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Theranos, Obamacare and Robots Doing Surgery: Talking With Johnson & Johnson Executive Sandi Peterson

"At the end of the day, consumers are going to demand a different kind of experience."

Gil C / Shutterstock

2015 was a coming out party for health tech in Silicon Valley in many ways.

On the one hand, you had major players like Apple pushing out health-tracking devices like the Apple Watch, and signaling that more health tech investment is on the way. On the other, you had the curtain pulled back on medical tech startups like Theranos, revealing that the bar is pretty high for venture-funded projects to succeed in that space.

Sandi Peterson is the Group Worldwide Chairman at Johnson & Johnson, the consumer and health goods company that has been around for more than a century. In a conversation with Re/code earlier this week at the J.P. Morgan Healthcare Conference in San Francisco, Peterson gave the incumbent’s take on how Silicon Valley is changing medical practices and technology worldwide.

Peterson has quite the portfolio; she’s responsible for two-thirds of the employees across J&J companies, and she oversees all consumer business; the consumer medical device business; health and wellness; tech business and partnerships; supply chain management; global design; and operating infrastructure. In a wide-ranging conversation, she discussed the ways that Obamacare weaves technology into the health care system, how to work with regulators and more.

This interview has been edited for clarity and length.

Re/code: Johnson & Johnson is over 100 years old, and most people don’t think of it as a major tech player. What kind of investments in tech is the company making?

Sandi Peterson: Because of the breadth of what we do as a company, we think about using tech to enable better access to patient information. We go from baby powder to biologics. We have a large health and wellness business, we’ve started the Human Performance Institute to research individual health choices, and one of the historical challenges is, “How do you serve this information to a person?” You couldn’t do it well until five or six years ago, with the advent of mobile tech, machine learning, data and sensors.

Can you talk about your partnership with Google to launch a company focused on robot-assisted surgery?

It’s one example of many things we’re doing. A simple way to think about the partnership is that if you go to the best hospital in the world with the best-trained surgeon, they’ve had lots of surgical training that the average surgeon hasn’t. Johnson & Johnson was the first company to create minimally invasive surgery, this is the next evolution. How can you do robotic-assisted surgeries to help people have the same standard of expertise?

 Johnson & Johnson’s Sandi Peterson
Johnson & Johnson’s Sandi Peterson
Rebecca Greenfield / Fortune

What are other technology-oriented partnerships you’ve entered into, aside from Google?

Well, we made an announcement last spring with IBM and Apple on what we call planned surgical [procedures like knee and hip replacements). We’re creating an end-to-end process to bring tech knowledge and expertise to that whole experience, connecting it to patients’ records. There are a ton of different things we’re doing with insurance companies, as well.

Last year, there was a lot of controversy centered around Theranos and its technology struggles, which has prompted a larger conversation about Silicon Valley’s push to get into medical technology and dealing with regulation. As an incumbent, how do you view these tech industry efforts?

There was another set of tech companies in the dot-com era that said they were gonna revolutionize health and wellness, like Healtheon. You probably don’t remember it. The reality is that unless you understand the regulatory environment and payment structure, you can’t revolutionize it. I think most tech companies and startups have come to this realization, that you have to partner with people in the ecosystem. You have got to do it together, and we have lots of partnerships with tech companies and startups to make this work.

What do you think are the health technology plays from established companies like J&J that don’t get talked about enough?

Last week we announced that we created the first ever health and wellness accelerator, in partnership with [tech investor] Plug and Play. In typical accelerator fashion, we’re gonna have a bunch of early-stage companies, and the ones that make sense, we will fund. We’ll provide coaching and counseling to support independent companies. It’s a huge opportunity to use tech solutions that are more people-specific, like actually providing patients with data information to treat things like diabetes and mental health.

Companies like Apple and Fitbit are moving more and more into personal health with devices like fitness trackers and software that monitors user information. How do wearables and similar tools fit into your approach?

We work with wearables — Apple, Fitbit, etc. — we work with all of them. We integrate them into our scientific and clinical knowledge, and make things like our seven-minute workout app. We work with those guys, and there’s a level of directional improvement these devices can enable people to have, but you’d never be able to use them to diagnose or treat them. But based on clinical work we’ve done, if you can get people to change their lives — more sleep and mobility — that does have a causative impact. It’s not going to diagnose or cure a disease, but it is going to help people get better.

We’re using this technology and more devices to treat what happens when you get a knee replacement. You have go to therapy and move. But how many people actually do that? People who don’t understand health care will declare I’m gonna solve Problem X, and they won’t solve Problem X, but you’ll create an enablement that can help. The average person under 35 does not tolerate the way health care is delivered in this country.

They want to make it like calling an Uber.

Yes. They want to know “Why can’t I make it seamless and frictionless, to make it like the other parts of my life.”

How are you using technology to improve the outcomes of people in poverty who aren’t in hubs of technology, like say, Biloxi, Mississippi?

We’ve seen this work really effectively, except in certain pockets of blackout in the U.S. The access to mobile technology allows us to deliver information and care, whether they’re in a northern village in India or in the Amazon in Brazil or in Biloxi. It provides better access and info than they would have had. The concierge kind of service is for upper stratosphere, but given what we can do with this tech, we can provide better access to people who don’t have that level of income or infrastructure.

With all of the tech industry investment coming into health care, is J&J at risk of falling behind the health technology curve?

As an incumbent, we’re leading this change, it’s not a negative. Given how we reach people and what we do, we have relationships with all the tech companies. We’ve got access to technology that’s much broader. And because of changes from the Affordable Care Act, it has had an impact how care gets delivered, how it gets cared for. Changes in some of the sciences is changing these things as well. But at the end of the day, the consumers are going to demand a different kind of experience. We’ve seen significant changes in insurance, we’re seeing the same in hospitals — my view is that within the next five years there will be a substantive transformation in the U.S. health care ecosystem. It’s in process.

How has the Affordable Care Act affected the way technology is implemented throughout the health care ecosystem?

One of the big things is connected to reimbursement. Take knee replacements. In the old days, if you had a knee replacement surgery, you’d get a bill of labor and materials, a line item of various people and surgeries and rates and so on. And your insurance company would have contracted with them, and you wouldn’t have to pay out of pocket. Now the way the Centers for Medicare & Medicaid Services (the regulatory authority) work, if you’re gonna have a knee replacement, we’re gonna pay the hospital a flat rate for that. And the hospitals and providers have to think about “How do I optimize that surgery so that we get the positive outcome, so that the patient won’t have to be readmitted because something went wrong?”

There are already significant changes where technology can make a difference. Six months before you have a surgery, we start interacting with you to prepare for the surgery. And post-surgery, we are monitoring what’s going with you. All of our knowledge and expertise is being deployed through technology to do that, in and out of the health care system.

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