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Ep. 133 – Alverno Labs VP Of Operations, Dale Kahn

Running a massive organization with the leanest leadership team possible may sound like a contradiction in terms, but it actually makes sense in a lot of different ways. For one, Dale Kahn, the VP of Operations at Alverno Labs, says it has a lot to do with engaging your teams more in their specific responsibilities without having to micromanage them. Whether it makes sense or not, it is still a pretty amazing feat for one of the larger hospital integrated laboratory networks in the country. Dale shares how they do it in this conversation with Cameron Herold. He also talks about how the company is addressing defining issues like the COVID-19 pivot, succession planning, and emerging leaders’ development.

Dale Kahn has helped lead Alverno Clinical Laboratories with several firsts in the laboratory industry. In 2013, Siemens Healthcare Diagnostics now Beckman named Alverno as their Microbiology Innovation Center for the US. Alverno was the first laboratory in the US to implement full microbiology automation and one of the first to routinely report clinical microbiology identifications utilizing the MALDI-TOF System.

In 2014, Alverno installed one of the first Beckman Power Express Automation Systems in the United States. Advance Laboratory Magazine named Alverno as the Laboratory of the Year in 2016. In 2019, Alverno launched a digital pathology project and will be one of the largest providers of digital pathology for human tissue in the world. Alverno is one of the larger hospital integrated laboratory networks in the country. Many throughout the country and even the world continue to visit Alverno to learn and apply the Alverno model of Integrated Laboratory Services. Dale, welcome to the Second in Command podcast.

Thank you for having me, Cameron.

Reading that bio, I have no idea what you guys do. I was never a science guy. I was always baffled by it. The words were too long for me, so can you throw it down into layman’s terms for us on what Alverno is?

We’re a clinical laboratory but we do it in an integrated fashion. If you ever go and get a blood test drawn or your doctor orders some urinalysis on you, maybe culture or something like that, that’s what Alverno does. It does the testing for that. A good portion of what we do is we call it technical testing and technical processing. Some things also require a professional pathologist or doctor’s interpretation. We also do things like pap smears and if you had a biopsy done, an organ is taken out or something where we needed to process that, and a doctor diagnosed cancer or things like that. That’s all done in the clinical laboratory.

One thing that’s different a little bit with Alverno, when I first started in this career, we were more hospital-based back in those years. Alverno was a pioneer in the integrated model. We had a pathologist probably in the late ‘80s into the ‘90s who thought about this integrated concept. Instead of having every single individual hospital laboratory trying to have all this equipment and expertise, they integrated it into a single place where we could feed multiple hospitals into it. That’s how the whole concept got started. We opened our doors on Valentine’s weekend in 1999. We started out back in the day servicing six hospitals.

As part of our system, we were holding Franciscan Alliance back in that day. We started out with six hospitals and it’s grown over the years. We’ve had other facilities integrate with us with other owners. At one point, we have three owners. Two of those owners merged together their hospital systems so we’re back to two owners now. We’re up to servicing somewhere in the neighborhood of 35 owned facilities where we not only bring that testing into the central lab here but we also manage all those hospital laboratories.

We also service about half a dozen man owned facilities where we do a portion of their laboratory service. It’s that integrated model that has changed. The big focus and the reason for that were cost savings. You could bring that together and have more expertise in-house. In a sense, we looked at it like every one of those hospital labs and thinking that this was in the next room over or through downstairs. It was an extension of those so they all enjoyed all that technology and service like it was in their own place. That’s the model that we went after.

Prior to Alverno or prior to this integrated lab model, was all of the lab work being done in all the hospitals? If I was a patient, I’d have to go to the hospital, get my lab work versus heading off to Alverno and get it done and they send it in.

Typically, you went to the hospital in the outpatient area. A lot of our hospitals back in that day had a lot more of the testing menus in the hospital and now we call them Rapid Response Laboratory so they do what’s needed right away. Also, back in that day, there were probably a lot more send-outs that went to some of these national labs so the samples could have been flown across the country to these national labs. That’s one of the beauties of the integrated model. We can bring more and more of that esoteric type of testing in-house versus across the country which saves on costs and turnaround time back to the doctor to service the patients faster and better. It’s allowed us to do that as well.

Who pays for your services? Is it insurance pay? Is it co-pay? Is it the hospitals paying?

We have a couple of different models with that. We service hospital work so I know the work that funds us through those hospitals and it comes here. With that, there are owners. It’s a cost model that goes back to them. Because there are owners, we charge the hospitals back for that test and add cost. They’re billing DRG or an insurance company and depending on if it was an inpatient stay or if it was an outpatient visit, they’re doing the billing to the insurances from that.

We also have a large outreach program. We probably service over 3,000 independent physician offices as well. With that work coming in, primarily, it’s third-party billing so we’ll build the insurance companies to make the money from that. There are some clients that we client bill them and they’ll turn around bill insurance companies. Some of these hospitals that we do some of the work for will client bill them and they’ll turn around and bill insurance companies as well that way.

It’s funny because we were talking before we went live. When we were building 1-800-GOT-JUNK? our landlord was the founder and CEO of a group called MDS Labs up in Canada. Is that a similar group to what you guys do?

That’s a group that maybe we even visited with us. In Canada, healthcare is a little bit different. When they came and visited here, they said they have the same constraints even though it’s more socializer, if that’s what you want to call it, but they said we still have to save cost. They were doing more and more where they wanted to do the integrated model as well. We see more and more of that in Canada. We have visitors from the UK who have a similar model to Canada but they wanted to save costs and they were looking at that same model. Around the world, looking at that model integrated.

You’ve got 35 locations. How many total employees does Alverno have?

We’re in around the 2,100 range of employees. Here at the central lab, it’s between the central admin or outreach program, which outreach would be all of our patient service centers where you could go to get your blood drawn. We call it sometimes in-office phlebotomy. We might have a doctor’s office where we put one of our phlebotomists in their office. We probably have 60 to 70 of those locations. The central lab and all those hospital labs. An outreach site and the central lab, we’re probably in the 600 range for FTS, and the rest is distributed among all those hospital laboratories.

It makes sense. When you’re growing, for you to continue to scale, is it through acquisitions? Are you opening more locations? Is it getting deeper into the hospital business? How do you grow the business?

Early on, it was searching out other partners that wanted to join us. Remember when I said that we started with the six hospitals and that was with Franciscan Alliance. They were called Sisters of St. Francis back in that day. They had, back in that day, twelve hospitals and when we started, we serviced six of their twelve. The growth was system acquisition. They joined in as a partner so we had another healthcare system in Illinois that had six hospitals that joined in. At that same time, we picked up the other six Franciscan Hospitals so we grew to eighteen. Another healthcare system brought in eight hospitals. These healthcare systems have been the biggest growth from the hospital side.

For the outreach market, we built our team over time and we’ve grown those physicians. Back in the earlier days, maybe we were serving 1,000 physician offices and now it’s over 3,000. One of the things we see more and more in that area is these hospital systems are employing these physicians. More and more we see our market has employed practices. If the hospital employs a physician, they’re automatically an Alverno customer because they’re part of us so that helps bring that in. We’re still marketing to nine on places but over the next few years or so, you’re going to see all that gone because a lot of these are going to be part of systems. It will be harder to grow that way.

Another big focus now is other systems. We’re always talking to this five hospital system over here and this six hospital system over there. That’s what we’re looking for in our future growth. One of the things that we’re looking for is a big growth spurt as well. Our two systems are Franciscan Health and AMITA Health. AMITA Health is owned by the bigger Ascension Health, which is the largest Catholic healthcare system in the US. They have about 150 hospitals scattered in a variety of distances in the US. One advantage for us is we’re connected to them now.

With Ascension Health, one of the things we’re working on and programming with them is what we call a Precision Medicine Program. We’re starting in the oncology area. Ascension has a central laboratory like us in Tulsa, Oklahoma but they don’t have next-generation sequencing technology and a precision medicine program yet and we have that. We’re in the early stages but we have it. We’ve met with them and they named Alverno as their precision medicine program for all of Ascension, hopefully. It’s what we’re hoping for. What we’re doing now is we’re starting a project with their group in Wisconsin and if that goes successfully, we’re hoping to branch out. That will be another area because that connection from one of our owners will help us grow. We’ve grown at a rate of about 20% per year over the last couple of years so it’s been a phenomenal growth and ride going on with all this work.

That’s solid growth for a company that size for sure. How have you been impacted with the whole COVID that we’ve been in? We’re at about the six-month mark, we’re recording this in September of 2020. How have you guys had to adapt and work through that?

That was a huge change for us this year. When COVID first hit, our first priority was getting testing for all of our own hospitals. Back in that early day, it was hard to find a vendor that could commit to supplying all the reagents that you needed and that was our big focus. Back in that March timeframe, we brought in six new analyzers to do COVID testing. Three of the analyzers were an Abbott Alinity m analyzer and at the time, they had seven of those analyzers in the whole world and we had 3 of those 7 at Alverno. We feel fortunate with that partnership with Abbott because they did a good job to sustain us with the reagent supplies to be able to run all this stuff, and we brought in a few other analyzers.

That was a big project. If you can imagine bringing these in and having to validate them and get them up to speed as fast as we could. It helped out our systems tremendously. We’ve had many compliments from the system that we helped keep them in operation and keep them going on by having that COVID test. In the early days, when we were getting samples, we didn’t have the testing light yet so we were sending it to the next National Labs and we started seeing almost immediately they got overwhelmed because the whole country was doing the same thing. We started seeing turnaround times from them of up to two weeks to get a result back. We launched as quickly as we could. We were probably doing a 24 to 48-hour turnaround time and that still holds. We’re probably seeing an average turnaround time of 24 hours on this case sensitive PCR test.

We also launched rapid tests in our hospital and rapid response labs as well so that was a big project if you can imagine doing that. Word started spreading quickly throughout the country of the turnaround time that we’re doing so we started getting calls. We did testing for South Dakota, Oklahoma, Minnesota and down in the Atlanta area. We started getting calls from all over the country. We did a lot of testing for Michigan to help out with this crisis. It was rewarding for the team that they felt they were helping many throughout the country. That was a big part of it initially.

The other big thing that changed was our volumes tanked back in that March and April timeframe because none of the hospitals were doing surgeries, people weren’t going to a doctor’s office and one of the good things that we did was we tried to get all of our staff to take vacation time. We reduced hours but we didn’t lay anybody off. Nobody got furloughed. We had some teams that started to work from home, which was a change and some of the teams that are still working a little bit from home but that was a big change to manage that. That went well.

The hard part was the volumes came back faster than we predicted. We were expecting it to slowly come back in probably by the July timeframe. Our volumes were not only back but they were higher than what they were before. They were higher than what we predicted. Usually July is one of our quietest months and in 2020, it wasn’t. Those volumes came back and we started struggling with that until we could get that stabilized with all the volume coming in. It’s been an interesting year for us and it’s still going. We’re seeing more and more where they’re trying to make decisions. Are they going to do mass testing and mass screening in these nursing home patients, assisted living places, all these colleges and universities? There’s a lot of discussion going on what we’re going to do with all that.

What about on the operational side, you did have to start doing some work from home. How did that go in terms of the work from home component?

Primarily, it was certain individuals. The lab staff that’s in operations that were running the test had to be here. The people that we had worked from home more of our sales and marketing, which they traditionally always work from home anyway, they continued. We had some of our quality teams doing some work from home because they weren’t allowed to go into the hospitals for some of the Kaizen events or some of the KPI work that they were doing, so they did some work from home. We also had our IT group.

A lot of IT staff started working from home. In fact, our IT staff is still doing some work from home. That ended up being a little advantage to us. Because of all the growth that we have, we’re building up our space. Our whole space is about 50,000 square feet. Probably 35,000 of that is lab space and 15,000 is called the carpeted space, the administrative functions. We’re in the process of tearing down walls and moving the lab into the administrative space. We rented an offsite place that we’re moving our IT group to. It worked out nicely that they’re working from home so we can take over their space here and we’ll build their space and the new rented place when we get time. In the meantime, they can continue to work from home so it was almost an advantage.

Were there any setbacks at all from the work from home or did it go reasonably smoothly?

It went fairly smoothly. We all had to adapt to these virtual things like we’re doing now. We implemented Microsoft Teams here. As a corporation, everybody had to get used to that and deal with that. It’s still hard to judge whether the team is as productive at home or not. It’s interesting. Once a team is over here, we’ll say, “We think we’re more productive from home because we don’t have any of the interruptions.”

For the other team you wonder and some of the metrics we’re trying to calculate if they are productive from home, but it’s going smoothly. Some of the challenges are before I could pick up the phone and call them in their office, I had to figure out what’s their cell phone number to call them unless we use the chat or something on Teams. It’s been a little bit of a challenge there but everybody is getting used to it more and more now.

In terms of your growth in the organization, were you always in the medical space when you came in as a second in command?

I started out as a lab tech 40 plus years ago and went through that area. I’ve always had an interest in the IT areas so I don’t do much with the lab information system per se but I do a lot of things with the programs, with things to make the operations more efficient and more productive. A lot of things with big data, data mining, dashboarding, helping our executive team look at metrics and you’re not only heading in the direction and where do we need to go. That’s always been an interest of mine. I’ve done that all along as well.

Moving through the different areas, I started out as a tech to a Supervisor to a Manager to the Director of Operations and now my title is VP of Operations. We have a small executive team here. There are only four of us on the team. We have our CEO and myself, the VP of operations and we have a vice president of finance and our CFO. It’s a small team. When I first came into this role, almost everybody was reporting to the CEO. I think back to that time when he needed to relieve some stuff on his plate so he could start doing some of these other things like strategic planning, working with vendors as business partners in developing those relationships, doing more of the sales and marketing growth. He wanted to focus more on that area and not have to worry about operations as much. That allowed me to move into this role and create this role because when I moved into the role, it didn’t exist.

Was he a founding CEO or founding partner?

Sam, our CEO, came into the organization probably six years into its existence. He came in when we merged with the second owner back in that day. When he first came in, he didn’t come in the CEO role, he was a Vice President for a different role but at the time, we had what we call the Vice President of Hospitals. He did a lot of the work of going into all the hospitals and integrating them. He’s the third CEO of the company. One guy started and when the two systems merged, there were two CEOs from that. The other one got selected and Sam is the third one that we’ve had.

How have you been able to keep the leadership team lean? How have you been able to push back with people that want to be on it or dealing with the politics of people needing to be on it?

We have good teams below that as well that handle a lot of the operations. We have what we call regional directors over the different hospital system laboratories and they report up to the executive team. It’s been successful that way. It’s letting people do their job and not necessarily micromanaging everything that they do, having the faith that they’re going to do, and report back the results that you want to see. That’s a good part of it on how you can stay solely at that level by trusting the people in those other positions.

You talked about measuring and trying to measure some of the productivity now that you’re doing the work from home. What is it you’re looking at in terms of productivity for that? How are you trying to measure some of the different roles you’ve got people in the work from home space?

In the laboratory, I can easily measure how many tests that somebody runs and things like that. When you start getting into some of the areas like IT, they have daily duties that they do but it’s harder to measure what I’m building. How many clients have I built on? How many doctors have I built into the system? How many interface issues that I take care of? That’s a harder one to measure with that. We have daily things that need to be accomplished. A lot of it is maybe not measuring what they did but that task that didn’t get accomplished that day is more of the way we’re looking at it.

What about in terms of your role? How have you continued to grow as a COO? Do you work on your skills?

I’m still tied into operations. The challenge with that is you can see the tremendous growth that we’ve had in all these major projects. We are first in automation for microbiology. We’re going to be the largest in the world for digital health for human tissue. I am leading all these huge projects, and it takes up a lot of time. Even though I’ve got great teams that do a lot of the work, one of the areas that I need to work towards and focus on is more of the strategic side. The CEO will even comment back to me. Let the team do the operational pieces more. Make sure they’re taking care of that and start focusing more on the strategic side and where we’re going for the future.

One of the other things that we’re trying to do is Sam is getting up in that age for retirement so am I. In the next few years or so, what is the company going to do? We’re trying to work on that now as well and figure out how we can do succession planning and make sure that somebody is ready to step into these roles and continue the company. There are several other positions. Probably our VP of finance is in the same boat as we are and the HR guy so it couldn’t be a big change in the next few years. That’s a lot of the focus now.

What’s the ownership of the company?

We have the two healthcare systems that own us. We have Franciscan Health, which is primarily based out of Indiana. Most of their hospitals are in Indiana and they have one in Illinois. AMITA Health is the second owner. Remember, I told you we had three owners at one time. In the beginning, Franciscan owned 100%. When the second one came in, it was 50-50. The third one came in, it was 1/3, 1/3 and 1/3, but now those other two systems joined together. They own 2/3 of us and Franciscan owns 1/3, even though Franciscan was the founder. One of the things they did from a control standpoint, they were smart in their formation documents. Each system has an equal vote in decision making. Even though it’s a 2/3 owner and 1/3 owner, from a decision standpoint, each system has one vote.

You guys are running as employees of the organization. There’s no desire to build to sell at this point. You’re building to continue to build a good company.

That’s the strategy. Our owners could always say we want to sell it. I’m sure that could be a possibility at this point, they see the value and we’re cutting down. Over the years, we saved them millions in costs from laboratory costs on what they would have had at their own places. They see the value especially the COVID times. They see a savior and what we’ve done so that was a real plus. It will stay in the status quo for a while.

Talk about succession planning. Are you guys starting to think about that and do that?

That’s a topic on our plate that we’ve started to take a look at in what we’re going to do. It’s not only the leadership here in the laboratory. We’re also looking at succession planning for the pathology group, which is our primary group here at the central lab. The president and second in command for that group as well are getting in the same boat. We’ve been talking with them as well. What’s their future? How are we going to plan? There are a lot of areas now. We’re looking at succession planning.

What do you think you look for in terms of emerging leaders in the organization? How do you find the emerging leaders?

For many years, Alverno had what we call the Emerging Leaders Program. I don’t know that it was necessarily geared for the top executive level but we did a lot for the supervisor, manager and director level where people could apply for our program. We took them through a variety of curriculum on different topics from operations to finance to HR topics and tried to groom them so they could take some of those positions. A lot of the people that went through that program did get some of those higher positions in a company. We haven’t necessarily taken that to the next level to replace the executive team.

What do you look for though when you’re seeing somebody? Is there something that you look for that you identify or you go like, “That’s somebody right there?”

A lot is not only what do they do in their job but what do they do above and beyond their job? When we see that this individual over here is always stepping up and doing these other items, they are the people that I want to look for and that the group wants to look for. You want the individuals that come to you and say, “I’m updating you on what’s going on,” versus the other way around where you have to ask, “Where are you at with this? Where are you at with that?”

Those are some of the types of people that we’ve seen that aspire to move on. Those are the people that have moved on in the company and moved up. We’re that big organization. Unfortunately, we’ve had a couple of excellent ones here at the central lab that moved up into one of those positions at one of our hospital sites. It’s always sad to see them leave the home base but you can’t blame them. It’s rewarding and encouraging to see them grow and move into some of those other positions even if it’s not at home base.

It’s like raising our kids. Our job is to grow them so they leave the house. It’s sad to see them go but it’s also fairly fulfilling to see them go. In terms of the leadership team itself, over the last few years that you’ve been there in your role, I’m sure you’ve had conflict and frustrations with other members of the leadership team. How do you deal with conflict and at that level?

For me, a lot of it is being honest with each other and being open with each other. We have an excellent relationship. Sam’s been one of the best bosses that I’ve had. Sam and I have traveled the world together. We’ve got the opportunity to go to different countries and give talks about some of the things that we’re doing in an overall model or some of the automation that we brought in. That’s been rewarding from that as well. That’s a big part of it.

A big part of it is, for me, anticipating what the CEO wants. That’s a key to success in any leader. You don’t have to wait for the boss to ask you what to deliver. You anticipate that ahead of time. When you go in to meet, you’ve already anticipated the questions they’re going to ask or the information that’s wanted and you already have that. A good one can have that foresight and the anticipation of what’s going to be requested. It helps the relationship too because you’re prepared.

As an organization scales and as it gets to the size that you’re at, politics inevitably starts to creep in. Do you notice much politics inside of the organization? How do you deal with it when you’re seeing it?

Within an organization, I don’t see much of that. We’re a good group. The laboratory has led our hospital systems almost in how to do this integration and how to be standard. We’ve done so much to standardize equipment, procedures, policies and even reference ranges in all the places, and the doctor sees the same thing no matter where these patients go. That’s been strong. The politics have been more with the systems and what’s needed. It’s always politics when you first take on a system.

You can’t blame systems. Systems had laboratories and they had laboratory people at their own places. They were all excellent people and did great jobs but it’s changed. That change is always heard and especially when a lot of times they see, “My test is here in this building and now it’s going to drive down the road to another place.” There’s always that anticipation of what’s going to happen. It’s going to go into the black hole over there. That’s been a lot of the politics and helping settle that down.

I remember we had a project a few years ago or so. We did a blood culture project where we used to have our blood culture cabinet in all the hospital sites. Back in that day, I’ll give you a little example, the technology, when a blood culture bottle would turn positive, the machine would plug it as positive. We’d have to ID what’s the bacteria so the doctor would know how to treat it. Back in that day, that process took about 48 to 50 hours because you had to subculture the plate, wait for the growth on the agar plate, and you had to put it on a machine and get an ID. We told all the doctors that we’re going to integrate this blood culture technology here to the central lab. Primarily, it was because we had that new MALDI-TOF technology.

With that technology, it allowed us to take that and get to that ID in about 2.5 hours versus 48 to 50 hours. It was interesting in the politics, all these ID docs didn’t know that because it was new technology. They were calling us and saying, “You guys can’t do that. You’re not only going to harm our patients but you’re also going to kill our patients.” It was interesting because probably three weeks after we did it, those same ID docs were calling us saying, you can’t imagine the positive impact that Alverno has made on our patients. We’re getting IDs much faster. We’re treating them faster. They’re getting out of the ICU faster. We’re seeing them get better faster. Thanks for doing that. You’ve got to play the politics until you can show a good outcome.

Play politics until the results prove the point. Dale, last question. If you were to go back to your 21-year-old self, you’re leaving college and getting ready to go out into the world, what advice would you give yourself back then that you know to be true now?

It’s interesting with the technology, back in my day in college, we didn’t have the computers and the internet and all that stuff. That’s a love of mine, technology and I like to do those things. I’ve done some programming. I ran a side business for many years in timing running races. I wrote my own software and set up my own business. We timed running races like 5K races, 10K races and things like that for years. I don’t know if I would tell myself back then to go to a different pathway. Would I go into the laboratory field or not? Would I go into the IT space? That’s a tough thing to say. I enjoyed the career and the path that I’ve taken. I’ve been given many opportunities. The ability to travel the world has been great with this company. I don’t know if I’d change that path at all but it’s interesting. Would I stay with the healthcare and the laboratory path or not? It’s hard to say if I could look into the future and see where it was going to go.

It’s been interesting to watch. I would never have anticipated the computer industry to go where it went. I remember when the first Apple II came out and I desperately wanted to buy one. I wish I was buying Apple stock back then as well.

You and me both.

Dale Kahn, the VP of Operations for Alverno. Thanks for sharing with us on the show. I appreciate the time.