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Carving Out a New CEO Model

Philip Betbeze, for HealthLeaders Magazine, November 12, 2009
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Responding to heightened scrutiny and reimbursement cuts, healthcare CEOs are becoming increasingly interactive with a growing list of constituents.

The drill sergeant as hospital CEO is as out of style today as Hummers, McMansions, and personal debt. Though most of the leadership team and staff is in no hurry for a return to the generally autocratic and see-no-evil rule of decades past, the new CEO model has yet to be fully embraced.

Today's hospital chief executives are running a much more complex organization than their predecessors and must focus on so many more metrics. Not only that, but the CEO must also be a consensus-builder with key staff members, not the least of whom are clinical caregivers. Diverse but essential skill sets for the job include being nurturing and understanding at some times, and tough but fair at others. Further, the spotlight on healthcare cost inflation, not to mention IRS scrutiny, has made CEOs who hope to last in their jobs much more transparent than their forebears.

All of this is a good thing, right? Well, yes, but where once the prevailing winds blew at the hospital CEOs' back, today's leaders face an increasingly raucous crowd that fingers them for at least some of the blame for high healthcare costs. Conspicuous consumption is out. Favored treatment of pet projects and difficult-but-high-margin physicians is going away. Now, in terms of transparency, operating performance, and quality, CEOs are facing a slew of new priorities, says Jon Foster, president and CEO of St. David's HealthCare, a six-hospital system with 1,197 beds based in Austin, TX.

"The CEO, in the end, was always responsible for those things, but the downside of nonperformance wasn't as great as it is today," he says, in an understated warning to hospital CEOs who are on a shortened leash with their boards regarding operating performance, among other related metrics, including doctor relationships, adherence to quality standards, and at-risk compensation.

No one has a road map for the new model of leadership, but strategies are changing, and how CEOs adapt will foretell their future in this industry. Many suggest the era of growth for growth's sake is nearly over in the drive to cut costs and waste. Perhaps the prudent CEO needs more skills on motivation and developing the proper culture, where once he spent much of his time figuring out ways to build bigger and spend the huge sums necessary to win the medical arms race over his competition. In today's more frugal environment, the CEO is getting new marching orders from the board: Quality, safety, efficiency—and yes, profitability—are king, and to hell with the rest of it if it doesn't improve those four metrics.

Increased transparency
Nonprofit hospital operations have made huge strides in recent years regarding their level of transparency. Operating statements and financial information, not to mention details about business partnerships and even CEO compensation, are much more open than just a decade ago.

"The level of transparency that is expected in the field today increasingly by the community and by regulators and the IRS is calling for a CEO who is more comfortable in a transparent environment," says Keith Pryor, an executive coach specializing in healthcare and former CEO of Berkshire Health Systems in Western Massachusetts. "This is not something you see outside healthcare, and a lot of outside CEOs would not be comfortable with this."

Whether hospital CEOs face greater transparency demands than, say, public company CEOs is still highly debatable, but they're unquestionably being held more accountable for the performance of the organization in terms of patient safety, financial stewardship, and physician, patient, and employee satisfaction than in the past, says Robert C. Garrett, current acting president and CEO of 775-licensed-bed Hackensack (NJ) University Medical Center.

"CEOs are accountable for the same things they've always been accountable for, and that's all the activities that occur within the organization," Garrett says, wryly. "What's changed in the role is that the CEO of today is one that is operating in collaboration with various constituent groups in a much more interactive way than a few years ago."

Today's hospital CEO forges relationships and is transparent—with the workforce, with board members, and community members. Where he was imperialistic in the past, he's now a collaborator, leads discussions, and is a good listener but is decisive, Garrett adds.

Further, today's successful hospital CEOs are more active, engaged, and involved.

"There's a need for more interactivity, communication, and information delivery to the board level so they can satisfy their fiduciary responsibilities," he says.

Operating performance
Many suggest that in a business environment where profitability is essential but is always under assault from outsiders who seem to suggest that nonprofit healthcare means no-margin healthcare, CEOs are under a capital access crunch, which means ever-tighter reliance on operating performance.

In the new healthcare marketplace, gone is cheap debt, philanthropy can't be relied upon, and investment portfolios, which once provided a margin of safety for money-losing but essential services, are severely distressed for most hospitals.

"Focus on those areas is something that I haven't always discerned from many of my colleagues," says Foster. "That's something we've been very disciplined about. But when you talk to some CEOs, their organizations are loaded with debt, costs are bloated, reimbursement is tanking, and they're hitting the wall financially."

Such problems lead to inflexibility and an inability to execute on strategies that would provide long-term benefits, he adds.

"There are facilities in a number of markets that are reaching out for new partnerships or maybe an acquisition, but they can't do it because they don't have the capital," says Foster. "We're fortunate that we've spent $750 million in the last eight years on facility expansion and haven't borrowed a dime to do it. So we're able to execute and some competitors aren't."

Not only are financially distressed hospitals unable to execute on growth or acquisition strategies, but they're unable to respond to opportunities to align better with their physicians, Foster says.

"More and more physicians are coming to hospitals to give them shelter," he says. " Either the health system can't sustain the operating losses necessary to provide that shelter or they don't have the capital. They're just sort of stuck. What that means is an increasing spread between the haves and have-nots."

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