Techonomy’s David Kirkpatrick talks with Aetna Chairman, President, and CEO Mark Betolini about current and future developments in the healthcare marketplace.

Read the full transcript below. (Transcript by Realtime Transcription.)

Kirkpatrick: So now, I want to bring up Mark Bertolini, who is the chairman, president, and CEO of Aetna, for an interview that I am going to do with him. Mark, please join me.

Thank you. Mark became CEO in 2010 and chairman in 2011, came to Aetna in 2003, and he is quite involved right now in advising some people that he knows in Washington about some problems they seem to be having, which we may or may not get to in detail in the conversation. But I will say, he is very, very up to the minute on what’s possible with healthcare technology, as you will find out.

So maybe I should start out, Mark, by just asking you, what is it you are trying to do at Aetna and why does it make sense to talk about it at Techonomy? I know the answer, but I want you to tell our audience here on the Internet.

Bertolini: So the Affordable Care Act has been an action-forcing event. It has broken up on the black box of managed care and insurance. And for those of you who watch South Park, it’s a bit like when Kenny dies and the rats come and take him apart. What happens is we have a lot of competitors coming into our sector and taking our business apart. So we have two options—

Kirkpatrick: You saw that coming for a long time.

Bertolini: We saw it coming for the last eight years. We’ve been planning for that. So our view is, you can get in the corner with your thumb in your mouth and hope it all goes away and cut your costs and your price and be the last person standing, maybe. That’s what steel did. Or you could take important parts of your business model, re-purpose them into other parts of the value chain, and actually create value that allows the company to sustain itself.

So we’re doing two things. On the healthcare delivery side, we are actually infusing our technology, which we have bought over the last few years—Medicity, ActiveHealth, iTriage, and other applications we have developed. And we’re moving that into the provider sector along with intellectual property around actuarial and underwriting expertise and case management to allow them to take risk and be in our business, so we become their, if you will, Intel Inside.

Kirkpatrick: So it is really a set of tools that almost become a full platform for healthcare management delivery.

Bertolini: And delivery, the Medicity data. We are in 29.8 percent of the provider market in the United States today. So it is really a race to grab real estate.

On the other side, we are creating private exchanges that instead of waiting for consumers to become the driver in healthcare, we are going to drive the consumers into healthcare, going to drive a retail marketplace.

Today consumers spend 41 percent—contribute 41 percent of the healthcare dollar, for spending, either through premium sharing or out-of-pocket costs. As soon as that hits 50 percent, we have a very different marketplace. So our view is, instead of waiting for it to happen, let’s drive it by creating models, exchanges, that are privately based that help create a marketplace for consumers to buy healthcare.

Kirkpatrick: You mean when it goes over 50 percent you have a truly consumer-driven market, so that means you can allow consumers a lot more control of where dollars do get allocated. That’s something you relish and look forward to.

Bertolini: And we have been experimenting. And so we have a technology which was called a Clinical Capacity Exchange, where we are now buying excess capacity in the healthcare marketplace on a spot-market basis, reselling to consumers who want it now. Where we’re redefining quality is convenience for the vast majority, the 75 to 80 percent of consumers who really use the healthcare system in a commodity-like way.

Kirkpatrick: How far down this path of transformation are you? These are big statements you are making. Is Aetna close to that kind of a company now? Is it halfway there? What would you say—

Bertolini: Well, we’re—

Kirkpatrick: —platform for technology-driven healthcare delivery.

Bertolini: We’re 163 years old. We have been—

Kirkpatrick: Is that a plus or minus?

Bertolini: That’s a minus. We have been underwriting risk for 163 years, the formulas haven’t changed for 163 years.

Some say we have actuaries who have been around for 163 years. So it is difficult moving the model. You have to actually create separate organizations inside the company that are driving these technologies.

So on the provider side, we have Chuck Saunders and a bunch of folks at a company called Healthagen, which is a separate organization, separately capitalized, separately compensated, and separately managed, so they’re not subject to the same management process at Aetna. That has first call on capital to build this technology from the provider space. They have 35 of these up with major provider systems throughout the country, and over 100, almost 200 in the pipeline. So that’s building momentum and building steam.

We’ll probably generate $1.5-to-$2 billion worth of revenue out of that subsidiary over the next year or so.

On the other side of the business we have just hired Dijuana Lewis, who came out of Wal-Mart running their healthcare vertical, to begin to create a consumer marketplace and to drive these private exchange models. Again, separate organization, subject to different kind of management process and capital requirement.

Kirkpatrick: But again, not part of the old health insurer—you have this traditional health insurer over here that’s still functioning and thriving in some way.

Bertolini: $52 billion, $4.4 billion in EBIDTA. So it’s a cash cow.

Kirkpatrick: Business ain’t bad, but you see that not happening for a whole lot longer; therefore, you are letting a lot of other flowers bloom over here somewhat walled off.

Bertolini: Well, actually, no, to disrupt the core.

Kirkpatrick: It’s really aiming to disrupt yourself back here. So you are basically trying to build your own competitive ecosystem that you will own when this really goes away. Nice.

You had some interesting personal experiences that led to you feeling differently about healthcare. Just quickly talk about that.

Bertolini: So my son at 16 was diagnosed with an incurable cancer, in 2001. I left my job and went and moved in with him in his hospital room and lived with him there for over a year. We tried a bunch of different experimental procedures. I put him in hospice twice. Today he’s a quant at State Street Financial Advisors and the only person to ever survive his cancer, but it took my personal involvement and actually being a bit of a junkyard dog in the process of managing his care every day. I had my “Harrison’s Internal Medicine” text and had my laptop connected to PubMed.

Kirkpatrick: You had been in healthcare prior so you knew some stuff.

Bertolini: I was a paramedic back in the old day and so I knew some stuff medical. And so I was very involved in managing his care every day, met with the medical team every morning. And that whole process was fraught—connected nature of how the healthcare system works.

And so one of the things we did when I got back to work in 2003 and he got out of the hospital was to build a new kind of hospice program, which we now use for all our clients, where you don’t have to admit you are going to die. You can still seek curative services. And we have seen our costs for end-of-life care drop 80 percent over the last three years as a result.

Kirkpatrick: And the other experience.

Bertolini: Then the other experience, I was off in the words with my daughter, skiing. And I was traveling very fast, and I checked over my shoulder to see if she was okay and I hit a tree at a very high rate of speed and broke my neck in five places. Macerated my brachial plexus.

Kirkpatrick: Broke his neck in five places.

Bertolini: Ripped my nerve roots out of my spinal cord and luckily, unconscious, slipped into water, snow, and ice, where it froze my spinal cord and saved my life. I was in a coma for about a week, and I came out of it in a very broken person, as you might guess. To this very day, I have terrible neuropathy in my left arm from my tip of my ear down to my fingertips, where it burns all day long, but I manage it with alternative and complementary medicine.

Kirkpatrick: So the process from the day it happened to the management today has altered the way you look at healthcare?

Bertolini: Completely different.

Kirkpatrick: Summarize how you would say your thinking about healthcare changed as a result of those two experiences.

Bertolini: Before all that, I would have assumed there were a set of capabilities and links in the healthcare system that would take care of you when you entered it, and there isn’t.

Kirkpatrick: Wow.

Bertolini: And as a matter of fact, when I woke up, I said to the medical team at Dartmouth-Hitchcock, how—they said, “Do you have any questions?” “Yeah, how soon can I get out of here?” They said, “When you can go up and down stairs.” And five days later I was going up and down stairs, and I signed out, because I knew I was going to get hurt if I stayed there too long because of the uncoordinated nature and I was on my own in a lot of ways.

Kirkpatrick: They were recommending you go on disability for the rest of your life.

Bertolini: Disability, yeah, here’s some pain meds. I have enough narcotics in my cabinet at home to put families through college. The street value is pretty high. I’ve got over 1,000 units of Oxycontin, if anybody’s into that. It works for a while, but the whole world—it feels like when Peanut’s mother was talking, “Whaa, whaa, whaa.” That’s how the world feels.

Kirkpatrick: So you just were determined to get back to work. That was it.

Bertolini: Well, I had to get back to work. Otherwise, I wasn’t worth hanging around. I was fairly disabled. And so since then, I have been back on my skis. My motorcycles have been modified to allow me to ride.

Kirkpatrick: Okay. That’s all incredibly impressive, but I want to know what it means for Aetna. What did that lead you to want to do at Aetna and how the hell did somebody having gone through that become CEO?

Bertolini: I think the board, when they were looking to replace the prior CEO who was retiring, was looking for somebody who was going to be courageous enough to try and change a 163-year-old company and was going to push the envelope. And you don’t come back from where I’ve been without pushing the envelope and having a degree of willingness to creatively destroy what you had before. I think that’s what we’re into right now, is creative destruction.

Kirkpatrick: So you came back convinced it has to be destroyed and rebuilt, because it just had worked so poorly for your son and for you, that you had a direct lens into—

Bertolini: And the costs were going like is. If we don’t get—so we redefine health. Health should be—I am not the optimal state of health that one would put the average human being as having, since my accident, but I am at the best I can be and still live a very productive and vibrant life.

And so the view of health should change from curing sickness or injury or disease to actually a healthy individual is a productive individual, a productive individual is economically viable and capable, and an economically viable and capable individual is happy.

When you have a bunch of people that are happy, living in communities, being productive together, you have a different world than the world we are in today. So we redefine health as that.

Kirkpatrick: As opposed to a symptomatic approach where you are always trying to treat something.

Bertolini: A Pavlovian response. Somebody’s sick, fix it, get paid. The whole system needs to shift towards this view that health systems should be incredibly important economic contributors to the vibrancy of their communities they are in, and they should be doing everything. I see a world where plan designs for health benefits don’t happen anymore, because a health system is going to make sure an elderly person gets a cab ride after they are discharged from the hospital two weeks after a congestive heart failure discharge. Because we know if they get followed up within two weeks, the readmission rate drops dramatically, and so the health system will pay for that cab ride. We’ll go pick them up.

Kirkpatrick: So just to go right to one thing I know you’re an advocate of, this sort of end of life—we know the U.S. healthcare system spends this huge proportion of all of its resources on people in the final months of their life, and I know you have some interesting thoughts about how we could really target that problem particularly with some creative solutions along these lines.

Bertolini: Most people want to die at—they don’t want to die in an institution with a bunch of machines hooked up to them, and a lot of families are reluctant to make that decision because it means they have to give up hope. Right now the rules for Medicare in the United States say you must admit you are going to die in six months and no longer seek curative services. No one wants to make that decision for their family member, regardless of what the family member said.

So if we waive those requirements, which is what we did, and we tested it with our clients, we saw 89 percent reduction in acute bed days in the hospital. We saw 76 percent of the people die at home versus 24 percent before. We saw an 80 percent drop in costs, and we got letters and notes from people about the quality of end of life that were just incredible.

Kirkpatrick: And that EBIDTA got bigger.

Bertolini: It did.

Kirkpatrick: Not bad.

Bertolini: It all works together.

Kirkpatrick: But you also had this idea for concierge. Could you just talk about that a little bit?

Bertolini: So we are doing a lot about connecting high-tech with high-touch, and so we are looking at ways where we can intervene. And so, for example, with Medtronic, we’re launching a pilot where we are going to look for arterial impedence as a result of the pacemaker feedback they get every day to make sure the pacemaker’s working, where we can actually send a nurse to the house. Because if the arterial impedence goes up, water weight’s next, and then a congestive heart failure—

Kirkpatrick: Blockage, you could detect some blockage—

Bertolini: It’s a slowing of the heart, so water builds up in the body. It’s not—

Kirkpatrick: The tool that’s in there can detect it.

Bertolini: Can detect it. So we can send a nurse to the house, adjust the medication, educate if they still need to get medication, roll up the rugs because people shuffle when they walk when they gain water weight. They fall and break a hip.

And when we did the experiments with Bluetooth technology and a weight scale, we saw a 49 percent reduction in readmissions of congestive heart failure, and they cost $80,000 to $100,000 a piece.

So this concierge approach, the sickest people in the United States drive almost half of our healthcare costs. And in Medicare, we have this data, 5 percent drive 43 percent of the $550 billion spent each year. What we need to do, is we need—and their care is uncoordinated and they’re wandering through the system. They’ve got polypharmacies. Some of them have 25 different meds they are taking. There’s no one coordinating their care.

Kirkpatrick: You do what you did for your son.

Bertolini: Right. And so we create that kind of system where we can help people do that and we can have an impact on those costs. We can start to lower the cost of entitlement programs over time, and instead of increasing the eligibility age or means testing the benefit, we can actually create more capacity for the future in the healthcare system.

That, just attacking those folks alone and saving 10 percent generates $90 billion of savings over 10 years.

Kirkpatrick: So the country should have a policy that anybody who really is sick gets somebody assigned to them to help them navigate the system, because it will save money for everybody in the end.

Bertolini: Right. And preserve our entitlement program. We are spending too much time in this country right now in an uncivil dialogue about spending cuts and putting our economy on the backs of the poor. Really what we should do is fix the programs we have so they have more capacity to take care of people longer, so that those who don’t achieve the American dream have a safety net for generations to come. That’s the way we should talk about it instead of saying you’re going to cut services for the poor or we’re going to take away programs from the poor. We should make them work better.

Kirkpatrick: You know, we’re Techonomy. We’ve barely talked about your whole Intel Inside thing, but that’s a given, I think. You see technology as absolutely indispensable to everything you are describing. Don’t want to dwell on it too much, because I think it’s so obvious, but I think you are very unusual as a leader of a company of this scale, that you have got your hands dirty on that.

To exemplify that, you talk about fixing the problems we have. Talk about how involved you have gotten in the ObamaCare, ACA debacle. Because I understand—

Bertolini: I want to be careful here, but—because I know there are reporters in the room. We are one of the alpha testers for the federal marketplace, and it has been a rough go. And I think what we need to do is start to consider other solutions that will help move the system along.

I have been in this position before, too many times. And if you have ever been in a failed major system implementation—I had a professor in graduate school said, “Your first major crisis as a leader will be around a failed system implementation.” I laughed at him. It was the first thing I hit. It almost put my first company out of business.

And when you realize just how difficult that work is, but how easy it is to solve—what you have to do is just freeze the scope, turn off the stuff that doesn’t work, develop workarounds until you get the thing built in between and move forward. And we just need to admit we have got to fix this thing in a fundamental way with the right technology.

Kirkpatrick: Forgive me. Is that another way of saying, “In this case that, yeah, we have got to fix—do triage here, but we have to realize, we have to build a whole new system and start now because this one’s never going to work properly?”

Bertolini: Well, we don’t know until you get inside and you freeze the scope and you stop putting stuff in and you just look at it and say, “Okay, what do we have versus what we thought we were going to get and how do we compare the scope to the blueprint we really need to have to make the thing function properly? Are we using the best technology?”

And there are a lot of ways. We can mail tapes to each other. Just get things to work. Because this issue is not about who is right or wrong about the system implementation. This is about getting people who are uninsured insured. This is about helping people that have their economic livelihood on the line every day if they get sick, to make sure they have coverage.

Kirkpatrick: But you are spending a reasonable amount of time talking to people down there in that—

Bertolini: We’re trying to help. I think we want to see it work. Aetna is the largest participant on the public exchanges. We’re in 132 different markets. We believe it is an important effort. It is a noble cause for us to get everyone insured as a nation, and we have been supportive all along of healthcare reform.

Kirkpatrick: Do you see them making some progress in recent days?

Bertolini: We’ll see. They took it down for five days. It is supposed to come up this morning. I hear it’s up. We haven’t been out on it, but I hear it’s back up again this morning.

Kirkpatrick: Down for five days.

Bertolini: Turned it off Friday night or Saturday. Yeah, midnight Friday.

Kirkpatrick: Okay, I guess we should let you all ask this great guy some questions or comments. Right there, I see a hand. Please identify yourself.

Camarata: Hi, my name is SJ Camarata, with ESRI. I’m curious. I have been involved in a couple businesses in the medical field. That’s not what I do now. But I have got a brother who’s a professor at the medical school of the University of New Mexico, and he’s the head of the family practice department, also in the palliative care. From my experience, talking to him a lot, because he’s my brother, they do some pretty amazing stuff with exactly what you are talking about, whole new way of thinking with a whole new generation of physicians.

I’m curious, are you, in your—what I call influential role in your company, how much are you working with the actual frontline people, the healthcare providers, not the people that bureaucratically do it, but to physicians, the nurses, the PAs?—that actually are, to me, at least, as I said, in discussions with my brother, that’s a fundamental part. There’s a whole—kind of like an intellectual or a mind shift, if you get the people, the practitioners saying to the government people and the insurance people, “Look, you can’t do it this way, you have got to put people in palliative care.”

Bertolini: Okay. I think the model is what we call a patient-centered medical home. So right now the way the healthcare system works is that everybody in a doctor’s office works for the doctor who’s taking care of the patient. And what we need to do is get everybody in a practice working to their highest level of skill—nurse practitioners, physician assistants, I’ll put in craniosacral therapists, acupuncturists, yoga instructors, and therapists, which is—I use yoga, craniosacral therapy, and chanting to control my pain. And I carry my own needles, against licensure requirements, to do my own acupuncture. But that’s how I manage my pain, and I think—

Kirkpatrick: Typical health company CEO, by the way.

Bertolini: And so what we are trying to do is we’re trying to get federal licensure so everyone can practice at their highest level of care. And we’re trying to reorganize the system so that the patient is the center of everyone’s attention in the office versus just the doctors.

When we get there, we’ll be able to manage the capacity shortfall we’ll have in doctors, and people actually get a better outcome.

So that is the model we are very engaged. I use a naturopath as a physician, so—and all of this over the last eight years, because I could tell you before I thought it was all voodoo medicine, before I got hurt.

Kirkpatrick: Okay. Where’s another one? Okay. Over here.

Dunayevich: Hi, my name is Rama Dunayevich, and I’m from Autodesk as well. And it’s really inspirational to hear you speak but I’m actually going to be a total dork and say that it’s 9:10 11/12/13. So I thought people in the room might enjoy that as much as I do.


Kirkpatrick: Okay, here. That was not your typical question, but fine, okay. Keep moving. I’m just conscious of the time.

Leo: I’m curious as to your thoughts about the cost of educating doctors in this country and that burden that places on the medical student to make money after—and go into debt to that serious, serious price that European countries don’t put that burden on their physicians that plays in America and how—

Bertolini: So that is changing and there are a number of institutions. I’ll be headed out this evening to go visit with a friend of mine, Toby Cosgrove, at Cleveland Clinic. And at their medical school at Cleveland Clinic, they don’t charge the students anything. And all the students need to do is consider working at the Cleveland Clinic when they’re done. And I think you’re going to start to see that.

There are primary care groups in Connecticut that are helping to pay for students’ education if they agree to be primary care doctors.

So I think you will start to see that change, and you will see the fundamental type of education change for medical students.

There’s a program down here in Arizona with Andrew Weil that teaches integrative medicine to physicians. And I’ve spent time with him as well, talking about how can we reintroduce integrated medicine into the normal routine of taking care of individuals. Because again, if our goal is to make someone healthy so they are productive, it doesn’t mean we are just curing a specific thing.

Kirkpatrick: Okay. There. Yeah.

Kapp: Hi, I’m Angela Kapp, and my question for you, I actually had—my husband, at the age of 39, collapsed in his office in Wall Street, and so I have lived through a little of what you lived through. He’s fine now, thank God, and actually thank God to the integrative medicine center here.

But my question is, how big of an obstacle, or do you view them as an obstacle, all the pharmaceutical companies, because we live in a culture where a doctor feels he’s done his job if he hands you a pill.

Kirkpatrick: They made a lot of money on you even though you didn’t use the products.

Bertolini: Right. It’s good stuff, though. I think that’s changing and I think you have seen the pharmaceutical industry change a lot over the last seven-to-10 years as the oral medication pipeline has dried up and they have gotten into biologics. That’s in large part because too many “me too” medications. How many lipid-lowering drugs do you need? How many hypertensive drugs do you need?

And so when it costs $800 million to $1 billion to develop them and we weren’t paying for the next one that came along because it didn’t have any more efficacy than the one before, that started to dry up.

I think the bigger issue is when a person goes through the system and wanders through the system and sees a number of different doctors and they all get prescriptions and the doctors can’t see that somebody’s already on an anti-hypertensive and they get another one, and then you wonder why mom is gorked out when you see her at the house because she’s on too many meds. The lists are amazing, and so if we can just get that information in one place and have someone look at it, we can have a huge impact on the quality—

Kirkpatrick: Are we making progress on that?

Bertolini: We are.

Kirkpatrick: It’s so common.

Bertolini: iTriage, free application on the Web. You can put all your stuff on there, and your doctor can have a look at it and it has your ID card and everything else.

Kirkpatrick: Okay, over here.

Bradley: Thanks, David. Good morning, I’m Todd Bradley. One of the things we talked about yesterday with James was the new models around wearables, be it Fitbit or others. And clearly there’s an enormous opportunity to healthcare, as you deploy these. I was just curious as to your thoughts, what you guys look at and frankly the privacy issues that surround that.

Bertolini: Right. So gizmos are great. I have got my Fitbit on here. You have one in your pocket and they’re really cool stuff. The problem is, is that if I have got my own Fitbit app and then I’ve got my Runtastic app and I’ve got my Road Bike app and all those other sorts of things, it’s not coordinated. So we’ve created a platform at Aetna called CarePass, where you can take all of these things, put them on a common platform, and when you put one piece of data, all the apps that need that piece of data get updated at the same time. Because it is about making it simple.

So we used to use the carrot and the stick to change behavior. I like the frozen carrot as an analogy. Here’s your frozen carrot. If you hold onto it, it’s really good when it thaws and you can eat it, it’s good for you. Give it back to me, I’m going to use it as a stick. And what happens is, is unless there are very immediate consequences to someone’s behavior, it does not change behavior change. It does not create behavior change sustainably over time.

What you have to do is you have to make it so simple that people will do it because it’s simple to do, and that’s why these devices or connecting a nurse with technology to go to the house is going to change behavior.

This congestive heart failure thing, we didn’t say to our patients 82-years-old, “Measure your weight every day and call us if it goes up 7 pounds.” We said to them, “Eat these pills, stand on this. That’s all you need to do. And we will watch it and we’ll send somebody to the house.”

Kirkpatrick: One more. Real quick. Because we’re out of time.

Bradley: I think the real question becomes what happens when some of the information becomes more relevant. It’s great to know steps, it’s great to know, but what happens when you can start to measure respiration, when you can start to measure pulse and heart rate. That’s when it becomes an extremely helpful device.

Bertolini: And we’re building the capabilities to do that today. We’re actually working with Medtronic on arterial impedence and pacemakers. We’re working with them on their implantable glucometers to be able to impact insulin throughout the day versus having to have the patient look at it and decide what to do next.

So we are doing that. The real issue is going to be privacy, right, and how can we manage the privacy over time. I think we have to worry about safety more than privacy, because if you look at what’s going on in social media today, I don’t think people too much care about privacy, by virtue of what you read out there.

So I think the making it safe for people to use this technology and to rely on it is important.

Kirkpatrick: One, there was one back here. And I’m afraid it’s going to have to be the last one.

Chui: Michael Chui from McKinsey. Mark, thanks for sharing your personal story and how that feeds into your business decisions.

I wonder if you would share a little bit about how you think about which exchanges you choose to participate in versus not as Aetna.

Bertolini: So the way this is going to work, it’s going to look a lot like travel websites did 15 years ago. There’s going to be a lot of them. And we’re engaged in 15 private exchanges, as well as 132 markets on the public exchanges. It is going to be noisy. It’s going to be messy.

Everybody’s building a private exchange: consulting houses, the brokers, my mother. Everybody is having their own private exchange. And so you’re going to have this buying experience, where people are going to be able to shop and try things out, and consumers will be—if it’s transparent enough, consumers will be very resilient in finding the best deal, which is what’s happened to travel.

The travel sites don’t get anything out of that airline ticket anymore. That’s why they’re shoving hotels and adventures and cars in front of you. And so it’s become very, very efficient as it relates to airline travel.

The same thing will happen with healthcare. And so it’s going to be noisy. There’s going to be a lot of them. We’re participating in all the ones we believe are reasonably fair and competitive. We’ll sort them out as we go through time. And ultimately, we believe a private exchange that has a buying experience connected to the hospital system, the doctors, and everyone else, that creates a sustainable cross-structure over time is going to be the winner. That needs to be proven and that’s going to probably take another five-to-seven years.

Kirkpatrick: I just want to say, even on the book cover, we say leaders have to be technologists. You are a very refreshing exception to the unfortunate rule that not enough of them are. So thank you so much for being who you are and doing what you are doing and for being here. So thanks so much.

Bertolini: Thanks a lot. Great to see you. Thank you, everybody.

Kirkpatrick: Really appreciate it.