How Cano Health’s business model and health care model fought off COVID

“Simply put, the way that we were able to achieve better COVID-19 outcomes are the same ways that we’ve been, for years, able to reduce mortality among our mostly senior, underserved populations,” Hernandez says, “which is by controlling chronic conditions better, by providing better access, quality, and wellness.” Instead of pay-per-service, Cano charges one monthly fee for each patient, no matter how many services the patient needs.

Listen to the episode or read the full transcript below.

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Transcript

Alan Murray: Leadership Next is powered by the folks at Deloitte, who, like me, are super focused on how CEOs can lead in the context of disruption and evolving societal expectations. Welcome to Leadership Next, the podcast about the changing rules of business leadership.  I’m Alan Murray and I’m here with my favorite and only co-host, Ellen McGirt.

Ellen McGirt (00:25): Oh, Alan, thank you so much. I love those introductions. Hello, everyone. I hope everyone’s doing well and I really do mean that.

Alan Murray (00:33): Now Ellen, I know you’ve been spending a lot of time in Florida lately.

McGirt (00:36): I have been it’s been a real rough patch. I’ve been taking care of my elderly mom who’s not as healthy as we would like. That’s my new reality and I’m really struggling with some of the decisions around her care. So that’s been very much top of mind for me.

Murray (00:49): Well, today’s guest is relevant to your situation. His name is Marlo Hernandez. He’s CEO of Cano Health. That’s a smaller company than the ones we usually cover. It’s principally a primary care provider that specializes in senior care. The majority of their patients are in South Florida. The reason we invited Marlow on is while many of his patients live in lower income neighborhoods, during the pandemic they were able to achieve results showing that their COVID-19 mortality was 60% lower than comparable senior populations throughout Florida. It’s really amazing. And what’s fascinating is how they did it. You think, oh, there must have been some magic pill that enabled them to have results 60% better than comparable neighborhoods. But that’s not the answer and you’re going to have to stay tuned to hear it.

McGirt (01:40): You know, I’m so happy he’s here. You’re really describing the neighborhood that my mom and I are in right now and I’ve seen their health vans around the cul de sac in her little retirement village. So I know they’re out here doing the work and I see some very happy people greeting them. I’m very excited to learn more about him.

Murray (01:55): Dr. Hernandez.

Hernandez (01:57): Thank you so much. So appreciative you invited me on your show and discussing this important topic.

Murray (02:05): So tell us how you did 60% below the mortality rates for the general senior population. How did you do it?

Hernandez (02:13): Well, there is no silver bullet in health care. But what you do have is a great inefficiency. In the system. The system today is transactional in nature. It’s episodic sick care. I’m going to the doctor when I feel I’m particularly sick. I’m not getting this proactive relational care and what that results in chronic conditions that are not managed appropriately. So simply put the way that we were able to achieve better COVID-19 outcomes are the same ways that we’ve been for years able to reduce mortality among our mostly senior underserved populations, which is by controlling chronic conditions better, by providing better access, quality and wellness. And what we mean by that is, well you can come to us, we’ll make sure to provide transportation, we’ll give you telehealth, we’ll do some home services. It’s proactive. In nature. We don’t need you to call us we’re going to call you. We call our members on a monthly basis. The average members come see us about 20 times per year and we also have a whole host of wellness programs offering from exercise classes to nutrition classes, to ancillary services like physiotherapy and optometry and behavioral health and we partner with dental and many other health care providers.

So for COVID specifically, we used our population health platform to design the optimal treatment program. And when you did have symptoms or you were at risk for getting COVID we intervened and we get you the pulse oximeter, we got you the oxygen as necessary. We put you on those anti-inflammatories like steroids at the appropriate time and then hospitalized you early. We actually have more hospitalizations than the other comparable population in Florida yet significantly lower mortality. Because it’s not just about well, let’s not hospitalized patients, but you need to hospitalize them early and appropriately. And that’s, simplistically, how you get better outcomes.

McGirt (04:28): I am recalling the last time I was a full-time healthcare reporter which was way back in 2006. When I was studying transformation at the Cleveland Clinic where I know you spent some time when Medicare started reimbursing for or linking reimbursements to patient satisfaction scores. And that kicked off in my in their minds in my mind and understanding of what it meant to value wellness in the senior population because you had the data and you were able to build some services around that. So I’m curious as to how this plays out in your business model with the senior population. Is the Medicare and Medicaid an important piece of this? And that’s a long way of saying why isn’t this working everywhere else too?

Hernandez (05:11): It is the great question. The question, perhaps and it has a complex answer but I’ll try to give you as simple of an answer as possible. The problem that we have is that we are sort of addicted to this fee for service reimbursement mode. The way that the system is designed is that we paid for the volume of services, irrespective of outcome and we think somehow that just getting the volume of services will improve healthcare outcomes, but we know that it’s simply not the case as a country. We spend more per capita than any country in the world, yet don’t have any better outcomes, in some cases, worse outcomes.

We’re incentivizing the wrong thing. We’re incentivizing the delivery of products and services rather than the delivery of better patient outcomes. We need better quality, we need better experience and we need to reduce costs. That’s how healthcare can work for everyone. And we haven’t been able to do that when the framework of the system we operate does not reward care coordination, does not differentiate those better performing providers from those who don’t do as good enough of a job.

And so when I’m spending 15 minutes with the patient, and I’m getting paid exactly the same and what happens after that patient leaves the example of whether they can afford the medicine, whether they actually go to their referral, whether I get those records, whether they understand their treatment approach, whether I can provide the after-hours services to intervene early. None of that is typically part of the health care model. The only part is that one component of an entire delivery system and is generally—and here’s the key—misaligned with the patient. The sicker the patient is the more profitable the patient is.

And then too often patients are treated like monetizing events. And as I was going through school that just hit me right at the heart. I said, There must be a better way and instinctually we went to hey, it’s a capitated model. Let’s flip it on its head. We get paid a flat fee per patient per month. And we’re incentivized to keep them healthy rather than, Well, I’ve got to do this. I’m going to deploy this widget, I want to bill for more services, which is what’s still happening the status quo. Until we change that status quo, we’re not going to get a fundamental change and improvement because we have reached that efficiency frontier under a volume or fee for service system.

Murray (08:11): But Marlow, that raises the big question for this conversation because you’re operating in that same fee for service payment plan. You’re serving Medicare and Medicaid patients yet you have a capitated model, you charge them one price, you deliver them services, whether Medicare will reimburse you or not. Can you make that work financially?

Hernandez (08:33): Absolutely. Absolutely. So, if you look at the health care dollar, we as a country spend about 6% in primary care and prevention—6% of the healthcare dollars, six cents. At Cano Health we spend about 12%. So we are investing out of our own pocket more in primary care, holistic prevention. That decreases downstream costs. And here’s the other statistic: about 20 cents of the healthcare dollar, 20% is wasted, unnecessary care, duplicate care, fraud, abuse, all of these things that are happening. And rather than incentivizing a provider aligning that provider and payer, with the outcome, you just giving them a flat fee. You are paying them for volume, you are going to get what you pay for following them rather than our model. You’re giving us that flat fee. And so we’re going to invest upfront and by definition, high-value care, reducing that 20% down very significantly. Going to our bottom line, we’re a very profitable company, and then that allows us to reinvest that into our business into continuing to improve our national care platform.

McGirt (09:54): You know, as you were talking, I was thinking about relationships, relationships between doctors and their staff and nurses and their patients and all of that. And one of the hallmarks of the old model, the ancient model, is the hero doctor or you know, the people who spend so much time on diagnostician work and working in the technology of healthcare and not the relationships. So I was curious, one, if your health care workers have had better outcomes, and if you’re using different variables to screen for employees like that, people who are naturally interested in building relationships that are the foundation of health care instead of being swoop in and swoop out heroes?

Hernandez (10:32): Wow, that is such a great question. Because at the heart of what we do, are really two things which is our mission, improved palliative care and forge lifelong bonds. I was taught very early in medical school, that nobody cares how much you know, until they know how much you care. And we’ve all had the experience. And healthcare professionals are heroes. And we need a better system where they can practice their craft, and obtain that professional fulfillment of seeing their patients get better, and that’s where we’re failing.

We have all these inefficiencies that are built into the system. And again, think about it 6% into primary care and prevention, how much of it goes not to doctors, nurses, those directly providing the care but to all that inefficiency that is embedded in this system. But yes, we focus on both components because if you’re great at what you do, yet, don’t have that bedside manner, patients are not going to trust you. They’re not going to open up to you. You’re not going to be as effective. You can be a phenomenal person and build those relationships but if you don’t know your craft, you’re not going be able to help many people.

So we have programs to ensure our centers are not just medical centers, they’re centers of the community. And so we’ve got great programs for continuing medical education. Dr. Richard Aguilar, Chief Clinical Officer, best in the country, my view, he has such an incredible program for keeping our doctors up to date. And I’m continuing to develop new and better protocols for treating our patients at the same time we have all these wellness and social services at our clinics. So I like to say that we treat as much hypertension, diabetes, the common flu as we do loneliness, health illiteracy, lack of exercise, poor diet habits.

We’re doing it all because I truly believe, we truly believe, that with that team approach, with making sure that those two components are served, we as professionals are a lot more effective at what they do. And I tell our people all the time at our wellness centers, our social service coordinators, our people that are doing referrals work, the people that are doing medical records, that are helping with our tech systems and population health platform. You are critical in what we do, and I can’t do half as good a job without you.

Murray (13:17): You know, Marlow one of the things that makes your results so impressive is that you are doing it in really disadvantaged neighborhoods. And we hear so much these days about the social determinants of health. You know, people say your zip code is a bigger determinant of your health outcome than your genetic code. That somehow because you live in these neighborhoods, you’re not going to have good health outcomes. You’re disproving that, aren’t you?

Hernandez (13:45): Yes. And that’s the short answer. I would tell you that you go through any American city, and you can clearly draw a line. And that line will be that proverbial line of the haves and have nots, where you see the higher per capita income and the higher availability and quality of health care services and that line have the lower per capita income and the higher amputation rates, the higher mortality, the lower the chance of pursuing your passions. And so it is right that when you do an analysis of our country, and of our cities, you can identify and correlate the social determinants of health. It is true you have less access to medical care long wait times and it is true. You’re not going to have that concierge medicine and you’re not going to have as much knowledge of the system or affordability of the system. And it is true that you’re going have poor exercise and dietary habits for various reasons, including economic, and we are working to solve that.

And we have shown that if you invest part of the healthcare dollar, and that’s how we get beyond that 6% to about that 12%, it’s not just more intensive traditional primary care services. There’s just so many EKGs that you can do on a population, right? It is about actually making those investments in those other components of healthcare that we’ve been talking about that are so essential, and that can now put everybody on an equal playing field, if not a little bit better. I’m very proud that all patients and they do tend to overindex minorities, but the needs of American seniors are national in scope. We’re talking about underserved patients first, but it’s really a model for for our country and for the next generations.

[Music]

Murray (15:55): I’m here with Joe Ucuzoglu, who is CEO of Deloitte US, and had the good sense to sponsor this podcast. Joe, thanks for being with us and thanks for your support.

Joe Ucuzoglu (16:05): Pleasure to be here.

Murray (16:07): So Joe during the pandemic, we saw a real shift in how people view mental health and wellbeing and how they incorporated into their daily lives. People were under such stress, learning to work from home but also dealing with the challenges of caregiving and family life. Is this shift going to mean a reset in how we approach mental health and well being overall?

Ucuzoglu (16:28): Alan, this has absolutely been one of the biggest themes coming out of the last couple of years: the impact of the pandemic isolation, uncertainty, fear on people’s mental health and in some ways, it’s caused the topic to be much more openly discussed, for people to come forward, get the help and the resources they need. That’s a real sea change and one that we need to sustain.

Murray (16:51): So what’s your advice to leaders who are trying to figure out how to deal with that sea change?

Ucuzoglu (16:56): This is an area where companies can do so much good providing the necessary support, access for counseling, tools to help drive overall wellbeing, and increasingly, you’re going see this become a leader component of people deciding what type of organization they want to work at. The tone has to be set with the talk: continuous reinforcement by leaders acknowledging the challenges, reinforcing support for their people, and supporting new work models that contribute to well being.

Murray (17:28): Thank you, Joe.

[Music ends]

McGirt (17:35): Before we hit our lightning round, I wouldn’t want to miss the opportunity to talk a little bit about your story. And how you got here, and particularly when you knew that this was your mission.

Hernandez (17:49): Well, first, medicine has been my mission since when I was a child, probably three or four years old. I promised my grandmother that I would become a doctor to heal her when I was in Cuba. And I was incredibly blessed to emigrate as I was about to turn nine to the United States, to Miami, and got a phenomenal education. My parents fought extremely hard to ensure that I had that.

And then around 2008 2009 the economy took a turn for the worse hitting communities like the one that I lived in particularly hard. This is the time pre-ACA Obamacare. This is a time pre-expansion of Medicaid, pre the time that there was more penetration Medicare Advantage. You had half the population or more without health insurance, or that were underinsured and that was preventing them and their families from being able to work, provide, pursue their passions. That was really the inspiration for Cano Health.

And my mother was a dentist from Cuba who worked extremely hard. Her dedication to her patients is at the DNA of our health care delivery today. But that was really the two big inspirations for Cano Health. And I have a very personal one for becoming a physician. Our original model was something that everyone could afford: $30 a month you come in and get all the physical and healthcare you need, prescriptions and so on. And soon enough, we had thousands of patients coming to see us and as more patients became insured and more models became available, we were able to then serve our population through the plans rather than that direct model.

Murray (19:47): Marlow, I need to ask you one more question before Ellen goes to her lightning round. Apologies. We’re now turning from health to finance. You took Cano Health public through SPAC, a successful SPAC last summer at the height of the SPAC craze, merging with a company that’s already trading on the market. Initially, it looked good. But then over the course of the last eight or nine months, you’ve lost about half of your value. And now you have one of your investors, Dan Loeb of the hedge fund Third Point saying this isn’t working for me. I’ve lost half my money here sell sell to sell to one of the big players get us a transaction price. I have two questions on that. One is was it a mistake to do a SPAC transaction? And the other is what do you say to Dan Loeb?

Hernandez (20:37): First, not a mistake. It allowed us to effectively access the capital markets, grow to meet that accelerating demand for our services and going from city to city I’m getting the same story over and over again. Cano has given me hope. Cano has relieved my pain. And thank you for everything that you’re doing and when are you going to be able to serve you know, my my cousin, my mother, my grandma who lives in this city or that. So we were originally, as you know, in our home state of Florida and Puerto Rico. Today we’re in eight states and going public and accessing the public markets, the great board, that we have played a crucial role in us being able to do that. And then second, we’re always engaging with with our investors, including Dan Loeb at Third Point and always looking at ways in which we can create long term value for our shareholders. We’re definitely focused on that. We are seeing our growth accelerate, and it’s a very, very exciting time. So we’ll we’ll continue to engage and do all the work to make sure that

Murray (21:59): But will you sell? I mean, I assume part of the problem here is that the people who would want to buy you are people who are not doing it right and you are doing it right. But you tell me.

Hernandez (22:11): As long as we can fulfill the mission, we’re going to do what ultimately makes sense for our long-term shareholders, what’s in the intrinsic value. But you’re right. It is about sharing those values, in sharing that mission, and that vision. You know, what we’re doing is really special is very personal and not just to me: to 4000 of us that are working in Cano to a quarter million patients and their families. And that is a responsibility, you know, that transcends anything.

Murray (22:48): That was pretty close to a hard no, but I guess if there’s somebody out there who’s doing it your way you might you may consider.

McGirt (22:55): That really is the big question. And here’s the big follow-up question. Are things starting to move in the right direction? Do you feel that this work is part of a trend in healthcare?

Hernandez (23:06): It is and they are Ellen. And the reason for that? Probably not something that we want or are happy to see happen. But the healthcare system is truly collapsing under its own weight. We can no longer to continue to afford this rising healthcare costs. We had about 5% of GDP that we’re spending in the 1960s to about 20% of GDP now in the 20s. And when you have that dynamic, when you can no longer pass the cost on to patients, employers and taxpayers, the systems must adapt and change. They can no longer just say well, you know, I build x i need to build x plus in to the next year.

And so they’re looking for solutions, such as the one that we provide through Cano Health, our population health platform, in which they can improve their quality improve their service metrics, while controlling their costs. So it is happening, but because it’s more of a voluntary because the payers are evolving themselves, yet still with very large budgets that are not yet being cut. It’s not happening fast enough, but it’s definitely accelerated.

McGirt (24:25): So this season, we’ve been asking all of our guests to just give us a quick answers top of mind to some pressing, pressing issues of the day. What’s top of mind for you, when you think about COVID?

Hernandez (24:37): Certainly, the pandemic is still something that we have to take account of. We should not forget about it. COVID is a very dangerous virus. It has rewritten the books and we’ve got some great systems that give us daily metrics. We’re in a good place today. We have treatments that are available. We have plentiful testing. We have vaccines that are very effective and very safe. Nevertheless, we could see another spike. It’s still not endemic until we can truly predict it like we can generally predict the flu and other types of outputs. We cannot really get comfortable and go back to normalcy, but I do believe we’re in the beginning of the end when the transition from pandemic to endemic phase but a COVID like other types of public health issues are something that we constantly measure and it’s certainly top of mind for us today.

McGirt (25:44): Top of mind when you think about the global economy.

Hernandez (25:51): Inflation is a concern. The tight labor market. Those are concerns. The still COVID influences on supply chains. The lag times for us to build our capacity to serve more patients—and thankfully we’ve been able to do that. But it is a challenging environment to continue to offer the absolute best care to the most amount of people within the shortest period of time when you’ve got you know, these global pressures. I believe we’ve got an amazing team and they’re they’re doing a great job at accomplishing all of the objectives. You know, we’re obviously very bullish. Nevertheless we have our work cut out for us. We all do.

McGirt (26:44): Finally, what’s top of mind for you as you think about your development as a leader.

Hernandez (26:49): I am a person that number one takes personal responsibility for everything including things that I can or cannot control. Hey, I wish that some of the SPAC overhang didn’t occur and some investors weren’t feeling that pain. So work extra hard to continue to provide value for them, as with all stake holders. So from a personal perspective, it’s really about you know, continuing to build the team that across the country can preserve what has always made Cano Health special yet expand that and adapt that to that local community.

Murray (27:41): Marlow Hernandez, inspiring story. Keep it up, keep growing. We’ll be watching and rooting for you.

Hernandez (27:49): Thank you so much. Thank you so much, Alan. Thank you so much, Ellen.

Alan Murray: Leadership Next is edited by Nicole Vergalla, written by me, Alan Murray, along with my amazing colleagues, Ellen McGirt and Megan Arnold. Our theme is by Jason Snell. Executive producers are Mason Cohn and Megan Arnold. Leadership Next is a production of Fortune Media. Leadership Next episodes are produced by Fortune‘s editorial team.

The views and opinions expressed by podcast speakers and guests are solely their own and do not reflect the opinions of Deloitte or its personnel. Nor does Deloitte advocate or endorse any individuals or entities featured on the episodes.