Secret heroes of the pandemic...and the recovery
There are few, if any, geniuses in business. With all due respect, Albert Einstein was a genius, Steve Jobs, not really. Another one: I remember a Wall Street banker describing a Bear Stearns colleague as "talented." Again, Billie Holiday was talented. Bear Stearns bankers, not so much.
And what about heroes? Are there any heroes in business? Probably not. First-responders and doctors — people who save lives — they are heroes. But business people, they're out to make a buck, full stop. Sure they can have other motives that dovetail with higher impulses, but the bottom is, the bottom line.
And yet you have to admit the work some business people did during the pandemic was pretty damn remarkable. Maybe even heroic. Especially the folks who ran hospitals and made vaccines. But it applies to other health care companies too, from CEOs down to the hourly workers. I spoke with three such CEOs this week at the Milken Institute’s Future of Health Summit; Heyward Donigan of Rite Aid (RAD), Geoff Martha at Medtronic (MDT) and Adam Schechter of Labcorp (LH).
I’ve done scores of CEO panels in my career and I had no special expectations for this one, but I quickly realized it was going to be a pretty amazing conversation. The CEOs really seemed to relish being able to tell the backstory of what it was like for a large health care company during the time of COVID. I’m not in the habit of running Q&A's, but this is kind of special as I hope you’ll agree. There are stories of businesses crashing and deaths of co-workers, and then renewal and revival. Oh, and Elon Musk is on line one.
Coincidentally these CEOs were newly minted, the longest tenured being Donigan who became CEO of Rite Aid six months before COVID, Schecter took the reins at Labcorp in November 2019, while Geoff Martha become the leader of Medtronic in April of last year, right as the pandemic hit. For all three it would be a trial by fire they will never forget.
Serwer: Take us back to when COVID hit, what was it like?
Schechter: For starters, there’s no playbook for a pandemic.
Serwer: Did you ever sleep?
Schecter: The truth is not much, and neither did any of our colleagues. There were times when we were looking for volunteers to work in our laboratories. We had hundreds and hundreds of volunteers coming in, and people driving two or three hours to volunteer. So everybody was working around the clock as we went through at least the first year.
Donigan: In terms of our retail pharmacy business, we were hardest hit by COVID during the first wave. But we've been up and running through the pandemic starting day one and haven't shut a store and didn't shrink any of our hours. So it's been a pretty intense but very fulfilling year.
As the pandemic worsened in March and into April, the executives soon saw their business turned upside down along with some tragic consequences of COVID.
Martha: Right at the start of the pandemic, because we supply what they call elective procedures in hospitals, we lost overall 25% of revenue in one quarter, and because we didn't furlough people, I think our income was down 63%. And yet, at the same time, we had one part of our business that had exponential growth. And that was ventilators. I remember in March on a Sunday afternoon, trying to get a workout in and I kept my phone on because things were so crazy. And you get a call from the White House, you get a call from the Taoiseach of Ireland, you get a call from FEMA, five different governors, everybody looking for ventilators and asking for numbers that are in excess of the global supply. So we ramped up our supply 5x from January to July. But that still wasn't enough.
Schecter: We do about 530 million tests per year in the U.S. alone. But in March of last year, our base business was down 55%. At the same time, we had to start building capacity for COVID testing. And just to give you a sense, molecular testing has three parts to it. One is you collect the sample, a nasal swab. Next, you extract the genetic material from the sample. And then third, you analyze the genetic material to see if the virus is there. The part where you analyze, one machine is about the size of an average car. And if you run it for 24 hours, you might get 3,000 tests out of it in one day, we had a build capacity to get to 300,000 tests per day. So all of a sudden, we started just buying machinery. We started looking for reagents, we had to use science, innovation technology in ways that we never even anticipated. And if one lab was full, because that part of the country had an outbreak, how do we get the material to a different laboratory. We started running out of nasal swabs, we had to validate that you can use small nasal swabs versus those ones that were really long that people use in the beginning. We ran out of reagent to do the extraction, we had to invent a technology to use heat to extract the genetic material, as opposed to reagent. We couldn't count on any one machine because there were so many machines being required around the world, we were running on eight different platforms in over 20 different laboratories. So on the one hand, our base business was suffering significantly, and on the other we had to build huge amounts of capacity for business that didn't really exist. And we had to use technology that we were innovating and we're developing as we went along because there were so many things that we've never faced before such as supply shortages, machine shortages, reagent shortages. So our scientists really worked hard.
Martha: I mentioned everybody's calling from all over the world asking for ventilators. By the next call they’re demanding them. And there's no referee in the United States, there's no referee between the United States and other countries. There's lots of threats of shutting down borders and keeping ventilators in different countries. It was a very intense time. We're very mission driven and our mission really helped kind of guide us through these decisions.
Donigan: We have 55,000 associates, most of them in the stores, and so they were all in it, out in the front, like the meat packers. In our first testing site, we were in the parking lot, we had all the personal protective gear, our people had hazmat suits on pretty much.
We lost quite a number of associates to COVID. And so in the very beginning it was really, really emotionally draining for us. Not only were we all working 24 by seven to try to figure out the theme of the day, masks, acrylic shields, and then it was cleaning, and at the same time trying to keep your associates safe when you see them getting sick. And in some cases, they were dying which was just absolutely horrific. We needed to keep serving our customers. It was up to us to get these into people, up their nose for the test, and in their arms for the vaccine. It's been a great victory, to see that we could keep people safe, by and large, and that we could really reduce the number of infections.
Schecter: We launched with four principles. The first one was to build as much capacity as fast as you can, I don't care what it costs. To be frank with you, I didn't even know what the spend was for a significant period of time, because we were just going and I had the scientists in the laboratory technicians just go all out. Number two was nobody will be advantaged or disadvantaged based on ability to pay. So nobody paid anything for a test upfront out of pocket. Third was that nobody would be prioritized over anybody else. As a test came in, we ran them. The only exception we made was when the HHS asked us to prioritize hospital inpatients to get them out of the hospitals faster. And then the last one was to use science and innovation every step of the way.
At Medtronic, Martha scrambled to build out the ventilator business, while fielding — or was it fending off —those calls from around the world, he did something quite unusual for a CEO which garnered, perhaps not surprisingly, unusual, and quite positive results.
Martha: We actually open-sourced our ventilators and got all kinds of partners because there were a lot of supply chain constraints and because the hospitals were actually asked for new functionality. And so we had partners like SpaceX come out of nowhere and step up and help us with certain components, Elon Musk, and Intel helped us innovate.
Serwer: Wait, Elon Musk? Tell us more.
Martha: Ventilators are complicated machines, they have like 1,500 parts. And one of the parts is this valve that moves the gas around in precise increments. And there's very few companies around the world that make this component and they were all maxed out for this. And we open-sourced and SpaceX engineers saw the design and said, "Hey, we make that part," and they started working with our engineers. And then it escalated. And Elon Musk called and we spoke. And he said that this device they use in their spacecraft for life support systems. Think about it. A ventilator is a life support system, you need life support systems up in space. And Elon vertically integrated into this component because he saw the supply chain is weak. And so he allocated some of their capacity over to ventilators. They had to make some adjustments to get it to work, but they had the technology and the capability and they've been a great partner. A lot of strange partnerships that you wouldn't expect in COVID. That was one that I didn't expect. And it was quite a bit of fun.
Donigan: We were under so much pressure from the government, rightly so, that everyone had to pick their partners. For example, we already did a lot of testing and we vaccinate for the flu, for shingles, for pneumonia, etc. What we didn't have for vaccinations because people would just walk in, was a scheduling tool. And so we didn't really anticipate that this would ever be necessary because we never thought we would get inundated with people trying to get a vaccine. We partnered with a company who actually was doing all of the coordination around appointment setting for testing. And we also developed this in partnership with many of these different jurisdictions and that was pretty intense. The most confusing thing for everyone—consumers, in particular—was that every different jurisdiction was different. In Virginia, there are, I think, 11 or 12 different jurisdictions. So it was quite complicated. And our digital capabilities were accelerated significantly during the pandemic. We were the first pharmacy that launched a testing site in America. And that was in Philly and in partnership with HHS. We partnered also with the White House which has been an amazing partner through all of this actually and the CDC have been fabulous. Also there was no battle for turf between us, CVS and Walgreens. It was just all hands on deck with the labs and anybody else that you could get to help you because, at this point, you're not trying to save the company, you're trying to save the world.
Before Schecter became CEO of Labcorp, he headed up the global human health group at Merck which included its vaccines business. So I had to ask him to assess that.
Schecter: I was asked back in March of last year, how quickly do I think a vaccine could possibly be in the market and I was dead wrong. I said it would take at least two years, or if we push as hard as we could, maybe 18 months. The fact that we have three or four good vaccines in the marketplace in about a year's time is nothing short of remarkable. What's really important for people to know is that quality and safety was not sacrificed. These vaccines were studied in just as many patients as many other vaccines are in the market today. There are really three things that happened that allowed the vaccines to get to market so fast. The first thing is that people started to build manufacturing plants before they knew whether the vaccines work or not. Typically, you wait to see if the vaccine works. If it works, you then build the manufacturing plant and it takes you a year, so they were able to save a year's time there. The second thing is, it's typically hard for a vaccine to find the patients that will ultimately develop the disease. If you're developing a vaccine for cervical cancer, you have to enroll a lot of people because only a certain number of them will develop cervical cancer over five or 10 years. Well, this disease was so widespread and was spreading so quickly around the world, you were able to enroll these trials much faster than any other trial I've ever seen. And you got the results back quicker, because people either got COVID, or didn't get COVID very fast. And the third thing is usually after you're done with your trial, you file them with the FDA or with other regulatory agencies around the world. And it will take them from six to 12 months to review all the data. Here the regulatory agencies started to look at the data as soon as it was coming in. So between those three things, I think we saved two to three years of time.
One big learning lesson for the three CEOs was rethinking supply chain, as all were burned by shortcomings in sourcing materials.
Schechter: I will never underestimate the importance of duplicative supply chains in the future. I think a lot of businesses ended up moving to one supply chain to reduce cost. And a lot of companies were using the same supplier which enabled the cost to go down even lower. What you learned through the pandemic is suppliers are hard to find, and you can't gear them up fast enough when you need them. The second thing is that you might look at your supply chain and look at the big pieces of it. But you have to look at every single piece of it. Who would have ever thought a nasal swab could be a rate limiting step? Turns out almost every nasal swab was coming out of one factory in Italy. You also have to have capacity available, we were running at 80% to 85% capacity on our machines. So we didn't have excess capacity when the pandemic hit. And I would say the last part is that you should have a way to have stockpiles. In the vaccine world, a lot of governments around the world will stockpile vaccines so that if there's a breakout they have it readily available. The thing about stockpiles is you can't buy them and have them sit there. You have to use them and keep replenishing the stockpile. You really have to be thoughtful on how to build those.
Martha: Very similar to Adam, we had a ventilator mask that came out of Italy, and we had trouble getting it because Italy was hit so hard with COVID. On the duplicative suppliers, we learned this lesson a couple of years ago, because we are heavily concentrated in Puerto Rico and when Hurricane Maria hit Puerto Rico, it knocked out the power. So you have to think creatively about what can go wrong, with for instance climate change. The other thing is geopolitical tensions are rising around the world. So I think supply chain resilience is a bigger topic than it's ever been. And one more thing: I don't think it makes sense to go back to nationalistic supply chains. Sometimes people talk about that, and it can sound good in certain contexts. But it doesn't make sense, because you're going to hurt the capabilities of the supply chain and the cost is going to go way up.
Donigan: We have had crazy supply chain issues as well. The first big freakout we had as an industry was that 80% of the generic drug supply comes from India. We were all flipped out about that, but even with everything going on with India, right now, it didn't materialize as an actual disruptor. Still it really was scary when you realize how central to one country the entire world's generic supply chain was. And then one thing that did happen was that new uniforms for our associates were stuck on a boat for like a year. They were in a crate on a boat, but we couldn't get it. And I agree with you Geoff, I don't think we're going to put all of this supply chain into one country, it would be economically infeasible.
Because these companies rapidly expanded or plunged into new lines of business and new products, some fallout was inevitable, particularly as the pandemic has abated. But the CEOs say they have no regrets.
Martha: We ramped up ventilators thinking that you're going to need them for a long time. We ended up writing off some of this investment, but we didn't want to be the company that was thinking about profits before patients. And so we're in a fortunate position that we're financially healthy and could do that. When we had to make some decisions recently about writing off some of this, that came to me, but the decision to ramp up, this was done down in the ranks, and that's the way it should be.
Donigan: On a much more mundane level, we just had to write off about $5 million worth of hand sanitizer. Everybody just stocked up on this stuff that was flying off the shelves, and then they figured it out, well, it doesn't really help that much. So then we end up with all this hand sanitizer.
I closed by asking the CEOs about the future and all three talked about how digital transformation would play a central role.
Donigan: First for employees, we've declared July 4 Independence Day from masks for our vaccinated associates. Because up till then we actually have been requiring everyone to wear a mask. So I'm just so grateful for the vaccine. It really allows us to take a deep breath and not be so fearful especially for people who are out there in the public all this time. I don't think you realize the amount of internalized stress that you're dealing with, thinking that you can catch it any minute.
Serwer: Heyward, I should tell you that I got my vaccine at Rite Aid in New York City.
Donigin: That makes me very happy.
Serwer: It made me very happy too! The pharmacist was great. I saw him interacting with people coming into the store. He was talking to people; some were scared, some were happy. That must be a sea change in terms of interacting with people.
Donigan: Well, it's not by accident. We spent the last year working with pharmacists and pharmacy technicians to radically change workflows in the store, with the end goal that we free up the pharmacists’ time for dedicated six hours a day to do nothing but consult with customers.
As for the business, it's digital first in every way other than the interaction that you described with your pharmacist. No one else has as much interaction with customers in health care. Our pharmacists meet with them about 30 times a year. But we need the surround sound of everything digital. So for example, when I have a prescription, I go on to the app, and I refill the prescription or I get the prescription filled, I pay for the prescription on the app. And then I actually can go and pick it up in-store and consult with the pharmacy if necessary. Consumers want that really easy, seamless experience.
Schechter: I think one of the unintended consequences of COVID is that people weren't diagnosed for things like cancer, for diabetes, for other significant health problems. And therefore, when they ultimately do go back for their checkup, it's going to be further along than it would have been if it were found earlier. So I do think there will be unfortunate health care consequences. That's why we encourage people to go back to their health care system, go back to their physicians, get their checkups, their screening, and so forth. Because for a while that was, you know, about 50% to 60%, lower than normal. I'm very optimistic about getting through COVID though.
I read an article recently that said, if you're asked if your company is a technology company and the answer is "no," it's because you haven't yet figured out that your company is a technology company. I think digitalization is critical to our future, the way we interact with our customers, the way they interact with us in areas like home collection. But I think data analytics and artificial intelligence are even more important to the future. If you look at the biggest issue I think our kids and grandkids will face is that health care costs as a percentage of GDP are too high, whether it be in this country where it's 17%, Europe averages at 12%, even China's at six or seven, but it's doubled. And I think the best way to reduce health care costs is through data analytics and digitalization. If we could get everybody aligned across the health care system, we can actually reduce costs and give better quality care.
Martha: On the recovery, in the United States, we're pretty much back to normal, China, we're back to normal, Europe's coming. But emerging markets like India and parts of Southeast Asia and Latin America, that's a little bit of a wild card. In terms of digital, I agree that machine learning, big data and AI are gonna change the game; improve outcomes, improve access, and lower costs at the same time. And you've got the convergence of massive improvements in traditional fields like mechanical engineering, electrical engineering, batteries, implantable batteries converging with machine learning and AI. Let me give you an example. This will be your colonoscopy in a few years, this little pill, [holds up pill-shaped object.] You swallow this thing. It's imaging technology and takes images of your bowel and your colon and sends that image to your phone beamed up to the cloud. And in the cloud, we run AI against this imaging, and it determines if you have polyps or not, and then that is sent down to your physician. If you don't have any kind of polyps or cancer, you don't have to come in for a number of years. If you do, then they'll bring you right in. Less than three out of 10 people, when they go get their colonoscopy actually have to have something removed, so with this technology you're creating a ton of capacity in the health care system, and you're opening up colonoscopies to people in countries like India that just don't have that kind of infrastructure. I can give you 20 more examples just like this, of how digital technology is transforming health care. We can bend this cost curve and drive up access, which is such a big issue. Inequity is a big issue which the pandemic highlighted. Technology is the path forward.
That and a little heroism too.
This article was featured in a Saturday edition of the Morning Brief on June 26, 2021. Get the Morning Brief sent directly to your inbox every Monday to Friday by 6:30 a.m. ET. Subscribe
Andy Serwer is editor-in-chief of Yahoo Finance. Follow him on Twitter: @serwer
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