Unifying a disorganized system

Health disparity might not have been a term Lloyd Dean, president and CEO of San Francisco-based Dignity Health, was familiar with as a child growing up in Muskegon, Mich. But it was something he quickly became aware of once he began attending school in a neighborhood more affluent than the one where he lived.

“I was always amazed when I would be talking with my friends at school and they were talking about going to dental appointments and needing to leave school early to get vaccinations,” Dean said. “That just was not heard of in my community.”

It was those early experiences that Dean said helped shape his view on healthcare. “I've said that because of the way I grew up, that if I ever had the chance to have an impact on healthcare, I felt that it was something that I wanted to do,” he said.

Now Dean, 63, stands as one of the industry's most influential people. A supporter of the Patient Protection and Affordable Care Act, he counts President Barack Obama as one of his friends and is among a handful of people HHS Secretary Kathleen Sebelius regularly calls for advice, according to a 2013 Fortune magazine feature on Dean. Because of his accomplishments, Dean is one of Modern Healthcare's Top 25 Minority Executives in Healthcare for 2014, the fifth year for the biennial recognition program.

Since arriving in 2000 at what was then called Catholic Healthcare West, Dean is credited with leading a major corporate turnaround. He took over CHW at a time when it had suffered four straight years of operating losses totaling more than $800 million and brought it to profitability four years later. The system has stayed on track ever since. Now with more than 300 sites in more than 20 states—including hospitals; urgent- and occupational-care centers; imaging facilities; home health agencies; and primary-care clinics—Dignity is the fifth-largest not-for-profit health system in the country, with revenue totaling more than $10 billion in fiscal 2013.

“He has a very can-do, assertive style but with a nice refined touch that makes you want to work with him,” said Larry Baer, president and CEO for the San Francisco Giants who has worked with Dean over the past decade.

John Stumpf, chairman and CEO of San Francisco-based Wells Fargo, said Dean has the rare ability of being able to understand both the analytical and human sides of business. “He understands numbers inside and out, and he has a great ability to connect with people,” Stumpf said.

Those who know him credit his collaborative yet decisive style of leadership as a big factor in turning around CHW, which at the time of his arrival was more of an agglomeration of facilities operating independently rather than a single health system with a unified vision.

“I would say it was a set of various fiefdoms,” said Andy Pines, a former managing director of Citigroup's healthcare division in San Francisco who has worked with Dean and Dignity for years. “Each region, and in some cases each hospital, had a separate fiduciary board with many reserve powers and governance rights. It was almost impossible to create any advantages of being a system.”

Part of Dean's strategy was to reorganize the system's command structure to streamline the decisionmaking process. That entailed cutting more than 300 regional and corporate management jobs and restructuring CHW's 10 regional organizations into four divisions headed by a president who reported to Dean. The result was a reduction of 150 executive positions down to four, saving about $70 million in annual costs.

A rapid expansion strategy based on years of acquiring hospitals had left Dignity with $1.3 billion in debt and a credit rating that had been downgraded from triple B+ to BBB. The system hadn't reported a positive margin since 1996.

Today the system includes 39 acute-care hospitals in Arizona, California and Nevada and more than 10,000 physicians and 56,000 employees, with a renewed goal to expand both geographically and in its services. Unlike before, growth so far has not included acquiring more acute-care hospitals; the last time it did so was in 2007 with the purchase of St. Mary's Regional Medical Center, a 269-bed facility in Reno, Nev. The system eventually sold St. Mary's in 2012 to Prime Healthcare Services, a for-profit hospital chain based in Ontario, Calif.

The focus of Dignity's growth is in its outpatient facilities. The system acquired occupational-care firm U.S. HealthWorks in 2012 for $450 million in a deal that expanded Dignity into 15 more states. Since then, Dignity has added U.S. HealthWorks locations, broadening the reach of the health system to 21 states, Dean said.

“I would say Dignity through its acquisition of U.S. HealthWorks has exhibited a willingness to sort of think outside the box,” said Brad Spielman, a senior analyst who covers Dignity for Moody's Investors Service.

It is part of a long-term growth strategy that was the basis for the system's restructuring of its governance board in 2012 that ended its formal affiliation with the Catholic Church. “It allowed us to be able to grow and partner with others, to help us expand with partners that might not be Catholic but would be good partners from a values perspective and from a vision perspective,” Dean said.

CHW had found itself facing community opposition to some of its expansion moves through acquisitions because of its Catholic hospitals' adherence to the U.S. Conference of Catholic Bishops' Ethical and Religious Directives, which govern care in all Catholic healthcare facilities and set rules for what care they can provide or withhold.

Dignity maintains a core set of directives as stated in its Statement of Common Values that prohibit abortion and physician-assisted suicide at any of its facilities. But observers say the system was showing signs of the difficulties involved in trying to balance its medical mission with adherence to Catholic doctrine.

Those issues came to a head in 2010 when one of its affiliated hospitals, Phoenix-based St. Joseph's Hospital and Medical Center, was stripped of its official Catholic status after the local bishop declared that the provider had violated church directives when doctors performed an abortion in 2009. The hospital said the abortion was necessary to save the woman's life.

“The system had cemented their commitment to performing best care practices and had decided that the best way forward was to disassociate themselves with the Catholic Church,” said Sheila Reynertson, advocacy coordinator for the New York-based MergerWatch, a watchdog group that monitors hospital mergers involving Catholic organizations out of concerns over access to reproductive services.

Dean said the name change helped eliminate confusion about the system's willingness to seek partnerships with entities that were non-Catholic. “Sometimes (with) our name 'Catholic Healthcare West,' in some situations, people felt that we would only relate to Catholic organizations,” Dean said.

Dignity also maintains its Catholic identity through its charitable mission, reporting $1.6 billion in uncompensated care in fiscal 2013.

Dean acknowledged the system's Catholic identity had in the past blocked potential partnerships with other systems. He said he expects such issues to be less of a factor as the need grows for different providers to come together in coordinated-care networks such as accountable care organizations.

In 2009 Dignity entered into an agreement with Blue Shield of California and the Northern California-based independent doctors' association, Hill Physicians Medical Group, to launch an ACO in Sacramento to serve more than 40,000 California Public Employees' Retirement System members. In its first year, the collaboration was able to reduce hospital readmissions by 22%, saving around $20 million in costs. A second program based in San Francisco was launched in 2011, and plans for a third such collaboration between the three providers were announced in March.

“I'm sure there are people out there that ... may have some concerns about how can a Catholic organization also have community-based (non-Catholic) facilities,” Dean said. “But I think it's more of the wave of the future rather than being the exception.”

Follow Steven Ross Johnson on Twitter: @MHsjohnson