Dennis Vonderfecht took over an East Tennessee hospital in 1990 and built it into the Mountain States Health Alliance. As he prepares to retire, Vonderfecht details some of his strategic moves and expresses optimism for the organization's future.
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Dennis Vonderfecht was a greenhorn CEO who came to lead a sleepy community hospital called Johnson City Medical Center in 1990. He never thought he would stay this long, and never envisioned that JCMC would grow to become a dominant regional health system, with 13 hospitals (working on 14) in four states, and with 400 owned physician practices and a health plan.
Now, as leader of Mountain States Health Alliance, Vonderfecht will leave at the end of the year to spend more time traveling, playing with his two young grandchildren, and—believe it or not—catching up on his hobby of breeding and raising miniature donkeys (my daughter, who loves donkeys for some reason, would absolutely freak to see them).
Vonderfecht believes his as yet-unnamed successor—there are three finalists, all from outside the organization—will continue to build the system. Meanwhile, he won't completely leave healthcare. He envisions spending at least some time on healthcare boards, but doesn't have any commitments beyond December.
Certainly many organizations could benefit from his expertise. But before he put on the overalls and knee-high muck boots, Vonderfecht spent an hour with me talking about his vision for the future of Mountain States, which is far from completely realized.
HLM: How is the search going for your successor?
Vonderfecht: It's going along well. We've had a succession planning process in place for three years. The search committee has worked with Witt/Keiffer narrowing the candidate list down. We've got it down to three and they're all external.
HLM: Are you on the committee?
Vonderfecht: No, I'm not on the search committee. But I'm confident the board is 100% supportive of the direction we're moving and they want whoever comes here to keep the organization headed in the same direction. I'm reviewing the strategic plan on what has been accomplished and what's yet to be accomplished as a roadmap for the new CEO.
HLM: You mentioned how important strategic planning has been to growing the system and preparing for the big changes brought about by the Patient Protection and Affordable Care Act. Could you go into detail about that?
Vonderfecht: About three and a half years ago, we recognized the world was going to be changing dramatically due to the ACA. I'm talking about transformational changes. As a result, we felt we should bring in an outside consulting firm to work with us on strategic planning.
We selected a firm that not only does [strategic] planning for healthcare, but also outside healthcare. Oliver Wyman was who we chose, and they work a lot with Fortune 500 companies.
They helped us come up with a 10-year plan, when we usually do a three-year plan. We developed a vision for where we thought healthcare would be. For instance, we developed a contracting network entity that included all elements of our system and 2,000 physicians.
We used that organization as our innovator and brought in a whole new staff to lead it out of Blue Cross Blue Shield of Tennessee. Those guys have been working to position us to be successful in shared savings contracting and operating our insurance company as well, called Crestpoint Health.
HLM: You also built an ACO, one of the first in the state of Tennessee, right?
Vonderfecht: That was one of the first things we did. We were one of the first five ACOs in Tennessee to be approved by CMS. We've had about 14,000 Medicare lives attributed to shared savings and so far we're seeing good success. We're seeing savings, but we're also being pretty conservative about booking it right now.
HLM: What about developing care models as part of your expected participation in bundled payments?
Vonderfecht: Our care model development piece relies to a large degree on our recent relationship with Vanderbilt [an affiliation agreement that brings evidence-based care models to MSHA)]. We're using those as starting points to refine our care models and get our physicians involved in taking variation out of care.
We also have been involved with the Geisinger/Brandeis innovation model around bundled payments. We have eight that are ready to move forward with the federal government as long as we can have reasonable reimbursement. That is, we're still looking into it.
As payments shift to bundled, that will position us well with the commercial base as well, so we're not just banking on CMS. The first group we managed was the health of our own team members, which amounts to about 15,000 people under Crestpoint. And as of last January, we have about 250 covered lives under Medicare Advantage with plans to grow that significantly over the years.
HLM: Many of your peers are experiencing serious volume declines recently. Do you think you are prepared for that?
Vonderfecht: We recognize that over the next 10 years we can expect—absent taking market share—about a 30% volume decline. I wasn't surprised because we have a good relationship with Geisinger, and they told us that's what they had seen over last number of years as they moved to population health.
And they were seeing it not only in their own hospitals but other hospitals in the area. You're seeing volume declines across the country and part of it is the ACOs and the focus on keeping people out of high-cost settings. If we lose 30%, that's a lot of our revenue, so we're working on backfilling that by moving to the top of the healthcare food chain to capture part of the savings through creative stuff with other insurance companies. But we can capture all of it if we're the insurer. Also to lessen the impact of volume declines, we're also focusing on outpatient ambulatory and retail activity. For example, we now own seven pharmacies.
HLM: Sounds like you're doing all you can strategically, so what else worries you?
Vonderfecht: Even with employing all these strategies, we can still expect declines in revenue and profitability, so we have to get more cost effective. We're in the top decile on performance in already, but there's 20-30% loss due to waste in healthcare so we work very hard with Lean.
We've embedded consultants into our organization, and escalated up to 2,000 team members involved over the past several months. And it works. We've saved in the range of $10 million in the 18-month time period so far, so there's a lot that can be found there. Our board understands we need to change and embed this, and it's a real education process.
HLM: It's hard to look back on your career without some distance, but you came to Mountain States as CEO of a single hospital, and at the time, Mountain States didn't even exist. What has been accomplished through your term?
Vonderfecht: It's been a team effort, but you have to have the leadership vision and hopefully that's what I've provided. When I came here in January 1990, we were a successful standalone community hospital with no outside relationships.
The first focus of business was becoming more than a community hospital, so that meant becoming a tertiary medical center. With the leadership at East Tennessee State University, we developed a number of programs that put us on the map from a regional basis, but the most important might have been the (Niswonger) Children's Hospital. That was one of the first things we did in 1992—open that hospital.
Another thing we attacked early on was our aim to be a regional referral center. We needed that Level 1 status. We developed several programs around transplant, rehab, and other things we didn't have. We built up cardiology and oncology programs. Along the way, we were also having discussions with smaller hospitals owned by for-profit companies to see if there would be opportunity to reduce costs through reducing duplication.
We were never successful in that, until a lot of these hospitals became acquired by Columbia/HCA, which then ran into legal issues and had a division of 21 hospitals they decided to sell. We became part of a consortium of eight hospitals that acquired those 21, so we acquired six of the 21 at one time.
The key was that we had a strategic plan of what to do with them should we ever have an opportunity to bring them in, so we were ready. That eliminated duplication of services, and one of those hospitals allowed us to reach into southern Virginia, so we became truly regional.
Out of that acquisition was born Mountain States. That made us a bigger player in Virginia and five hospitals later, we're still there. The one thing early on that helped us turn this into a regional healthcare system and allowed success in bringing these hospitals into our organization is the fact that in 1990 we created the Mountain States Healthcare Network. That was basically a network of formal affiliation relationships that at one point reached somewhere close to 70 hospitals.
As a result we established good relationships with outlying hospitals so when it came time to seek a closer relationship they looked at us first. When I came here, we owned no physician practices, but we have over 400 now. We also own the entity that employs all our ED physicians across the system. We've also built out urgent care, diagnostic centers and we're the only nonprofit home health group in the region.
HLM: You must have felt that size and scale were very important from the outset?
Vonderfecht: You can only take out so much cost and larger systems have an advantage there. My thinking is the ones will be most successful are regional ones, where they have a significant amount of healthcare provided in a very large region, and that are also strongly focused on taking out variation. I see those large regional organizations as having the ability to have more success than national ones that have hospitals everywhere.
HLM: What advice do you have for your successor?
Vonderfecht: We've had a lot of success over a lot of years and we focused in on the elements of that success through strategic planning. They should take plenty of time to get to know the organization and the success it's had. Mountain States needs someone who understands and is supportive of the culture, and who isn't coming in with their own leadership team.
They need to take the time to develop those relationships, and do more listening and learning than talking. This is not a turnaround situation.
Philip Betbeze is the senior leadership editor at HealthLeaders.