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Alegent CEO's Resignation Illustrates Difficulty of Culture Change

 |  By HealthLeaders Media Staff  
   October 23, 2009

As I was preparing to lead the culture panel at HealthLeaders '09 last Friday in Chicago, I heard about the resignation of Wayne Sensor as CEO at Alegent Health in Omaha.

I've known Wayne for about four years, so the news came as a shock, especially since from every angle I've seen him over that time, it always seemed like he was committed to patient power as the key piece of cutting costs and improving quality in healthcare. He's always been a pioneer—from the drive to make healthcare prices transparent to the consumer to building a staff of employed physicians at the health system. Heck, three of the system's hospitals were recently named among the 100 "best value" hospitals. So what gives?

Well, so far, few are talking, including Sensor himself, but the writing on the wall is pretty obvious. Medical staff at two of Alegent's largest hospitals recently revealed a vote of no confidence against him, and that means dollars, ladies and gentlemen. Essentially, powerful physicians on the medical staff were saying with their no confidence votes that unless he was gone, they would henceforth be taking their business elsewhere. I'm told many of them already did that. Sensor offered his resignation, and the board, faced with a physician revolt that in the short term could have eviscerated the health system in favor of its competitors, accepted.

As I took the stage to moderate a panel on the difficulty of culture change in healthcare, the irony couldn't have been more stark. I talked with a good source on the drama the other day. He says the board insists that Sensor's resignation was not related to his drive to employ physicians at the expense of the affiliated medical staff, but let's be honest here: it couldn't have helped.

Everywhere you look, the old medical staff model of healthcare is breaking down. Hospitals, squeezed by reimbursement struggles, are hitting the financial shoals, and they need patients—especially the high-dollar kind whom specialists treat—to fulfill their mission. Employing physicians means their interests are much better aligned with those of the hospital or health system. But employing specialists is where it gets tricky. Independent physicians still wield tremendous power over patient referrals and most importantly, where they perform their high-margin services, not to mention power over the implants and surgical materials that hospitals must buy. No wonder CEOs feel squeezed at both ends.

When you start moving into specialists' space, you're stepping on toes when there's not a population increase to demand a general increase in the number of specialists in a market, my source says.

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.

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