The departure of a CEO can severely disrupt an organization's progress, especially when the leader leaves suddenly without a clear successor.
Despite the well-known need for succession planning, an alarming number of healthcare provider organizations are chugging along without a plan in place, just hoping that their top executives stick around for the foreseeable future.
Forty-nine percent of hospital and health system boards lack a formal CEO succession plan, according to the American Hospital Association Trustee Services 2019 national healthcare governance survey report. That leaves them vulnerable to the disruptive gusts of a CEO's sudden departure, and it can inhibit their ability to pursue longer-term strategies by leaving them overly dependent on one leader's vision.
The failure of these boards to formalize CEO succession plans is outrageous and unacceptable, says Jamie Orlikoff, president of the Chicago-based healthcare governance and leadership consulting firm Orlikoff & Associates Inc. and board member of St. Charles Health System in Bend, Oregon.
"Whatever the reasons are, it's just a fundamental and inexcusable abrogation of a basic governance responsibility, so I am nothing less than shocked that the figure is almost 50%," Orlikoff says.
Why Plans Aren't Made
There are typically a few basic reasons why an organization may be slow to finalize a CEO succession plan. Perhaps the current CEO just doesn't want to talk about it, Orlikoff says. Some executives are more comfortable talking to their families about their own life insurance plans than they are talking to the board about what to do in the event of their sudden departure, he says.
Or perhaps it's the board members who don't want to talk about it. Orlikoff says at least four board chairpersons for various organizations have told him in the past seven years that they don't want their current CEOs to leave and that they don't want to think about succession planning because the recruitment process is too burdensome.
Or there could be an unhealthy power dynamic between the CEO and the board, with the CEO asserting control over tasks that should be handled by the board members, Orlikoff says.
What makes the relationship between the CEO and the board so tricky is how it ties together two distinct relationships. On the one hand, the CEO and the board are strategic partners defining and executing a shared vision. On the other, they are an employee and an employer.
"Those are two very, very different and very important functions," Orlikoff says. "Some boards have great difficulty envisioning the distinction between those two roles."
A board should lean on the CEO as a strategic partner because the CEO is likely to know more about the industry and more about the local market than the board members do, Orlikoff says. But when the board neglects to assert its proper place in the employer-employee relationship, the CEO may be given free rein over a broader scope of issues than is appropriate, and that can impede the CEO succession planning process, he adds.
In other words, while it's perfectly appropriate for a CEO to groom a potential successor, the board should not defer to the CEO's selection, and the CEO should not insist that the board do so.
How to Fix This
The existence or nonexistence of a formal CEO succession plan is often a symptom of whether the relationship between a CEO and the board is healthy, Orlikoff says. Notably, the task of devising a succession plan is one exercise that can improve that relationship, he adds.
While the detailed steps each organization should take will vary from one situation to another, there are two specific items that Orlikoff recommends:
1. Ask about the mundane threat of a bus.
Whether you're a CEO or board member for an organization without a formal succession plan in place, there's one straightforward question you can ask to kickstart productive dialogue on the topic: What do we do if our CEO gets hit by a bus tonight?
The question is nonthreatening. It doesn't signal a CEO's possible intent to resign or retire. It doesn't suggest the board members are thinking about giving him or her the boot. It simply asks, as a matter of fact, how the organization will maintain continuity in the event of an unplanned CEO departure, just as parents would speak with their families about life insurance, Orlikoff says.
The CEO should tell the board, without any other senior leaders present, whom the CEO would pick to step into the interim CEO role, Orlikoff says. That will inevitably prompt follow-up questions: Would the interim CEO be a good permanent replacement? Which of the requisite skills do they lack? How well do they align with our long-term needs and vision?
The conversations about an unplanned CEO departure will flow naturally into questions about a planned departure. Where are we in the current CEO's contract cycle? When does the CEO want to retire? What skills and traits will our next CEO need to lead the organization into the future of healthcare?
Conversations about an unplanned departure should begin on the very first day of a new CEO's contract, Orlikoff says. Conversations about a planned departure should begin at the end of the CEO's first year, he says.
For a CEO with a five-year contract, the board should start asking halfway through contract whether the CEO wishes to renew a contract or leave the organization, and the board should know three years into the five-year contract whether the CEO wants to stay, he says.
2. Hold executive sessions without the CEO present.
An increasing number of hospital and health system boards are routinely listing executive sessions on their meeting agendas, and that's a good thing, according to the AHA Trustee Services survey.
A slight majority, 52%, of all respondents routinely included an executive session in the agenda of every board meeting, according to the survey report. But 26% of system boards, 59% of subsidiary boards, and 48% of freestanding boards still don't.
Even if a board has an executive session, though, that doesn't mean members are able to fully discuss the topics in their purview. The survey found that CEOs participate in the entire executive session for a majority, 54%, of all boards. That includes 41% of system boards and 57% for both subsidiary and freestanding boards. That deprives trustees of an opportunity to discuss the CEO in his or her absence and might impede the CEO succession planning process, Orlikoff says.
Boards should think of their meetings in three stages, Orlikoff says. The first stage includes everyone in the room, including board members, the CEO, senior executives, and invited guests. The second stage is a modified executive session that includes the board members and CEO only, which is where the majority of the meeting should take place. The third stage should be an executive session with the board members only.
"Confident, secure CEOs know that their boards need to go into executive session without them present occasionally in order to perform certain governance functions. They encourage it," Orlikoff says. "Insecure CEOs or those who are attempting to control and manipulate the board are very uncomfortable with executive sessions and don't want the board going into an executive session."
It's Mutually Beneficial
While it may be difficult to prompt board members to think about a future under different leadership, CEOs who do so are not only investing in the organization's long-term success but also signaling that they are the sort of leader willing to make investments in the organization's long-term success.
"When a CEO goes to the board and says, 'You guys need to do this,' … it demonstrates an incredibly high degree of confidence. It also demonstrates an incredibly high degree of commitment to the organization," Orlikoff says.
"It shows that you're thinking beyond yourself," he adds. "You're thinking about the best interests of the organization, that you're willing to have difficult conversations for the good of the organization."
The board says it is confident the newly appointed top executive will continue to push for innovation and progress.
Geisinger has dropped the "interim" from the title held since last fall by Jaewon Ryu, MD, JD.
Ryu had been interim president and CEO for the Danville, Pennsylvania–based health system since November, after his predecessor, David T. Feinberg, MD, MBA, resigned to take a job with Google.
Geisinger announced Thursday morning that the board appointed Ryu as permanent president and CEO. Ryu had previously served as an executive vice president and chief medical officer for Geisinger for more than two years.
"We conducted an exhaustive national search that included some of the brightest, most accomplished health care leaders in the country," said Board Chairman John C. Bravman, PhD, in a statement. "Dr. Ryu has a strong understanding of the Geisinger organization, in addition to broad clinical and management expertise."
Bravman said Ryu has already fostered a culture of innovative care and driven progress at Geisinger, so the board is confident he will continue to do so.
Ryu said in the statement that he is honored to be named to Geisinger's top executive job.
"The country looks to Geisinger as a leader in bringing world-class care and coverage to everyone we serve," he said. "I am incredibly proud of the progress we are driving in expanding our value-based care model. Geisinger has a bright future ahead, and I am committed to building upon our legacy working with our dedicated and talented physicians and staff."
One reason why the deal won't harm competition is because certain Vantage health plans on the ACA exchange are already priced 60% higher than comparable Blue Cross plans, the DOJ says.
Blue Cross Blue Shield of Louisiana will be allowed to take majority ownership of a competitor, Vantage Holdings Inc., after sign-offs from state and federal regulators.
The planned acquisition, which was announced last fall, secured approval Tuesday from the U.S. Department of Justice Antitrust Division after previously being approved by the Louisiana Departure of Insurance.
The DOJ determined after a seven-month investigation in collaboration with state officials "that the combination of Blue Cross and Vantage is unlikely to result in harm to American consumers," said Assistant Attorney General Makan Delrahim in a statement announcing the approval.
Investigators made their determination after assessing whether the merger would substantially reduce competition among health plans both on and off the Affordable Care Act exchange.
"Vantage's membership in these products has been rapidly declining in recent years," the DOJ announcement said. "Moreover, Vantage has set premiums significantly higher than comparable Blue Cross products, and Vantage therefore does not appear to have a competitive impact on Blue Cross product pricing."
As an example, the DOJ pointed to the New Orleans market, where Vantage's cheapest silver plan this year costs 60% more than the lowest-cost Blue Cross silver plan.
When the proposed acquisition was announced, the organizations said it would help them innovate and wield control over cost and quality, while staying competitive with bigger organizations from outside Louisiana. They also said Vantage will continue to operate as a separate company under its existing management team, with Vantage CEO Gary Jones, MD, continuing to report to the Vantage board of directors, which will have majority representation from Blue Cross.
The organizations had initially said they expected the deal to close by the end of last year. In a statement Wednesday, a spokesperson for Blue Cross Blue Shield of Louisiana said the transaction is expected to close next month.
"We strongly believe the acquisition will allow both companies to grow more strategically and effectively," the spokesperson said. "Our shared focus on the health of all Louisianians further gives us the ability to innovate and impact cost and quality of care, continue to deliver exceptional customer service, as well as remain competitive with larger, out-of-state organizations."
"Following the close," the spokesperson added, "Vantage will continue to operate as it does today, as a separate company run by the current management team."
The parties declined to disclose the price of their transaction last fall, as The Advocatereported. And the spokesperson did not disclose the price when asked Wednesday.
Vantage, a Health Maintenance Organization (HMO) based in Monroe, Louisiana, provides coverage for more than 45,000 members statewide and contracts with more than 15,000 providers in the state, according to last fall's announcement.
Editor's note: This story was updated Wednesday afternoon to include comments from a Blue Cross Blue Shield of Louisiana spokesperson.
The hospitals say the purported surcharge is just a standard emergency department facility fee, like those charged by hospitals across the industry.
Nashville-based HCA Healthcare Inc. has asked a federal judge to dismiss a putative class action lawsuit that alleges unfair billing practices at three Florida hospitals.
The plaintiffs accuse the hospitals of imposing an undisclosed surcharge—more than $3,900 in one case—for services provided in the emergency department. The added fee "is essentially a 'cover charge'" for the emergency department, the plaintiffs wrote in their complaint last month.
The three hospitals, however, argued last Friday in a motion to dismiss that the purported surcharge is just a standard emergency department facility fee, like those charged by hospitals across the industry and approved by the Centers for Medicare & Medicaid Services.
The hospitals—Poinciana Medical Center, Fort Walton Beach Medical Center, and Palms West Hospital—argue the suit should be dismissed because the plaintiffs never paid the fees and were never even sent invoices for the fees.
"Indeed, the only reason they are even aware of the facility fees of which they complain is that they expressly requested that the Defendant Hospitals send them an itemization of full charges," the hospitals wrote.
The hospitals argue, furthermore, that the relief being sought by this lawsuit is mooted by state and federal transparency laws and regulations that already require hospitals to disclose their prices.
In a separate motion to dismiss, HCA Healthcare, along with two of its regional divisions in Florida, argued that the lawsuit failed to distinguish between the health system, its divisions, and the three hospitals. The system also joined in the hospitals' motion to dismiss.
The memo from CMS Administrator Seema Verma acknowledged last year that three potential changes would result in 1.1 million fewer insured people and could destabilize the market.
Democrats in the House of Representatives are putting pressure on Trump administration health officials after the lawmakers released an internal memo showing that officials had been warned about the consequences of implementing three potential policy changes under the Affordable Care Act.
A redacted version of the memo, which Centers for Medicare & Medicaid Services Administrator Seema Verma sent to Health and Human Services Secretary Alex Azar last August, was released to House committees as part of the Democrat-controlled chamber's inquiry into the Trump administration's response to a Texas-led lawsuit seeking to overturn the ACA in its entirety, according to a letter three House committee chairs sent to Azar last week.
Although the administration has implemented only one of the three potential changes mentioned in Verma's memo, the House committee chairs accused officials of seeking to chip away at the sprawling Obama-era legislation.
"The fact that the Trump Administration would finalize policies despite these serious warnings from CMS is deeply troubling," they wrote, "and it appears to be part of the Administration's continuing efforts to sabotage the individual market, undermine the ACA, hinder consumers' access to comprehensive health care coverage, and weaken protections for people with preexisting conditions."
Verma's memo warned that the combined impact of ending automatic reenrollment under the ACA, banning insurers' so-called "silver-loading," and reducing subsidies would reduce ACA enrollment by 1.1 million people in 2020 and could destabilize the market.
The administration maintained the ACA's auto-reenrollment and hasn't banned silver-loading, but it did change subsidies, as Politico's Dan Diamond reported.
An HHS spokesperson confirmed to The Hill's Peter Sullivan that the department received the letter from the three House committee chairs.
"All congressional inquiries are taken seriously by the department and we will respond as appropriate in a timely fashion," the HHS spokesperson reportedly said.
The finding 'raises some fundamental questions' about whether ACOs are prepared to handle catastrophic health events, says MedPAC's executive director.
Beneficiaries who participate inconsistently in Accountable Care Organizations (ACO) under the Medicare Shared Savings Program (MSSP) have much higher healthcare costs than do beneficiaries who never participated in an ACO to begin with, according to a report released Friday afternoon by the Medicare Payment Advisory Commission (MedPAC).
Beneficiaries who participated in the same ACO consistently year after year saw slower cost growth than their peers in the same market. Those who were assigned to the same ACO in 2013-2016 saw spending growth 10.0 percentage points lower than the market average, according to Chapter 6 of the 500-page report.
"That's a good thing," MedPAC Executive Director James E. Mathews, PhD, said Friday in a call with reporters. "It suggests that ACOs are doing something to influence spending growth."
"Interestingly," he added, "we also find that beneficiaries who were never assigned to an ACO over this four-year period also had lower spending growth than the average beneficiary—not quite as much as the ones who were assigned to an ACO but still below average."
Medicare beneficiaries who were never assigned to an ACO in 2013-2016 saw spending growth 1.3 percentage points lower than the market average, according to the MedPAC report.
Those who were assigned to the same ACO for three years, 2013-2015, then switched ACOs or dropped out in 2016 for one reason or another, however, saw spending growth 13.8 percentage points higher than the market average, according to the report.
Mathews said researchers have more work to do to figure out precisely why inconsistent ACO participation is associated with higher spending, but there's a prevailing hunch.
"The dominant theory right now is that the beneficiary experienced a catastrophic health event that may have required them to start seeing a different group of clinicians and thus they got assigned out of an ACO, or if they were not in an ACO, that catastrophic event got them assigned to an ACO," he said.
"We're continuing to dig into this question," he added. "But it also raises some fundamental questions about whether or not ACOs have the tools and apparatus to really be able to manage a catastrophic health event that an assigned beneficiary may experience."
The Affordable Care Act established MSSP ACOs, which began operating in 2012. The program grew to include 432 ACOs with 7.9 million assigned beneficiaries in 2016, according to the MedPAC report.
The full report, which includes 12 chapters on separate topics as MedPAC's statutorily required report for June 2019, is available on the commission's website.
The current president of City of Hope Orange County offered advice and inspiration for women considering careers in male-dominated healthcare C-suites.
When she was a director-level manager and mother of four, Annette Walker, MHA, noticed a similar question came up frequently in the comments board members made to her: "Gosh, how can you do this job if you have all those kids?"
The question, as Walker recalls it, exposed the way some decision-makers implicitly saw her motherhood as a liability. While a father's career choices would likely be affirmed as a means to provide for his family, Walker says, a mother's career choices were being questioned as though they competed with her domestic duties.
Walker says her direct supervisors never doubted her. But knowing that board members' unconscious biases could impede her further promotion, she stopped displaying photos of her children at work and quit talking about her family life.
"It's not that I never talked about it, but I knew who I could talk to about it," she says. "I knew when to be quiet about it."
Walker, who has raised six children, has been president of City of Hope Orange County since last year, and she served previously as president of strategy for Providence St. Joseph Health. She has a few pieces of advice for women pursuing careers in healthcare leadership.
1. Don't Pause Your Life for Work
"There are women who express to me their concern that if they have a baby it's going to really ruin their career, and I always tell them, 'Forget that. You're in the wrong company if that's the case,'" Walker tells HealthLeaders.
"You need to live your life," she adds. "Don't put your life on hold for your job."
2. Don't Wait for an Invitation
Women often still feel the need to seek permission before sharing their views. Enough of that, Walker says: "You've got to claim your seat, claim your airspace in the room."
Sure, sometimes, you will make a mistake or say the wrong thing, but if you consistently say nothing at all, then you will be irrelevant, Walker says.
"Be brave. Be present. Use your voice," she adds. "Don't wait for an invitation."
3. Find Your Personal Supporters
In addition to professional mentors, you need people in your personal life who affirm your ambitions, Walker says.
"I am grateful that I had a husband who supported me in my pursuits," she says.
Even though they married before she knew she wanted to be a healthcare CEO, Walker says her husband has never been afraid that her career might surpass his.
"As my goals became clearer," she adds, "his support didn't change."
There's no quick fix to achieve and sustain gender parity on senior leadership teams in healthcare, but there are specific steps diversity-minded leaders can take to promote women's representation.
There is no shortage of women working in healthcare, but women remain underrepresented among the industry's senior leaders.
Despite significant improvement in recent years, this persistent gender imbalance serves as evidence that much more work needs to be done, says Annette Walker, MHA, president of City of Hope Orange County.
"I think in our industry there's been a tremendous amount of progress made in executives' awareness of women and the potential of women, and you can see that there's considerably more women in the C-suite than there were even five years ago," Walker says.
"There, unfortunately, has not been the same progress in the CEO seat," she adds.
Women fill about 63% of entry-level healthcare jobs, but their representation shrinks at levels of increasing responsibility, as is the case in other industries, according to a report released last week by McKinsey & Company as part of its ongoing Women in the Workplace research.
Women fill half of all the senior manager or director-level healthcare jobs and just 30% of healthcare C-suite posts, according to the report, which studied payers, providers, pharmaceutical companies, and biotechnology firms.
"We were happy and validated to see how high some of the numbers are at entry levels, but I would not go so far as saying we've 'arrived' in achieving gender-equality at all levels across healthcare since there is still a significant drop-off at more-senior ranks," says Gretchen Berlin, RN, a partner with McKinsey & Company in Washington, D.C., one of the report's authors.
The drop-off is especially steep for women of color. While white women hold 41% of entry-level healthcare jobs and 26% of C-suite positions, women of color hold 22% of entry-level jobs and just 4% of posts in healthcare C-suites, according to the McKinsey & Company report.
Walker, who is white, says breaking through from the C-suite to the CEO position was the thickest glass ceiling she has encountered in her career thus far. Walker started out in a clinical lab before serving in leadership positions for several organizations, including as president of strategy for Providence St. Joseph Health before taking her current job with City of Hope last year.
Only 13% of CEOs for payer and provider organizations are women, according to a report by Oliver Wyman consultants who studied the profiles of more than 3,000 executives in C-suites and boards for 134 organizations. And it took women three to five years longer on average than it took men to ascend to the CEO role, according to the report.
Walker says decision-makers still have a lot of unconscious bias against women taking the top executive spot of any organization, and that has a lot to do with a lack of diversity on the boards that oversee those organizations.
"It's still a big challenge, not just for women but for diversity candidates in general," she says.
The racial diversity of boards that oversee U.S. hospitals and health systems has increased in recent years. The percentage of boards with at least one non-white member rose to 58% in 2018, up from 53% in 2014, according to the American Hospital Association Trustee Services national healthcare governance survey report released last month. (That means 42% of boards were still composed entirely of white members last year.)
The gender diversity of board membership overall has been increasing as well, albeit slowly. Almost all boards, 97%, included at least one woman in 2018, up from 95% in 2014, according to an AHA spokesperson who answered questions about the report's underlying data. Women held 30% of all board membership in 2018, up from 28% in 2014, according to the survey report. (Although the survey asked about both race and ethnicity separately, data on the intersections of the two are unavailable, the AHA spokesperson says—so it's unclear how many board members are women of color.)
For diversity-minded leaders who wish to draw more women into C-suite leadership, the Oliver Wyman report outlines three "critical actions" to bring about systematic progress, as discussed in greater detail below: boldly step up your system-level commitment, purposefully level out the playing field through sponsorship and mentoring efforts, and address misperceptions explicitly to build new habits.
1. Hold Yourself and Your Team Accountable
Speaking about diversity in broad terms is easy. Setting specific and measurable goals, however, then following through on them, is more challenging but necessary for any leadership team that wishes to pursue diversity in a serious way, the Oliver Wyman report states.
Does that mean implementing gender-based hiring quotas? Not necessarily. Among organizations with relatively strong representation of women in senior leadership roles, some organizations had established diversity-oriented hiring targets and others rejected such quotas on philosophical grounds.
"I think quotas, frankly, often backfire and are seen as negative," Berlin says. Instead, the McKinsey & Company partner says healthcare industry leaders should assess where their organizations stand, where they want to be, and track their progress, while investing in the structures women with high potential need to progress their careers.
"I think the overall aspiration of reaching gender parity is one most individuals generally align with," Berlin says. "Where the nuance comes in for specific organizations is partially based on your starting point and how quickly you're hoping to move and how boldly you're willing to tackle the issue."
The idea is to set measurable goals that are visible on a senior level and embedded into daily strategy discussions, then track your progress, as you would for any strategic priority, the Oliver Wyman report states.
"In our experience, setting goals for a year or two and reviewing annually isn't enough," the report states. "The goal is to gently remind each other this matters and to use that nudge to change how leaders spend their marginal time and effort."
2. Build a Pipeline Through Conscious Mentorship
The gender imbalance in healthcare leadership (and other industries) cannot be fixed with the flip of a switch. You have to make longer-term investments in sponsoring and mentoring emerging leaders who are still several layers removed from the C-suite, Walker says.
"People don't all-of-a-sudden become eligible for the CEO suite," she says. "They have to be developed through mid-career."
Letting sponsorship and mentorship relationships develop organically isn't enough. That's because humans naturally tend to build affinity with people who share similar backgrounds or common interests, which means male-dominated C-suites tend to form a greater number of informal connections to men than to women, according to the Oliver Wyman report.
"Leaders must find broader ways to create affinity across gender or race if they want to help diverse teams thrive," the report states. "They can't expect the 'in' group to simply ignore the influence of affinity bias. Instead, they need to be made self-aware of how such bias may color their assessment of candidates."
Men and women often have differing perspectives on what effective leadership looks like, which is why it is especially important to clarify as a team what it means for someone in the middle of their career to exhibit "leadership skills," the report states.
Keep in mind, too, that women in the middle of their careers are often also in their prime childbearing years, so you should look for ways to keep them engaged in sponsorship and mentorship opportunities that leave room for motherhood, too, Walker says.
"People don't all-of-a-sudden become eligible for the CEO suite."
—Annette Walker
Although every organization should mentor within its own ranks, Walker says it's important also to participate in collaborative programs with others, such as Women of Impact and the Carol Emmott Fellowship, a 14-month program that offers mentorship to women rising in healthcare leadership.
"Learn what other people are learning," Walker says. "That will speed up the process across our nation and across our industry."
Yale New Haven Health CEO Marna Borgstrom, MPH, agrees that collaborative problem-solving across the industry is needed, which is why she has invested in Women of Impact, the Carol Emmott Fellowship, and other initiatives as well.
"I think we're making progress but probably not rapidly enough," she says.
3. Sustain New Habits to Combat Misperceptions
Borgstrom entered the healthcare field four decades ago, when there were very few women in leadership positions. But she found men in the C-suite who saw her leadership potential and believed in the merits of consciously promoting diversity, she says.
Creating space in which women can support one another has been invaluable, but thoroughly addressing the problems in which women's underrepresentation are rooted requires more than women talking exclusively among themselves about the path forward, Borgstrom says.
"We're going to get everybody much further if we have a shared understanding of the dynamics of the environment we're creating," she says.
That's why Yale New Haven expanded its "Lean In" group—which Borgstrom says has helped hundreds of women articulate and navigate the challenges of leading in the healthcare field—to include men.
Rather than immediately naming-and-shaming men for their own unrecognized biases and assumptions, the goal should be to raise awareness across the board about how these differences in perspective inform the organization's shared self-perception and the road ahead, the Oliver Wyman report states, outlining a wide range of tactics you could employ to combat these misperceptions and misunderstandings to replace them with better habits:
You could implement unconscious bias training or reverse-mentoring to foster conversations about where current problems exist;
You could call in a third-party facilitator to host a discussion in which men and women are encouraged to ask questions without anyone needing to feel defensive; or
You could pair men and women together as peer executive advisors for one another.
Walker says she hopes board members and senior leaders will embrace a broader set of leadership skills, upon reflecting on their own differing views of the skills and traits that make a solid future CEO. There has been an overemphasis, she says, on experience in finance, while women with team-building and team-sustaining expertise are overlooked.
"Yes, you need financial acumen and you need financial skills. But are they the most important to get the leader that inspires, the leader that engages, the leader that can lead people through tough times, not just make tough decisions?" Walker says. "I think being a little broader on what the senior leader needs would open doors more broadly to women."
The meaningful factors driving vertical integration are largely market-based, not rooted in regulation, one professor told a Senate subcommittee.
There are good reasons for the spree of vertical mergers and acquisitions in healthcare these days, witnesses told a Senate subcommittee Wednesday during a hearing on the competitive implications of this type of industry consolidation.
U.S. Sen. Mike Lee, R-Utah, asked why the healthcare industry has been seeing so much vertical integration in recent years and what the main economic and regulatory drivers of that consolidation have been.
Craig Garthwaite, PhD, an associate professor of strategy and director of the healthcare program at Northwestern University's Kellogg School of Management, said there's a broad range of factors driving vertical integration. The meaningful factors, though, are rooted in a rational response to the market, not to regulation, he said.
Garthwaite gave three examples of the market-based factors to which vertical mergers are responding:
One prominent success story, in particular. Some firms that see how well UnitedHealth Group, based in Minnetonka, Minnesota, has been performing after its extensive vertical integration may wish to replicate that success for themselves, Garthwaite said. Analysts have described the recent actions by competing insurers Cigna, Anthem, Humana, and Aetna as trying to catch up with UHG's integrated approach.
Investments needed without clear payoffs. "In time periods of uncertainty about the value-creation process, where lots of firms have to make different investments in the value chain, you might be worried," Garthwaite said, "that you're going to make an investment today that doesn't prove to be profitable to you in the future but might prove to be profitable to someone else in the chain." A provider's investment in retail clinics today, for example, might make an insurer more profitable in the future, he said. "In that type of uncertain world—and I think we're pretty sure that the world of healthcare right now is uncertain and evolving—in that type of world, you might end up seeing more vertical integration."
Rising use of specialty medications. Garthwaite said the healthcare industry is grappling with increasingly complex pharmaceutical products that may sometimes be administered by a physician (and, therefore, covered by a medical benefit) and sometimes be taken by the patient at home (and, therefore, covered by a pharmacy benefit manager). "It's very hard to offer a coordinated benefit in those types of products, which are growing in their importance, if you have one firm that administers the medical benefit and one firm that administers the pharmaceutical benefit," he said.
Participants in the hearing discussed one closely watched vertical healthcare merger, CVS Health's nearly $70 billion Aetna acquisition, which closed last fall but continues to be the subject of a prolonged Tunney Act review process by U.S. District Judge Richard Leon.
"I think this is a compelling merger," Garthwaite said, arguing that the combination might be beneficial in the shifting world of physician-administered drugs. And the "HealthHUBs" being rolled out by CVS offer something resembling direct primary care that might help to control chronic conditions and spending, he said, though it remains to be seen whether CVS-Aetna will attain the success it's targeting.
"That's a hard thing to do, to make people healthier," Garthwaite said. "But now they at least have the incentive to do it; the incentives are aligned correctly. And that's why I think we need to give them a shot, and if they fail, their shareholders will lose money. But that's OK. This is America."
Fellow witness Thomas L. Greaney, JD, a visiting professor at the UC Hastings College of Law, said it's not entirely clear what Judge Leon can or should do in his CVS-Aetna review. But some of the witnesses who testified in opposition to the megamerger earlier this month—such as Diana L. Moss, PhD, from the American Antitrust Institute, and Neeraj Sood, PhD, from the University of Southern California Sol Price School of Public Policy—made a compelling case that the transaction is problematic in the sense that its combined vertical strength will likely disadvantage rivals, Greaney said.
Fiona M. Scott Morton, PhD, a professor of economics at the Yale School of Management in New Haven, Connecticut, said it's time for industry players and policymakers to do away with the presumption that vertical mergers are categorically safe.
Morton said she assisted Cigna in its Express Scripts acquisition and sees value in what the CVS-Aetna deal aims to accomplish but also believes each proposed transaction should be evaluated on a case-by-case basis.
The regulatory agencies, including the Department of Justice and Federal Trade Commission, therefore need more resources to thoroughly evaluate these sorts of deals, she said. Morton submitted a paper she coauthored outlining her views in greater detail.
The health system's new top executive comes from a CHI Health hospital with Level 1 trauma center certification.
St. Luke's, a nonprofit health system based in Duluth, Minnesota, named a new top executive Tuesday.
Kevin Nokels, MBA, FACHE, will become St. Luke's president and CEO effective August 12, taking the place of John Strange, who retired earlier this year after more than two decades at the organization's helm, the board of directors said.
Nokels currently serves as president of CHI Health Creighton University Medical Center–Bergan Mercy in Omaha, Nebraska. He was selected to lead St. Luke's after an executive search firm helped the system narrow down a list of more than 100 initial prospects, according to the board's announcement.
Jeff Borling, who chairs the St. Luke's board and its CEO search committee, said the system is fortunate to have found Nokels.
"Kevin has the vision and leadership qualities that will allow St. Luke's to continue thriving," Borling said in a statement. "He has also demonstrated a commitment in his many years of experience to ensuring that care is patient centered, which is certainly at the core of everything St. Luke's does."
St. Luke's is a two-hospital system with more than 40 primary and specialty care clinics serving northeastern Minnesota, northwestern Wisconsin, and Michigan's Upper Peninsula.
News of Nokels' departure from CUMC–Bergan Mercy comes two years after the hospital's trauma center relocated to a new facility, which later secured certification as a Level 1 trauma center, as the Omaha World-Herald reported.
Nokels said in the St. Luke's statement that he's looking forward to working with the system's "great medical staff and team."
"I see this as an incredible opportunity to make health care even better in the region," he said.
