Calming troubled waters

Last August, Rulon Stacey's 24-year-old son-in-law, Justin Hanks, went to the emergency room for treatment of a sore shoulder. He assumed he had aggravated an old football injury.

But doctors found a malignant tumor. In November, surgeons at the University of Colorado Hospital—part of a system Stacey had recently headed—cut open his chest to remove the tumor. When Stacey and his family saw him wheeled into the OR, “we honestly didn't know if that would be the last goodbye,” Stacey recalled.

The surgery was successful and Hanks is believed to be cancer-free. But the episode personally brought home to Stacey his enormous responsibility as a healthcare leader. “Forty years ago, (Justin) would have died,” Stacey said. “It's because the people back then made the commitment to research and collaboration that kept (him) alive in 2013. I don't want to fail on that test now.”

That close-up encounter with the healthcare system occurred as Stacey was transitioning to a new challenge. In September, the Utah native was named president and CEO of Fairview Health Services, a Minneapolis-based system that includes the University of Minnesota Medical Center, with 2012 annual revenue of $3.2 billion. Fairview has been buffeted in recent years by a bill collection scandal and a fight with state officials over a proposed merger that ultimately was blocked. Now, observers expect Stacey to seek other avenues for growth as well as to spearhead a push for improved quality of care—two areas where he previously has excelled.

His move comes after spending nearly two decades in Colorado, where Stacey initially served as CEO of Poudre Valley Hospital in Fort Collins. During his tenure, the facility expanded aggressively across northern Colorado and into neighboring states and received numerous accolades for the quality of its care. The capstone to Stacey's tenure was a 2012 merger he helped broker between Poudre Valley Health System and the University of Colorado Hospital, creating a regional research and treatment dynamo.

Healthcare professionals who have worked closely with Stacey emphasize his willingness to listen, his deference to frontline workers and his obsessive focus on quality of care. The standard he established at Poudre Valley was that it should strive to be in the top 10% nationally in every measurable benchmark of care delivery. That emphasis paid off in 2008 when Poudre Valley was among the recipients of the Malcolm Baldrige National Quality Award, the only healthcare institution to receive the prestigious honor that year.

“In the end, those in the industry that are successful are those that are absolutely religious about quality,” Stacey, 53, said in an interview. “That's what's going to differentiate who we are and what we are. The bottom line will become less impactful.”

Stacey takes over at Fairview after a tumultuous period in the not-for-profit system's century-plus history. The last permanent CEO resigned in March 2012 following a nationally reported scandal over aggressive bill collection practices by a private contractor. Then last April, merger discussions with Sioux Falls, S.D.-based Sanford Health were abandoned after Minnesota public officials criticized the potential deal.

Stacey also assumes the new post as his and other healthcare organizations wrestle with the financial implications of the Patient Protection and Affordable Care Act. He argues that hospital systems would have been forced to cut costs and improve quality of care to remain competitive with or without the healthcare reform law. “What happens in Washington, to me, is just irrelevant,” he said. “It's turned into a grandstand. We do what we have to do. (We have to) collaborate more, share data more, find best practices and replicate them.”

Despite Fairview's recent difficulties, it remains financially sturdy. Revenue has increased by more than $600 million over the past five years—a jump of roughly 25%. In 2012, it had an operating margin of 3.3%, up from 0.5% the previous year. In 2012, Moody's Investors Service downgraded Fairview's bond rating from A2 to A3, in part because of management turnover and negative publicity over its collection practices. That bond rating has not changed, but last year Moody's raised its outlook for the hospital system from negative to stable.

Fairview would not disclose Stacey's salary. In 2011, he earned $1.5 million as CEO of Poudre Valley Health System, according to the not-for-profit group's tax return. His predecessor as Fairview's top executive, Mark Eustis, was paid $1.4 million in 2011.

Fairview has long been the second-largest hospital system in the Twin Cities market, behind only Allina Health. The system includes six hospitals, roughly 1,500 staffed beds, nearly 100 medical clinics and more than 22,000 employees. Between 2010 and 2012, Fairview provided roughly $60 million in charity care.

But in recent years, Fairview and Allina have seen other players encroach on their turf. Most notably, in 2012 HealthPartners took over Park Nicollet Health Services, making it the third-largest player in the Twin Cities market. In addition, largely rural healthcare systems—including Sanford and Essentia Health—have been looking for opportunities to expand into the Twin Cities.

Fairview likely will look beyond its current geographic footprint for expansion, predicted Allan Baumgarten, an independent healthcare analyst who writes the annual Minnesota Health Market Review. “I think what they're looking at is going further into Minnesota or western Wisconsin or even other states in the region,” he said.

Dave Murphy, who chaired Fairview's search committee and serves as chairman of the board, said that he's confident Stacey is the right person to lead the organization through a challenging period. “Obviously, this world is changing in a big way and we want somebody who's strategic in their thinking,” said Murphy, president of Red Wing Shoe Co.

Fairview's recent troubles began in July 2011, when a laptop computer was stolen from the vehicle of an employee of Accretive Health in Minneapolis. The computer contained medical records for more than 23,000 patients of Fairview and other medical facilities.

In response to that security breach, Minnesota Attorney General Lori Swanson filed a lawsuit accusing Accretive of failing to protect confidential health records. Swanson's office also launched a probe into the billing practices used by Chicago-based Accretive on behalf of Fairview.

The end result of Swanson's investigation was a six-volume report, released in April 2012, that lambasted Accretive's bill collection practices. It described high-pressure collection tactics that included squeezing patients to pay their bills while they were still receiving treatment in the emergency department. “Perhaps the most damaging act by Accretive was to undermine the basic premise that a hospital is a sanctuary to treat the sick and infirm,” the report concluded.

Fairview severed ties with Accretive and the attorney general's office settled the lawsuit in July 2012. The company admitted no wrongdoing but agreed to pay $2.5 million in damages to the state and was barred from doing business there for at least two years.

It wasn't the first time the hospital system has been criticized for aggressive billing practices, said David Feinwachs, former general counsel of the Minnesota Hospital Association and a Fairview critic. In 2005, Fairview signed an agreement with the attorney general's office aimed at curbing excesses. “They keep making the same mistakes over and over again,” Feinwachs said.

The Accretive debacle also wasn't Fairview's only recent tangle with the attorney general's office. Last March, Swanson raised concerns about merger talks between Fairview and Sanford that had not previously been disclosed. Swanson questioned the propriety of an out-of-state entity taking control of the University of Minnesota Medical Center.

During a hearing, Swanson grilled hospital officials about the deal and suggested that the negotiations were deliberately conducted in secret. State legislators introduced a bill to prohibit the University of Minnesota Medical Center from being owned by an out-of-state organization.

Amid the uproar, Sanford pulled out of negotiations. Looking back on the episode, Cindy Morrison, Sanford's executive vice president for marketing and public policy, argued that the potential deal got hijacked by forces beyond the control of the two not-for-profit healthcare systems. “I think what happened was medical and political agendas got involved,” she said.

Baumgarten agreed that the potential deal didn't get a fair vetting. “It was political theater,” he said.

Swanson's office declined an interview request for this article.

Stacey already has taken steps to build a better relationship with Swanson. During his first month on the job, he sat down with the attorney general to clear the air. “We've done everything we can to start out on the right foot,” Stacey said.

Stacey also said expanding Fairview isn't an immediate priority. “I've had no discussions or thoughts on what expansion there may or may not be in our future,” he said. “We've talked exclusively about what we can do to get our own house in order, and then if we think at some point in the future, in a year or two or three or five, that that's the right thing, we'll explore that.”

But if Stacey's track record is any indication, he is likely to take a bold approach to expanding Fairview's footprint.

Stacey earned undergraduate and graduate degrees from Brigham Young University and a doctorate in public administration from the University of Colorado. He started his career with the U.S. Air Force Medical Service Corps. Stacey subsequently worked as CEO of St. Vincent General Hospital in Leadville, Colo., then became COO at St. Francis Hospital and Health Center in Chicago. In 1996, he became CEO of Poudre Valley Hospital System.

In recent years, Stacey has emerged as a national healthcare leader. In 2011, he was named chairman of the American College of Healthcare Executives. That same year he published Over Our Heads: An Analogy on Healthcare, Good Intentions, and Unforeseen Consequences. Currently, he chairs the board of the Baldrige Performance Excellence Program, which hands out the national honors.

Last week, that program suffered an embarrassment when Baylor Regional Medical Center at Plano in Texas turned down the prestigious Malcolm Baldrige National Quality Award in the wake of several medical malpractice lawsuits alleging that a former Baylor neurosurgeon operated while under the influence of alcohol and drugs. It was the first time an organization has ever declined a Baldrige Award.

Dr. Todd Whitsitt has known Stacey since he first arrived at Poudre Valley. The cardiologist recalls that in their younger days, they played pickup basketball. “He's very competitive,” Whitsitt said. “He wouldn't outwardly show it. He's completely incapable of talking any smack.”

That competitive streak was reflected in Stacey's tenure leading Poudre Valley. At the time he took over, he became the hospital's fifth top executive in four years. His mild manner masked an aggressive approach that saw the not-for-profit system expand from a single hospital into a regional powerhouse with more than two dozen facilities in three states.

Stacey's expansionist vision was not always welcomed. His plan to open the Medical Center of the Rockies in Loveland, Colo., was greeted with skepticism about whether the area could accommodate another hospital.

But Stacey's strategy was validated when the hospital opened on Valentine's Day in 2007. It now has roughly 150 staffed beds and more than 800 employees.

“Rulon's just a visionary leader,” said Kevin Unger, who serves as president and CEO of Poudre Valley Hospital. “With healthcare reform, and all the pressures that are pushing on us right now, I think growth is essential.”

If Fairview is going to expand, however, Stacey almost certainly will have to take a different approach than he used at Poudre Valley. That's because Minnesota has had a moratorium for three decades on building new hospitals. Constructing any facilities would require the bureaucratically arduous process of getting an exemption from the state.

But growth through merger also could prove problematic. Feinwachs questioned whether Minnesota regulators would allow further consolidation of the hospital market. “A couple more consolidations and we are right in the middle of some raging antitrust violations,” he said. “There are not many people left to marry up here before you start inbreeding.”

Follow Paul Demko on Twitter: @MHPDemko