Alegent CEO's Resignation Illustrates Difficulty of Culture Change

Hospitals and health systems held up in the healthcare reform debate as examples of cutting waste and unnecessary duplication of services, not to mention coordination of care, don't have this vexing medical staff problem. Why? A big reason is that they employ their physicians, and as salaried employees, those physicians don't have economic incentives that are contrary to the hospital's. With the medical staff model, they can take their patients and go elsewhere on a moment's notice if their demands aren't being met to their satisfaction. In Alegent's case, they did just that.

So you alienate independent specialists at your own peril. Sensor apparently alienated them once too often. Managing a transition from affiliated to employed physicians is filled with land mines, especially when you are hiring physicians to perform the same work that referring physicians do. According to published reports, many of these physicians felt left out of decision-making by Alegent administrators, and felt the system was moving toward a system where it used primarily its own employed physicians.

I'm not privy to conversations between leadership and the medical staff at Alegent, but hasn't this strategy been obvious for a few years now? Regardless, the fact remains that transforming those organizations into employed physician shops is extremely difficult, even with the strident support of the board, which Sensor apparently did not have.

At every step of his four-year tenure, Sensor has been following a game plan to which many of the most innovative hospital CEOs I've ever met have increasingly turned. Does that mean he wasn't alienating a key constituency? No. Does it mean he didn't make some tactical mistakes? No. Does it mean the strategy is poor? Absolutely not.

Assuming the board's decision to accept his resignation is based on the physician employment question, does this put Alegent on the wrong side of history? Only time will tell, but statistics aren't on their side, long term. Many physicians coming out of medical school today want to be employed by a hospital or health system. Why? It focuses them more on taking care of patients and takes them out of running a business—not the reason most of them went to medical school in the first place.

But I, and many others, including those interested in taking perverse incentives out of healthcare, feel that Alegent's board strategy will end up penny wise—and pound foolish. I'd love to hear whether or not you agree.