How many 50-year-old chief executives do handstands at employee meetings and don a musketeer costume at the drop of a plumed hat? DaVita Inc.’s Kent Thiry did all that and more after being recruited in 1999 to turn around failing kidney-dialysis center operator Total Renal Care. Thiry led a team that transformed the corporate culture and modernized the company’s information systems, leading his alma mater, Stanford University, to publish a case history on the company’s turnaround earlier this year. Total Renal, now called DaVita, relocated to El Segundo, and with extensive employee involvement developed an all-for-one, one-for-all “village” culture. Employee turnover was cut by 50 percent as the company instituted off-site DaVita Academies that sought to empower its “teammates” beyond the typical professional development workshops. In the process, DaVita’s market capitalization grew to nearly $6 billion from $200 million. DaVita’s $3.1 billion purchase of Swedish-based Gambro AG’s U.S. dialysis centers in late 2004 nearly doubled DaVita’s size. Thiry’s current challenge is guiding the company’s transition to an industry player while maintaining its closer-knit culture. The company is now on the radar of federal investigators looking at business practices among the larger players in the dialysis industry, where several DaVita competitors have paid billions of dollars in fines and settlements.
Question: How did you come to take this job after a prior stint in the industry?
Answer:
I had run another public dialysis company, Vivra, from 1991 to 1997. I loved it, but Gambro made an offer (to buy Vivra) that my board of directors couldn’t refuse. (So) three private equity partners and I bought Vivra’s managed care division, which we called Vivra Specialty Partners, from Gambro. But it wasn’t nearly the success that Vivra was. We couldn’t even return to our investors all the capital they had invested. I was not having a good time, so I announced I was resigning as CEO. I was going to take six to nine months off to be with my family and then figure out what to do with my life.
Q: What changed your mind?
A:
My assistant came in and said Total Renal Care in Torrance was calling. I had expected the call because they had just fired their CEO and I had a natural resume for the job. I got on the phone ready to give them this speech turning them down. But here’s life giving me a pitch right down the middle of my plate, with the bases loaded, and someone’s been guiding me to hit this pitch. The only negative was: I was supposed to have an off-season and it’s an away game. I discussed this with my family for about a month before I said yes.
Q: So is that why you live in the Bay Area, commuting and telecommuting?
A:
When I took this job my family said, you can do it and we’ll be supportive, but we will not move. The company then was near bankruptcy and it was being sued. If we saved it, it might be taken over. My kids were happy in school, my wife is on a number of boards up there and the grandparents live there. So I was supported, but was given a gentle nudge to the airport.
Q: Do you have a second home here in L.A.?
A:
For a long time it was at the Torrance Marriott. The company now rents a three-bedroom house in Manhattan Beach, which I and 40 other people use not all at the same time. Last week I was here three nights and I had roommates every night. Any executive who comes here on business has the ability to use the apartment. In addition, lots of our people can use the apartment with their families for a vacation if it’s not being used for business. We charge $25 a day. It fits really well with the village concept here.
Q: What lessons did you bring to DaVita from your two most recent positions?
A:
The two biggest things I learned from Vivra Specialty Partners, the failure, was humility, because I had emerged from Vivra thinking I was better than I was. I also learned a lot more about leadership, because that was a tough slog for two-and-a-half years. What I brought from the Vivra experience was potential beauty of doing frontline, hands-on health care service if you can create a community-like environment.
Q: You came into a situation where the employees were completely demoralized. What did you have to do to get these people in the right mindset for a turnaround?
A:
First off, the personal sacrifices my family and I had to make for me to take this job really turned out to be a blessing. Never before had I begun a job with as much of a sense of purpose. I had to do an awful lot of soul-searching about what I intended to accomplish and why. If I had merely come in to do a successful capitalistic turnaround, I would have come here for the wrong reasons. So from my first day, I was talking about the mission and values and a community orientation.
Q: How did your executive team go about showing people that you were serious and sincere?
A:
One example was how we picked our values. We took six months, involved about several hundred people, in groups of six, and 12 and 100. I’d tell them, ‘This isn’t about Kent and his objectives, because I’m not even going to be in the room. It’s about whether you want to participate in this process with your co-workers.’ Every six to eight weeks, I’d get on the phone to give them an update about where things were going with the company, because people were wondering whether we were going to be bankrupt or not, and if the government was going to put bunch of people in jail.
Q: Did employees take this values building seriously?
A:
One question I’d always have to answer was, what concrete steps had I taken that was moving us forward with our mission and values, and how had it turned out? That gave me a lot of incentive to really focus, because I’d be publicly humiliated every six weeks if I didn’t have a good answer.
Q: I hear you have a chief wisdom officer that everyone calls Yoda.
A:
In a normal company, Doug Vlchek would be some combination of vice president of human resources, vice president of communications and vice president of training. But we gave him this title because if you’re going to have a healthy, sustainable community, you’ve got to have wisdom. I spent a year recruiting him. We’d worked together at Vivra. He was in the process of becoming a deacon in the Catholic Church, so I was competing with God.
Q: Where did the concept that a company can be a village come from?
A:
I was raised in a small town outside Milwaukee. In small towns, there’s a shared sense of accountability. You take care of each other and you’re responsible for keeping the village healthy. We have this DaVita Village Network, by which can we help each other when a teammate has a family or personal challenge. Any time a teammate takes an after-tax dollar out of their pocket to help another teammate, the company at the very least matches that and sometimes gives more.
Q: What logistical challenges do you have in getting people on board when most employees work in small clinics scattered around the country?
A:
It was a core question for us in the early years, and even more so now with the Gambro acquisition. We now have 1,300 separate locations, each small. People don’t have their own cubicles. Most people don’t even have their own e-mail address or phone extension at work. They work different shifts so you don’t have everybody here at the same time. You can’t call a meeting because you can’t leave the patients. We did a number of things, one I don’t believe that any other American health care organization does. We send every one of our teammates to training.
Q: How does it work?
A:
Every single teammate gets two days off to come to our academy, where we do a company update, talk about interpersonal skills, self-awareness, confidence, conflict resolution, and our mission and core values. The message is that here are tools you can use to take control of your own destiny, at work and outside of work. You alone will help determine whether your local clinic becomes part of the village, and whether the employees become teammates as well as citizens. You will determine that, not us.
Q: How did people respond?
A:
For many of our people, they’d never been to anything like this. Ninety percent of our technicians have never been to college and haven’t had an employer make this level of investment in their personal and professional growth. Everybody can be a leader in their local clinic, but only if they are given the tools. The academies are one of the most powerful things we did. We had 18,000 people go through Academy 1 and now we’re in Academy 2.
Q: When did you know the message was starting to sink in?
A:
I knew we were getting serious traction when I would get an angry letter or e-mail from someone who was quitting, or being terminated, and they would say, “KT, I’m quitting because I’m disgusted with my local center. This local operation is bad in the following three ways However, I know that what’s going on here is not consistent with the village’s overall mission and values, so I wanted you to know that this is broken and I hope you will fix it.”
Q: How did you convince your board that the academy was worth the investment?
A:
We spend millions of dollars on this every year, and as you can imagine, in the beginning the board was mildly skeptical and wanted to know how soon this program was going to increase productivity or increase referrals by doctors. We had to tell them that wasn’t the primary goal, though those things might happen in the long term because our quality of care would go up.
Q: And has that happened?
A:
In the second year we started getting significant reductions in turnover of staff and significant improvement in clinical outcomes. Before we bought Gambro, we had the highest non-acquired growth in the industry by far. Part of the growth, we know anecdotally, was due to physicians coming to prefer our clinics.
Q: How does this all fit in with the fact that your company is currently under investigation by the Department of Justice?
A:
In my seven years here, we’ve been investigated a few times and we are the only company that’s never had to pay any significant fine or settlement. In fact, we had to go through one four-year investigation, which has ended up with the government paying us money, reimbursements that they had withheld. It was a lab investigation and we won six successive judgments in administrative law courts.
Q: What are the circumstance of the requests for information that you’ve received from the Department of Justice
?
A:
Those were at least two cases. They sent these letters, these request for information, to everyone in the industry. There was one case in which they thought centers were not making one drug available versus another. As far as DaVita is concerned, we’re proud of our clinical protocol process and believe our formulary exception process gives doctors the ability to prescribe the drugs they want.
Q: What’s the other case?
A:
Then there was another case in which appears that someone went to the U.S. Attorney and persuaded them that many, many providers had all gotten together and decided to use a test (of thyroid hormones) that didn’t work well, and that we chose to do that because the scores would be lower and that would be an excuse to provide more (Vitamin D) drugs to the patients. As far as our company is concerned, we believe we were using the best test available and that the government will conclude the same thing as soon as they process through all the data.
Q: Do you think your corporate culture makes it less likely for a pervasive problem to develop?
A:
We are, internally, very transparent about all of our clinical practices. Before we come out with a clinical protocol, hundreds of the physicians we work with have the opportunity to give their opinion. An independent council of physicians looks at all the best available evidence. Second, if anyone ever thinks that at one of our centers, someone of practicing economic medicine instead of clinical medicine, we have an anonymous hotline for any teammate to immediately report it to our corporate compliance department.
Q: What else has the company done?
A:
Since I came, we’ve increased our spending by at least 500 percent on compliance. Making sure we had the right resources to comply with all appropriate laws, regulations and accepted principals of governance. In respect to drug formularies, it’s there for advisory reference. The doctors in the end write their own prescriptions. If they want to use a drug that’s not on our formulary, we have a very responsive exception process and a very high percentage of exceptions get approved. Last time I looked it was over 80 percent.
Kent Thiry
Title:
Chief Executive
Company:
DaVita Inc.
Born:
Milwaukee, 1956
Education:
B.A. in political science, Phi Beta Kappa, Stanford University ; M.B.A. with honors, Harvard Business School
Career Turning Point:
Becoming chief executive of Vivra Renal Care; that was his introduction to the dialysis sector
Most Influential People:
Denise O’Leary, his wife; she’s a former venture capitalist who sits on several corporate and philanthropic boards. Bill Price, Stanford classmate; he’s a founding partner of Texas Pacific Group. Robert Worth, a former high school teacher who was student council
advisor when he was council president.
Personal:
Lives in Woodside with wife Denise and two children, Mathew and Christine. Commutes to Los Angeles area a couple of times
a month.
Hobbies:
Mountain biking, Bikram yoga, reading historical biographies
