Revolving Door

Slim margins, labor shortages and public dissatisfaction with healthcare costs are just a few of the problems that make life difficult for hospital CEOs. But those same challenges make steady leadership essential for hospitals looking to stay competitive.

The American College of Healthcare Executives has tracked hospital CEO turnover nationwide since 1980. The ACHE’s most recent report shows a slight nationwide increase from 14 percent in 2002 and 2003 to 16 percent in 2004. Although the jump might not appear dramatic, Thomas C. Dolan, Ph.D., president and CEO of ACHE, believes the numbers are still too high for the health of hospitals and their communities and says he would like to see the rate drop below 10 percent.

Turbulence ahead

One of the biggest problems created by CEO turnover, Dolan says, is a decreased capacity to institute lasting change. “The median tenure for a hospital CEO now is four years. If you look at the management literature, if you’re going to change an organization and have that change become permanent, the CEO has to be in place for five years,” Dolan says. “So what’s happening is that individuals are going in and they’re doing a good job, changing things very positively, but they leave and things could slide back to the way they were.”

High turnover may affect an organization’s balance sheet through missed opportunities for investment or service expansion because interim CEOs often are hesitant to make long-term commitments. A hospital’s relationship with the community and with public officials can also suffer if the organization’s primary spokesperson is constantly changing. Finally, the departure of a popular CEO can cause a significant change in organizational culture, which may lead to conflict among staff members.

“If there’s been a successful CEO, and the community, the physicians and the hospital believe in that CEO, it can have dire consequences on the hospital if there’s an abrupt departure,” says Alyson Pitman Giles, president and CEO of Catholic Medical Center, a 240-staffed-bed facility in Manchester, N.H.

So why do CEOs leave? According to Dolan, many simply move on to a better job at another hospital. In the competitive market for CEOs, it doesn’t take long for a good chief to get that first call from an executive search firm. High stress levels and burnout make early retirement—or, less frequently, a career in another field—attractive options for others. These voluntary departures account for about two-thirds of CEO changes; the final third leave involuntarily because of real or perceived mistakes. CEOs may, in fact, occasionally end up taking the fall for market forces that are largely beyond their control.

“If government changes the reimbursement formula and the hospital starts losing money, there’s not really much a CEO can do,” Dolan says. “But often, the board says, ‘Things have taken a turn for the worse and we need a new CEO.’”

Relationships matter

Good pay, of course, can help a hospital increase its chances of retaining a skilled CEO for the long haul, and Dolan specifically recommends hiring a compensation consultant to help put together a competitive offer. Additionally, however, he says a contract that provides a severance package of at least one year gives an executive the courage to make decisions that may be unpopular in the short term but are ultimately beneficial to the hospital.

Giles, who has been Catholic Medical Center’s CEO since 1999, cites the CEO’s relationship with the hospital board as a significant determinant of the length and effectiveness of his or her tenure. “It’s really important that there’s a very synergistic relationship with your board, that there’s trust both ways and that the board understands where the line is between governance and management,” she says. “A board chairman who really wants to be seen as a spokesperson for the hospital and wants to be seen as the person making major decisions is difficult.”

Bill Schoenhard, executive vice president and chief operating officer of St. Louis-based SSM Health Care, oversees the activities of hospital CEOs in the SSM system, one of the largest Catholic systems in the country with 20 hospitals in Wisconsin, Illinois, Missouri and Oklahoma. Like Giles, Schoenhard stresses that board education is crucial with many issues—for example, increased competition in some markets from physician-owned “limited-service” organizations.

“I know anecdotally of several CEOs who have lost their jobs over just that trend in recent years alone,” says Schoenhard. “That has been an area where board education and very strong leadership from governing boards is needed to properly evaluate and support the CEO’s performance in a sometimes very, very difficult political and economic environment.”

What’s on the horizon? Because turnover rates have held relatively steady since 1981, ranging from a low of 13 percent to a high of 18 percent, don’t expect a dramatic change in the immediate future. Dolan warns, however, that things will get worse before they get better.

“Unfortunately, I don’t expect turnover rates to go down significantly,” Dolan says. “We’re headed for even more challenging times as far as the reimbursement climate and the demands of the public.”

—Robert Dickinson