A new wave of CEO departures has started building in recent weeks, as revenue problems continue to mount and federal officials attempt to shrink federal payments that might reliably bring in at least some cash.
A retiring bunch
Major issues like financial pressures, healthcare legislation can sometimes send CEOs scrambling for the door
The confluence of pressures from lawmakers, auditors, bondholders, debt insurers, unemployed patients and everyone who is delaying care is likely to squeeze even more top healthcare leaders from their posts before the trend subsides, observers say.
“When the hospital situation turns ugly, the first person that takes a hit is the chief executive,” said Stanley Hupfeld, the outgoing president and CEO of 12-hospital Integris Health, Oklahoma City. “That will be the first thing, and that will probably precede consolidation.”
Hupfeld spoke about general industry trends, not his personal situation at Integris. He has been a CEO with the system and its predecessors since 1987, which puts his 22-year run as chief executive well beyond the short shelf life of most healthcare CEOs. Data from an upcoming study by researchers for the American College of Healthcare Executives confirm the long-held finding that the average career length for hospital and health system CEOs is still five to seven years.
Some observers said the uncertainty that is bound to come from the reform movement is driving an increase in CEO departures, while others said financial pressures on systems and hospitals are prompting more changes. Others said pre-existing demographic factors, like the approaching onset of retirement age for baby boomer-era CEOs, are still the prime factors at work.
Hupfeld, who turns 65 this month, said his decision to move into semi-retirement as chairman of the Integris Family of Foundations was not directly motivated by the impending sea change of federal reform legislation. “That didn’t necessarily influence my decision. But it didn’t make it harder,” Hupfeld said. “The job is going to get extremely more difficult in the next several years. It’s always been a hard job … but I think it’s going to get particularly so.”
In the second half of June alone, more than a dozen healthcare CEOs announced departures or formally retired, including: Ed Dahlberg, 61, retiring as CEO of three-hospital St. Luke’s Health System, Boise, Idaho, effective next March; John Ferguson, 60, retiring as president and CEO of Hackensack (N.J.) University Medical Center, effective July 1 (June 22, p. 16); and Ellen Guarnieri, who is in her early 50s, president and CEO of 270-bed Robert Wood Johnson University Hospital at Hamilton (N.J.). (See the accompanying chart for more.)
The trend is not limited to health providers. H. Edward Hanway, 57, chairman and CEO of Cigna Corp., Philadelphia, announced his retirement effective in January, and Boston Scientific President and CEO Jim Tobin, 64, announced his resignation, which will be effective July 13.
It was not clear how many of those departures were involuntary, though data on CEO careers suggest at least some of them were. In a 2005 survey of healthcare executives published by the ACHE, CEOs told researchers that about half of all their predecessors had been terminated involuntarily. The final report on the survey noted: “As might be expected, CEOs reported a higher involuntary departure rate for their predecessors than for themselves.” Only one-third of CEOs said their last departure was involuntary. University of California at Irvine professor Margarethe
Wiersema has written in the Harvard Business Review that the phrase “early retirement” that turns up in many departure announcements is “almost always a euphemism for a forced removal from office.”
Despite the June departures, some observers were unconvinced that a spike in CEO changes is taking place. Thomas Dolan, the ACHE’s president and CEO, said surveys have shown that healthcare providers average about 675 CEO turnovers per year, which is almost two per day. “If there’s a trend, I can’t discern it. I think it’s just random chance,” Dolan said.
But Marie Sinioris, president and CEO of the National Center for Healthcare Leadership, said her research shows that CEO turnover among American companies is at an “all-time high,” and that polls show healthcare is leading the way in booting out its top leaders—a trend she decries as inefficient and potentially dangerous for providers because of the serious challenges that likely will result from the reform movement. “This is not a time to have disruptional leadership,” Sinioris said.
“In tough economic times, you do see higher turnover. There is more pressure on boards and bondholders and others in terms of performance,” Sinioris said. “On the other hand, we’ve anticipated for awhile that there is an aging in our CEO ranks.”
Demographic surveys generally find two types of healthcare CEOs: those who change jobs every few years and those who stay in one place for decades.
Stephen Walston, an associate professor in the University of Oklahoma Department of Health Administration and Policy who is working on the upcoming CEO tenure study for the ACHE, said many of the short-tenured CEOs work in for-profit systems. Explaining the trend, Walston drew on his research and his personal experience at hospitals as a former “serial CEO.” He said he held a string of top jobs at for-profit hospitals, including his final healthcare job at an HCA provider in the Western U.S. “There is a lot more short-term pressure,” he said. “It’s more of a single characteristic to look at to promote or fire, and that’s profit. If you don’t make it, you’re out of luck,” Walston said.
William Corley, 66, outgoing CEO of five-hospital Community Health Network, is in the category of long-tenured leaders, approaching 25 years at the Indianapolis-based not-for-profit system. He said he’s no stranger to dealing with upheaval, beginning his career at the network just as Medicare was moving to DRG payments and HMOs were becoming popular. But he predicted that the CEOs who hop from hospital to hospital are more likely to retire in coming months, before legislative reform envelopes the industry.
“You will have more of those guys retiring, because they don’t want to go through another three-year or four-year stint somewhere,” Corley said. “Every time you move, developing all those relationships with people in an organization takes at least 18 months.”
Many of the departing CEOs this month declined requests for interviews, and those who agreed tended to have long tenures and ages closer to 70 than 50. Several common themes emerged in interviews with them. They say they’re confident in their leadership teams and were anticipating large construction projects or long-term planning ventures that their successors were better-suited to handle.
“I’ve talked to people of my vintage. You know what I hear? They’re all tired. So I’m not surprised to hear that many of them are leaving,” said Edward Eckenhoff, 66, president and CEO of National Rehabilitation Hospital, Washington, who is retiring effective Oct. 1. “If you’re doing your job and doing it well, the pace of it gets to you when you get to be 66 or 67. I just don’t want to be unfair to the organization.”
The CEOs also tended to bristle at the suggestion that they might be using their retirements to get out before the industry became more difficult under reform legislation or a more-protracted recession. Eckenhoff noted that he was only too glad to accept an offer from his board and parent company MedStar to remain on several board committees and continue using his Washington connections to help the rehabilitation hospital. “I’m not jumping ship just because I see some storm clouds coming in. No way,” he said.
Bob Clarke, CEO of Rockford, Ill.-based executive search firm Furst Group, said that despite any recent uptick in CEO changes, many other executives are still delaying their retirements in an effort to rebuild their shrunken 401(k) accounts. And he said many boards are not encouraging retirements because they want their experienced leaders on board when the reform hits amid all the negative effects of a recession. “It’s reform, but it’s on top of tremendous chaos in the financial markets, which make people use services less,” Clarke said. “Sitting in the chair doing the same things for 30 years, that’s not going to work right now.”
Tim McCormick, 63, president and CEO of Unity Health System, Rochester, N.Y., announced his retirement in April after working 30 years in the top leadership spot there. He said most of his career has consisted of adapting to change, as individual hospitals in his competitive market merged and sometimes closed in response to shifting conditions. Today the system—which is anchored by 441-bed Unity Hospital—has largely diversified away from acute care to keep pace with the times.
He said perceptions that the upcoming reform movement were going to drastically alter the industry for the worse ought to be seen in perspective.
“I think every generation of people sees their local circumstances as very difficult and getting worse. I think that’s human nature. Is it going to get worse? I don’t know. They’re talking about throwing a ton of money into this industry,” McCormick said. “I don’t think you can be successful in this business as a CEO if you’re not somewhat optimistic."
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