worked on that unit: Gail Dove and Judy Reinhell. These nurses could solve any problem, even the ones that I caused.

These women were amazing displays of competence, compassion, and patience. That environment became kind of a place where I felt like I could make a real difference. I knew I wanted to work in the health care space because I really enjoyed working in a hospital.

Q: How did you make the move into hospital administration after you graduated?

Lipstein: After I got my undergraduate economic degree at Emory, I got a master's in health administration at Duke University and then completed a two-year fellowship at Massachusetts General Hospital.

While I was at Mass General, they hosted a meeting of the Council of Teaching Hospitals, and asked the administrative fellows if we would be de facto gophers. One of my responsibilities was to help get everybody to lunch, and [after that], I sat at a table that was empty by myself because I wasn't one of the visiting participants.

As lunch was ending, a guy sat next to me and lit up a cigarette. The only reason he sat next to me was because he wanted to smoke, and he didn't want to be too near the other people. He said, "Hello, young fella. What do you do?" He was Bob Heyssel, who was the president of Johns Hopkins Hospital. We talked for a few minutes, and I later sent him my resume. He hired me, and we had a great relationship during my 13 years at Hopkins.

Many years later, I was touring a group from the University of Chicago through our new outpatient center at Hopkins. Ralph Muller [then CEO of the University of Chicago Hospitals and Health System and now CEO of the University of Pennsylvania Health System] was on the tour, and we met. A year later, he remembered me, and they recruited me there to be the COO and the president of the two hospitals at the University of Chicago Health System.

I was in Chicago for six years, and then Ralph interviewed for this job at BJC, but decided St. Louis just wasn't in the cards for him, and he recommended that they talk to me.

It's almost serendipity how I met the people that I met.

Q: You didn't use this word, but I'll project it on you, these mentors saw potential and cultivated you. I would love to get your reflections on mentorship. I imagine now you get inundated with requests either formally or informally for guidance or direction. How do you think about reciprocating that now, from your leadership position?

Lipstein: Mentorship happens at different stages of your professional life. I found the Massachusetts General Hospital fellowship to be very, very valuable. When I got to Hopkins, there was no such program, and so I helped start their post-graduate fellowship. Part of developing the Hopkins administrative fellowship was designing the kinds of learning experiences that were available to me in Boston. That was one way of giving back.

What I realized as I advanced in my own professional career was the farther you get away from that front-line of patient care, the less meaningful fellowship experiences can become. We make sure that some, if not most, of our fellowship and our internship experiences are somehow connected to the patient care delivery setting, where you actually engage in human service.

At BJC, we have group presidents who oversee all health care delivery and operations, and senior vice presidents who oversee many staff functions and shared services. These senior leaders provide mentoring relationships at a "hands on" level for the mentee. I schedule what I call "generation skipping" coffee sessions at nearby Starbucks coffee shops, with people at different levels of the BJC organization (mostly the VP level and above). There are 48 or so people at that level. You always want to give back the same kind of opportunities that were provided to you.

The challenges of overseeing a diverse system

Q: What was the biggest challenge for you in moving from a COO role at the University of Chicago system to a CEO role at BJC, a much larger health system?

Lipstein: When I came here, BJC was actually experiencing what I would call post start-up remorse. The system was losing money, around $70 million a year, and there was a bit of understandable concern among a lot of people.

Barnes and Jewish came together in 1992, and they were a big league academic medical center. And then they merged with Christian Heath System soon after that. That's when this organization was named Barnes-Jewish-Christian Health System. Two years later, the system brings in Missouri Baptist Medical Center and the St. Louis Children's Hospital. Instead of calling this Barnes-Jewish-Christian-Baptist Children's Health System, they just shortened the name to BJC.

Everybody came to this endeavor wanting to preserve their independence, their uniqueness, what was special about them. They really didn't respond well to some of the early activities at BJC to develop a more system-like feel. And BJC early on had taken on a global risk contract, losing about $3 million a month. We were operating what is now our largest safety-net hospital—Christian Hospital—and losing money from operations. Our employed physician group was not doing very well at the time, and we also owned a money-losing HMO in addition to the global risk contract I mentioned earlier.

Even though I was a first-time CEO, I knew where the team had to start—we had to remedy the four major causes of our financial losses. If we hadn't remedied those problems by the end of the first year or second year of my tenure at BJC, I probably wouldn't have lasted very long in this job.

That was problem number one.

Q: That sounds like a big challenge. What was problem number two?

Lipstein: Problem number two was, how do you make people feel good about BJC instead of viewing it as the system took away your identity? We had a video with a screen shot of the Barnes-Jewish logo and the Children's logo and the Christian's logo and the Missouri Baptist logo, with those four logos fading into the screen and out emerges the BJC logo.

I wondered what would happen if we just played the video in reverse. We took the BJC logo back into the screen and out came the four hospital logos. Today, we still present 12 different hospital "brands" in the market place—each representing a hospital trying to be the best in the world at something, but not necessarily the same thing.

I remember speaking to a group of employees at Children's Hospital, and a woman raised her hand and asked me, "Mr. Lipstein, who do I work for?" I asked her, "Who do you think you work for?" She replied, "I want to work for St. Louis Children's Hospital because I've worked here for 28 years. I've always wanted to work at a hospital that was just committed and dedicated to kids." I said, "Well, that works for me. You work for St. Louis Children's Hospital."

Another person in the audience quickly spoke out and said, "Wait a minute. I thought we all worked for BJC HealthCare," and I responded, "Is that important to you?" He said, "Well, yeah. It means I can transfer anywhere within BJC, keep my seniority, keep my benefits." I said, "Well, then you work for BJC. That works for me, too."

It helped us overcome some of the early obstacles and fears about "loss of identity" to allow each of our hospitals a more self-determined destiny. They didn't have to be the best in the world at the same thing (or one size fits all), but they had to be the best in the world at something (a pursuit of excellence). It could be children's health care or rural health care, it could be comprehensive medical care in every area of medical specialty, it could be orthopedics or cardiac care, or it could be service to an underserved community. Each of those hospitals would be allowed to keep their brands and have that brand stand for what they wanted to be the best in the world at doing. At the beginning and the end of the day, ensuring our hospitals were able to deliver the best care possible to patients is what the framers and early leaders of BJC set out to accomplish.

We are unique among the health systems in St. Louis in that we don't trumpet the BJC brand as our lead brand. It's a supporting brand.

Q: Can you talk a bit about how you managed diverse personnel and united multiple facilities under one umbrella across your system?

Lipstein: We initially put forth a management philosophy, called "Directed Autonomy with Congenial Controls." It survived for just about the first four years (2000-2004) of my tenure here at BJC.

We basically said to the president of each hospital in BJC, "Take really good care of patients and employees (with directed autonomy). We're going to put in place a clinical scorecard and we're going to put in place a patient service scorecard. We're going to measure what you do—the congenial controls."

We want hospitals to operate in a financially responsible way, so we measured each hospital on unit cost management and labor productivity. We wanted hospitals in the best position for long-term success, which tends to be investments in either physical assets or human assets. And we measured community benefit. We looked at each hospital's academic and social missions. Again, we put scorecards in place.

The other congenial controls were that hospitals had to use certain BJC services all the time. We were going to contract together, we're going to buy supplies and services together, and we would employ common financial reporting systems, that sort of thing.

In addition to the congenial controls, we began to build commonality of performance improvement vocabulary and approaches ("Lean" and "Six Sigma"), commonality of operating systems, and measurement systems. And those activities brought about the realization that we needed more standardization than we had been able to bring about previously. At that time, we didn't have standard platforms for any of our administrative systems, such as human resources, supply chain, revenue cycle, or for that matter, clinical information systems. The good news is that those were still "opportunity areas" for BJC.

And now, we're into the next phase of our journey—what we call Making BJC (even) Better.

A unique collaboration

Q: Speaking of that, you're doing some really interesting things along the lines of alliances, specifically with your BJC Collaborative. How did that come about?

Lipstein: There is an important economic term called "strategic agility." An indication of strategic agility is your balance sheet ratio of PP&E (property, plant & equipment) to unrestricted net assets. The closer the ratio is to 1.0, the more your net assets are "inflexible" or "less agile"—they cannot be easily adapted to new strategies and deployed to different purposes. Part of what is happening with hospital consolidations and the formations of larger health systems is systems are beginning to accumulate distressed properties, or distressed assets, which means that you are acquiring a lot of PP&E and not a lot of cash, and you may be bringing onto your balance sheet a lot of debt.

We decided we didn't want to go down that path. We didn't want to wait for the phone to ring, with calls from distressed hospitals seeking a capital partner. We didn't want to load up our balance sheet with lots of fixed assets.

For our Collaborative, we identified the largest not-for-profit health systems in the largest population centers in Southern Illinois and in Missouri, within a four-hour driving radius of one another. That yields BJC HealthCare in St. Louis, Missouri; Memorial Healthcare System in Springfield, Illinois; Cox Health in Springfield, Missouri; and Saint Luke's Health System in Kansas City, Missouri and Kansas. The four CEOs were not interested in merger scenarios. Each of these four systems is strong financially, and none had a desire to create a larger balance sheet with more PP&E.

Three of the four founding members of the Collaborative have medical school affiliations. We wanted to work with health systems that share our academic mission and our values.

Q: So how does the Collaborative work in practice? What have you experienced so far?

We've produced about $65 million worth of combined economic savings in the first two years. There are three big ways BJC has realized economic advantage. One is we needed a back-up (redundant) data center. Now, we share one with Saint Luke's in Kansas City.

Second, is we're all part of VHA/Novation. We use their contracted rates to purchase supplies. Previously, three of the four—BJC being the exception—were owners of a company called Midwest Services Solutions (MSS). MSS takes the VHA contracted rates, and then if MSS can bundle their purchases around the same product, we all get better pricing. BJC is now an owner/member of MSS.

The third area of opportunity is the procurement bundling of capital equipment and on-going maintenance. Our vendors and suppliers made us an offer: "If the Collaborative could get all of these systems to buy from them within a six week time frame, say from the first of September to the middle of October, and from the same catalog of products and services, the Collaborative members and participants would receive better pricing—kind of a 'buy three, get one free' approach to capital procurement." BJC has already saved approximately $20 million, and we thought we had pretty good pricing before the Collaborative began.

In addition to the four founding members, we've had two other hospital systems in Illinois join us: Blessing Health System in Quincy and Southern Illinois Healthcare in Carbondale.

To explore future opportunities for the Collaborative, we've retained a consultant to help us assess our individual and shared capacity to do population health management under total/partial cost of care risk-bearing contracts. How would we do it across the geographic territory associated with our respective health systems—Southern Illinois, Missouri, and Eastern Kansas?

I'm going to guess that we will soon realize that Medicare will be our first such opportunity, either under a shared savings ACO-type model or a partial- or full-risk Medicare Advantage model. CMS has publicly declared their intention to move us in that direction.

We all came into this knowing that we trust one another and that we want to work together and there was not a compelling reason to merge. And, as a consequence, we have been helping each other on micro-regional strategies that may benefit only one of us, but strengthens our Collaborative relationship.

Navigating physician relationships and looking to future challenges

Q: BJC has an interesting relationship with physicians. You don't employ that many. Can you tell me more about that?

Lipstein: Other systems employ many more doctors than we do here at BJC, and other systems are involved in joint ventures and equity/revenue sharing arrangements with doctors—we work a little differently.

We have a formal affiliation agreement with the Washington University School of Medicine. They employ more than 1,000 physicians who teach and do research at our adult and pediatric academic hospitals. For the medical staff of our community hospitals, we allow physicians to relate to us however they want to. If they want to be employed, we have an employment platform—the BJC Medical Group. If they want to be in private practice and affiliated with us in some other way, that's okay, too. If they want to be in private practice and exclusively contracted to BJC, where the physician group remains as a private LLC or a professional association, we will contract for all of their time, and assume responsibility for all of the associated revenues and expenses. And, if they want even more independence, there are other "linkage" options as well.

What's happening is that many of the physicians under the age of 40 want to be employed. The physicians over 55 want to get to retirement pretty much the way things are. Between 40 and 55, physicians seem less certain of their best options going forward. They tend to be in the age cohort that struggles the most with the current pace of change in American health care.

Our strategy here really varies by the age and individual circumstances of the physician involved and where they are along the timeline of their professional career. One size does not fit all. We have a very diverse menu of ways in which physicians can relate to us. When, and if, doctors want to come out of private practice and join a more integrated system, we'll be ready.

Q: Thinking about competition beyond the obvious sources, I'm curious about how you view retail medicine. A lot of people see retail clinics as a potential threat.

Lipstein: I don't think they're a threat to a health care provider like BJC. I don't think they duplicate what we do. Retail medicine responds to a short-term episode of rapid, on-demand access for relief of symptoms that are typically associated with minor illnesses. The majority of BJC's service offerings are also episodic, but often associated with conditions that have yet to be diagnosed—pain or fever or bleeding or symptoms of unknown origin. The diagnostic and therapeutic interventions required to diagnose and treat these patients are beyond the capability of today's version of retail medicine. Along a spectrum of conditions, retail medicine is at the end of the continuum represented by rashes and colds and flu shots, while BJC is at the end of the continuum represented by maternity and neonatal services, pediatric specialty care, cancer and heart disease, orthopedics and neurological conditions.

For me, the more interesting question is how the nature and scope of primary care will change in the coming years. If the numbers of primary care physicians are insufficient to meet the demand for services, and if the economic model supporting primary care is not sustainable, then an alternative model will emerge.

One scenario has primary care physicians designing new models of care delivery and leading teams of non-MD health care professionals who work proactively to reduce the utilization and cost of episodic care delivery and at the same time improve health outcomes. Retail medicine is based on a premise of high demand for easy-access episodic care to relieve symptoms of minor illness. Population health management will require models that reduce utilization of episodic care which begs the question are the two trends in conflict with one another? Time will tell.

Get more lessons from the C-suite

See the Daily Briefing's archive of must-read interviews with other top hospital and health system leaders, including:

He took a job no one wanted. How Trevor Fetter brought Tenet back from a crisis, and where he thinks health care is headed.

In the early 2000s, Trevor Fetter took a job no one wanted at an embattled hospital chain; he became the CEO of Tenet Healthcare. In an interview with the Daily Briefing, Fetter explains how the system emerged from difficult times to become one of the largest hospital operators in the country. Read our interview with Trevor.

Why one CEO made a $36M bet on behavioral health

In an interview with the Daily Briefing, CEO Michael Tarwater explains how Carolinas HealthCare System grew and why it turned behavioral health into a system priority. Read our interview with Michael.

Was it ‘absolutely nuts’ to take a 90% pay cut? A CEO reflects.

In an interview with the Daily Briefing, Ram Raju—the CEO of the New York City Health and Hospitals Corporation—explains why he has spent the last 12 years working to improve public health systems. Read our interview with Ram.

How an English major became a hospital CEO at age 29

In a Q&A with the Daily Briefing, Sandra Bruce explains what she's learned in her decades as a hospital CEO, how two systems overcome bumps in the road to become Presence Health, and what it means to "Lean In" in health care. Read our interview with Sandra.

It's never too early to start grooming a great manager. See our Succession Management Implementation Guide to ensure you deliberately chose your future leaders—don’t let circumstances choose them for you.