When Doug Jackson, M.D., became the new chairman and chief executive officer of Santa Barbara, Calif.-based Monarch Health System in 1996, his first official task was to solve a management crisis.
The company's CEO, chief financial officer and chief operating officer had resigned within a few days of one another in May 1996, after the election of new board members at Monarch's annual board meeting. Jackson needed a quick fix for the rapid-fire executive turnover. He also needed experienced managers who knew how to negotiate contracts with hospitals and health systems and run Monarch's two independent practice associations. Instead of conducting his own search, he decided to bring in an interim team of experienced managers to give the company time to hire new executives and keep operations running smoothly in the meantime.
"We needed tough, experienced management, and we needed to have it right (then)," he recalls. "We needed people who could hit the floor running the first day and be sure that things got taken care of."
Such situations are becoming more common in today's tight labor market, and more companies are turning to interim management to solve their high-level hiring dilemmas, although exact numbers are difficult to obtain. Interim hiring can provide a temporary solution to the situation at hand and offer lasting results.
In the case of Monarch, Jackson, who had been on the company's board and a physician member of one of its IPAs, says he didn't seriously consider any option other than interim management. He immediately put in a call to Michael Eberhard, president and CEO of Medical Pathways, a Torrance, Calif.-based healthcare consulting firm. Within days, Eberhard had assessed the situation and assembled an interim management proposal. By June 1, 1996, an interim CFO and interim president were in place at Monarch.
Jackson says he had two agendas: First, he needed people to stabilize the company in the aftermath of the management crisis and run it efficiently. Second, because Monarch felt it was too small to compete with much larger management companies, it wanted to market itself to potential buyers. To this end, Jackson wanted Medical Pathways to value the company and solicit large medical group management companies for the sell.
As it turned out, interim management was even more gainful than Jackson had expected. With the Medical Pathways team in place, Monarch was able to identify patient sectors for which it had not been receiving proper Medicare reimbursements. The team audited the reimbursements and put together a program for retroactive payment to recover those dollars, which Eberhard says had reached the seven-figure range.
Because of their extensive experience in the field, Medical Pathways executives also were able to negotiate with hospitals, plans and specialists for better contracts as well as bring specialists in to complete Monarch's panel during a series of contracting problems. "They were able to manage our money better; it's as simple as that," Jackson says.
As a result of Medical Pathways' efforts, several organizations, including physician practice managers MedPartners and PhyCor, negotiated to acquire Monarch through fall and early winter 1996 but a buyout never occurred. Jackson says the major companies were in a retrenchment mode and the market was to blame.
To attest to Jackson's satisfaction, Monarch has extended its original six-month interim management contract until the end of this month. Jackson expects that Medical Pathways will put together some type of proposal for management on an ongoing or permanent basis. According to Eberhard, this arrangement is a bit atypical but makes sense in certain situations.
Jackson says the only challenge he encounters with interim management is communicating with team members by phone and fax rather than in person. Because his interim CFO and president are not based locally, they require more flexibility as far as their presence in the offices is concerned.
But overall, Jackson says he is more than satisfied. When asked what he would do differently if faced with the same situation again, he says: "Nothing. I would probably check out different companies, check out references and make the same decision all over again."
Monarch's financing of its arrangement with Medical Pathways is typical: It pays Medical Pathways a monthly fee (the amount of which it would not disclose) to manage Monarch, its two IPAs and other operations. Monarch is a group management company with a Knox-Keene license, which allows it to take on full-risk contracts.
While a management crisis might seem to be the most fundamental function for interim management, there are other situations in which it can add to an organization's success. In fall 1996 Ken Payne, CFO of St. Rita's Medical Center in Lima, Ohio, turned to interim management in pursuit of a different objective.
While there had been a minimal managed-care presence in St. Rita's market, the hospital's physicians felt fuller penetration was inevitable, so they decided to form a physician-hospital organization.
"We wanted to be ready for it when it got here," Payne says. "Forming a PHO was an opportunity (for the doctors) to be proactive in the development of managed care in their market." His objective with interim management was to get the PHO up and running as quickly as possible.
Payne had been working with Cleveland-based Medimetrix, a healthcare consulting firm that also provides interim management, on the organization and development of a PHO. They had reached a point where they needed an executive director for the PHO.
He says his decision to use Medimetrix's interim management services seemed the natural next step: "It was an evolutionary decision. They were helping us organize and develop our PHO."
Payne says the only alternative to using interim management would have been for the PHO to recruit and hire its own permanent executive director. This most likely would have been a tedious, time-consuming process. "If we had to go out and shop for somebody at that point, it would have been a totally different experience," he says. "It would have taken six months or longer."
However, Payne says he recognizes that his situation was auspicious because "we knew the people and their capabilities very well. I would caution that the person coming in is very well-qualified and that they're doing it with your best interests in mind instead of just filling a desk on a temporary basis."
While he says the overall relationship with Medimetrix was very positive, Payne also points out that the benefits to interim management come at a cost. "Using a consulting firm is much more expensive than doing it yourself" and hiring your own staff, he says. "Consulting fees are much higher than hourly wages or yearly salaries."
But, he says, the payoff is invaluable. "We were able to become operational very quickly," he says. "And by getting operational so quickly, we were able to solidify our market value. We were able to show payers that we are legitimate, and we were able to build and maintain that image very quickly."
And the numbers are there to prove it. More than 90% of physicians active in the community participate in the PHO. It has more than 20 contracts with third-party payers, and 45,000 lives access the network through PPO contracts.
Some insurance companies are responding to the growing interim management market with related products. For example, Kemper Insurance Cos., Long Grove, Ill., offers a product called Kemper Executive Decision that reimburses a company for locating, recruiting and paying the salary of an experienced, temporary chief executive.
The product is available to customers that have Kemper's Healthy Return workers' compensation policy and provides for up to 12 months of disability.
Reimbursement depends on the pre-existing workers' compensation premiums the company holds. For example, a company that pays between $25,000 and $250,000 will receive $300,000 in reimbursement, while a company that pays more than $250,000 will receive $350,000 in reimbursement. The only catch is the company has to sit tight through a 60-day waiting period after the onset of disability.