Health Care Hall of Fame - 2006

Four decades ago, Vernon Loucks was offered a position as assistant to the president and chief executive officer of what is now Baxter International. Loucks' new boss, Bill Graham, shared his theory on what it would take to succeed at the company. His choice of words no doubt struck a resonant chord with Loucks, who had served as a Marine Corps officer.

"You don't know an awful lot about the healthcare business right now," Loucks recalls Graham telling him. "I believe in the 'good man' theory. If I'm right, you're a good man, and you'll learn it. If I'm not, that's another story." Loucks chuckles and adds: "I wasn't sure what he was telling me--'look out,' or whether he was telling me there was a great opportunity. It turned out to be the latter."

Loucks, 71, who had known no one at Baxter and got the job through an ad in the Chicago Tribune in 1966, became vice president of international business in 1968 and rose to become CEO from 1980 to 1998 and chairman from 1987 to 1999.

During his years as CEO, the company's sales more than quadrupled to $5.7 billion while its workforce rose from 30,000 to 42,000. Baxter purchased American Hospital Supply Corp. in 1985 and later spun off a number of divisions that became successful companies on their own.

Looking back on 32 years at Baxter, Loucks, now chairman of a healthcare investment and consulting firm, the Aethena Group, is most proud of his role in building the company's international business and hiring and grooming those around him. Many of them left to become CEOs elsewhere.

Finding the best people

"I tried to select the best people I could find and give them the responsibility and let them run with it," he says. "I found that to be extremely successful and very rewarding from their point of view because they grew tremendously as a result."

As a result of that, Loucks says, many left to build companies of their own. "You take people like that and you develop them that fast, they're going to be targets," he says. "It's unrealistic to think you can keep them all. You can't possibly keep them all."

"I don't know how many people who are executives running companies formerly worked for Vern," says Terry Mulligan, former group vice president of health systems, who joined Baxter during the American Hospital Supply merger and is now chairman of MedAssets' Senior Advisory Board. In addition to his current company, Mulligan mentions Boston Scientific Corp., Edwards Lifesciences Corp. and Cardinal Health as being led by Baxter alumni.

Loucks' international travels began in 1968, when he became a vice president and explored the European market with a former colleague, Bill Gantz, now with Ovation Pharmaceuticals, at a time when Baxter's international sales totaled $8 million. They returned with an ambitious goal for then-CEO Graham, also a Hall of Fame inductee.

"I came back and said, 'Here's what you ought to be doing. You ought to be doing $100 million in five years. You've got some major changes you've got to put through to do it.' And I outlined those," Loucks says. "And he laughed and said, 'Why not $200 million?' And I said, 'How much money do you want to spend?' "

In the years that followed, the company expanded around the globe to Africa, Australia, the Far East, Latin America and the Middle East. "We went off into the wild blue yonder, so to speak," Loucks says. "We got the $100 million in five years and went well beyond that. Today, Baxter's international sales are the preponderance of their sales, and the overwhelming preponderance of their profits."

While product lines such as dialysis, blood collection and blood products provided some growth in and of themselves, "Expansion to new markets was the biggest one," he says. "Basically we were taking products that we knew well, where we were the world leader, and expanding them to the world."

Critical to that success, Loucks says, has been hiring natives of countries where Baxter expanded rather than using Americans. "You can't run an international operation with Americans," he says. "We hired good people over there to do what we needed to do. ... Smart guys. They were 'good men' under the Bill Graham vernacular."

The American Hospital Supply merger provided another catalyst for growth at a time when hospitals and other healthcare institutions were increasingly looking to tighten their circle of vendors, Loucks says. "Instead of buying from 200 manufacturers ... they wanted to do, if not one-stop shopping, they wanted to limit the number of suppliers they had to deal with because it just made it a lot easier management task for them."

A 'one-Baxter approach'

Mulligan says the merger precipitated a "one-Baxter approach, trying to make ourselves easier to deal with for the customer." American Hospital Supply had begun that approach prior to the merger, and "that was one of the things Baxter liked about American. We could provide 70% to 80% of what a hospital needed."

The merger also brought with it an award that was renamed the Foster G. McGaw Prize for Excellence in Community Service by healthcare organizations; American Hospital Supply had begun bestowing the award in a more modest form. Today, it provides a $100,000 prize annually and is sponsored by the American Hospital Association, Baxter International Foundation and Cardinal Health Foundation.

Loucks demurs when asked about his championing of the award, saying that he merely "helped sustain it and keep it alive," but Mulligan says he's being modest. "We may have done something at American along those lines, but not to the $100,000 annual-prize extent," Mulligan says. "It was started in 1986, after the merger. It was pretty great of him to name it after the former chairman of American Hospital Supply. It's inspired healthcare systems and hospitals across the country to improve their services."

Once Baxter had absorbed American, Loucks and other executives evaluated what had proved symbiotic and what had not. "We managed the totality of it for a while, and then we began to do some spinoffs because we felt some of these businesses could run better independently," he says.

Among the primary spinoffs was Caremark Rx, in 1992, which then provided home care to patients and was viewed as a competitor by some of Baxter's hospital customers, Loucks says. "The hospitals felt those home patients were their territory," he says. "So we spun it off, and they managed it on their own and did exceptionally well."

The founding chairman and CEO of Caremark Rx, Lance Piccolo, had been executive vice president at Baxter and is now vice chairman of Caremark, a $37 billion publicly traded company. Echoing Mulligan, Piccolo says, "Vern, under his tenure of leadership, probably had more key executives in the healthcare field who went on to the role of CEO in other companies than any other healthcare leader."

Baxter also divested itself of its distribution business in 1986, which Loucks says "had lower margins and really couldn't keep pace with the demands of some of our other businesses, which were more technical and where the margins were better, and which were supporting our growth objectives better."

If one added up the sales and profits of Baxter and its spinoffs today, that combination might be three or four times the size of Baxter--but that would not be the case if all the lines of business were still jostling one another under one roof, Loucks says.

"You have to recognize how it happened," he says. "It happened by taking people who were really energetic and really knew what they were doing, and spinning them off and letting them go run their own show. The whole, today, is clearly less than the sum of its parts would be, today, that's for sure. But we did very well for our shareholders."

'Reasonable optimism'

Those who have worked with Loucks say his personal demeanor and leadership style also were important components of Baxter's success.

"He had what I call reasonable optimism; then he held himself and others around him responsible for what they agreed to do," Mulligan says. "He was a terrific leader and a terrific human being. He made it clear that your family came first," he adds of Loucks, who, with his wife of 34 years, Linda, has six children and 10 grandchildren. "He figured if Baxter was second after your family, Baxter would come out very well."

Mike Mussallem, chairman and CEO of Edwards Lifesciences who worked at Baxter for about 20 years and rose to corporate vice president before Edwards was spun off in 2000, says Loucks never became satisfied with the status quo. "Vern was one of those truly strategic leaders and also a very innovative leader," he says. "I was always impressed with how he maintained an open mind to new ideas. He was bold in many ways. He was willing to embrace change and act on new information."

Tall and sturdy, with a military bearing, quick smile and gravelly voice, Loucks exudes charisma as he enters a room. He credits his three-year stint in the Marines after graduating from Yale University in 1957 with instilling in him the ability and motivation to be a leader.

"Best thing I ever did, seriously. The most important developmental aspect," he says. "Because very early on, you get an opportunity to find that you're going to lead people, you're going to be responsible for them and you're going to find out if you're any good at it. And also whether you like it. And I loved it. I thought it was great. I loved working with people, and I loved trying to find ways to motivate them."

Loucks, who also received an MBA from Harvard and worked for a few years in consulting before coming to Baxter, used his leadership skills outside Baxter as well.

Loucks influenced the industry as the first chairman of the Healthcare Leadership Council, formed in the early 1990s when the industry was under fire for rising costs and the Clintons were pushing far-reaching reforms.

"Hillary Clinton was going to change 17% of the U.S. economy," he says. "She knew I didn't support it. But she also knew--we had a good relationship, in that we were talking all the time--there was always the hope, on both sides, that we could come up with some kind of common ground. That didn't happen. ... I felt it ought to be stopped because I thought it would wreck the industry, and I still believe it would have."

But Loucks continues to see a need for cost containment in healthcare, particularly with the coming demographic shifts as baby boomers retire.

"The great claimants on healthcare are elderly people," he says. "The dynamics of the population today are such that the healthcare bill ... is going up, and going up at a very rapid rate. And at the same time, I believe that technology has come along so far, so fast, and it continues to do so, but it isn't without a price.

"How we solve that problem, I'm not sure," Loucks adds. "I'm not telling you I have answers. I don't have answers."

Ed Finkel is a freelance writer based in Evanston, Ill. He can be reached at [email protected]