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I recently had the opportunity to sit down with Pete McCanna, the CEO of DFW-based Baylor Scott and White, one of the, if not the best-run health system in the country. (I'm not biased) Pete was gracious enough to spend more than an hour with me discussing leadership, Baylor's health system transformation strategy, thoughts on physician alignment, jobs to be done in healthcare, and innovation. Part 1 is today, and it's focused on Baylor's health system transformation journey. Future parts (it'll either be 2 or 3 parts) will focus on Pete's leadership, the how and why behind his leadership, teambuilding and culture, physician alignment strategy, thoughts on provider sponsored plans, AI and innovation, and more. We uhh…talked a LOT. I hope you guys enjoy because I personally loved this conversation. Lots of practical takeaways from a great person. Let's dive in! |
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SPONSORED BY PEP HEALTH Heading to Chicago for Becker's? Block off your Tuesday night.
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🗓️ April 29 · 6:30–8:30 PM
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P.S. you can RSVP on LinkedIn, as well. |
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Pete McCanna - a wide-ranging Hospitalogy Interview with Baylor Scott & White's CEO on Leadership and Health System Transformation |
Baylor's Health System Transformation Journey: Moving from Healthcare 1.0 to Healthcare 2.0 |
Most health systems are stuck in healthcare 1.0 today. Historically a normal hospital CEO - by the book - focuses on his or her hospital's asset utilization, and how that utilization's translates into good financial performance, better quality performance, and solid patient survey results. This healthcare 1.0 thought process was (and remains) the traditional way of thinking at most hospitals prior to the big health system transformation push. Thoughts like these pervade hospitals and health systems across the country: - What assets do I have to work with? What service lines should I focus on?
- How do I implement tactics upstream that get me utilization in those desired service lines?
- What other levers can I pull to acquire customers (patients) at all costs? I think I'll acquire that medical group. Or I'll leverage my rates or ask for higher prices or whatever lever is at the hospital's disposal to move the financial and operating needle.
But for Baylor, in this state of healthcare, a pressing question still nags: how is this model any better for the customer? And the answer is…it isn't. So, with those past lessons in mind, Pete and Baylor are slowly inverting the traditional health system model. Baylor is 3 years into their health system transformation strategy and starting to see the fruits of those efforts in 2025. How? By doing right by their customer. In doing so, Baylor had to focus on long-term strategic pivots, and it wasn't easy. And as part of this transformation journey, Baylor is completely up-ending the traditional health system heads in beds model, flipping from a supply-driven healthcare system…to a consumer-oriented, demand-driven one. |
For Baylor, Healthcare 2.0 Involves Relentless Pursuit of the Customer |
"If we win, and if our strategy plays out like we expect, we will help transform healthcare. We will be an early mover from a healthcare system that has historically been supply side driven into one that is driven by demand. One that is designed based upon you as a customer as opposed to the old design based on health systems with assets optimized for utilization of these assets - heads in beds." Instead of having that legacy healthcare 1.0 system focused on being incrementally better over time, Baylor wants to move to healthcare 2.0, and solve problems for patients who come through its doors. By doing that, the rest will fall into place. They'll acquire customers by gaining loyalty in pursuit of excellent patient care, iterating, and continuing to pursue the customer. The crazy thing is…solving customer problems is not a novel idea. In fact, it's what other businesses in other industries do in order to compete and make money. It's what health tech startups aim to do by recognizing rampant problems in our broken healthcare system. And it's now what Baylor has embarked on. As far as disruption is concerned, Pete believes the transformation of healthcare will happen from the inside out. Not that those outside looking in won't participate and help with the transformation, but simply that the level of complexity and walled garden nature of the healthcare system necessitates being on the 'inside' to drive meaningful change. from those who have the assets and long-term, community-driven mission to local populations. In talking to Pete, it was clear that point solutions contribute to the healthcare fragmentation and connectivity problem, leading to worse patient experience. Point solutions are trying to penetrate the healthcare system, but they just hit the system and then eventually fall off. There's no integration, no downstream follow-up, just further fragmentation - similar to what happened with retail health. No connectivity to the rest of the healthcare system and appropriate navigation of patients to the right care setting. They create a disjointed experience, leading to frustration. |
Baylor's New Consumer-Facing Products |
Still, there's more competition than ever across digital health and outpatient care. So Baylor set out to prioritize products and service lines based on its own customer research, data, and leveraged the 80/20 rule in development: "what's the best bang for our buck we can invest in as a health system to deliver the most value to our patients? What do customers really want?" Here's much of what Baylor identified: |
First Contact Navigation: |
Patient navigation was an obvious first choice given rampant need both organizationally at Baylor but also to empower their consumers and prevent network leakage at the health system. Pete holds intense conviction that solving patient navigation, access, personalization, and convenience is paramount to Baylor's consumer-centric strategy. It was a no-brainer to start here. Baylor's First Contact navigation app is described simply, but complex logistically. From the user side, a patient enters symptoms. Then engages in a chatbot discussion. Later on, the patient has option to speak to human being if they need to. By the end of 5-8 interaction, the patient gets scheduled with the right Baylor provider or finds the right care setting. In developing the First Contact app, Baylor conducted quite a bit of research, applying consumer business principles and looked at consumer journeys. In other words, Baylor asked themselves "what is the typical consumer journey here, and how do we reimagine that journey, and synchronize the care?" "If we get that right - navigation, expand the ecosystem with more choices, and synchronize the patient journey, that the patient will be more delighted, and most importantly, you'll have better outcomes over time." More touchpoints lead to better outcomes. In one of its trial runs, Baylor researchers asked the participants "if you didn't have our navigation tool, where would have you gone?" 60% of the respondents responded that they would have picked a different location, and generally this pick would have resulted in a a higher cost, higher acuity location. Marinate on that point for a second. SIXTY percent of the people flowing through healthcare systems are entering the system at the wrong place. As Pete described it (and I think it's pretty apt), it's like going to buy an F-150 and ending up with a Ford Taurus. Baylor re-routed something like 80% of patients who WERE going to go to the ED to urgent care or virtual visits. And so as Baylor's demand for services shifted, and as the organization moves over time from supply-driven to demand-driven, that means Baylor's supply side - their asset base - needs to respond. Now, instead of building solely for supply, Baylor's healthcare asset additions relate to what customers want, and they have the data to understand those patterns. This dynamic is also driving Baylor's M&A strategy. For instance, Baylor purchased 41 urgent cares in mid 2023, looking to add even more access - and it's totally driven by what the consumer wants. We as consumers want care now, and we want it to be convenient. And this dynamic is also where a huge advantage presents itself on the health system side and the inside-out nature of healthcare 2.0 transformation. When Baylor acquires an urgent care center, it's not a point solution. It's integrated into the rest of their system. What's the on-ramp for a Baylor patient to its urgent care, then the rest of the system? It's through the app, which builds loyalty and reinforces customer behavior. You can schedule an appointment at urgent care or add yourself to the line, and then what's the off-ramp for that patient? Do you have a PCP? If not, Baylor will connect you with one. Do you have a follow-up visit scheduled? They'll add it to your calendar. Connected care. Boom. Once the patient experiences this, they won't go elsewhere. It creates a premium walled-garden experience, and Baylor is not alone in engaging with this trend. Here's a cool example straight from Pete himself. Pete's family member had a back problem which turned out to be a tear in her shoulder. In healthcare 1.0, the cumbersome process would have involved going to the PCP first, waiting a few weeks to do so, at which point the PCP would confirm a problem, order some imaging, get the report, then refer to an orthopod. If you're lucky in this healthcare 1.0 scenario, you're 8 to 10 weeks out from a fix to your problem. And ALSO if you're lucky, you're properly diagnosed. Under Baylor's model, Pete's family member had the problem fixed in a week. Within 24 hours they had seen a specialized APP who works in muscle and joint care chatting, received a full symptom list, ordered imaging, received that imaging within 24 hours, then 24 hours after that saw a pain specialist. The pain specialist noticed a more nuanced problem and ordered an MRI. Within 24 hours they had THAT done, and the specialists found a tear in her tendon. Within 8 days, his family member had surgery scheduled to fix the problem. THIS is healthcare 2.0, and it's the future Baylor is striving toward. |
'Specialized' Primary Care: |
Pete and I chatted a bit about specialized service lines where patients can get direct access to care for nuanced, yet repeated conditions. Certain service lines or conditions where people have chronic conditions but have trouble getting relief or appropriate care for. Pete used the example of chronic headaches. For chronic headaches, in the old healthcare model, the patient would go to the PCP and would leave frustrated. Then they would go to the neurologist and cause frustration for the specialist given how low acuity the condition was. In Baylor's new model, they've set up virtual care visits for headaches specifically, then follow-up care from headache specialists, and prescriptions, and so forth - with access to this care 24/7. Think of it as specialized primary care, in a sense. |
Baylor has built out its own proprietary women's health concierge model. The first version of this service line was 24/7 post-partum care. It since has expanded into full spectrum women's health care - where the new model of care fills in the gaps between appointments to help women feel supported and cared for during their birth journey - not too dissimilar from other women's health startup concierge models in the wild. |
Baylor also identified behavioral health as an area of sore need and is in the process of building a behavioral health product. More to come on this, I'm sure! |
Alongside these internal Baylor initiatives, Baylor has also partnered with other large nonprofit health systems on an innovation engine called Longitude Health. Since launching, Longitude Health has formed three companies in the realms of value-based specialty care, revenue cycle management and financial experience, and finally, specialty pharmacy. |
Baylor's 3-Year Journey, and Expectations for 2025 and Beyond |
I asked Pete next about how Baylor's grand strategy came together over the past few years along with where Baylor is headed in 2025+.
2023 was where Baylor's current strategy was conceptualized. During 2023, many health systems were slowly re-emerging from the pandemic and dealt with labor, supply, and utilization woes, but that last tide was turning. Baylor in particular is situated in good markets demographically and runs has a tight operating model, organized in such a way that they could be nimble and flexible around their local markets when the environment shifted. In the back half of 2023, utilization returned and the environment shifted to more favorable conditions for health systems. Still, as Baylor's local Texas markets returned to more 'normal' operating environments, Baylor had to stay on its toes. It competes against heavy hitters in Texas, including the likes of systems like HCA, Tenet, etc.
Baylor started gaining traction on its new transformation strategy in 2024, but it also had to deal with growth and capacity constraint. Populations within Baylor's markets swelled in 2024, and the compounding effect of the return of utilization was a double whammy, leaving organizations scrambling to match supply and capacity with newfound demand. So capacity management grew to be top of mind, and Pete mentioned Baylor taking two approaches to it. In the short term, Baylor launched dozens of tactics to address issues in the short term while at the same time thinking about ways to future proof capacity management in the long term.
What's nice about Baylor's current strategy is that doing the hard work around business model transformation also solves for capacity management over a long-term horizon. Tools like patient navigation are designed to help their customers in getting patients to the appropriate care setting at the right time, but they're also helpful to Baylor on the back end to manage its service lines and asset bases. By adding outlets and virtual and urgent care, it alleviates capacity management. Baylor also added beds across its portfolio (Roundrock, Waxahachie, Frisco) to match up with population trends - the organization doesn't see the growth stopping in its local markets any time soon. A great problem to have!
Also in 2024, Baylor launched version 8 of its app. Most health systems say they have an app, but it's really MyChart with maybe a few bells and whistles. Baylor's has been in development for a while, and 80 to 90% of its contents are non-Epic or EHR related. A core pillar of Baylor's strategy is that if consumerism is going to enter healthcare just like it's entering every other industry, then Baylor HAS to have a top-notch customer engagement platform - and that's Baylor's app. It functions as a hub for supply management, demand management, virtual care delivery. So in v8, Baylor added 100+ new features in 2024.
So while Baylor is adding capacity and continuing legacy system operations (which are still important), Baylor will continue this pivot to customer centricity. The plan is that we'll look up in 3 to 5 years, and Baylor will be significantly differentiated as a health system from its competition.
On the policy side of the equation, Pete anticipates ongoing federal policy impacts, particularly around 340B and site-neutral payments. Baylor thinks it's very well positioned for site-neutral payments, because Baylor implemented a joint-venture ambulatory strategy a long while ago with ASCs, rehab, and the like. Baylor was very forward thinking in that way. Notably, Pete mentioned It's hard to fight site neutral policy. Price differentials are double in most systems. Pete is of the mindset that we ought to embrace it - almost out of necessity, since acuity is rising, health systems are pushing things into the outpatient setting as inpatient admissions grow in complexity.
Looking toward 2025, Pete emphasized continued execution on Baylor's customer-centric approach including enhancements to the patient journey, touchless check-ins, streamlined payment experiences, digital platform investments, new product solutions (e.g., behavioral health), and strategic efficiency amid growth. There will always be a gap between price growth and expense growth, and Baylor has to deal with that. Finally…Baylor and everyone else will be trying to figure out what's going to come out of Washington. |
Baylor's Feedback Loop and Jobs to be Done |
Pete detailed Baylor's rigorous feedback mechanisms - consumer surveys, traffic analysis, focus groups, home observations, and human-centered design methods - to continuously refine products and services. For instance, Baylor hired people who have done human-centered design to ask consumer-facing questions like "Do people prefer this tab or that color, this color or that, or to get to this feature how many clicks do you need to make?" If you have a clunky app it's a horrible experience and so that becomes an important piece.
Key "jobs to be done" in the near future, as part of the future grand strategy, include eliminating customer friction, enhancing digital engagement, ensuring effective patient navigation, proactively closing care loops, and diligently managing patient access to prevent potential customers from being turned away - a problem often overlooked by traditional healthcare systems.
I thought this was a particularly interesting point. In discussing this dynamic, Pete mentioned a Home Depot study, and compared it to healthcare. In that study, Home Depot realized that there was a large percentage of people who entered their stores, had a list of things to get, yet left empty-handed because they couldn't find what they were looking for. What a headache for a business. In healthcare, it's similar. We have demand we can't satisfy. People try to go on Baylor's website, or call a contact center, or try to schedule a follow up, and they get lost along the way and don't reach their ultimate destination.
Overall Baylor believes it has a 3 year lead on competition, and if they continue to put the customer at the epicenter it'll only serve to differentiate their organization over time. |
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📅 April 16, 2025 | 10:30 AM PST |
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What a week for sports. First off, quite the tear jerker in Luka's return to DFW. The fans made their voices heard, and to see Luka tear up in that fashion...the dude just plain cared. And to rob Mavs fans of a special athlete and person like that...it's devastating. Masters round 1 is in the books! Quick thoughts: - What a round from Justin Rose. Dude just seems to perform at such a consistent level, constantly.
- Class act from Scottie as always
- I thought Spieth had it in the bag after draining a 40 foot birdie putt on 1
- Rory needs some major sports psychology help for this major specifically (definitely not out of it yet, though)
- Freddy Couples!! -1!!! You have to love it!!
- Corey Conners - sneaky good ball striker. I was expecting this from him last year (when I picked him in my pool, obviously) and not this year (when I didn't)
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Thanks for the read! Let me know what you thought by replying back to this email. Part 2 on Tuesday. — Blake |
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