Scott Anderson has been president and chief executive officer of North Memorial Health Care for 22 years and plans to continue leading the 449-bed hospital in Robbinsdale, Minn., well into the future.
"We have a well-controlled environment and a supportive board of trustees," said 63-year-old Anderson. "We are largely able to determine our own destiny."
Anderson's lengthy tenure reflects a growing trend among hospital CEOs: More of them are staying in their jobs. In 2002, turnover among hospitals' top executives reached its lowest level in eight years, according to the American College of Healthcare Executives' annual survey of hospital CEO turnover. The findings were first reported in the April 22 edition of Modern Healthcare's Daily Dose.
The sluggish economy is playing a key role in the turnover trend, observers said, and hospital boards also are not as trigger-happy and tend to give CEOs more time to improve performance at their hospitals.
Last year, the turnover rate for hospital CEOs was 14%, the lowest since 1994 when it also was 14%, according to the Chicago-based ACHE. The organization has been tracking CEO turnover since 1980 and uses information reported to the American Hospital Association to calculate turnover statistics. The turnover rate in 2002 was slightly higher than the all-time low rate of 13%, reported in both 1983 and 1990.
Gail Warden, retiring CEO of Henry Ford Health Systems and a board member of the National Center for Healthcare Leadership, declined to comment on the ACHE study. Marie Sinioris, executive vice president and chief operating officer of the NCHL, an organization created to nurture future leaders, also declined to comment.
Several factors affected the turnover rate in 2002, healthcare executives said.
Harder economic times and a different environment after Sept. 11, 2001, probably are keeping some executives from taking the risk of accepting new positions at different hospitals, said Thomas Dolan, the ACHE's president and CEO. "People aren't as anxious to pick up roots and move. People are harder to recruit out of positions."
The increase in construction projects at hospitals could be playing a role in lower turnover as CEOs want to remain on board to see their projects come to fruition, he said.
A bearish stock market also has put a dent in investment income for many CEOs, which makes them think twice before retiring or leaving their current positions, he said. "People are a little less risk-tolerant in making moves," Dolan said.
Many executives are hoping to regroup and rebuild their investments before leaving their positions, said Tom Giella, national practice leader of healthcare services at recruiting firm Korn/Ferry International, Chicago. Executives lost money in the stock market that "they thought they could retire on," Giella said. "Now they are thinking they may as well stay on for a few more years."
The merger effect
The state of the CEO position has changed from the mid- to late 1990s, when a flurry of hospital mergers and acquisitions prompted many executives to switch jobs, Giella said. Hospital mergers also resulted in terminations of executives, which was reflected in higher rates of turnover.
In 1996 and 1997, the CEO turnover rate was 16% before peaking in 1999 at 18%, according to the ACHE. "There was an urge to merge in the late '90s," Giella said. "There were a lot of anxieties and people thought they would be out of a job," so executives aggressively searched for new positions.
CEOs also might be getting a break from their boards of trustees regarding performance issues, Dolan said. Trustees are less likely to push for changes after a year of poor financial performance.
"Trustees are understanding," Dolan said. "You can't blame the CEO every time something goes wrong at the hospital. A lot of things are out of the CEO's control, especially reimbursement."
Anderson, who reports to a 16-member board, said his relationship with the board has been made easier with the financial success of his hospital. The hospital reported net income of $21.3 million on $416 million of revenue in 2002, and $13 million in net income on $371 million of revenue in the previous year.
"The relationship the CEO has with the board is key," Anderson said. "I have carefully crafted the relationship here. They all have understood the difference between governance in trusteeship and operations and management."
Loren Taylor, North Memorial Health Care's board chairman, said the board feels confident in Anderson's leadership because he is open with board members and provides access to financial information.
"The hospital is performing well in almost any measure, which makes it easy from a governance standpoint," Taylor said. "We are not facing any financial pressures. That relieves a lot of pressure from the board."
Observers said the lower turnover rate also probably reflects the overall performance by CEOs, especially as they fight to keep their organizations fiscally healthy in the current Medicare and Medicaid reimbursement environment.
Fewer go searching
The fewer number of CEOs who are searching for jobs also means challenging times for executive search firms that are seeing their placement work slow because of a lack of CEO vacancies. Dolan and Giella said they believe there are leaders waiting in the ranks for CEO positions-it's just harder to find openings.
"I don't think there is a lack of talent," Giella said. "People are staying close to their shops."
But Jordan Hadelman, chairman and CEO of executive search firm Witt/Kieffer, Oak Brook, Ill., dismisses the concerns that there are fewer openings and calls the trend a "temporary aberration."
The hospital industry will experience "tremendous cost pressures," such as high insurance premiums, that "will result in many institutions not doing well," he said. The drop in performances ultimately will lead to more CEO turnover, he said. Hadelman also said that more CEOs are reaching retirement age, which should increase the turnover rate.
Glen Grady, CEO of 157-bed Memorial Medical Center, Neillsville, Wis., also has done his part to keep turnover statistics low. The 18-year veteran said that when executives make it to the CEO plateau after years of working their way up the ladder, they are less likely to search for new positions.
"The people who get into these jobs find them rewarding enough," Grady, 54, said. "They have to be career-oriented and aggressive to find a larger challenge."
Grady and Anderson each have turned down opportunities to leave their CEO posts for executive positions at other hospitals.
Anderson said lower turnover rates bring "a lot more advantages" and hospitals are better off with longer-tenured CEOs because organizations have stability, continuity and a consistent mission over the years. Employees also know who is in charge and have a better grasp of the management philosophy at the hospital.
By contrast, hospitals that have frequent turnover at the top often find new executives who lack the understanding of the organization's objectives and culture, he said.
Despite the lower CEO turnover rate nationwide, some states in the ACHE study reported turnover in the 20%-30% range, while three states-Delaware, Maryland and Rhode Island-reported no CEO turnover in 2002 (See chart).
New Mexico hospital chiefs switched jobs, retired or were terminated at a higher rate than those in most other states-the turnover rate was 23.6%, the third-highest in the country behind the District of Columbia and Hawaii.
Maureen Boshier, president and CEO of the New Mexico Hospitals and Health Systems Association which represents 34 hospitals, attributed the high rate to mergers and acquisitions in her state.
Denver-based Catholic Health Initiatives sold five New Mexico hospitals to Ardent Health Services, Nashville, and Banner Health System, Phoenix, sold Los Alamos (N.M.) Medical Center to Province Healthcare Co., Brentwood, Tenn. The acquisition activity was a forerunner to an increase in CEO turnover as the buyers began putting their imprints on the new hospitals, she said.
The story was quite different in Kansas where the turnover rate was 6.4%, less than half the national figure and one of the lowest in the nation, according to the ACHE. Kansas Hospital Association President Don Wilson credits a "stable CEO environment" for Kansas' stellar performance. "We have several CEOs who have been in their posts for quite some time," Wilson said. "Most of them are quite well-bonded with their communities."
Wilson agreed that the volatile economy also has played a role in the low turnover. "If (CEOs) are reasonably satisfied, the tendency is to stay," he said.
Dolan cautions that turnover rates are cyclical. Kansas was one of the highest turnover states in 2001, when 17% of its CEOs resigned, retired or switched jobs. Some states have higher rates because they have fewer hospitals and any turnover is amplified, he said.
Other states, particularly in the West, consistently have high turnover rates because CEOs tend to leave after becoming frustrated with lower Medicare and Medicaid reimbursements. The predominance of managed care, lower reimbursements and challenges by the federal government to close outlier loopholes have some states experiencing higher turnover.
"When you are not being reimbursed full costs and constantly being under stress to provide healthcare, that wears on you," Dolan said.
Anderson has seen the challenges firsthand and believes the state of the CEO position is healthy.
"Overall, healthcare CEOs are doing a marvelous job in dealing with a difficult business in stressful economic times," he said. "We are always challenged with the managed-care system. It is getting to be a much more difficult job."
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