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The State of the CEO

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Hospital chief executive officers know change is coming, because in healthcare, change is always coming. Any hospital CEO with a strand of gray hair has lived through the Balanced Budget Act of 1997 or has seen physician employment rise, fall and rise again. Any veteran hospital CEO worth a corner office has fought the managed care contract wars and watched as computers took over the information side of healthcare. Hospital CEOs have been through all that.

But all of that change pales in comparison to what is coming.

Words like “systemic” and “sea change” come from CEOs’ lips when describing what could—and should—happen to the healthcare industry’s financial underpinnings in the next few years. The people at the helm of hospitals across the country must decide whether they will be the ones leading their hospitals and health systems through a new dynamic. The new-era CEO must be someone who is a change manager, who knows when to compete and when to collaborate, and who can take strategic risks that potentially expose the hospital to a loss of market share for the greater good. Some CEOs embrace such complexity. And many others will likely see the tide roaring in and get the heck out of the way.

Wayne Sensor, CEO of 1,829-licensed-bed, nine-hospital Alegent Health in Omaha, Neb., has seen the transition from “hospital administrator” to CEO in the past 20 years. “In the formative years of my career, it was what I’d call ‘legacy leadership,’” Sensor says. “It was about people in beds, happy docs, ‘break even plus’ and regulatory compliance. For a lot of years, that was the fire drill. Now what we have is transformational healthcare leadership, because this industry is in a transformation period.”

Sensor likes to compare healthcare’s precipice to the challenge facing photography companies a few years ago. Kodak was in the film business—or so it thought. But then the company decided it was in the imagery business and made the transition to digital. Change the words around and this is the question facing hospital CEOs.

“Are we in the healthcare business,” Sensor asks, “or the health business?”

Redefining leadership

When an industry shifts, so do the skill sets of the people leading the pieces. Hospital CEOs have seen their roles shift away from operations to more external and strategic roles in recent years, says Thomas C. Dolan, Ph.D., president and CEO of the American College of Healthcare Executives. “CEOs were primarily business managers,” Dolan says. “Not that they didn’t care about patient care or were not involved in it, but their primary responsibility was the business side of the hospital. Today, they go from being managers to leaders in many respects.”

A CEO is more active in issues of patient safety and quality than in the past, even though monitoring daily operations may largely fall under the responsibility of the second in command, usually a chief operating officer, Dolan says. Dan Wolterman, CEO of 3,286-licensed-bed, 12-hospital Memorial Hermann Health System in Houston, restructured a few years back to create a chief operating officer to handle all internal operations. “My job is solely focused on three issues,” Wolterman says, “Those are external affairs, strategy and governance. And that is where I spend all my life.”

Strategic thinking is not just a focus, but a skill—one that is not necessarily new to hospital heads. A survey by Solucient and Cejka Search found that the top trait valued by CEOs and the boards hiring them is strategic thinking. The new wrinkle, however, may be in willingness to bet on those strategic hunches.

“Many CEOs are not, by nature, risk-takers,” says Deedra Hartung, vice president and practice leader for Cejka Search. “A lot of these CEOs now need to be pretty good risk-takers. You look at some of the larger health systems today, and CEOs have been very, very careful, as have boards. They have been much more conservative. But there has to be some risk in today’s market.”

Few industries have been as insular as healthcare. The Solucient/Cejka Search survey found that the average hospital leader is a 53-year-old who has spent 30 years in the industry. A change in the hospital CEO skill set is less about current CEOs acquiring new skills and more about a lateral infusion of leaders and ideas from other industries. While a lateral move to hospital leadership from a non-healthcare industry is still rare, many boards and search committees are looking for brash stars with healthcare entrepreneurial skill when they have a CEO post to fill, says Hartung.

“We are also seeing a résumé that looks somewhat different from the traditional résumés,” Hartung says. “We are seeing candidates who have had several different kinds of employment prior to moving up the traditional ranks in hospitals. Maybe they have worked for a large physician practice organization, or an entrepreneurial for-profit organization. That seems to be positioning them ahead of some other candidates for other positions.”

Stephen A. Williams, president and CEO of Norton Healthcare in Louisville, Ky., believes that the American healthcare system’s struggles in providing value will force it to look for leadership from other industries. “We have the best healthcare on the planet, but given the cost, we are not getting the value relative to the status of the patient, and there is a disconnect there,” Williams says, adding that the more integration healthcare leaders can achieve with the leadership of other economic sectors, the better. But just because the hospital industry may want new leadership blood doesn’t necessarily mean skilled CEO-level leaders will want to dive into it. Paul F. Levy, CEO of Beth Israel Deaconess Medical Center in Boston, was hired to turn around the financially troubled Harvard-affiliated academic medical center in 2002. Levy had previously headed the environmental cleanup of Boston Harbor and had run the Arkansas Department of Energy but was attracted to the Beth Israel job as both a public service and an intellectual challenge. “There is tremendous theater that goes on here,” he says. “The other thing that was fascinating to me is that you can’t find anything more complicated than this. It’s a big, complex system, and I don’t think anyone really understands how all this works.”

Even those systems working to grow their own next generation of healthcare leaders are looking at a different pool of candidates with a business bent. Wolterman says Memorial Hermann now only recruits new executive talent from the country’s top MBA programs, with less consideration given to those with a master’s of health administration.

“It’s a business. It’s a ruthless, tough business,” says Wolterman. “We are looking for people who are taught to think differently and broadly and use business skills. We can teach you the technical side of healthcare.”

Involved and accountable

Hospital administrators once enjoyed a relatively safe perch away from the eyes of public scrutiny. Other than serving on the occasional health-related board, the head of the hospital was not a public figure unless a public relations disaster dragged them before the cameras.

Today’s CEO has external responsibilities that extend beyond health-related organizations into more business-focused groups. When Wolterman assumes the chairmanship of the Greater Houston Partnership, one of the country’s largest chambers of commerce for business, he will be the first nonprofit and healthcare chairman. The current chair is John Hofmeister, president of the Shell Oil Co. In general, rubbing elbows with fellow CEOs—Houston has 24 Fortune 150 companies—occupies a large amount of his time, Wolterman says. But active community leadership serves more than just a social purpose. In a city with a 33 percent uninsured rate, Wolterman is in a position to put healthcare issues at the top of Houston’s agenda, even if his fellow CEOs often “just don’t get it.”

“I spend a lot of my time advocating to address the uninsured problem, educating business that they are getting a hidden cost passed on to them and why they need to champion this cause,” Wolterman says. Memorial Hermann created a series of community forums for as many as 250 other leaders to explain the vagaries of healthcare costs and why, for example, business leaders should get involved when a Medicaid cut is proposed, he says.

Increased community involvement carries hidden dangers, however. Nancy M. Schlichting, president and CEO of Henry Ford Health System in Detroit, says CEOs can easily find themselves overcommitted and thus run the risk of “becoming irrelevant to the organization.” Schlichting recently resigned from eight of 16 external boards so she could maintain her connections with the hospital and its core operations. Increased involvement also means a higher profile that brings increased accountability from the public. Constituencies don’t just include the public and business leaders, but they also extend to politics at the state and federal level, Dolan says.

Strategic collaborations are an extension of those lobbying skills. Asking hospital leaders used to grabbing competitors’ market share to initiate talks on issues like a regional health information organization may be a bit like asking the lion to put down the gazelle, but collaborative consensus-building skills are crucial. Wolterman says he is frustrated by his Houston-area competitors when he talks about communitywide solutions to the uninsured problem, because the safety-net system in Houston allows other nonprofits to cater to the affluent.

To get traction in popular opinion and politics requires passion and a sparkling public image—something CEOs have not generally enjoyed given hospital leaders’ common depiction in movies and television as penny-pinching heavies. The collective ability of hospital leaders to morph into change agents will require an image makeover for some. Schlichting says she tries very hard not to “portray the victim constantly complaining about lack of money.”

“People get sick of what I have seen for my entire healthcare career, which is CEOs constantly complaining about lack of money, when in fact we are now 16 percent of the gross domestic product,” she says. “It is not like we are not very large organizations with a lot of revenue and a lot of opportunity to do better. We have to explain differently rather than just being in a defensive posture.”

Ethical missteps by some healthcare leaders have damaged the reputation of CEOs in general, Schlichting adds. “There has been some pretty stupid stuff that CEOs have done. … Unfortunately that tends to cast a pall over many great people who are doing great things.”

Making the leap

Denis Cortese, M.D., president and CEO of Mayo Clinic, has a picture that he shows new board members. It is a photo of Grateful Dead guitarist Jerry Garcia, with a caption that reads, “Somebody has to do something, and it is just incredibly pathetic that it has to be us.”

Leaders of the world-renowned Mayo Clinic, which has five hospitals located in Minnesota, Florida and Arizona, have traditionally eschewed the spotlight. But Cortese—who emphasizes that he is not a hospital CEO, and in fact Mayo has no traditional hospital administrators—says Mayo believes that the healthcare industry is so flawed that it must be an advocate for change, which is one reason Mayo has sponsored a series of policy forums in places like Knoxville, Tenn., and Boston. Many players in today’s healthcare system, he says, have “made the huge mistake of not looking at the patient, of not focusing on what is best for patients, and they have actually commoditized patients.”

Mayo has the luxury of a clinic model, so as Cortese says, “If our hospital use drops, that is what we are trying to do.” Admission rates since he started at Mayo almost four decades ago have fallen from 23 percent to 12 percent, and beds at the clinic’s hospital in Rochester, Minn., have shrunk from 2,000 to 1,200.

“The fact is that hospital administrators—if you look at the future state—will have to come to grips with the fact that an admission to the hospital, except for things like acute appendicitis or trauma, will be a failure of the system,” Cortese says.

The patient as commodity is at the crux of the coming pain. Hospital administrators have been forced to live with perverse incentives that reward them for more, even repeat, admissions. To ask hospital administrators to advocate a new system that will reward health improvement, require high levels of transparency and place a premium on getting value for the healthcare dollar asks them to make a counterintuitive leap off a cliff. So what are the choices? Make the leap and reap the rewards of rapid realignment … or wait to be pushed. CEOs may have to do more than just accept that the future equation will be based on value—the quality of healthcare services relative to cost—but embrace it.

“We have to improve the value we get for every healthcare dollar, and that value is what should be paid for. We should all anticipate that we are going to be measured to do that,” Cortese says. “I would like to see the hospital administrators fostering this concept—that business, the government and individuals all need to contribute and manage the financing of our healthcare system.”

Alegent Health’s Sensor fears that too many of his fellow CEOs are not going to lead, but will instead merely react. During a recent conference, he was speaking to some colleagues about transparency, cost and quality, when one colleague pulled him aside and said, “I’m not going to do anything until the federal government makes me.”

“I’m not sure the pioneers can bring the industry along fast enough if there is not a broad-based movement,” Sensor says, quoting a speech by Intel President Craig Barrett who said this past fall that he doesn’t believe the healthcare industry “is capable of transforming itself.” Wolterman, for his part, shares those doubts. “There are pockets that are ready. But I don’t think there are enough of them ready who are willing to take on the challenge. They have been so consumed since they got into the industry in solving problems and keeping day-to-day ops going that they really haven’t stepped back and looked at the total system and its impact—and that it is going to implode on itself.”

Ultimately it may not matter whether the current generation of hospital leadership is ready to be a change agent. ACHE surveys show hospital CEO turnover ranging in recent years from 14 percent to16 percent annually. An entire generation of baby boom hospital leaders are going to be tempted to trade their $332,778 mean annual income for an early retirement package. Newer CEOs in their late 30s and early 40s, meanwhile, have cut their teeth in a business world of constant change. Hartung says that search committees and boards are not overly concerned about recruiting decades of healthcare experience.

“I tell you, as I talk to search committees, they are attracted to these younger CEO candidates. There is a lot of energy, passion, and the risk taking is more prominent in their thinking,” he says.

Schlichting has faith that her peers will be pragmatic. “It is not as hard for us as maybe it is for some organizations to recognize that what you are transforming is going to have some pain, but what we live with has pain. The current world is certainly not perfect. I think we all know that if we don’t change it, it will be changed for us.”

Jim Molpus is editor of HealthLeaders magazine and HealthLeaders Online News. He may be reached at jmolpus@healthleadersmedia.com.



Bloggin’ in Boston

Some people write blogs because they believe their thoughts are so unique and revolutionary that they simply must share them with the world. Paul Levy is not one of those people.

Levy, chief executive officer of Beth Israel Deaconess Medical Center, a 585-licensed bed, Harvard-affiliated academic medical center in Boston, has a more practical reason for sharing his thoughts about running a hospital with the world on his blog, www.runningahospital.blogspot.com.

“I have a history in public service, where everything is transparent,” says Levy, whose résumé includes heading the Massachusetts Water Resources Authority, the agency charged with the cleanup of Boston Harbor. “One way or another, either you make it transparent or someone will make it so to you. So I have had two decades of experience in a very public kind of environment, and it is my inclination to assume that everything that is interesting or important will or should be made public as a matter of accountability.”

Levy’s blog has stirred the pot in a city where fierce competition between hospitals is waged with a kind of academic cordiality. In February, Levy used his blog to post Beth Israel’s data on central line infections, and encouraged other hospitals in town to do the same. He’s also pondered online whether he, as CEO, makes too much money. And true to the core of blogging, he has also shared his thoughts on his recent reading list, the passing of historian Arthur Schlesinger, and a few jokes.

“It is the most narcissistic thing you can do in the world—to write a blog and assume that anybody is going to be interested,” Levy says.

In an industry where most thoughts of the chief executive are vetted through a series of filters before seeing the first light of public view, Levy posts his entries without even notifying the hospital’s communications department. Levy says he gets multiple benefits from the blog: It’s a way of organizing his thoughts; it’s a feedback forum about the hospital; it’s a way to brag about the hospital; it’s a way to encourage certain areas of the hospital to do a better job; and it creates an esprit de corps with the hospital staff. But the final reason is the most liberating.

“This is the one forum where I can reach at least some members of the public without being edited or censored by a reporter or an editor. So in a way, for the first time, any one of us can have as much ink as the newspaper, and that is an amazing thing.”

Levy admits he has heard grumblings—indirectly, of course—from his peer CEOs that Levy has more or less anointed himself as chief spokesman for hospital leaders, an insinuation he thinks is pretty funny. “What they miss in that is that there is no barrier to entry,” he says. “They can do the same thing. They choose not to. But they still impute to me this ego gratification that I’m bigger than all you. In fact, I readily admit I don’t know near as much about running a hospital as most of my colleagues. This is all new to me. That is part of why I am writing—it’s all new and interesting.”

—Jim Molpus