Latest / Becker’s Healthcare Podcast / The Hidden Engine of Healthcare Economics: Supply Chain, AI, and the Future of Margin

Transcript

The Hidden Engine of Healthcare Economics: Supply Chain, AI, and the Future of Margin · Becker’s Healthcare Podcast

0:00
This is Scott Becker
0:01
with the Beckers Healthcare Podcast.
0:04
We've got a very special discussion today with
0:07
two fantastic leaders that I'm thrilled to get
0:10
a chance to moderate.
0:11
We're gonna talk about the hidden engine
0:14
of health care economics,
0:16
supply chain,
0:17
AI, and the future of margin. So so
0:20
for this podcast and the discussion of supply
0:23
chain, artificial intelligence, and margins,
0:26
but we're speaking with Steve Lu,
0:29
the founder and CEO of Clerium Health,
0:32
and doctor Steven Klaskow,
0:34
an executive of residence at General Catalyst
0:37
and also formerly the CEO of some major
0:40
major health care systems like Jefferson Health Care
0:42
and I believe University of Florida and just
0:44
a magnificent, magnificent leader,
0:47
both fantastically brilliant people.
0:50
Stephen, let me start off with yourself, Stephen
0:53
Liu.
0:54
Talk for a second. You've made this big
0:56
bet. You had this incredibly successful career,
1:00
in in in in essentially as a manager,
1:03
a portfolio manager at Millennium,
1:06
and you and you've left to start a
1:08
health care supply chain company that you started
1:10
through the pandemic.
1:11
Some people, most, might call you leaving this
1:15
great thing that was going fantastic
1:17
to start a company
1:19
as insane or crazy, whatever you wanna call
1:21
it.
1:22
Talk a little bit about what did you
1:24
see that others didn't that led you to
1:27
make this change? And I've watched you for
1:28
the last several years. It's been incredible to
1:30
watch you. Talk a bit about what you
1:32
saw that drove you to make this change.
1:34
Yeah. Absolutely. And thanks so much, Scott, for
1:37
having me on here.
1:39
As you know, I covered health care for
1:41
fifteen plus years as a health care investor,
1:44
both in venture capital and hedge funds. So
1:47
covered it for my entire career and really
1:50
have seen the evolution, and I've seen
1:53
how backwards The US health care system is
1:55
in certain areas and how advanced it is
1:57
in other areas.
1:58
And supply chain just always stood out to
2:01
me as an area that, puzzlingly, was
2:04
twenty to thirty years behind. Right? How hospitals
2:07
manage their inventory and their supply chains
2:09
decades
2:10
behind other industries in the world. And specifically
2:13
in 2020, at the peak of the pandemic,
2:15
I, just like everyone else, watched how hospitals
2:18
around the world were struggling to secure basic
2:22
PPE, drugs,
2:23
equipment,
2:24
really due to,
2:26
supplier constraints, lack of real time data and
2:28
transparency,
2:29
and lack of modern software tools.
2:32
And,
2:33
we also saw hospitals just struggling financially to
2:35
stay operational,
2:37
really requiring tremendous efforts from their clinical,
2:40
finance, and operational, and supply chain teams. Right?
2:43
The superheroes.
2:44
And for me, that was just a wake
2:46
up call that
2:47
really needed to
2:49
reevaluate where I wanted to focus the rest
2:51
of my career and how I could help
2:54
US hospitals
2:55
really modernize, optimize,
2:57
and catch up to every other industry in
2:59
the world. So that was really the impetus
3:00
that led me from moving as a portfolio
3:02
manager
3:04
to, a founder and CEO at Clarion.
3:06
And and and let me ask you a
3:07
follow-up question to that.
3:09
Many businesses are born sort of out of
3:11
an evolutionary
3:12
thought process of the founder,
3:14
sort of looks at it, thinks about it,
3:16
and then sort of, at some point, decides
3:18
to really go after it and decide I've
3:20
got to build this. I want to build
3:22
this.
3:23
Was there a specific moment? Not not so
3:25
much a market analysis
3:27
or or a spreadsheet, but an actual moment
3:29
where you said, I'm compelled to do this.
3:31
I'm really excited to do this, and and
3:33
it's gotta be built. What's our moment in
3:35
time that pressed you forward?
3:38
Yeah. I think it was
3:40
active conversations that I had
3:42
really
3:43
2020 and leading up to it
3:46
with CEOs, with CFOs, CIOs, and CMOs at
3:49
these health systems.
3:51
I developed a really good network,
3:53
over my fifteen plus years covering
3:55
health care, and I spoke to them
3:58
specifically about,
4:00
areas of concern and where they needed to
4:02
invest in things that were overlooked.
4:04
And
4:05
after COVID happened,
4:07
it became a top three priority where they
4:10
were
4:11
all realizing that
4:13
they needed to massively invest
4:15
in their supply chains and clinical operations, finance
4:18
operations.
4:19
They needed to find ways to digitize and
4:23
automate all the things that they were doing,
4:25
and they were already, as you know, for
4:27
forever struggling with razor thin margins,
4:30
and they saw the writing on the wall.
4:31
They saw that over the next decade,
4:34
they would see, right, a thousand plus basis
4:36
points
4:37
of additional margin pressure, which meant that if
4:40
things continued as is with no investment,
4:43
the vast majority of US hospitals would be
4:45
in the red. Right? And that would be
4:47
devastating
4:48
for,
4:49
Americans in general. And so I think having
4:51
that conversation with them and realizing that
4:54
their
4:55
thinking on this was actually changing. They were
4:58
shifting from viewing
4:59
supply chain finance and operations
5:02
as this back office,
5:04
function, as this cost lever,
5:08
really into a strategic asset that needed to
5:10
be tremendously invested in. And seeing them really
5:14
embrace that post COVID was really the impetus
5:17
that made me realize, okay, there's significant need
5:21
for these,
5:22
advancements and these services,
5:24
but there's also significant tailwinds in that you
5:27
have these executives that are all for investing
5:30
in change and dramatically,
5:33
advancing how things have been.
5:35
And and and take a second, doctor Klasko.
5:38
Talk a little bit about this. Is it
5:39
supply chain? Is it total cost of care?
5:42
How do you look at this? And, Steve,
5:44
we'll come back to you on some of
5:45
this as well. You mentioned back office versus
5:47
supply chain and where does it fit. But
5:49
doctor Klaskow, you said publicly
5:52
that Aquarium is not really a supply chain
5:54
company. It's a margin architecture company.
5:57
Can you tell us what you mean by
5:59
that and why that distinction matters? Why is
6:01
that important that you're not just supply chain,
6:03
you're you're actually trying to improve margins?
6:06
Yeah. Scott, you and I have had quite
6:08
a few discussions about, you know, when when
6:10
I left Jefferson and went over general catalyst,
6:12
you know, I basically said I wanna be
6:14
part of the companies that can be transformative.
6:17
And, you know, so many times I talk
6:19
to CEOs and, yeah, I say, you know,
6:21
we we don't wanna put the Lego pieces
6:23
together. We want things that are really gonna
6:26
affect our total cost of care. So supply
6:28
chain, if we just say we're supply chain
6:31
and you just leave it at that, then
6:33
it really puts the function in the basement.
6:35
I think margin architecture puts it in the
6:37
boardroom. There's not one CEO or board chair
6:40
I talk to or that you talk to
6:41
and says we don't have to fundamentally transform
6:44
our our cost structure. So in some respects,
6:47
it's the second
6:49
largest
6:49
driver
6:51
of total cost of care. The first is
6:53
labor, and labor brings all sorts of,
6:55
issues to it. Hospitals, as you as you
6:57
talk about all the time, including last week
6:59
at Becker's,
7:01
the good ones are running a one to
7:02
2% margins. You can't cost your cut cost
7:05
your way out of that math.
7:07
So you have to really architect margin into
7:09
every transaction.
7:11
At Jefferson,
7:12
we went from a billion and a half
7:14
to a $9,000,000,000
7:15
company. Supply chain wasn't a cost center we
7:18
managed. It was an asset class we engineered.
7:21
And by the way, that really mattered when
7:23
the pandemic hit, which is a whole another
7:25
piece of this, is as we start to
7:27
think about the geopolitical issues, managing your supply
7:31
chain, using AI, giving yourself alternatives. So if
7:34
you're still calling it supply chain, your CFO
7:37
doesn't think it's strategic,
7:38
and neither and and neither do you. So
7:41
we're trying to get this
7:43
further up the CEO,
7:44
model.
7:45
Well well, thank you. I'll come back to
7:47
that
7:48
that question or issue in a second because
7:50
at some point, sort of supply chain was
7:52
thought of as, like, the the back office
7:54
and and deliveries and logistics and warehouses and
7:57
just getting stuff to to the right bedside
7:59
or the right doctor.
8:01
Steve Lew, you've talked about
8:03
when you talk to Alsaceam CEO,
8:06
you think of supply chain more as a
8:08
strategic lever than a back office function. Is
8:11
that correct? And how does that change how
8:13
you think about things when you think of
8:15
this as strategy and margin architecture
8:18
versus simply, you know, just trying to fix
8:20
supply chain as this distinct area. How do
8:22
you think about that?
8:24
Yeah. Definitely. And I think it's changed tremendously,
8:27
Scott, even in the last five years where,
8:29
again, it was previously seen as this back
8:32
office function.
8:33
And now we're seeing more and more CEOs
8:35
and CFOs are embracing their supply chains
8:38
as this hidden strategic asset. And
8:41
Black Book Research just did a recent survey
8:43
of health system leaders and found that,
8:46
over 90% say that supply chain is one
8:48
of their top three non labor levers, that
8:50
they wanna focus on improving financial performance over
8:53
the next twenty four months. So that was
8:55
a really interesting statistic, and it echoes what
8:57
we've heard from our health system partners.
9:00
I think
9:01
as,
9:02
doctor Klasko lose alluded to earlier,
9:05
the typical health system is at one to
9:07
2% margin.
9:09
There was a McKinsey report put out a
9:11
few months ago that hospitals will face up
9:13
to 1,300 basis points of additional margin pressure
9:17
over the next five years.
9:19
And, really, when we show them that data,
9:21
they realize that how they've been operating
9:25
in terms of,
9:26
relying on their third parties and fragmented data
9:30
and, really, manual labor
9:31
cannot continue.
9:33
And they need to really take a step
9:35
back and figure out how do we dramatically,
9:38
transform
9:39
how we manage our supply chain, our clinical
9:42
operations,
9:43
our finance.
9:44
And, really, when you start to show them
9:46
that data in terms of what Clariant can
9:48
help identify,
9:49
in terms of we've analyzed your supply chain,
9:51
we've identified up to 200 basis points of
9:54
overall margin expansion that we can help the
9:56
health system achieve,
9:58
that's really what opens their eyes and realize
10:01
that, hey. We need to make this a
10:02
strategic focus immediately.
10:04
Scott, can I just add something to that
10:06
real quick? Please.
10:08
So, you know,
10:09
we talk about so many,
10:11
AI related,
10:13
issues that will have an effect on health
10:16
care or health system in the future.
10:19
And, you know, I I use this analogy
10:21
because I talked to one CEO
10:23
about
10:24
a a a different issue. And, they said,
10:27
Steve, that sounds really interesting, but I'm losing
10:30
$200,000,000
10:31
this year.
10:32
You know? And, like, I I need an
10:35
interventional cardiologist, not my dermatologist telling me they
10:38
can move up my liposuction. Like, that's for
10:40
the future.
10:41
And what I need is something that can
10:43
affect significantly
10:46
access, quality,
10:47
or total cost of care within the next
10:50
eighteen months.
10:51
And this is this is a company that
10:53
literally, this is a a model
10:56
that that can do that in a way
10:57
that doesn't necessarily
11:00
affect your caregivers, etcetera. It's all back office
11:03
things, but having a huge effect on total
11:05
cost of care.
11:06
It it let me ask you a question
11:07
on that, then I and I'm gonna come
11:09
back to both of you with a question
11:11
in a moment. But first, let me ask
11:13
you this question because it follows up right
11:14
on what you said.
11:16
Doctor Kresser, you talk a lot about what's
11:18
working and not working in artificial intelligence and
11:20
health care.
11:21
Where is Clariem in that landscape,
11:24
and why do you think operational
11:26
AI like this might deliver return on investment
11:30
to hospital assistance quicker than clinical AI?
11:33
Why does this work, and why is it
11:35
so important?
11:36
Yeah. I I think I think it's it's
11:38
a great question.
11:39
Something that I stayed up nights thinking about
11:42
because
11:42
I get I'm very excited about clinical AI,
11:45
but it has the FDA malpractice exposure, change
11:47
management,
11:49
seven year physician adoption cycle, you know, the,
11:52
gosh. If I'm, you know,
11:54
if I'm replacing nurses, what does that mean?
11:58
Operational
11:59
AI has a CFO,
12:01
a PNL,
12:02
and a board that's saying make it better.
12:05
And,
12:07
and and in Clariem's case, a contract they
12:09
can sign on Friday. So I I love
12:12
clinical AI.
12:13
You know, I'm 72 years old. I hope
12:15
when I'm in the assisted living facility, I'm
12:16
doing everything with a AI. But,
12:19
I think that the that what people are
12:21
gonna look back on, what are the real
12:23
game changers
12:25
operationally,
12:27
from 2026
12:28
to 2030
12:29
that moves the income statement. And and Clariem
12:31
is really built for for that wave.
12:34
And and, Steve, let me ask you this
12:36
question, and then then I'm gonna ask each
12:38
of those because, you know, thirty seconds each.
12:40
Then they wanna talk more about Clariium and
12:43
AI and what it means today versus analyst
12:45
and spreadsheets. Before I do that,
12:48
in in all these discussions out there,
12:50
supply chain is the second biggest expense in
12:52
health systems,
12:53
yet it seems like everybody talks about labor
12:56
for sure, particularly the last few years during
12:58
COVID when contract labor blew up, those costs
13:00
blew up. People also talk a ton about
13:02
revenue cycle, and it's very important because it's
13:04
five to 10% of all costing to go
13:05
through revenue cycle.
13:07
But but why is it that supply chain
13:09
supply chain is a function
13:11
isn't talked about as much as revenue cycle
13:14
and labor? Steve Wu, do you wanna start
13:16
on that? Just give us thirty seconds. And
13:17
doctor Kratosko, I'd love you to weigh in
13:19
too, and I'm gonna come back to doc
13:20
to Steve Wu on a few questions.
13:23
Yeah. It's a great question, Scott. I think
13:24
it's
13:25
fundamentally just the lack of visibility.
13:28
As you know, supply chain is not the
13:30
sexiest area of investment that really jumps off
13:33
the page when you're talking with venture funds,
13:36
when you're talking with health system executives.
13:38
It's not an AI scribe. It's not a
13:40
call center automation bot. It's not a clinical
13:43
diagnosis
13:44
agent.
13:45
But really, we think AI for supply chain
13:48
is the next frontier for investment. It's investment.
13:50
It's the most low hanging fruit.
13:53
There's little to no PHI.
13:55
You can immediately move the income statement, as
13:57
doctor Klasko said.
13:59
And we think that just bringing visibility and
14:02
market education to this, and we've done that
14:04
as Clarion,
14:05
we think that'll really,
14:07
get the ball rolling and get the momentum,
14:10
really towards
14:11
c suite seeing,
14:12
supply chain as a really logical next area
14:15
for AI to be deployed.
14:17
So, that's what we've seen in the market
14:19
at least.
14:20
Steve, Glasgow, let me ask you to follow-up
14:22
on that. Why does this get less attention
14:24
than, you know, contract labor and labor and
14:26
and revenue cycle where this is so important,
14:29
obviously?
14:30
Yeah. Well, I look. And I think some
14:32
of it, starts with us. Right? I mean,
14:35
as you know, Scott, my my second biggest
14:37
talent other than delivering babies is, you know,
14:39
is basically telling stories. And,
14:42
I think if if we call ourselves a
14:44
supply chain company and then go to a
14:46
CEO and say, hi. We're a supply chain
14:48
company, we can't be disappointed
14:50
that they're gonna send us to the AVP
14:52
of supply chain. But we're not a supply
14:54
chain company, and I think that that what
14:56
we've been able to prove
14:58
over over the the years and and the
15:01
places that work with us, which are huge
15:03
diverse group of of health systems,
15:05
is that,
15:07
we we can have a huge effect on
15:09
total cost of care,
15:11
and and that gets you further further up.
15:13
And the and the the second piece of
15:15
that is,
15:16
I think, some of it is
15:20
recognizing that, you know, the the legacy pieces
15:23
of health care are gonna have to change.
15:25
Things aren't gonna magically change, and and GPO
15:27
membership has sort of been the,
15:31
the discount club that, you know, I don't
15:33
have to worry about that because I'm part
15:34
of a GPO.
15:36
And I think that, you know, you're gonna
15:37
see some some changes in that. So what
15:39
I've been working with Steve
15:41
a lot is, taking the Subaru approach. Right?
15:44
If you remember, you know, Subaru didn't talk
15:47
about their cars, but because they were the
15:49
safest,
15:50
cars objectively, they were saying, you know, do
15:52
you love your kids? Get a Subaru.
15:55
And I think for Aquarium, it's, look, Stop
15:58
talking about having a meaningful effect on total
16:01
cost of care. Yes. Look at labor, but
16:03
that's gonna be really, really difficult.
16:06
You know? Really, really start to look at
16:07
supply chain.
16:09
And and, Steve, let me ask you this
16:11
question. There is so much discussion about AI
16:14
powered, AI everything.
16:16
There's also a tremendous amount of information overload,
16:20
yet you've done a great job of actually
16:22
getting through to leadership, to CEOs, CFOs.
16:26
You're in some of the best systems in
16:27
the country now. Talk about two things.
16:30
What specifically does Clearium AI do
16:33
that a spreadsheet and analyst don't do or
16:36
can't do? And then talk about how do
16:38
you cut through the noise because there's so
16:40
many different solutions
16:41
trying to sell into health systems, and you
16:44
folks obviously have done this tremendous job of
16:46
actually getting into health systems and really showing
16:49
them benefit. How do you cut through that
16:51
noise,
16:52
and and what does Careem AI do that
16:54
a spreadsheet and analyst can't do?
16:56
You definitely need clean data. And
16:59
a lot of these health systems wanna do
17:01
the fun, exciting, sexy thing and deploy AI
17:04
on top of their existing data that sits
17:06
in their ERP, their EHR,
17:09
their contracts database.
17:11
And if you don't have fundamentally clean data,
17:14
you're gonna compound an already,
17:17
tough problem. And so for us, we've really
17:20
focused over the last six years on,
17:23
one,
17:24
how do we unify all this fragmented and
17:26
siloed data that the health system has. Right?
17:28
They have over 10 different systems of record
17:31
data sitting in their EHR, their ERP,
17:34
their warehouse management system, multiple inventory systems,
17:38
contracts database.
17:39
They have data that lives in third parties
17:41
with their GPO, with their distributors.
17:44
Each department in the hospital uses a different
17:46
system of record, and they don't talk to
17:48
one another. So step one, right, what Clariem
17:51
does is we focus on deploying AI
17:55
to, identify all this disparate data,
17:58
unify it together.
18:00
But, importantly, step two, you need to actually
18:02
clean, normalize,
18:04
enrich this data because
18:06
if you're just deploying an AI agent on
18:09
top of your existing ERP or EHR,
18:12
everyone will tell you how messy, how fragmented,
18:15
how bad the underlying data is. It's gonna
18:18
give you poor insights, and so you have
18:19
to clean that data.
18:21
And then really step three where we help
18:23
is we help deliver
18:24
actionable insights,
18:26
our dollar cost savings.
18:28
And where we're going next is step four.
18:31
It's actually deploying AI agents on top of
18:33
all of that to help automate away all
18:35
the nonclinical
18:37
administrative work, all the manual tedious tasks
18:40
that hospital workers are doing, and really freeing
18:42
up their time to focus on higher priority
18:44
strategic initiatives.
18:46
So you really need to take this crawl,
18:48
walk, run approach,
18:49
and you also need a vendor that's been
18:52
partnered with health systems over the last six
18:54
years
18:55
and built this from the ground up with
18:57
their direct input. So that's where we've really
18:59
focused.
19:00
And and and, well, let me ask you
19:01
a question. Because, Steve, you happen to be
19:03
one of the most thoughtful people that I
19:05
know.
19:06
Yeah. How did sort of how important is
19:08
it that once you're actually working with the
19:11
system,
19:12
how quickly do they have to see benefit
19:15
in ROI or improvement or how this works?
19:18
Because you feel really loyal customers.
19:21
How does that work? How quickly does it
19:23
have to work for people with a new
19:25
solution today to be willing to keep on
19:27
doubling down on that solution?
19:29
In today's environment, Scott, it has to be
19:32
immediate. You have to lead with hard ROI,
19:35
cost savings, time to value. That is the
19:37
number one concern of every health system CEO
19:40
and CFO in the country.
19:41
We already March, mentioned the razor thin margins.
19:44
You had another thousand basis points of margin
19:46
pressure over the next five years. And if
19:49
that happens and we don't,
19:50
fundamentally do something transformative here, majority of hospitals
19:54
will be in the red and think about
19:56
how scary that is for the average American.
19:59
No. I think that's exactly right. We're already
20:01
there. We're 40% are in the red, and
20:03
and 60% are barely above breakeven, and some
20:06
are doing better, of course, for the fasting
20:08
situation.
20:09
And take a second, doctor Klasko. You've talked
20:12
a lot about today's world as living in
20:14
the kind of after COVID era.
20:17
And what I've heard you say,
20:18
not pre pandemic,
20:20
not mid crisis, but the sort of strange
20:22
in between
20:23
where the urgency is still needed, but it's
20:25
faded, but the problems haven't. Like, there's still
20:28
big, big problems.
20:30
Why is a company that that's so good
20:32
at margin architecture
20:34
that real really helped become one of the
20:37
health systems'
20:38
biggest, biggest areas of expense. Why Clerium
20:41
so important in the kind of after COVID
20:43
era? Yeah. Because, you know, if you think
20:45
about it, you know, BC, before COVID, we
20:47
were complacent.
20:48
During COVID, you know, we were heroic. And
20:50
then, you know, but there was infinite federal
20:53
money, infinite urgency.
20:55
Kinda after COVID is the worst of both.
20:57
Right? In some respects, the urgency died,
21:00
but the as you've pointed out, the the
21:02
structural fragility of health systems,
21:06
really hasn't.
21:07
So we're running
21:09
health systems are running on sort of before
21:11
COVID muscle memory,
21:13
in a KAC reality, if you really wanna
21:16
look at it. The labor crisis didn't end.
21:18
The supply crisis didn't end. The margin crisis
21:21
didn't end. We just stopped looking at them
21:24
as a crisis.
21:25
So,
21:26
you know, the I think the the KC
21:28
world requires
21:30
more than incremental new tools. And I think,
21:32
you know, that's
21:33
that's
21:34
what you're
21:36
spending more time at the Becker's Health,
21:38
entities talking about. That's what we talk about
21:40
all the time,
21:42
among,
21:42
CEOs.
21:44
You can't run a twenty twenty six health
21:46
system
21:47
on a 2019
21:48
procurement infrastructure and pretend it'll hold.
21:52
So I guess the the the answer to
21:54
me is in in my national talks, I
21:55
have this one sort of image of
21:58
a of a nonprofit board. Instead of, risking
22:01
anything new, let's continue our slow decline to
22:04
obsolescence.
22:05
And I think that complacency
22:07
of BC
22:08
is just not tower tolerable. And I think
22:11
that the fact is that the the entities
22:13
that have used Clarium
22:16
have started to understand
22:18
that this is more than a supply chain
22:20
company. It's solving a major problem
22:23
that's affecting our bottom lines with total cost
22:26
of care, allowing us to reinvest in the
22:28
things that are important
22:30
and potentially even reinvest in some of the
22:32
things that the labor AI will affect,
22:35
like like reskilling.
22:37
So it's a it's a non incremental change
22:40
that really requires
22:42
a CFO CEO to pay attention.
22:46
Thank you. And then then, Steve, well, let
22:48
me ask you this.
22:49
Are are customers buying
22:51
or or
22:52
doubling down and partnering
22:54
with Clariom
22:55
because of strategic vision,
22:57
because they're in a financial crisis, need to
22:59
cut cost now?
23:01
And is there a difference, and and why
23:03
do you find the use case so attractive?
23:05
Why are so people I mean, you've had
23:07
great
23:08
movement,
23:09
great growth, great traction.
23:12
Is it is it the strategic vision? Is
23:14
it the financial crisis? Or or is it
23:16
both? And is there a difference?
23:18
I think it's both, Scott. I think you
23:19
need to have that c suite who buys
23:22
into the five year strategic vision and why
23:25
they need to,
23:27
really overhaul
23:28
their supply chain, their finance, their clinical operations.
23:32
So you need that forward thinking view.
23:35
But in order to justify it, right, why
23:37
invest now in Clarion?
23:39
It's that we can deliver immediate hard ROI.
23:42
We can deliver,
23:43
millions in cost savings.
23:45
And back to your point earlier, right, on
23:47
why it hasn't been a focus, I think
23:50
health systems have really focused, rightly so, on
23:53
how do we drive an increase to revenue,
23:55
right, which is why rev cycle automation, prior
23:58
auth automation
23:59
has received tremendous investment in the last several
24:02
years.
24:03
We think that a lot of that juice
24:05
has been squeezed,
24:06
and we think that they need to reframe
24:09
their thinking into how do we now cut
24:11
dramatic costs,
24:13
out of our health system and help really
24:16
dramatically expand margins.
24:18
If you think about,
24:20
health system operating at razor thin,
24:23
low single digit margin,
24:25
adding a million revenue compared to cutting a
24:27
million in cost
24:29
is multifold the impact, right, if you think
24:32
about it. And it's always surprised me that,
24:35
not many people think about,
24:38
that perspective in terms of a dollar added
24:40
versus a dollar cut and the dramatic impact
24:43
that can have on the organization.
24:45
But it's literally
24:46
a dollar impact on
24:49
supply chain
24:50
is essentially worth a $100 in revenue if
24:52
you're working at a 1%
24:54
margin. I mean,
24:55
very simplistically. So Yep. Cut Exactly. Million dollars.
24:58
It's, you know, it it's not exactly linear,
25:02
but it's pretty close. In in a large
25:04
system, cutting a million dollars in cost
25:07
means literally about the same equivalence economically as
25:09
a 100,000,000
25:10
in revenues, and and that's a big, big
25:12
deal.
25:14
Doctor Klasko,
25:15
you've been vocal
25:17
about trying to make sure that
25:19
artificial intelligence
25:21
doesn't just make the wealthy healthier, the wealthy
25:24
wealthier,
25:25
but that it also helps systems
25:28
where there's a health equity need and how
25:30
we connect it to health equity.
25:31
Talk a bit about how you link those
25:33
two,
25:35
making margins better, margin architecture,
25:38
and improving
25:39
not just the wealthy systems
25:41
and wealthy consumers, but also the safety net
25:43
systems and the safety net consumers.
25:46
Yeah.
25:47
In fact, it seems like an invisible link
25:49
because it's sort of designed to be. So
25:50
if you think about it, a safety net
25:52
hospital
25:53
in Mississippi
25:54
pays probably 15 or 20% more for the
25:56
same hip hip implant than an academic medical
25:59
center 200 miles away. It's the same screw,
26:01
different price, different power,
26:03
you know, depending on on the GPO. And
26:06
at the end of the day, the reason
26:08
that
26:09
that seems indirect and doesn't necessarily seem related
26:12
to equity is because that premium gets paid
26:14
by by Medicaid, by uncompensated
26:16
care budgets, by the nurse not hired on
26:19
the night shift, by the community health worker
26:21
who never gets funded.
26:23
And we just blame it on the quote
26:25
system.
26:25
So if you think about it, every dollar
26:27
wasted on not being for exactly the reasons
26:30
you said, you know, if you think about
26:32
rural hospitals or safety net hospitals of which
26:35
I ran several,
26:36
every dollar wasted
26:38
on,
26:39
on supply chain,
26:41
in a rural hospital
26:43
or or a safety net hospital is a
26:45
dollar that doesn't reach a patient who needs
26:47
insulin for us to do other transformative things.
26:50
So I think one of the things that
26:51
I've really pushed is that health equity isn't
26:54
only a clinical
26:56
conversation. It's partly, in some respects,
26:58
a procurement conversation. Nobody
27:02
has it because, generally, the supply chain people
27:04
aren't in the in the, you know, how
27:06
do we improve health gaps and health equity
27:09
meeting, but it's the same dollars. The dollars
27:12
that we can save
27:14
that that don't get seen. And I love
27:16
the analogy you used. You're right. It's like
27:19
increasing your revenue by a $100,000,000.
27:21
If you wave a magic wand and increase
27:23
your revenue by a $100,000,000,
27:25
you would have a lot more money to
27:27
do things for the things that your mission
27:29
is. At Jefferson, our mission was we improve
27:32
lives. It's really hard to improve lives when
27:35
your margin is minus 1% or plus one
27:37
half percent.
27:39
Thank you. And and, Steve,
27:41
similar question.
27:43
A safety net hospital, a rural system
27:45
is often paying, even with the GPOs, all
27:48
these different things, 15 to 20% more for
27:51
the same implant
27:52
because they don't have purchasing intelligence, the the
27:55
same staff, the same team, the same depth.
27:57
There's just only so many people that go
27:59
around
28:00
budget wise at rural health system, at a
28:03
safety net hospital.
28:04
Who pays for that inefficiency? Who pays when
28:07
the system
28:08
is forced to pay higher costs? Because they
28:10
don't have that purchasing intelligence and that depth
28:12
in purchasing. Is it the hospital that pays?
28:15
Is it the patient pays? Is it both?
28:17
How do you sort of look at that
28:18
inefficiency?
28:20
Yeah. It's everyone. All of the above. The
28:23
patient, the doctor, the nurse, the hospital,
28:26
and The US taxpayer all lose in that
28:28
situation.
28:29
As you mentioned, Scott, the hospital ends up
28:31
paying more for supplies and drugs.
28:33
Those costs seed into margins and force hospitals,
28:36
especially rural and safety net hospitals,
28:38
to cut back on staff, investments, and critical
28:41
patient care. And that gets amplified tenfold with
28:44
the recent Medicaid cuts. So everyone loses in
28:46
that case and why this is such an
28:48
important issue.
28:50
Thank you. If you could really
28:52
take a lot of supply chain waste out
28:54
of The US health system,
28:56
you know, how much are we talking about?
28:58
Just if it could serve only a small
28:59
estimate of what could be taken out. And
29:01
quite frankly, Steve, what are you seeing that
29:03
some of your customers
29:04
for taking some of the money and waste
29:06
out of the supply chain?
29:07
Yeah. There was a Navigant study back in
29:10
2018 that referenced
29:12
25,400,000,000
29:14
in annual waste on hospital supply chain spent,
29:17
which was up 10% year over year from
29:19
2017.
29:21
If you factor that into the present day,
29:23
factoring in inflation,
29:25
price increases,
29:26
increased patient acuity,
29:28
that updated number for 2026
29:31
is somewhere between 40 and $45,000,000,000
29:33
per year in unnecessary spend on supply chain
29:36
and operations.
29:38
Think about that. That's close to the total
29:40
net income of The entire US hospital sector
29:43
in recent years.
29:44
Hospitals could potentially double their current margins
29:47
if they decide to invest and go after
29:49
optimizing their supply chain and their clinical operations.
29:52
And that money would then directly go back
29:55
to their communities,
29:57
back to patient care, and really benefit everyone
29:59
overall.
30:01
Thank you. That's literally remarkable.
30:03
And how hard is it? I mean, it's
30:05
almost impossible for systems to to to fix
30:08
without this type of solution. Just it's just
30:10
too hard. I mean, if you think about
30:12
spreadsheets and on the phone and even ordering
30:14
electronically and do all these kind of things,
30:16
without a real supply chain tool to navigate
30:19
this for you
30:21
at the highest level,
30:22
really hard to make these changes, isn't it,
30:24
Steve?
30:25
Absolutely.
30:27
And what's really sad is that the supply
30:29
chain teams, the clinical operation teams,
30:32
they are the unsung heroes. Right? They need
30:34
to make this work
30:36
with the lack of resources, lack of technology,
30:38
lack of investments,
30:40
and they're doing it, but they're going above
30:42
and beyond, right? During snowstorms, hurricanes, they're literally
30:45
bringing overnight bags and staying at the hospital
30:48
for a week, right, to make sure that
30:50
these supplies, these shortages, they don't ultimately impact
30:53
patient care. And they've been doing that. They've
30:55
been going above and beyond for decades.
30:57
And, really, what we wanna do is take
30:59
that burden off of them and really help,
31:02
leverage AI to help automate,
31:05
optimize,
31:05
enhance all the manual and tedious work that
31:08
they're doing
31:09
to focus really for them to get back
31:11
to,
31:12
what they studied, right, and what they wanted
31:14
to ultimately do, which is ultimately serve patients
31:17
and improve patient care.
31:19
Thank you. And doctor Klaskow, let me ask
31:21
you this kind of personal question.
31:23
Since you left Jefferson as CEO after an
31:25
incredible run that moved that organization from about
31:27
a $2,000,000,000 organization to about an $18,000,000,000 organization,
31:32
tremendous, tremendous effort to integrate and grow a
31:35
great system, both academic
31:37
medicine as well as safety net.
31:40
You you you step back from there,
31:43
aligned yourself with general catalyst and some others.
31:46
You you've really made the effort to focus
31:48
on just truly transformational
31:50
efforts and companies. You you the things I
31:53
see you involved in, you don't sort of
31:55
dinner. You're you're very, very focused in the
31:58
companies that you work with. You sit on
32:00
a handful of boards. You advise a number
32:02
of startups.
32:04
Why does Clarion become that exciting to you
32:07
that you choose to allocate your time and
32:09
energy? And I see you put your energy
32:11
to work, and it's really an amazing thing.
32:13
It's literally I I I come away each
32:15
time I have a chance to really work
32:16
with you
32:17
with a remarkable
32:18
sense of this mix of depth and personal
32:21
skills
32:22
and analytical perspective.
32:24
Talk about why Clariom makes that cut.
32:27
Look. I I I so believe in
32:30
the power and importance
32:32
of nonprofit health systems and and and what
32:35
they mean to communities.
32:38
And I've I've watched you know, it's like
32:40
watch
32:41
a good friend with her. I've watched the
32:43
sort of I I remember, literally, I was
32:45
just at a a meeting with a bunch
32:46
of hospital executives, and I'm having so much
32:49
fun. And I was at the lunch table,
32:51
and I'm going, I'm really optimistic about the
32:53
future, and this is great. And, like, they
32:55
kicked me out of the lunch table because
32:56
I wasn't depressed. So I think I think
32:59
a lot of the companies that I
33:02
work with
33:03
are those long term
33:05
sort of transformational
33:06
clinical a AI companies, you know, whether it's
33:09
paradigm and clinical research or
33:11
AI doc or Hippocratic AI.
33:14
But in in 2031,
33:16
somebody's gonna write a definitive book on the
33:18
decade we're in right now.
33:20
And my guess
33:22
is that the chapter on health care won't
33:24
just be about chat GPT writing notes or
33:26
robots doing surgery.
33:28
Those will sort of be the footnotes because
33:30
those have a longer gestation period.
33:34
The the
33:35
the big part of the chapter will be
33:37
the CFOs who stopped accepting that this is
33:40
just how health care works, that we have
33:42
to have a middle person between the,
33:45
medical device company
33:47
and the health system. The supply chain officers
33:49
who finally get a seat at the strategy
33:51
table, the boards that realize their second largest
33:54
expense was their biggest strategic asset hiding in
33:57
plain sight. You know, I'm chair of the
33:59
board of a of a $7,000,000,000
34:01
medical device company. You know you know, we
34:04
don't exist without the health systems and having
34:07
more direct
34:08
line with them. Every transformational
34:10
error in health care has sorta had this
34:12
sort of quiet center of gravity. As much
34:14
as we like to complain
34:16
about EMRs, it was EMRs in the twenty
34:18
tens. You know, maybe value based care in
34:21
in in the late teens.
34:23
I believe the twenty twenties,
34:25
at least for for nonprofit health systems
34:29
working with insurers will belong to margin architectures.
34:32
And and and the systems that figure that
34:34
out
34:35
aren't going to just survive that KAC, the
34:37
kind after COVID era. They're gonna define what
34:40
comes after it. And then all the really,
34:42
really, really, really cool things like democratizing clinical
34:45
trials and conversational
34:46
AI,
34:47
etcetera,
34:48
will be able to be led by health
34:50
systems that now have better margins.
34:54
Thank you. Well, Jess, let me take you
34:55
back to that just to to put a
34:56
footnote on that or or an excellent base
34:58
point on it. It's 2031.
35:01
What's the headline
35:02
for for what systems are thriving? What's the
35:04
headline? How do you see this?
35:06
Yeah. So I I think I think the
35:07
headline is that we've Amazon the heck out
35:10
of and not Amazon as it exists today.
35:13
But the the concept of of of Amazon
35:16
when it started and and had Jeff Bezos
35:19
decide that we they weren't just gonna be
35:21
a bookstore
35:22
was there's no reason to have 12 middlemen
35:25
or women between what whatever you want and
35:29
need
35:30
and and the people that are supplying it.
35:33
And, you know, it you could you could
35:34
argue this in the pharma side around things
35:36
like PBMs, etcetera.
35:38
You're gonna need transformational
35:40
change
35:40
in these areas.
35:42
And what what
35:43
Clarion does, you know, with their AI,
35:46
with their
35:48
proven architecture,
35:50
is that we can we can cut out
35:52
some of those middle layers.
35:54
And the beautiful thing about that is that
35:57
it will be great for health systems.
35:59
It'll be great for medical device companies.
36:03
It will force
36:05
current middle layers to to be more creative
36:08
and work with us.
36:10
And at the end of the day, that'll
36:11
be great for patients because we have to
36:14
more than incrementally
36:15
change this and just stop, frankly, complaining as
36:18
health system leaders that the system is rigged
36:21
against us.
36:23
Thank you. And, Steve, well, let me ask
36:24
you two similar questions. First,
36:28
when you look at health systems right now,
36:30
and I know you try very carefully not
36:32
to be critical, but is there anything they
36:33
should stop doing immediately that that they do
36:36
that they shouldn't do that just not effective
36:38
or so incrementally effective that it's not worth
36:41
doing? And then second, if you look at
36:43
2031,
36:44
same question as doctor Klasko, what's the headline?
36:48
Yeah.
36:49
I think health system leaders are doing a
36:51
tremendous job and continue to. I would say
36:54
my only advice would be
36:57
really to
36:58
stop viewing supply chain as a back office
37:00
function. Bring your chief supply chain officer into
37:03
the C Suite, into the boardroom.
37:05
Give them a seat at the table. Learn
37:07
about how your supply chain is actually run
37:09
on day to day basis.
37:10
What are the fundamental problems? Where are they
37:13
underinvested in? And how you can further support
37:15
them really to unlock, Right? A transformational change.
37:19
That would be my advice.
37:20
In terms of the 2031
37:22
headline,
37:24
for me, the dream state would be
37:26
hospitals have tripled their operating margins over the
37:28
last five years
37:30
due to their investments in AI and automation
37:32
into their supply chains with Clariant at the
37:35
helm. They've achieved over a $100,000,000
37:38
annually in cost savings.
37:40
Hospitals now have a single source of truth,
37:42
that unified data layer bringing in data from
37:45
all their disparate systems
37:47
and from all of their suppliers.
37:49
Every hospital in The US now has a
37:51
single supply chain command center to proactively monitor
37:54
their inventory,
37:55
avoid shortages and disruptions.
37:58
And most importantly, they've deployed AI agents to
38:01
automate away all the painful back office functions,
38:04
supply chain, finance, and operations.
38:06
That, to me, would be the dream headline
38:09
and where we're striving towards.
38:11
Thank you very, very much. And and and
38:13
Scott, if I could you know, I like
38:14
to,
38:16
I like to channel, Taylor Swift in my
38:18
talks. And, you know, I would say
38:20
that, you know,
38:22
we're never ever ever getting back together
38:25
with treating supply chain like a back office
38:27
function,
38:28
still playing,
38:30
premiums,
38:31
that error is over. And and to every
38:34
CEO,
38:35
who's nervous about the disruption or who was
38:38
gonna hear from a GPO or from the
38:40
vendor,
38:42
I guess I'd use the, shake it off.
38:45
The fact is, the legacy supply chain,
38:48
is is gonna try to hold on,
38:51
but we need to shake it off and
38:53
use this technology,
38:55
to to really fundamentally
38:57
change
38:58
how we look at our back office functions
39:00
and our cost of care.
39:01
Now now one of the things, doctor Klasko,
39:03
that you
39:05
missed or didn't mention correctly is you had
39:08
said that your greatest skill
39:10
was as an OBGYN, obstetrician,
39:12
gynecologist.
39:14
But those of us that know you
39:16
know that it's also as a disc jockey,
39:19
not just a doctor and not just an
39:21
entrepreneur and and leader and adviser.
39:24
Correct? That you're also a DJ I I
39:26
still DJ on Miami yachts and DJ DHLTH,
39:30
awards last year in Las Vegas. So still
39:32
do that a lot. That that probably is
39:34
my best
39:35
skill. God bless. And that's where the table
39:37
should be.
39:38
And and since since since you brought that
39:39
up,
39:41
maybe a a a great song to play,
39:44
at the end of this podcast is the
39:46
song by Sia,
39:47
Courage to Change.
39:49
We need we need the courage to change
39:51
what is the legacy system because supply chain
39:53
is something we actually have the ability to
39:56
change. We don't need CMS. We don't need,
39:59
an external piece. We can change it, with
40:01
the resources that exist today.
40:04
Thank you. Steven Wu, any final comments that
40:07
you wanted to share with the audience? You've
40:09
really been at the heart and the forefront
40:11
of this change of AI
40:13
into supply chain with Clariem.
40:16
Any final words?
40:18
I would just say, Scott, that I get
40:20
the question often from health system executives
40:23
and really from my former peers on what
40:25
motivates me and why I decide to leave
40:28
a clear career as an investor and found
40:31
a company in the middle of the pandemic.
40:32
And for me, it was really focused on
40:36
how can I positively impact The US health
40:38
care system? How can I, after having for
40:41
almost two decades covered health care as an
40:43
investor,
40:44
go after some of the biggest challenges that
40:46
I saw in my career and actually help
40:48
hospitals
40:49
lower the total cost of care? And that's
40:51
really why I'm doing Clarium.
40:53
There really is not a financial incentive for
40:56
me to go after to pursue doing this.
40:58
For me, at the end of my career,
41:00
if I look back on my life
41:02
and what impact I had,
41:05
it's not gonna be in terms of the
41:06
dollars that I made for my investors
41:08
or what I made during my career as
41:10
an investor myself.
41:12
It's gonna be, did I and was I
41:14
successful in helping lower the total cost of
41:16
care for US health care? Was I successful
41:18
in helping US health systems
41:21
dramatically reinvent and transform
41:23
this sector that has been really behind for
41:27
decades? And did I have that positive impact?
41:30
That's ultimately what's driving me. And so it's
41:32
been a great journey over the last six
41:34
years, and I'm really excited to continue this
41:36
over the next decade plus.
41:38
Well, thank you very, very much. I I
41:40
know that it's fair to say from doctor
41:41
Klasko and I that one of the things
41:43
that we each find
41:44
so incredible about yourself
41:46
is the clarity in which you approach things
41:48
and the systematic nature of them
41:51
and the passion and mission. It's actually a
41:53
pleasure. It's really incredible and inspiring to watch.
41:56
Doctor Klasko?
41:57
Yeah. Scott, I guess, I I get back
41:59
to the first question you asked Steve of
42:00
why he left a very successful career, and
42:02
I think, you know, Steve put
42:05
it it it it very well.
42:06
I think, you know, I'm old enough to
42:08
remember when research was, hey. I have an
42:10
idea. I'm gonna do a research. I don't
42:11
know if it's gonna help anybody. We moved
42:14
that to translational research. Here's the problem. Prove
42:17
that you're solving it, if you wanna get
42:20
funding. And I think what's what's great about
42:23
Steve's approach and and, you know, what's what's
42:26
different than, frankly, some others that are saying,
42:28
hey. Here's this really cool technology,
42:30
and I'll figure out a a problem to
42:33
apply it to.
42:34
Steve went in to Clarium and said, this
42:36
is a huge problem that nobody's addressing in
42:40
in in anything other than an incremental way,
42:43
and we have all this technology. I wanna
42:45
solve the problem,
42:47
and then we'll create slash find the technology
42:49
to solve the problem. So it's really the
42:51
equivalent of what we've been able to do
42:54
in the in the in the, in the
42:56
single patient side with things like immunotherapy
42:59
and that kind of thing
43:00
of of of how do we solve solve
43:02
a problem. I often say, you know, we
43:03
have we have Star Wars technology for individual
43:05
patients
43:06
in a Fred Flintstone health care delivery system.
43:09
You know,
43:10
Steve and his team
43:12
are bringing that Star Wars technology
43:15
to our total cost of care and and
43:17
and margin architecture.
43:19
I wanna thank both of you for joining
43:21
us.
43:22
Steve Liu, CEO, founder of Clariom,
43:25
doctor Steven Klasco, executive in residence,
43:28
general catalyst. Two remarkable leaders. Thank you so
43:32
much. What a pleasure visiting with both of
43:34
you. I always learn something.
43:36
I'm excited to continue to watch the impact
43:38
that Clearium's making in supply chain. Just remarkable.
43:41
Thank you both very much. Thank you, Scott.
43:43
So much, Scott.