A new generation of hospital chief executives took the helm this year. Call them the Class of '94.
Healthcare reform may have crashed and burned in the nation's capital, but 1994 was the year that market-driven reform uprooted and transformed the way hospitals do business. During a year of tumultuous change, some hospital boards hired a new crop of executives to lead them into the future.
The changes in healthcare leadership raise important questions about how these new executives will address the next stage of healthcare reform, the skills critical to their success, and the directions in which they will lead their hospitals, physicians and employees.
To find out the answers, MODERN HEALTHCARE and Ward Howell International, an executive search firm, surveyed hospital and health system executives who had been in the top job for a year or less. The poll was not a scientific one, since the names were culled from MODERN HEALTHCARE's "People" section and other sources. Even so, 55 new presidents, chief executive officers and administrators responded to the survey, a large enough group to identify some trends about this next generation of leadership (See chart, p. 40).
For example, these new executives are probably ahead of the curve in terms of skills needed in the new environment. The survey showed that half of them had experience in capitated contracting, 63% had experience in developing physician-hospital organizations, and 30% had experience in operating managed-care organizations.
These are skills that will be highly desirable under a reformed healthcare system, experts say.
However, tomorrow's crucial skills may be a problem for traditional hospital CEOs. Even if they've been successful in the past, they may struggle when asked to lead a new integrated healthcare system.
"Whenever there's a major switch in paradigm, the winners in the old become the losers in the new," said Gloria Mayer, 49, who last year was named president of Friendly Hills Healthcare Network, a La Habra, Calif.-based healthcare system.
Considered a model integrated delivery system, Friendly Hills contracts at full risk with more than 24 HMOs and serves more than 100,000 patients. The system includes 160 physicians and a 274-bed hospital. In August, Caremark International agreed to purchase Friendly Hills in a deal valued at more than $125 million (Aug. 15, p. 6).
"I look at hospitalization as a failure of the system," Ms. Mayer said, adding, "If you look at `How can we get the orthopedists to admit here?' that doesn't fit."
It may not fit now, but for years many hospital administrators salivated over luring the business of high-priced physician specialists.
Adjusting to change.Indeed, it could be argued that when Medicare ushered in DRGs in 1987, hospital CEOs had to adjust to the fact that the cost-plus days were over and it was time to focus on length of stay, cost-accounting and scrutinizing the DRGs that were most profitable.
Then, as managed care began to evolve, CEOs needed to add a new mix of skills-dealing with discount-seeking PPOs or negotiating with an HMO.
Now, with another twist of the paradigm, the market demands are shifting again. Consolidation is sweeping hospitals into even larger systems, investor-owned chains are obsessed with acquisition fever, primary-care physicians are the hot commodity, and payers are talking about capitation.
"The No. 1 priority of this hospital is to recruit new primary-care physicians," said John Hummer, 29, who became administrator of River Parishes Hospital in 1993 in La Place, La., a New Orleans suburb.
In the New Orleans area, nearly one-fourth of the 25 hospital CEOs were appointed within the past 12 months, perhaps an indication that turnover throughout the country is spiking upward this year. Nationally, in 1993, hospital CEO turnover was 13.9%, the lowest since 1990, according to the American College of Healthcare Executives.
In 1987, the first year for which ACHE collected turnover figures, turnover was 24.2%.
Sharing power.Most CEOs surveyed mentioned team-building skills-the ability to get diverse groups to collaborate. "You have to be able to share power; you have to be comfortable in not getting the credit," said Richard Davidson, president of the American Hospital Association.
To succeed in the future, CEOs must be comfortable working in a collaborative environment with physicians, community leaders, employees and payers, Mr. Davidson said.
Perhaps that's why several CEOs in the MODERN HEALTHCARE/Ward Howell survey responded that they viewed themselves as "less autocratic" than the top executives of a decade ago.
The AHA's Mr. Davidson noted that in the traditional hospital, management styles could vary and still succeed. "Sometimes, an autocratic style worked," he said. "But, in the new era, you absolutely cannot function as an autocrat."
Getting employees and management to work together was a goal of Gary Rhoads, 40, who was hired last year as CEO of Lock Haven (Pa.) Hospital.
Mr. Rhoads was brought in when Lock Haven's board contracted with Quorum Health Group, a Nashville, Tenn.-based hospital management company, to operate the financially struggling hospital. Lock Haven had been managed by the same administrator for 35 years, and Mr. Rhoads soon realized he had to turn around employee perceptions and responsibilities.
In the past, employees' attitude was "cover your rear end," Mr. Rhoads said. "We turned the organization chart upside down." He added that the hospital implemented a continuous quality improvement process to get employees to solve problems together. He began asking employees, "What would you do? What do you recommend?"
He also formed a committee to sponsor activities outside the work setting. Interestingly, the committee's first idea was an employee softball game. The teams were management vs. employees, most of whom are unionized. Although the hospital's 400 employees saw their jobs as an us-vs.-them proposition, Mr. Rhoads believes their view is starting to change.
Collaborating with other providers also may come more easily to new CEOs. When Mr. Hummer was hired last year to lead River Parishes Hospital, one of the first things he did was march down to his nearest big competitor-East Jefferson General Hospital-to talk about an affiliation. East Jefferson is in Matairie, La., about a 30-minute drive from River Parishes.
"When I started looking at the market, it became evident to me that East Jefferson should be a partner," said Mr. Hummer. "We're for-profit and they're not-for-profit, but these days that doesn't make any difference."
River Parishes is owned by Universal Health Services, a King of Prussia, Pa.-based investor-owned chain, that recruited Mr. Hummer away from a Hospital Corporation of America hospital in Denton, Texas.
Mr. Hummer saw that his community hospital could partner well with East Jefferson's tertiary-care focus. What's more, River Parishes had plans on the drawing board to build a $4 million, three-story medical office building, but to make the building viable, he needed more physician tenants.
Thus, East Jefferson specialists will see patients from River Parishes, and they'll use office space on a time-share basis in River Parishes' new office building.
Partnerships also include working within the community, some CEOs said.
After Barbara Saylor was promoted to administrator of 48-bed Tuality Forest Grove Hospital in Forest Grove, Ore., last year, she focused on that goal. "We weren't real active in supporting the community," said the 39-year-old, adding that she got involved in the town's business and citizen organizations. The hospital also started sponsoring education events for the schools of optometry and physical therapy at nearby Pacific University.
Gregory Banasynski, president of St. Francis Hospital, Milwaukee, also focused on community partnerships. He formed a speakers bureau comprising the hospital's eight managers and urged them to join more community groups.
Promoted from chief operating officer to president eight months ago, Mr. Banasynski, 40, advocates social accountability statements that explain how much the hospital is spending on charity care.
"We owe it to the community to give back," he said. St. Francis spent $1.1 million on indigent care in 1993, part of the estimated $8.3 million it spent on community benefits. The hospital's 1993 revenues were $82.5 million. It had net income from operations of $2.4 million.
Before joining the hospital three years ago, Mr. Banasynski was senior vice president of a Milwaukee HMO for three years. That's helped him in working with physicians, who he says sometimes view managed-care organizations with a "jaundiced eye." He adds: "They know my background, so they know what I'm telling them is valid."
Looking within.Although CEOs know they have to look outside their own organizations to survive, they know they can't take their eyes off hospital operations.
In the survey, new CEOs said their boards will judge them most on the bottom line. Not surprisingly, hospital operations was the task on which new CEOs spent the most time.
"It's a bit of a dichotomy because, to survive, they're going to have to develop relationships outside of their hospital," said Fred Halstead, a partner in the Dallas office of Ward Howell.
Still, the bottom line is uppermost in the mind of John J. Ferry Jr., M.D., who was hired eight months ago to head Southampton (N.Y.) Hospital. A pediatrician who formed a community hospital network while at New York Hospital-Cornell Medical Center, Dr. Ferry knows his network-building skills were important to him getting his current job.
Yet, his top priority is a financial one. In 1993, Southampton lost $2.9 million on revenues of $45 million. That led the hospital's board last December to hire the first paid full-time president and CEO in its 84-year history.
In the past the hospital's board chairman, who was an unpaid volunteer, handled the typical president and CEO duties. "He found himself totally consumed with physician relations and other issues," Dr. Ferry said. "It was becoming a full-time job."
The 42-year-old pediatrician is unfazed by the newness of the position. "I have never had a job with a predecessor," he explained.
This year, he estimates Southampton will lose less than $1 million. "We can't keep losing that kind of money," Dr. Ferry noted.
He's busy recruiting primary-care physicians, and helping to form two new regional networks, one that comprises a dozen hospitals on Long Island and another that unites hospitals in Connecticut, New Jersey and New York.
New CEOs may be agents of change, but the message they deliver won't always be welcome.
For example, Peggy Brown, 36, was named administrator of San Antonio's St. Luke's Baptist Hospital in June. That's when St. Luke's Lutheran Hospital was acquired by Baptist Memorial Hospital System, the largest hospital system in San Antonio.
She essentially provided a health reform wake-up call for the hospital's employees, volunteers and physicians. All were trading the comfortable autonomy of a stand-alone hospital for the strength of a financially strong system in a rapidly consolidating market. Some weren't sure they wanted to make that swap.
Soothing the employees.Some physicians have had a "strong reaction" to the hospital being part of a large corporation rather than a stand-alone where they had more control.
"A lot of times I want to say, `Get used to it. Freestanding hospitals don't last,"' Ms. Brown said.
Like other hospital CEOs, Ms. Brown's challenge is to get physicians and employees to understand the advantages of working in a collaborative environment.
The handwriting is on the wall, she believes, noting that large systems will dominate the San Antonio market. "I think it's going to come down to a Baptist system and a Columbia system," she said. Columbia/HCA Healthcare Corp., which had four hospitals in San Antonio, recently merged with Southwest Texas Methodist Hospital, a large not-for-profit.