Wright Lassiter's Audacious Vision for Safety Nets

The long-term survival of safety net hospitals hinges less on reimbursement rates and more on questions of access, says Wright Lassiter, chief executive officer at Alameda County Medical Center in Oakland, CA. That's one reason why the safety net hospital he runs has recently agreed to buy the 136-bed San Leandro Hospital, which current owner Sutter Health had wanted to turn into a rehab center, shutting an emergency room with 25,000 annual visits.

Lassiter envisions the now money-losing San Leandro Hospital as a way to curb the impact of a changing business landscape in healthcare, which he perceives will lead to the shutdown or takeover of many local hospitals that are not owned by a bigger, better capitalized parent. Though many forces are at work as healthcare transitions to being measured on value and patient satisfaction as well as services rendered, he's worried safety net hospitals will lose out as patients get more options for care through insurance exchanges being created as part of the Patient Protection and Affordable Care Act. That's why he feels the need to expand geographically, as ACMC will in the San Leandro deal.

Safety net hospital as acquirer is a new twist in the ongoing consolidation of the healthcare industry. Lassiter says that while the PPACA is positive in general because more people will have healthcare coverage, it's a significant risk for safety nets.

"Some of us aren't as focused or as good at patient experience as others might be, or aren't as good with access because we take care of folks who are not attractive to the rest of the community," he says. Because patients who previously did not have coverage will soon have a choice on where to access care, ACMC has been tracking wait times for everything from ED access to wait times to see a specialist. The focus is on how to best decrease those.

That's because the access issue "could be our Achilles heel even more than patient experience," Lassiter says.

ACMC does well in quality indicators. In the local market, where the big competitors are Kaiser and Sutter, "our results are equal in many areas to Kaiser. But the wait to see specialist [at ACMC] is a lot longer and because of this, if you have a choice as a patient, I will lose. If [safety nets] can't deliver on the access side, we'll see volumes decrease."

Many of ACMC's patients don't enjoy their experience because of those time lags. "That will be significant for safety nets," Lassiter says. "For others who might be interested in the expanded market, if you can't deliver on access, you will lose."

He doesn't want that to happen, which is why he's staking so much of ACMC's long-term strategy on acquisitions of facilities that don't have the size or scale to survive healthcare reform. If integrated into the local safety net, Lassiter believes they could offer more varied and quicker access points than ACMC is currently able to provide.

He calls the deal with San Leandro and Sutter, which will leave ACMC as the owner, a "hybrid" model of delivery. The lines are going to blur between safety nets and other hospitals more and more, he argues. "Communities will be stronger if they move to hybrid models. There will be a number of communities where safety nets will not be stable without a partnership."

For that matter, some traditional nonprofit standalones will not be stable without a deep-pocketed partner, whether that partner is a safety net hospital or not.

"In our area, when you [take out] Kaiser and Sutter, what's left are standalones that don't have the financial wherewithal to exist on their own," Lassiter says. Meanwhile, "we need broader geographic coverage and we both need larger scale and presence."

That means if Lassiter's vision is to be realized, ACMC will need to do at least a couple of other similar acquisitions, he says.

"It's to our advantage to have greater access points where we don't serve people today," he says. "We are $600 million [in annual revenue], and the others are $50-$100 million and unaffiliated with anyone else. They have zero chance of being successful without affiliation with other facilities."

The safety net squeeze
That Alameda County Medical Center is in position to even consider so forward-thinking and ambitious a strategic plan is almost miraculous given the perilous financial state of so many of the nation's safety net hospitals. For many years, many public safety nets have relied on calcified and political board governance, a revolving door of executives, labor problems and lack of accountability, and perhaps most damaging, service to a large class of patients whose  treatment has been classified as either charity, bad debt, or reimbursed at Medicaid rates. That unrealized revenue leaves most safety net hospitals in poor shape to replicate anything close to Alameda County's level of business maneuvering.  

But ACMC's top leader has a couple of financial turnarounds under his belt that have put it in the position to expand in anticipation of a significantly altered financial equation for hospitals and health systems in coming years.

ACMC lost as much as $65 million just before a local sales tax initiative was enacted in 2004, prior to Lassiter's arrival. But soon, even that additional funding was not enough to keep it out of the red. When he arrived in 2006, the organization had lost $4 million just in the first quarter.

Lassiter walked into a crisis. "Not one of the more pleasant surprises that I'd received in my life," he deadpans.

He and his new COO set out to do something drastic, starting with a margin audit. That exercise made clear that the organization's department heads lacked financialsophistication.

So Lassiter and the COO educated. They called the process a "margin improvement boot camp," and gathered 90 leaders and directors to lay out the revenue problem.

"We agreed that this is not the new CEO's problem, this is our collective problem, and collectively we will solve it," he says. "Some of you think you don't know enough, so we're going to give you some training over the next few weeks, and beginning in January, you are going to be placed on cross-functional teams, and given a goal for which you'll have 16 weeks to come up with ideas to solve the problem," he says, recalling his words.

The goal was to save $21 million for the year. Every Friday for 16 weeks, the group met for discussions in which reports on progress for cost-saving ideas were tallied. The group debated ideas for cost improvement, including reduced contract expenses, increased revenue, contract evaluation, better processes and practices, and lastly, salary reductions.

"That really helped drive culture change and ownership culture," he says. "Some had ideas for years, but no one ever asked them, or the idea never went anywhere."

By the end of that year, ACMC ended up with a positive margin of $3 million.

By 2008–2009, in the depths of the recession, Lassiter and his team were faced with a similar shortfall, as the sales tax revenue subsidy fell sharply with the economic downturn.

"We lost that tax subsidy by about $20 million over a single year, and needed more belt-tightening," he says. This time he involved the physicians, who wanted in on the process.  That effort yielded $17-$18 million in savings.

Texas-bound?
ACMC's effort to enlarge its geographic footprintis a fascinating test, but Lassiter may not be around to follow up. He is one of four finalists for the open CEO job at Dallas's Parkland Health & Hospital System, where he worked prior to joining ACMC,.

He notes that he has not sought the Parkland job, but he was encouraged to apply when the job came open at the beleaguered but promising health system, which will get an essentially brand-new hospital in the near future. Such jobs are not filled without announcing candidates, or at least finalists, publicly.

"That was particularly difficult because I'm not unhappy and I'm not looking [for a job]," says Lassiter, who has family in Dallas. "My board chair knew about it, but I'm still not talking broadly about it. The fact is, it does create some instability and the last thing I'd like is to create that. I'm haven't been comfortable sharing about it, but I have talked openly with medical staff and leadership team."

A decision will be made in middle of December on who will lead Parkland into the future. It's not a foregone conclusion that he'd accept that job if offered, Lassiter says, joking that at least he could decline the job privately even if he can't pursue it that way. Either way, he'll be carefully watching how this vision of expansion for his safety net plays out.

As previous successes at ACMC have, the outcome will rest not on him but on employees. "Employees do the work every day," he says. "I can have a grand vision and put some things in place to create some of this, but it really all comes down to execution at the front line."