Interview with Attila Végh, the chairman and CEO of Penta Hospitals International

How was the year 2017 for PHI?

This was the first year in PHI´s history, it was the first year that we had a team and we established some international collaboration. It was also the first year that we started having monthly performance reviews across the 3 countries, project boards where we discussed the 16 international projects and planned the first two big international conferences – Leadership and Clinical Summits for the countries to get together and talk about what matters to them. So yes, it was a beginning of a journey.

At the conference you mentioned a few examples of success achieved thanks to the international collaboration.

We could mention some of the financial figures – we have saved almost 2 mil euros by buying together thanks to joint purchasing and central procurement.

We have delivered quality improvements by working together, e.g. reduction of nosocomial infections.

We have started investing in IT by working together – for example creating the PHI automated dashboard.

We have aligned our structures and started investing into L & D.

This was all possible because we have pooled our resources and shared our best practices with each other.

Where does PHI stand today in CEE and European healthcare?

In CEE we are the largest consolidated network of hospitals. On a European level, we would be in the top 15 in terms of number of hospitals or patients or staff. If you look at the income, we would be in the top 30, because our income reflects our local prices, which are lower than in Germany or England. If you look at our recent growth, we would be one of the fastest growing networks of hospitals in Europe and if you look at our ambition then we are there with the others to achieve great things.

It is worth to mention that the hospital industry started to consolidate across Europe. Hospital chains started to get bigger in all countries and this trend is expected to continue in the next 10 – 20 years. In CEE, PHI is setting a path and a positive example for consolidating and creating a hospital chain.

Why is it happening now?

It is happening now because there is unprecedented pressure on healthcare and there isn’t enough money for the health systems to fund hospitals. This is because of the demographics; the growth of the number of elderly is suggesting that we have to spend more on healthcare than the economies are growing. And as such, the tariffs are being contained so hospitals are increasing pressures to absorb continuously increasing cost pressures, like salary increases, or the cost of new technology.

Is it something we have to get used to and find new opportunities? It is probably not a temporary state of healthcare in Europe (lack of people, finances, demographics), or is it?

This is going to continue and is a global trend. It has been with us for the last 10 years, and its accelerating and every single country is looking to contain costs of healthcare because the growth of the elderly population with chronic disease (such as diabetes, COPD, cardiovascular diseases, etc.) is increasing healthcare spend. Modern technology is also contributing to this. Of course, healthcare is getting more accessible and better but it’s also getting more and more expensive. This is the new norm, and payers are putting pressure on the tariff and expecting more from the providers. As the margins are getting smaller, it is driving the industry to consolidate. Small independent hospitals will not necessarily be able to survive unless they become part of a larger group or develop specific expertise that requires no larger scale. At the moment we are at the very early stage of consolidation in Eastern Europe, because most of the hospitals are independently run and managed state hospitals. Lack of economies of scale also contribute to the significant deficits in many of these hospitals.

Talking about the whole Europe, the level of fragmentation varies from country to country, for example Austria is one of the most consolidates countries, Germany and France are becoming more consolidated, UK is still fragmented and then if you look at Eastern Europe it is all incredibly fragmented. Poland has 800 independent hospitals for example. In Slovakia, other than Agel and us, most hospitals are still independent.

When you talk about consolidation, do you also mean privatisation of hospitals? Or is it something else?

It is different, but closely linked. Consolidation means a reduction of the number of players in the market to leverage economies of scale and improve quality and efficiency. Most industries have been through this already, the banking industry, car manufacturing, retail, etc. There is probably less than 20 major car manufacturers in the world these days, and many brands belong to the same group. On a global scale, massive economies of scale are the name of the game here. The amount of money you need to invest to develop a new engine is so huge that you need to sell at least 200-300,000 cars a year to pay for the development cost. In healthcare, it’s similar. To develop state-of-the-art hospital IT systems, to develop clinical pathways and protocalls, to build best training courses for staff, can best be done if you have scale, or it’s difficult to pay for. Consolidation can happen publicly, e.g. Austria is highly consolidated, most counties have only one hospital chain owned by the county (Bundesland). In other countries like Germany it is private; whether for profit or non-profit but they are private institutions. So, in countries like the V4, consolidation could happen through the state if it decides to run multiple hospitals under one management. This is difficult to implement but it is absolutely possible. There are discussions in the UK to reduce the number of hospitals from 150 to 50 by putting more hospitals under the management of the same team. In a private setting, it’s also linked to privatization, which allows a private investor to exercise control over key business processes. However, privatization doesn’t necessarily mean consolidation, as there are still many hospitals that are privately managed and owned as single hospitals. This of course creates further opportunities for further consolidation. However, the key word is consolidation not privatization.

You mentioned that healthcare is going through big changes and changes are usually not viewed very positively. Are they a real threat or are they an opportunity for us?

For us as a consolidator these kinds of changes are definitely an opportunity, because more and more hospitals need to find a different future and being a part of a consolidated network is definitely a solution for them. This is an opportunity for us to grow, have more economies of scale, and invest more into quality and efficiency. So, for PHI these trends are definitely an opportunity.

PHI has also consolidated the vision and values through the whole group. Why did it happen and how would you define the vision and values? What do they say?

Why is it good for the staff and the patients? It is good because if we are part of a bigger family then we will be able to do things that if we were a single hospital we can’t. From a staff perspective we will be able to attract the best and most talented clinicians and managers on a European scale. We will be able to invest into a professional development program, the PHI Academy, where we´ll train them and develop their skills. We´ll be able to buy equipment and invest into IT which can be expensive. By pooling our resources, we can afford them, and then deploy them in all units, which makes the cost per hospital relatively smaller. Then of course we have many synergies around buying in larger volumes for all hospitals, leading to lower prices. From a staff perspective there are definitely benefits being part of a bigger family, like more job opportunities, moving from small hospitals to bigger hospitals, then to national jobs, then to international jobs. These opportunities don’t exist for employees of single hospitals. From a patient perspective there are also big benefits because through all these pooled investments there is ultimately an improvement in the quality. If we are more efficient then we´ll be able to deliver profits, which can be reinvested into improving quality. These are through process redesign, IT, capabilities of staff etc. So, the staff are winning and the patients are winning. However, for us to be able exploit the benefits of being a big family, we need to start thinking as one company/family. We believe that shared values and a shared vision on what we can do by working together are important and it is important to explicitly state it. We would like to feel like one company with a shared view on what we want to become and how. This is why we defined our vision mission and values together with our colleagues from all our countries.

A few days ago, there was the first leadership summit and the first clinical summit. What was your impression after they were over and what did they tell you?

Firstly, it was great to see all our leaders in one place. It was great to see how similar challenges we face. Every hospital and clinic are confronted with similar issues that colleagues are trying to solve locally. For example, we talked a lot how to find good staff, concerning all our units. There are many challenges around efficiency because of the pressure from the payers. We have some outdated infrastructure that needs to be renewed. It was also great to see how similar we are in general and that we all share a burning desire to get it right. There was a lot of energy in the room when we celebrated the best performing and most improved units. People who got the recognition felt that somebody´s listening and recognizing their hard work, which touched their heart, and others’ in the room.

What are the priorities for the whole group for this year and where would you like to be at the end of this year?

When you asked this question at the panel I said three things. Collaboration, sustainability, transparency.

We would like this year to be the year of genuine collaboration across the countries to exploit our economies of scale. Whether it is recruiting or people development or joint buying or measuring outcomes but to really collaborate meaningfully.

The second one is to make a major step towards financial sustainability. What I mean by that is that historically this company, and that is true for all our countries, has spent more money than it earned. Which is okay, because we had a lot of outdated infrastructure, old equipment, old buildings that we needed to invest in to make it better for our patients and our staff. But it is not good because it is not sustainable. For us to be a sustainable organization, we need to earn at least as much as we spend. And for that we would need to increase our efficiency so that our profit will cover our investments into the infrastructure.
The third one is transparency. I would like this to be a year when we will be able to talk clear language about how we were doing, operationally, clinically, financially. Most importantly, to have full transparency and measurable data on how we are treating our patients, and also our staff.

As a CEO what do you expect from every individual out of those 13.500 employees in the whole group?

The first one is if you are a clinician then put the needs of the patient first and if you are a manager or administrator put the needs of the clinician first. I expect from all of us to be client focused.

The second thing that I would expect from everybody is to believe that there is a better way to do everything. To break from the habit of believing that just because we have been always doing something in a certain way, it is the best way to do it. There is always a better way to do pretty much everything and this is all of our responsibility. It is our individual responsibility to challenge how we do things and try to find a new and a better way to do the very job you are doing. And this in healthcare is a significant challenge, and it takes a lot of courage to challenge the status quo and propose ideas to do it differently.

And the third one is to work as a team. The team often is the clinical team on the ward, the hospital/clinic team, the country team or the international team. And to embrace that healthcare is a team sport and you can only do your best for the patients if you work collaboratively and support each other.

So, patients first, believe in doing things better and work as a team.

PHI academy. That is something that really caught attention even during the conference and brought some additional questions such as why not having it in Croatia. Please tell us something more about this idea. What is the vision and direction?

The context is that the biggest asset that we have is the motivation and the capability of our people. We are a people business; we employ over 13,000 people. 70% of what we spend is on our staff. Whether we fail or succeed, it is all through people. So, what we need to do for our future as well as for our patients to invest in our people, their development, their engagement. We also know that to have the best possible workforce, it is very difficult to hire from outside, as there isn´t enough doctors and nurses available. Sometimes, they don’t have all the skills, whether its leadership, management or clinical that we need to deliver modern healthcare. So, we decided to invest in our people and give them the skills through training them at the PHI Academy. This academy will have a curriculum to teach both clinicians and managers on how to do certain skills. E.g. how to develop and execute projects, how to build teams and deal with difficult people situations, how to read financial statements. These are core skills that all our clinical and administrative leaders need to master. The best people to teach them is often own our staff. Sometimes we will get external trainers as well.

Some people asked about developing and building the mutual clinical training centres. Is this something different?

No, it’s all part of it. Clinical training center is where clinicians will learn clinical skills like, eg. how to perform laparoscopic surgery. As part of PHI academy, we also want clinicians to learn certain clinical skills, not just leadership and management skills. Now how much of this we will do this year is really down to the team which works on it at the moment, because it takes significant investment and work. We are in the process to hire a dedicated professional, whose responsibility will be to lead on this. But this is definitely a direction we will go in the years to come.

How would you compare the three PHI countries?

Slovakia is the largest organization within PHI. Svet zdravia and ProCare together represents more than 60% of the total size, number of staff, revenues, and patients of the whole PHI and therefore it deserves a special attention. Secondly, we have an opportunity to transform the whole healthcare of Slovakia. We have about 12% of all hospitalizations and about 6% of all OP visits in the country. We also have 17 hospitals out of the 65 acute hospitals in the country. With this scale and influence, if we can demonstrate over time that were doing better healthcare than others, then we´ll have a huge impact on how the others will improve their quality and efficiency. In Slovakia, we have an unparalleled opportunity, as SZ/PC and PHI to transform Slovak healthcare by setting an example and have a lasting impact on the healthcare and the whole country. It is part of our vision, and it is more than business, we are really here to create a legacy for the patients and the country.

In CZ are growing very fast, we have now 5 hospitals at the moment and have some very exciting opportunities to grow further. We have some really good hospitals, some of the best in the entire network in terms of quality of care. Our units in Ostrov and Sokolov are modern, extremely well-organized facilities. I expect, we will have a very exciting story for the next couple of years in Czechia. I’m also glad that we have a strong leadership team there, led by our CEO Barbora Vaculíkova.

In Poland we have 11 hospitals and 17 OP clinics. Given the size of Poland and its fast-changing healthcare landscape, it is the most exciting healthcare market in the whole Europe. There will be many changes in Poland in the next couple of years, and EMC, being the largest privately-owned network of hospitals and clinics, is well positioned to benefit from these changes.