Eric: I was looking back, and it’s been about five years since our last published conversation, which reflected on your experience guiding Ochsner Health System through the turmoil of Hurricane Katrina. You’ve since moved 2,200 miles away to take the helm of Sutter Health, a $15 billion health system serving Northern California. This, after a 24-year legacy of navigating Ochsner through a period of remarkable growth (culminating in 47 hospitals and $8 billion in revenue) and dislocation (not just natural disasters like Katrina, but also the global financial crisis and COVID-19). Tell us about your decision to move to Sutter and your early perspectives on the new assignment.

Warner: As you know, Eric, I basically grew up at Ochsner as an executive. It’s an amazing organization. I think it was just time for me to have a new challenge — and also time for Ochsner to have new leadership and new vision.

At Sutter, I’m most excited to make a difference in a new market and have an even broader impact on healthcare. Northern California is more geographically contained, but it’s also huge—if it were its own state, Northern California would be the 10th largest state in the country. Sutter is the center of care for 3.3 million people; the total population in our market is 12.5 million people. So, there’s a lot of opportunity there. And the talent at Sutter is incredible, so I’m excited to be part of the team of 51,000 folks working together to change healthcare in Northern California.

Eric: Warner, you’ve always been an evangelist for digital health, and I have to think that was one of the “gravitational pulls” for you in coming to Sutter — proximity to Silicon Valley. You did this at Ochsner — perennially ranked as one of the most “digitally wired” health systems, an early pioneer in structuring partnerships with Apple and Microsoft, and one of a small vanguard of health systems investing in and deploying digital health solutions. Given its geography, Ochsner might be considered an unlikely candidate for being a leader in this space, so that’s definitely part of your legacy. Sutter, on the other hand, just a few miles away from Sand Hill Road (the venture capital epicenter) has curiously been less visible and active than other California systems (Stanford comes to mind) in harnessing digital health innovation. Is that a fair characterization?

Warner: There is definitely untapped potential to grow our digital enablement at Sutter. But there are also some areas where the system is already doing a great job. For example, 21% of all appointments are scheduled online. And our teams played a key role in developing Scout, a digital toolkit that was recognized as one of Fast Company’s World Changing Ideas. Scout is a non-clinical platform that helps young individuals ages 13 through 23 build resilience and manage their mental health and provides support for families and caregivers. We also achieved great success with the launch of digital tools that enable us to proactively support new parents, like Care Companion–Healthy Pregnancy, which has simplified and personalized the pregnancy care experience, and Care Companion–New Baby digital care plan. Tools like these complement the guidance parents receive from their pediatricians and family medicine providers. These examples, among others, have contributed to Sutter's well-earned recognition as one of America's Most Innovative Companies for 2023, as highlighted by Fortune.

And there is already some exciting public-facing work we’re doing. We just became an investor in Define Ventures, which is an early-stage VC focused exclusively on digital health companies. And we’re participating in Nuance’s DAX (Dragon Ambient eXperience) pilot. Continuing to grow our digital enablement is a huge priority of ours. And these are great building blocks that will enable us to create a rich digital ecosystem at Sutter.

Eric: That’s right, you’re one of the DAX partner organizations, incorporating their ambient listening and ChatGPT-infused tech for clinical documentation. That platform is impressive — and perhaps a bit controversial — as one of the earliest adopters of GPT in healthcare. Anything preliminary you can share with us?

Warner: As you know, Eric, DAX Express is a pilot going on between Microsoft and five health systems around how to use a combination, as you point out, of ambient AI and GPT-4 to try and automate clinical documentation. This is a really tangible, interesting angle we can work and build on toward our broader goal of evolving the way physicians work and interact with patients. In this case, by automating the administrative elements of a patient visit.

But beyond the external technology itself, this is exactly the sort of opportunity we have to be both open to and intentional about finding. It’s not just going to come to you. I think you've got to build a capability inside your organization that's always looking for ways to capitalize on opportunities like this.

Eric: Which, in my mind, clearly connects to your experience with innovationOchsner — the AI and digital health platform you built in New Orleans. What are some of the translatable approaches and strategies you’re bringing with you?

Warner: The clearest and most critical is, when I say we’re making digital a priority, it isn’t just lip service or headline-grabbing investments. This is a core part of our organizational strategy, and that means we need to build out a solid internal infrastructure to support this work, starting at the top.

We created the role of Chief Digital Officer at Sutter — recently filled by Laura Wilt — to lead the charge on our digital enablement work in concert with our new Chief Consumer and Brand Officer, Jennifer Bollinger. Laura and Jennifer have a solid track record of collaborating across the organization to deliver a connected, convenient experience that meets our patients’ expectations. And they’re working with an all-star team powered by our Chief Design & Innovation Officer, Chris Waugh, who is leading the innovation work, and our Chief Digital Health Officer, Albert Chan, who has done a lot of work in the access space, including around MyChart and patient portal optimization.

This type of forward-thinking leadership was part of the success at Ochsner, and we're committed to expanding and building upon that success at Sutter. 

Eric: One of the things Ochsner was especially prescient in was not just identifying winning digital health companies, but then functionally — and with discipline and rigor — embedding them into your workflows and clinical support areas. Not an easy task, and one that hospitals have, by and large, struggled with (there’s an average 23-month lag between contract signature and actual deployment of a digital health solution). Let’s broaden the aperture a bit. I want to ask your view of the landscape of digital health innovation and investment.  

Over the past 36 months, we’ve seen capital allocators (venture capital, growth equity and private equity) all fall in love with and funnel an unprecedented amount of investment into digital health — $80 billion infused into 13,000 discrete digital health companies spanning an array of diagnostics, therapeutics, clinical and non-clinical workflow, care augmentation, and other domains. But everything has really ground to a halt over the past year as macroeconomic headwinds stack up: persistent inflation, 10 successive rate hikes by the Fed, bank runs (most consequentially for digital health, the collapse of Silicon Valley Bank). As a result, it is much harder to raise capital, and some people are predicting a “mass extinction” event for these new digital health startups.

Make sense of the noise for us, Warner. How are you thinking about working with digital health companies in this volatile moment?

Warner: I’ll share how we are tackling this. First, I do think Sutter is uniquely positioned, given both our proximity to Silicon Valley and our robust ambulatory footprint, to be an exceptional partner to digital health companies. Frankly, it’s not something we’ve taken full advantage of yet. But we’re working with Lynn Chou O’Keefe and the team at Define Ventures to help us identify the right companies to partner with in order to create value for both our patients and our team members, internally.

One aspect of the general landscape that I’m concerned about, in addition to the forces you mentioned, Eric, is the risk of digital health companies exacerbating fragmentation in care delivery. I say that because that’s what happens when new, one-off solutions enter the market without figuring out how to integrate into the rest of the ecosystem.

But that just tells me that incumbents like Sutter need to — judiciously — embrace these new solutions and build the capabilities to incorporate them into our workflows. The reality is, if we don’t find a way to incorporate these digital tools into our operations, patients will go elsewhere. So, the incumbent systems that lean into this trend and do the hard work will be able to create an integrated experience for patients, and they’ll win over time.

Eric: On that note, let’s turn to the hot topic of the moment: artificial intelligence (AI) in healthcare. AI. You started your tenure at Sutter on November 22, 2022. The very next week, on November 30th, OpenAI launched ChatGPT, which may go down in history as one of the most consequential dates in the history of tech. Since then, we’ve seen an almost relentless stream of announcements and advances — and wild swings in the capital markets (e.g., Microsoft adding almost $600 billion in market cap since then). A lot of the hype is extending to healthcare, everything from the potential of large language models (LLMs) and GPTs to attack the almost $400 billion of administrative waste in healthcare, to speculations on how these technologies may upend traditional capabilities (and hierarchies) with our clinician ranks — including prognostications around the coming of “Dr. Algorithm” as a potential replacement for some doctors. How are you assessing all the hype here?

Warner: First, I agree on your assessment of the scale of impact here, Eric. I would say if anybody in any business is not thinking about how this is going to change their business, and how it will allow us to provide better service — from improving prior authorization in healthcare to the McDonald's drive through, and everything in the middle — then they're making a mistake. I don't think we know enough, yet, to know the full picture of how this technology is going to play in our industry, but I think its impact is going to be very, very significant.

Our job now is to think about how we bring that innovation to bear to improve the delivery of care in a way that keeps our patients and caregivers at the center of everything we do. How do we partner with tech companies to do that? That’s a big, open question. How do we connect with them in the right way? What is the opportunity to work with them? We can’t count out any potential competitors, threats, or partners, at this point. It doesn’t mean we partner with all of them; as we know, not every project is going to work. But we have to be open to it. 

Eric: I've always regretted the fact that technological advancement, which is deflationary in just about every historical example, has achieved the opposite in healthcare. It hasn't lowered cost, and it hasn't “de-bureaucratized” how our clinicians and non-clinicians spend their day. In fact, it's almost had the opposite effect. We’ve put technology on top of broken human-centric processes and ended up exacerbating the underlying issues. Of course, that was all “pre-GPT.” I’m starting to reassess my view here.

You mentioned, Warner, you’re a DAX pilot site. To me, that’s paradigmatic of the type of digitally sophisticated leadership you’re bringing to Sutter. Beyond that example, how are you thinking about the specific applications for LLMs and GPTs in our industry? Will Sutter be a “first mover”?

Warner: First, I would just say that I think we need to be studying this question all the time and learning from how other industries use this technology to interact differently with the people they serve. And then we need to think about how we bring the innovation to the delivery of care, not to minimize the clinical interaction and the special relationship between patients and caregivers — that’s a safe and an important relationship to preserve — but to supplement it. We need to make it easier for patients to access us, for us to become more connected with them.

In terms of where we start, I think it comes back to what you mentioned before, Eric, about administrative waste. Hospitals operate on thin margins, and our clinicians are both our most valuable and most expensive asset. We can’t afford to have them working below top of license. So, the first place we’re targeting is the administrative burden on our clinicians, particularly in the physician inbox. Our docs get tens of millions of inbox messages; how can we triage them in a very different way that lifts the burden of incoming prescription refills, post-acute referrals, etc. off the physician but doesn’t just dump it onto another member of the care team? How can the incoming messages interact with the right member of the care team at the right time?

Eric: That makes total sense. The data tells us that the average physician spends three to four hours per day in the EHR, which certainly detracts from the joy of practicing medicine.

Warner: Exactly. And the resulting burnout shows up in turnover rates, but also in more subtle ways. Sutter lost the equivalent of 40 primary care physicians last year due to doctors cutting down their work hours as a result of the exhaustion from the combination of seeing patients and dealing with the administrative burden. We need to lighten that load. We can’t keep having people opt out of seeing patients.

Another thing we have to look at is denials. There’s massive opportunity there to reduce administrative burden. I’ve been talking with payer partners to figure out what percentage of denials are ultimately overturned, and for some categories it’s way above 90%! That’s an enormous waste of resources on both ends. We should be able to dramatically simplify or even eliminate a lot of that work. So, we’re looking to work with payers to see if we can assume a flat denial rate in our contracts and just get rid of the denials themselves, because all they do is create a wall for patients and waste administrative resources.

But doing that requires us to take a step back and challenge our assumptions of why we do what we do and how we do it.

Eric: Basically, it’s bringing fresh eyes to the problem.

Warner: Exactly, and that’s something that healthcare hasn’t historically been good at. This is where non-incumbents have an opportunity, right? Because they’re automatically looking at these things with fresh eyes. That’s a capability we need to develop. My goal for the health system is to be disciplined about imagining things differently than we ever have before. Be willing to challenge our own assumptions and try new approaches. There will be some hospitals and systems that do this well and some that don’t; the ones that do it well will be successful in the long term.

Eric: Talk to me about the mechanics here. How do you actually go about making these changes in a way that serves the needs of the 51,000 employees working for Sutter?

Warner: The short answer is we have to involve our people in the process. It has to be a joint effort. And this is something that our industry as a whole has not historically been good at. We have more than 15,000 nurses. If we’re trying to improve the nurse’s workflow, for example, where is the nurse’s working group? Where is the physician working group, or the interdisciplinary working group? Changes can’t be exclusively top-down. We need to engage people in the change process and be intentional not only about communicating what we’re doing, but also why we’re doing it, why it’s better for our teams, and why it’s better for our patients.

And we’re not going to figure this all out at once, so we have to provide a structure that sets us up to learn from this technology over time. At Sutter, we have teams that are looking at how we solve today’s problems, and we have teams that are looking at how we solve tomorrow’s. Back to the notion of digital enablement as a core piece of our strategy, we’re setting ourselves up to answer the question of how we can leverage AI and digital technologies to succeed in both the immediate and the long term.

Eric: Let’s put this in a greater context. In a minute, I want to talk about how you’re architecting a strategy for Sutter, beyond digital. But first, I want to get your appraisal of the market.

This is an undeniably challenging time for healthcare systems, especially those with meaningful acute care infrastructures. You and I have spoken at length about this. You’re coming from Ochsner, where you grew the assets from 8 to 47 hospitals, in addition to multiplying the number of physicians by more than 5x, and where labor costs increased by about 60% in the past four years. Now, the West Coast has done slightly better on volume recovery compared to the Southeast, though discharges are still down about 8% relative to 2019 levels, but the West Coast suffered higher increases in cost. Total expense is still up 22% and labor cost is up 23% on average — which isn’t all that surprising when we consider the fact that Sutter in particular is located in one of the highest-wage markets in the country.

With all the headwinds we’re seeing facing health systems, what do you have your eye on?

Warner: That paints both a daunting and an accurate picture, Eric. This might be an unconventional answer, given the immediacy of some of the challenges you just laid out, but I actually look at the underfunding of Medicare and Medicaid as one of the most potentially damaging trends to hospitals and health systems. On top of all the challenges you laid out, traditional Medicare rates are not going to keep up with inflation — which, as we know, has been at record highs, peaking at 9.1% last year and currently hovering around 3%. Hospitals are going to keep losing ground every year. And as we continue to have about 11,000 people age into Medicare every day, that gap just keeps getting wider.

I’m very concerned about what that’s going to do to the acute care infrastructure in our country, and to the public health infrastructure more broadly, in the long term. I think we should all be concerned about that. Because the reality is, hospitals are a critical part of the public health infrastructure in this country. If they’re not economically viable, it’s not just individual businesses that lose out. We all lose out.

Eric: Absolutely — there have been 136 rural hospital closures alone since 2010, and we’re seeing hospitals severely restrict or close down unprofitable service lines to try and maintain solvency. To your point, this is an existential challenge.

One of the ways we see health systems combat this is by turning to consolidation. In particular, we’re seeing an increase in inter-market, rather than intra-market consolidation. The FTC has pretty much categorically said, if you’re merging and you’re in the same market or contiguous, it’s an antitrust violation. But we are seeing a number of cross-market unions – Atrium and Advocate Aurora closed in December, Presbyterian and Unity Point signed a letter of intent in March, and Sanford-Fairview are working on their merger. What is your read on the rise in inter-market consolidation activity?

Warner: Some of the structural challenges facing health systems will require cross-market consolidation to give systems a broader safety net. But those mergers will be successful only if each partner brings complementary skills that the resulting system can utilize to improve patient experience and create scale. Maybe one organization has a health plan, and one has a high-performing physician network. But are they able to unite those in a way that benefits the combined organization and patients alike? It’s not a given, so it’ll be interesting to see how that plays out.

Eric: I recently sat down with Gene Woods and Jim Skogsbergh, co-CEOs of the newly formed Advocate, who made a very similar point. 

Eric: Let’s zoom in and talk about Sutter specifically. As we’re talking about the serious financial situation for hospitals, it strikes me that Sutter is something of an outlier. I know Sutter ended 2022 on a loss overall ($249 million), but I think both operating and investment income were in the black, right?

Warner: Yes. And we talked earlier about volumes — Sutter’s 2022 volumes came pretty close to 2019 levels, and they even had multiple hospitals reach full capacity. Operating income grew 40% from 2021 to 2022, and Sutter ended 2022 with $278 million in operating income and $130 million in investment income. So it’s an outlier in multiple respects.

Eric: That’s especially remarkable when we consider the performance of the overall market: the S&P returned -19% in 2022, NASDAQ was down 33.1%, and a new “billion-dollar club” emerged of systems that lost over $1 billion on the year, inclusive of UPMC, Cleveland Clinic, Mass General Brigham…the list goes on.

In your estimation, what is it about Sutter that has allowed it to outperform the market and its peers?

Warner: I give enormous credit to Sutter’s management team for getting out ahead of the conditions we’re seeing today. And that happened before I came to the organization, so I’m an unbiased commentator! They did two things in particular that kind of buffered the organization.

First, Sutter has a well-balanced portfolio of inpatient and ambulatory assets, and that’s not by accident. If we look at capital spending over the past several years, the team has rightfully prioritized building out our ambulatory footprint, including ambulatory clinics, walk-in clinics, and urgent care centers. We have 33 ambulatory surgery centers. Especially with inpatient volumes declining and staying down across the industry, as you mentioned, that positioned us well compared to some organizations that are much more heavily weighted to their acute care infrastructure. That’s something we’ll continue to do.

The other thing the team did was, in March 2021, they saw the writing on the wall and started looking very hard at cost conditions. Especially since we do have a robust growth agenda – and we need to, in order to service the patient demand we’re receiving – they knew they were going to have to become hyper-disciplined on cost. And they made it happen.

Eric: Sounds like you came into a system that had positioned itself well for success despite suboptimal market conditions. That frees you up as an incoming leader — Sutter’s first CEO to come from outside the organization in over 40 years, if I’m not mistaken — to capitalize on the organization’s strengths and move forward, rather than having to make up for lost ground.

As you look ahead, how are you thinking about architecting Sutter’s strategy?

Warner: We have six strategic objectives that serve as our true north.

The first is developing talent. We’re building a topflight executive team, including the digital leaders I mentioned earlier; we’re looking to academic partnerships to build up our clinician pipeline; and we’re being deliberate about promoting well-being among our workforce. We want to be the best place to work in Northern California. If you look at workforce shortages and everything happening, you have to be the best to win the war for talent. So we’re very, very focused on our talent.

Next is improving access, which is where a lot of our focus on building up our ambulatory footprint comes in. We’re planning to build 24 new outpatient sites and hire a few hundred new physicians in the coming years to meet the tremendous demand for our services. Last year, at a few of our locations, there were more patients who wanted to be seen than we had time to see. That’s a good problem to have, from a business perspective, but it’s still a problem. So we’re pushing hard on access.

Eric: It strikes me that both of those were areas of strengths for you at Ochsner. You crafted partnerships with local colleges and created an Office of Professional Wellbeing to support employee mental health and combat burnout. You grew the number of physicians working for Ochsner from 860 to over 4,500 during your tenure.

Warner: I’m grateful that I’m in a position to bring a lot of experience from the great work done at Ochsner to bear in a way that will be meaningful for Sutter and for the patients we serve. And there’s perhaps no better example of that than the work we’re doing around digital, which we already talked about. That’s our next strategic pillar — becoming digitally enabled.

The fourth is driving physician leadership, ensuring that we have physician leader representation at all levels of our organization, using a dyad model.

Fifth is engaging in policy so that we’re helping shape the agenda for the communities we serve, for the state of California, and for the country. We need to be part of the conversation to engage in addressing the mental health crisis, for example, or even just educating people about healthcare issues and how they can better take care of themselves to lead healthier, more productive lives.

Eric: There’s only one left, and I think I know what it’s going to be.

Warner: Last, but by no means least, we’re focused on taking on risk and becoming more population-health-oriented. That means moving our Medicare business into more kinds of risk, including shared risk, global risk, etc., and building the core competencies we need to manage global payment. I’m talking about building chronic disease management programs that are digitally oriented and allow us to take care of people in a more cost-effective way. That’s a big one, and it’s another that pulls heavily on my experience at Ochsner.

Eric: In my opinion, one of the most underappreciated elements of your tenure at Ochsner was how you handled your risk portfolio. You had your own health plan, you were a vertically integrated payer-provider, and then in 2004 you sold the health plan to Humana. What I admire was how you designed that transaction in a way that allowed you to retain the risk: you retained capitation, and then, in the intervening years, demonstrated an ability to manage risk effectively. That’s not a capability every health system has, and it hasn’t historically been in Sutter’s wheelhouse. Why do you believe moving toward risk is the right answer for Sutter?

Warner: I think moving toward risk is a core competency that all health systems have to develop. The reality is, if you're in traditional, fee-for-service Medicare, you're still taking risk, it's just that you're taking the risk of pay rates not keeping pace with inflation. If you take on partial or global risk through something like Medicare Advantage, for example, you have an opportunity to impact both the revenue and cost sides of the equation. Back to our conversation about hospital finances, I don’t think Medicare Advantage is an all-around answer to the challenges there — it’s not immune to the effects of inflation, for example — but I think it’s designed to be part of the equation. It’s designed to support hospital and health system sustainability. It provides more opportunity for systems to be economically viable and frankly have the resources to do a better job taking care of patients in the long run.

Now, are we going to be able to take on global capitation at Sutter tomorrow? No. This is not a three- or sixth-month transition. Building up this competency is a years-long commitment. But it’s one that systems need to make if they want to survive long term.

Eric: As you know, I’ve been a skeptic on value-based care, namely because I don’t see that many systems successfully and sustainably executing a value-based strategy. In fact, as we pointed out a moment ago, I think Ochsner is one of the very few health systems in the country that has a demonstrated a positive track record of longitudinally managing capitation. On the whole, I’d argue that this is a competency that less than 5% of health systems nationally have really cultivated. If we look at the few truly vertically integrated payer-providers that do exist — Kaiser, Sentara, Geisinger, Intermountain, HealthPartners — the average age of their health plan is 44 years old. It’s hard to develop that competency. What about Sutter positions the organization for success?

Warner: I actually think Sutter is very well positioned to manage risk, namely because of our large ambulatory platform and physician networks. We have these large, organized medical groups that consist of 4,500 physicians, in total, who are already integrated or aligned with our system — within the bounds of the corporate practice of medicine within California — in a way that allows us to act as a unified organization. If you have a fragmented physician enterprise, it’s really challenging to create the shared vision that is absolutely necessary to collectively manage risk. Thankfully, that’s a hurdle the team at Sutter has already overcome; our independent physicians and our IPAs are very tightly aligned with the system.

It’s also worth pointing out that this aligns with other pillars of our core strategy. Global payment through Medicare Advantage was a huge accelerator for innovation at Ochsner. It allowed us to deploy digital tools for a large, defined population and measure the impact in a way that wouldn’t have been possible with fee-for-service economics. Payment models matter in digital innovation, just like in care delivery innovation, so we have that extra incentive to progress on our risk journey.

That’s something we will be leaning into at Sutter, too. Right now, we’re in conversations about how we go about executing on growing our risk portfolio. Do we create our own MA plan? Do we build on our existing payer partnerships? 

Eric: On this topic of the payer-provider relationship, prior to your arrival, Sutter had some pretty well-publicized antitrust suits around allegations of “all or nothing” contracting. Sutter won one class action suit and settled another for $575 million after a protracted legal battle. Coming in as a fresh voice for the organization, how do you think about working with payers given the recent history?

Warner: I would say that’s a closed chapter for the organization. We acknowledge that time and place, but we’re looking forward. 

Eric: Warner, let’s wrap with one last question — in fact, the same question I closed our interview with five years ago. If you use this moment of transition as an opportunity to reflect on your career so far, what are you most grateful for?

Warner: It comes down to people and opportunities. I’ve had the chance to work with incredible people, starting at Southern New Hampshire Health System with my long-time mentor, Tom Wilhelmsen. At Ochsner, I was fortunate to work among exemplary leaders, including board chairs Andy Wisdom, Suzanne Mestayer, and Jimmy Maurin, and executives Pete November (who succeeded me as CEO) Michael Hulefeld (COO), and Tracey Schiro (CHRO). These individuals epitomized fantastic leadership. And now, I have the opportunity to lead an organization like Sutter Health. I am unbelievably grateful.

This interview was edited by Abby Burns.