CNBC transcript: CNBC’s Sara Eisen interviews Former Aetna Chairman and CEO Mark Bertolini from the CNBC Evolve Conference in NYC today
WHEN: Today, Wednesday, June 19th
Following is the unofficial transcript of a CNBC interview with former Aetna Chairman and CEO Mark Bertolini live from the CNBC Evolve conference in New York City on Wednesday, June 19th.
Q1 hedge fund letters, conference, scoops etc
Watch CNBC’s full interview with former Aetna CEO Mark Bertolini
Mandatory credit: The CNBC Evolve conference.
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SARA EISEN: Mark is in better footwear than I am, much more comfortable.
It's very appropriate that we have Mark here to kick off this amazing event, talking about transforming businesses and evolving during good times and bad times, because Mark did that. He wrote a book on it; he wrote a Harvard Business Review paper on it, that's what I read last night; and he speaks very eloquently. Mark, when did your evolution of Aetna begin?
MARK BERTOLINI: Uh, well, it actually -- I spent the better part of 2002 -- late 2001, 2002 and part of 2003 with my son in a hospital, fighting T-cell gamma-delta lymphoma, which had never been cured. He is today 33 years old and has a daughter and another one on the way, but he's the only one to survive this disease.
And so I realized, because only 47 people had ever been diagnosed with it, that I needed to engage personally in what was going on. So Harrison's internal medicine tax, laptop computer, met with the medical team every morning. I was a nightmare for them: What are we doing today? What are the priorities? Et cetera.
Needless to say, as a result of that journey and spending time with him, when I went to Aetna immediately after he came home in 2003, I began to say, We need to change the system.
One of the things we focused on was compassionate care, end of life, which is a huge driver of health care costs in the United States. Almost 25 percent of costs in Medicare relate to end-of-life care.
And what you have to do in the Medicare program today is you have to admit you're going to die in six months, and you can't seek care or services while you're in hospice.
I did that with Eric. I had to sign a piece of paper that said he's going to die, and that to keep him comfortable, and that -- and he can't seek any curative services.
And when we found a drug for him, he had to leave hospice. He had to sign out of hospice. They said, Do you want to leave hospice, or do you want to give him the drug? I said, Let me think about that for just a minute. And so we left, and that drug saved his life.
And in that moment, what we did at Aetna is we said, Let's try this. Let's not require people to admit they're going to die. Let's allow them to seek curative services. All they have to do is accept hospice early.
The people that died in hospice in the control program, which was two years long, went from 24 percent going into hospice to 74 percent. Hospital days went down 85 percent, medical costs went down 70 percent. And the letters we got from people about the quality of life of that individual as they neared death were amazing.
So we brought it to President Obama's administration and said, We have this really great idea. Here's the data.
And they said, Oh, no, they're talking about death panels. We can't do this. Why don't you take it to the Institutes of Medicine, hold a conference, which we did.
The program got killed because there was a conversation going on about, well, Obamacare is going to create -- the ACA is going to create a death panel.
So Aetna provides that for all its clients today. It's an amazing program. It's free because it actually reduces costs and improves quality of life not only for the individual, but the family. And that began the experiment.
Okay. What more could we do to --
SARA EISEN: That was before you were CEO?
MARK BERTOLINI: Before I was CEO, yeah.
SARA EISEN: You became CEO in 2010?
MARK BERTOLINI: Yeah.
SARA EISEN: What was Aetna like then?
MARK BERTOLINI: We were a company that was crawling out of a deep hole, that we got into trouble in 2009 when the market went bad, the economy went bad. And I was President during that, so we had to rethink the way we thought about our company.
And the key variable we came up with at the time was that for every 50 basis points, we changed health care costs, there was $480 million improvement in underwriting margin and another 480 million for our client. And so what can we do to improve that margin?
And about that time, a few years earlier, the Bush administration had put Medicare Advantage in place. What we found in the process was if we actually invested in people, they actually got better and the health care costs went down.
So we developed this model and this team of people that did nothing but look for what are the things we could do to improve the quality of care, to improve the quality of life to reduce another 50 basis points.
Every year we went after 350 basis points.
And so in 2010, we added 8 percent operating margin. The street said we couldn't keep it. We actually grew it to 9.1, and that was by literally looking for ways to improve the quality of care and improve the quality of life to individuals and reduce the costs by virtually keeping them away from medical-industrial complex.
And that became the secret. That was the CEO metric, if you had to have a CEO metric. The CEO metric was, Where do I find the next 50 basis points.
SARA EISEN: Were you the only one doing that in the industry?
MARK BERTOLINI: Yeah, and then that started to catch on. Medicare Advantage was the place to see it most obviously as we paid for the risk of individuals. Then we started to bring it to Medicaid, started bringing it to our commercial population, and it showed great results. We said, Wow, look at this. We're not denying stuff. We're actually making sure people get the best care; if we can do that, we can actually reduce the cost of care and improve their quality of life, and they'll like us.
And that's where we began the experiment with our employees. I was using yoga and mindfulness. And my arm -- neuropathy in my left arm. Right now it's burning like crazy, because of the weather outside. It's going to storm today. Every day, it never stops, 24/7. So I use yoga and mindfulness for it. So I came to work and said, Let's do yoga mindfulness for everybody in the company. And they said -- everybody in the meeting nodded. Then the chief medical officer came to me later and said, Mark, this is craziness. This is voodoo medicine.
SARA EISEN: How many people work for you?
MARK BERTOLINI: Total, up until the last two years, I had 14 people reporting to me, directly. I feel that flat organizations are better with your hand on the wheel, you know what's going on.
And so he said, This is voodoo medicine. Everybody thinks you're crazy.
I said to Lonny Reisman, who is our chief medical officer, What would it take for you to believe?
And he said, If you do a double blind study.
And we did. Pre and post – variability and cortizol levels and stress levels are in the top 20 percent of our employees -- in the top quintile of stress, at $1500 more a year in health care costs, year over year over year.
And post, those levels dropped in half. And then next year, our health care costs went down 7 and a half percent as a company, went down. That reduction in trend, costs -- the dollar costs actually went down. I said, There's something here. Invest in our employees. Let's find a better way to take care of them.
When we looked at the stress level drivers, there's compensation, you had employees who were working two jobs, we had -- most of the frontline employees were -- 81 percent were single mothers, they had 20 percent of their families on food stamps and their children on Medicaid.
I said, We have to change this.
So I bought everybody a copy of Thomas Piketty's book for Christmas that year. I said, Read this. This is the alternative. What should ours be?
That's when we raised the wages from 12 to 16 dollars for our frontline employees and wiped out the health care costs of beyond 300 percent of federal poverty level.
Our engagement scores went up 1200 percent, retention of customers went up, our stock prices went down with $62.50 and we accommodated the transaction with CVS at 208. So we probably spent, we had -- after that, the company just went crazy, from a cultural standpoint, where all the employees started coming in, Can we do this? Can we do this? We had pet therapy.
And the only thing I said no on pet therapy were the mini ponies. We had dogs, cats, guinea pigs and rabbits, and that would come into our building. People would line up at lunchtime to pet the animals, to reduces the stress. We paid people to sleep seven and a half hours --
SARA EISEN: Does that work?
MARK BERTOLINI: Huh?
SARA EISEN: Does that work?
MARK BERTOLINI: The pet therapy? Oh, yeah. I love it. Do you have a dog?
SARA EISEN: I don't.
MARK BERTOLINI: Well, I have a dog. She is the best medicine for me every night, you know, a German Shepard, Keeva. I should have brought her. I should have brought her this morning to come along.
And we did -- we paid people to sleep seven and a half hours a night. We would pay them -- if they did it 20 nights in a row, we would give them $300.
And then we doubled our tuition assistance. We paid back student loans. None of those were my idea. None of it was in a plan. But what we did was we turned on the organization culturally to say, Oh, wow, we can take care of each other. It doesn't hurt the company. So by the time we closed the transaction, we had $120- to $125 million a year more in employee expenses related to all those experiences.
We had PPO banks, where we donated free PPO to people who needed it so they could still get a paycheck and be with their families. We moved all our employees out of harms way in any natural disaster before it came, if we could that, with hurricanes. We put them in hotel rooms with their families and their pets. We took care of each other.
And the cultural energy that was created in the organization as a result was the power that we could never measure. Decisions were better, people were more engaged with our customers, and we got a really high return out of that.
SARA EISEN: By the way, I am going to open it up for questions. So start thinking of -- I'm sure you guys have many questions for Mark.
It sounds like what you did was a mix of changing the business financially --
MARK BERTOLINI: Uh-huh.
SARA EISEN: -- changing the business in terms of your customers, really focusing inward and changing the entire culture. Is that how you think about it?
MARK BERTOLINI: I think the two tsunamis headed our way as business people are human capital -- right now, if you look at the level of education in most communities, we have a huge human capital problem. And it's going to hollow out the basic infrastructure of our economy; in another decade, we're going to regret it. And the other is climate change.
Between those two, we are headed to disaster. And there are solutions to solve this, but we need to begin doing them now. And so for years, we, as business people, have been trained in our education to -- scarce resources and to put at risk plentiful resources. For a lot of years the scarce resource were capital, and the plentiful resources were people; just put another person in the machine.
That's flipped. 15, 20 years ago, our scarce resource is human capital and our plentiful resource is financial capital. It's falling out of trees. So we should be putting financial capital at risk in the interest of human capital, but it has to begin all the way back in elementary schools.
My wife and I worked in the Harlem schools with urban farming across from elementary schools. 85 percent of the kids in Harlem are below reading level for their grade in second grade and third grade, beginning of the prison pipeline. 40 percent of the kids in Harlem, after school are in homeless shelters.
With all these vacant strip malls we have around America, let's build some homes for them, permanent homes, not shelters. Encourage Mark Benioff don't build shelters in San Francisco, build homes. All they need is a studio apartment. That's an adverse childhood event that sets off a chain reaction in education that ultimately leads to the prison pipeline. That's our education problem. All these charter schools and all these STEM programs, wrong argument. Help people to read.
The second part is climate change and what is going on in the deep oceans. I don't know if you've looked at the studies -- I look at them every day -- is that we're hollowing out CO2 consumption. Do you know that shellfish have five times the CO2 consumption level of plants on land? We are hollowing out because kelp is being farmed, and the kelp is going away. Let's build kelp farms. It's cheap. Let's replenish the shellfish population.
All of these things are available for us, consume carbon in different ways. But we keep putting it mañana because we have more important things, like tariffs.
SARA EISEN: Well, also I mean, To be fair, there's share price return, if your stock price isn't working, your business isn't working, the leader, you're not going to be building kelp farms, are you?
MARK BERTOLINI: No, but we can put our organizations -- interestingly enough, corporations have the highest credibility level of institutions in America. We are at 28 percent.
SARA EISEN: That doesn't sound very high.
MARK BERTOLINI: Every other institution, including media, is below that. So one can say we actually have an opportunity to change the dialogue in the way we interact with the communities we're in. Our social and economic ecosystems are so large now -- this is in the book -- that our government can't handle it anymore. So we try to make bigger government, make more control, which will never fix it. Need to go back to community, need to go almost back to an agrarian society where nobody falls through the cracks in our community. That's where we can deal with urban farming, we can deal with farming in the oceans along the shores of Maine where I'm headed to next week. Let's build kelp farms. Let's create urban farms. Let's invest in those, because for us, as companies, the economy is really important. Right? If the economy doesn't work because we have a human capital problem, the climate change is destroying the environment within which we work, we have a bigger problem longer term.
Now, it won't be us. Might be some of you. It won't be us because we'll be -- I'm retired. But if we don't do something about it, the future is gone and our economy is gone; it doesn't matter what your business does.
SARA EISEN: You talk a lot about building a culture and investing in our people, pet therapy, yoga, improving their quality of life --
MARK BERTOLINI: Yeah.
SARA EISEN: -- did you have reservations about selling the company to CVS and whether all of that could be maintained?
MARK BERTOLINI: So there are four levels of Taoist Leadership. Level 1 is your people hate you; Level 2 is your people fear you; Level 3 is that they respect you; and Level 4 is you're invisible.
What I worked really hard was to get to Level 4 so that the organization did it. The strategy is so profound in the way we get back to the community and in the community to improve the quality of life in our community, that if I had to give up the job -- which I didn't want to do, but that was part of the deal -- if I had to give up the job, I had to rely on the people that I brought along and make their evolution in the four levels of Taoist Leadership and carry it forward.
SARA EISEN: Does that mean you got guarantees?
MARK BERTOLINI: Part of the deal was they couldn't change our employee compensation for a year. But I have a team of people that are very strong that work there, that had been on my team and hopefully were able to create some osmotic shift in the way they thought about culture. I think we did, and they have to carry the ball forward now. Their turn. So that's the hope, that they can carry it forward.
SARA EISEN: You said you're retired, but what else have you got going on in terms of how you're going to bring these leadership lessons to the broader corporate community? And did you ever consider going into government? Because we have a health care system that could use some transformation.
MARK BERTOLINI: You know, I'm helping two of my son's friends from high school scale a microgrid group company. We actually have sold some large accounts. We have a lot of revenue on board, and we're now in negotiations to raise enough capital. But they've figured out how to take solar battery and the exhaust coming off a natural gas engine, turning it into CO2 and create a third-generation platform that reduces carbon footprint by 75 percent and reduces energy costs by 30. And we built the plant -- and I financed the first one for them -- and it hooks into the grid to sell power back to the grid. And this is an amazing technology.
So we're doing vertical farms across America, we're doing pot farms in places where it's legal, and we're doing universities. And we're also looking at, you know, data centers and hospitals and nursing homes.
So these two guys are brilliant, and I'm just helping them to structure an organization so it can grow, so spending some time there. I'm on a few boards, including the CVS Health board, I'm on Verizon and Mass Mutual, Thrive Global with Arianna Huffington. And I'm doing some project work with companies in the area, I'm building governance and management process. Because ideas are always great, but it only really matters if you can execute against them. So you have to build the team and the metrics and the "nitty-gritty on your belly in the mud," crawling through the mud, making it work every day. That's the power in the idea, it's not in the idea itself.
SARA EISEN: Before we open up to questions, you didn't answer my government question.
(Laughter.)
MARK BERTOLINI: You know, I have been asked. I'm not sure government's functional enough to make any headway. And I think we've got a problem. We've got to figure this out, but I think, you know, people of -- it used to be that people that were successful then gave time to the government to help the country to be successful. But it doesn't seem we have a structure today, with the instability, the poor behaviors of a large number of people, and the polarization of the ideology in the parties where anything can get really done.
And you know, I would rather work at the community level and build up from the community, versus trying to beat my head against the wall at the government level. I just don't know that -- there would have to be a lot of changes and different leadership on a number of levels in order for me to even consider that. But my wife has told me that she would love to watch me on TV, and she'll always send me nice notes.
SARA EISEN: Sounds like she's not on board.
Anybody have a question for Mark? The microphones are around in the front. Please introduce yourself.
TARA JONES: Hi, I'm Tara Jones. I'm Vice President for Effex. So we are partnering with manufacturing businesses across the country, and they're really trying to survive this climate. How is it you and your team -- can you share how you and your team determined what spend you needed to -- how did you spend your money to give back to the employees to change that culture? Because you listed off several things, which I noted down, but a lot of these manufacturing companies, their margins are smaller. They can't spend that money, so it would be very calculated as to what they're going to spend it on. How did you guys determine what your employees wanted?
MARK BERTOLINI: So you have to change the spreadsheet. Spreadsheets are poison. Spreadsheets and PowerPoints are poison.
So back on the first spreadsheet, you had to hit autocalc after you changed the number. Now, you get these five-deep, twenty-deep spreadsheets with all these numbers. And somebody is going to go, Well, what can I do if I change this number? And all of a sudden as a leader, you need to be a forensic scientist to find out what number got changed to get that answer.
I said to my people, I'm done with this. If you give me a spreadsheet, I'll spend time with it. When I find where you did it, it's going to be really painful for you.
But if you do it a different way, so if you say not what is truth based on the numbers, but you say: What are the five key assumptions driving numbers in this spreadsheet that we need to understand, the range of risk?
And then, when we understand that rare risk -- let's take those risks and line them up and stand back as a team and say: Based on this set of risks and the range of outcomes that could come on these key numbers in our spreadsheet, what do we need to believe as a team to take this risk?
It's a very different discussion than what does the business spreadsheet say we can do.
That then forces you to build a management process around your idea that forces you to evaluate those risks every day, and to recalibrate your spreadsheet and your approach every way.
So you look at really successful companies in this country, the original idea wasn't what made them powerful; it was this idea being able to iterate against an idea by having enough insight into what was going on with your creation.
So take the spreadsheet, make people put the assumptions out there on the five key items in the spreadsheet. Don't look at the bottom line and say: Based on these risks and the range around them, what do we need to believe as a team in order to take this risk?
That's exactly -- the spreadsheet never worked on raising employee wages or reducing medical costs. We couldn't make the number work.
We raised that, and then we put soft benefits down and said: What do we need to believe as a team to do this, to help our employees?
It was a lot easier decision. Actually, the CFO at the end was going: Is this enough?
So that was the turning point. PowerPoints -- don't let people give you PowerPoints. They spend all sorts of time figuring out font, words, color; don't do it. Make them come in and talk to you.
SARA EISEN: All right. We're out of time. But I want to try to get one more question, if we could. Is there one down here?
AUDIENCE MEMBER: Just to -- everything you say, everything you do is what I think my generation wants in a leader. So how do we clone you? How do we scale you? How do I get you into my company so that we can do what it is that you all did?
MARK BERTOLINI: This -- I believe this is the role of the corporation in creating a more sustainable capitalist model for America. We have a wage economy, a wealth economy. The wage economy has been flat since '72. Wealth economy has been growing. People thought they had wealth in their homes, and that all changed in 2008.
So, for us to create wealth, it starts with businesses like yours, and I have all the time in the world to spend time with people to figure it out. So, if you need help, let's try and figure it out. You can reach me.
SARA EISEN: Do you have a business card? Is that okay?
MARK BERTOLINI: My email is [email protected]. And that's my foundation. Mari and I put the vast majority of our proceeds into Anahata to do community sustainability, education and environment. That's our focus. "Anahata," for those of you who don't know, is the heart chakra in yoga. And so that's...
If you need help, let me know.
SARA EISEN: A lot of people took that email down. Mark, thank you so much.
MARK BERTOLINI: Thank you.
