Many of my colleagues and I have been steeped lately in conversations with hospital leaders that generally focus on expectations of declining reimbursements, standardization, efficiency projects and the feeling of general malaise about the difficulty of running a hospital or health system profitably. Why then, are so many players pushing their cash into inpatient care through hospital and health system purchases?
Many forces are pushing hospitals to consolidate—and predictions overall are that healthcare will become more efficient and more patient-friendly because, if nothing else, their very survival depends on it.
We hear a lot of negativity from senior leaders at many hospitals and health systems who bemoan the cuts in staffing and even services that they feel might be necessary to compete in a reformed healthcare system, where spending is dictated more by value than volume.
But if malaise is in hospitals' future, you wouldn't know it from the interest emanating from the Wall Street crowd. Why, for instance, are so many private equity companies jumping into healthcare? They don't make huge investments like Cerberus Capital Management's purchase of Steward Healthcare (nee Caritas Christi) in the Northeast or Vanguard's acquisition of Detroit Medical Center to lose money, after all. (Though publicly traded, Vanguard is significantly owned by private equity stalwart, The Blackstone Group.)
This conflict between mood and money has interested me for some time. Finally, I have a bit of an explanation, though I'm not sure I completely buy it. According to IBISWorld, a business development market research company, several sectors within healthcare promise huge growth potential over the next five years. The catalyst? You guessed it: healthcare reform.
Specifically, IBISWorld points to the recent (September) start date for a rule that requires states to scrutinize health insurance rate increases of 10.0% or more for policies sold to individuals and small businesses as part of the regulations for state-level health insurance exchanges, mandated by the Patient Protection and Affordable Care Act.
What their argument boils down to is this: Cross-subsidization will carry the weight. Yes, the ability of hospitals and health systems, among other medical sector groups, to leverage strong revenue gains depends on a method of gaining higher payments from private insurers to subsidize inadequate government payers. Many, many people have predicted the demise of cross-subsidization, targeting it as a big reason for decades of ridiculously large healthcare cost increases. Let that sink in for a moment.
Not to overstate things, but IBISWorld put some serious work, and their reputation, on the line with this prediction. These are the sectors it identifies and their potential revenue gains from private insurance over the next five years:
"Several healthcare industries rely heavily on payments from private health insurance. Since much of the healthcare reform legislation is still being debated, the move to issue rules is at least one indication that these industries will ultimately gain from the legislation in regard to having a broader and more stable customer base.
Revenue is forecast to improve in these industries with the implementation of the exchanges. Moreover, operating profit margins are projected to rise since commercial insurance payments make up a larger source of operating profit than government programs, such as Medicare and Medicaid. During the five years to 2011, operators in the listed industries have grown increasingly reliant on payments from private insurance. Government program payments, particularly Medicare, either barely cover the cost of providing care or reimburse at rates lower than the cost of care. Consequently, companies have been charging commercial insurance companies increasingly higher rates in order to make up for the shortfall in Medicare payments."
Well, we all know that. The key question is, can it continue? IBISWorld's argument is that more of the patient base will be covered commercially under exchanges, and that hospitals and health systems will retain pricing power.
I'm not so sure it's that simple, but if it takes a 10% annual increase in rates to draw regulatory scrutiny, maybe they're right.
Based on their scenario, and this is a big leap in guesswork by me, maybe the reason so many investors are interested in hospitals and health systems isn't that they think the hospital itself will be profitable long term, but that it provides a natural "holding company" model in which the owned physician practices, labs, EDs and other affiliated partners bring the profits. But hey, hospitals are in the list too, so maybe they're ultimately winners as well.
All that said, I don't know if I buy their argument. Do you? I'd love to hear from you if you agree with their conclusions.
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We spend a lot of time and effort trying to educate ourselves, and you, about the realities of healthcare reform. In many cases, the bottom line seems to be that your bottom line is poised to get ever tighter in the coming few years.
While our focus on the measurement and process re-engineering on which many hospitals and health systems are embarking is appropriate, let's not forget the prominent role that the Internal Revenue Service is about to play in healthcare reform.
We are at its beginning stages as the forms you must complete to justify your nonprofit status increase in complexity and detail. But in the future, much of your hospital or health system's story will be told by your IRS filings, says Michael Regier, senior vice president and general counsel for VHA Inc., and a noted expert on tax matters.
Not only that, but you might want to consider that a future in which your nonprofit status will be judged in part by the way you tell that story, is probable, if not inevitable. Regier and other experts will convene Oct. 13 for a HealthLeaders Media webcast about the agency's increasing involvement in healthcare, but, in search of a sense of the seriousness with which healthcare leaders are treating the new regulations, I thought I would try to catch up with him prior to that event.
"People don't realize how much of healthcare reform has been assigned to the IRS," says Regier. "From the individual mandate to tax credits to all these new provisions for nonprofit subsidies, the IRS will be the regulator. The IRS itself is still getting its arms around it."
One of the most recent requirements for nonprofit hospitals and health systems deals with the community health needs assessment, which must be performed at least once every three years. Further, the hospital or health system must make that document widely available to the public, along with a written implementation plan.
In full, new IRS regulations require 501(c)(3) organizations to complete the following:
Adopt and implement written financial assistance and emergency medical care policies,
Limit charges for emergency or other medically necessary care,
Comply with new billing and collection restrictions, and
Conduct a community health needs assessment at least once every three years (this fourth requirement is effective for tax years beginning after March 23, 2012)
Though more detailed than they're used to, "this is not unfamiliar to the nonprofit sector. They've been dealing with community benefit planning," says Regier. "The difference is that it's never been a toll gate to get or maintain tax-exempt status."
The implication, says Regier, is that eventually these reports will be used by the agency to determine baseline measurements of the cost and benefit of various community benefit programs across the nation—a way to compare and contrast with an idea that some minimum standard might be implemented in future years.
In completing the community health needs assessment and action plan, Regier says, one huge complication has already arisen. Regulations seem to indicate that hospital facilities must satisfy these new obligations on a facility-by-facility basis. That means multi-facility health systems can't use one document for the entire organization—instead, the forms must be filed by each facility.
"It's the place where the IRS could give multi-hospital systems the most heartburn," Regier says. "They want to be able to do one system-wide community health needs assessment. If you require facility-by-facility implementation plans, you may lay on duplicative and unnecessary costs."
Regier says he worries that longer term, the IRS is constrained by the legislation into setting this needs assessment process up in a way that may not move the healthcare system toward the health policy goals of paying for population health management rather than paying for volume.
"The community needs health needs assessment could be a powerful tool on population health management," he says. "But if we set up a system that has the unintentional effect of making hospitals define their community as narrowly as possible, you don't use this tool and you suboptimize its ability to manage population health. At the same time, the IRS has to live with the statutory language they've got."
Regier predicts Congress will again have to weigh in as the process is tweaked, but with the idea that future standards will come from establishing the baseline, Regier says hospitals must do the difficult, almost fortune-telling work of determining where they might fall on the community benefit bell curve.
"In part that's because organizations have established patterns of community benefit work," Regier says. "Will that be seen as adequate? If not, will that put my tax status in jeopardy? Are there squandered investments here?" he asks rhetorically.
The answer is, no one really knows. But the work doesn't have to rely on predicting future standards, Regier adds. He says generally, hospitals and health systems should remember that IRS form 990, the annual information return, is a public relations document in addition to a regulatory compliance document. See if it passes the "smell test."
"Make sure the story of your organization is told in a complete, authentic way and shows you in the best light that you can," he says. "Secondly, don't rely on your form 990 to tell your story to the community.
You have to get the word out, he says, with a public relations effort. After all, nobody will tell your story for you.
Whether you attribute the quote to Otto von Bismarck or Gustave Flaubert, many would agree with the sentiment that watching democracy in action is like watching sausage being made. The punchline is that while you may or may not like the result, the process will make you sick.
In that case, call the Independent Payment Advisory Board one of the sausages that came out of the process of creating the Patient Protection and Affordable Healthcare Act.
In case you forgot, the 15-member board will be comprised of doctors, nurses, medical experts, and consumers who recommend ways to reduce healthcare spending. They are allowed to analyze the drivers of Medicare cost growth and recommend policies to control Medicare costs if spending exceeds a targeted growth rate of 1% more than gross domestic product growth.
They haven't yet been appointed, and their first report to Congress isn't due until July 2014, but debates over their mandate are generating real fear—especially in the physician specialty arena.
Board members will be appointed by the president and must be confirmed by the Senate. The difference between this board and the other major board that recommends changes in Medicare policy, the Medicare Payment Advisory Commission, is that IPAB actually has the power to implement the changes it wants, with key — and very limiting — restrictions.
In fact, Congress must vote to block any of the Board's recommendations or they will automatically become policy.
Even if it does vote to block an IPAB recommendation, Congress will have to find other cost-cutting measures that will make the same budgetary impact as the rejected IPAB recommendations.
Why is that bad?
In theory, it's not.
Although the board does have some power to regulate healthcare costs, which almost everyone agrees are out of control, it wields a blunt instrument where a scalpel would be more appropriate.
In short, IPAB has the ability to single out Medicare reimbursement cuts, but is unable to tweak anything else. That is, the proposals made by IPAB must not include any recommendation to ration healthcare, raise revenues, or increase Medicare beneficiary premiums, increase Medicare beneficiary cost sharing (deductibles, coinsurance, or co-payments), or otherwise restrict benefits or modify eligibility criteria.
That's quite a set of restrictions on something that is intended to do what Congress seems incapable of doing—reining in Medicare spending growth. Further, as the law stands, IPAB is prevented from making cuts to hospitals and hospices until 2020, and to clinical labs until 2016.
Conversely, it can make changes to physician reimbursement as soon as it is up and running. That's why many are predicting that medical specialists will bear the most immediate burden from IPAB's reaction to out-of-control healthcare spending growth.
But the restrictions on its power mean it won't be the benevolent dictator many wish for in healthcare. Instead, it will be forced to use the blunt tool of rate cuts, where a more nuanced approach might be the better solution. Of course, that would mean granting the board more power.
President Obama, in his latest attempt at a grand legislative bargain on deficit reduction, has recommended that IPAB be given broader authority to make its decisions—and at a lower budgetary threshold of 0.5% growth over GDP.
The Board would also be allowed to consider other, more surgical interventions to curb cost growth that would focus on value-based benefit design—something the current version of IPAB is unable to do. But it's tough to see Congress agreeing to the President's recommendations concerning IPAB, because even though it does not yet exist, IPAB has made powerful enemies.
Almost, if not all, Republicans, never wanted the board in the first place. Neither are many Democrats enthused, fearing that IPAB could limit access to medical care if reimbursements are cut to a level that would cause some providers to stop seeing Medicare patients.
What legislators ignore is that some group is going to have to take responsibility for making tough decisions on healthcare costs. Congress has already proved itself incapable. Should all the work be done by one group?
Possibly. If so, and if IPAB is that group, one of its biggest problems is not that it has too much authority, but rather that it does not have enough.
Who hasn't heard a story, whether apocryphal or not, about the chain-smoking doctor or the 350-lb. nurse? I've seen both with my own two eyes, but of course, those random samples obviously aren't representative of the group—are they?
Maybe they're a little closer to the truth than we realized. It seems that hospital workers are among the unhealthiest of us all. And—hold on to your stethoscopes--there's actual science to back up that claim. A new Thomson Reuters Healthcare study says that hospital workers not only are generally sicker than the general population, but that they spend about 10% more on healthcare services and consume more of those services.
The study analyzed the health risk and utilization of 1.1 million hospital workers and compared them with 17.8 million health plan members across all industries nationwide.
Among the interesting nuggets:
Hospital employees and their dependents saw their physicians less often than the general public, but were 22% more likely to make an ER visit and spent 18% more time in the hospital if they went there.
The average annual cost for healthcare for hospital workers and their dependents was $4,662, or $538 more than the general population.
Hospital workers, the study authors speculate, are more likely to access expensive healthcare services because they are so convenient, and they may access care more frequently because they are more in tune with their symptoms, and the disparities do not result from hospital workers' increased exposure to communicable diseases.
A hospital or health system with 16,000 employees would save an estimated $1.5 million annually in medical and pharmacy costs for each 1% reduction in health risk.
It's that last nugget on which I really want to focus.
Granted, most of you who are reading this aren't leading institutions of nearly that size. But even if you halve those numbers, you're still talking about serious cash. So what's a leader to do?
Well, you could start by making some of the changes many employers and health insurers are making by creating real incentives that work for employees to take better care of themselves. Leadership means getting the people who work for you to live healthier lives.
And oh yeah, there's also a financial benefit involved. That means adding smoking cessation programs, wellness benefits, chronic illness management and monitoring—and when those aren't enough, you bring in the sticks—higher co-pays, higher coinsurance, and higher premiums for those who refuse to at least try to live healthier.
I'm not smart enough to figure out all the ways you could incent your workers to live healthier—that's your job—but there's plenty of help available.
Some health systems are already doing this. But clearly, the majority is not as successful with this imperative as they would like. Perhaps they're not giving it the kind of attention those hard savings numbers would seem to warrant, but you're transitioning from a sick-care system to a healthcare system already.
Through accountable care arrangements with your payers and reimbursement incentives/disincentives from CMS, among other initiatives designed to improve the continuum of care and cut costs, you might as well practice this challenging work on your own employees.
Better get going. It seems as though you're playing catch-up.
One of the old (but funny) jokes about consultants goes something like this: a consultant borrows your watch so that he can tell you what time it is.
There's a lot of wisdom in that saying, especially to Annette Walker, who, truth be told, is married to a consultant. It's a condescending joke, undoubtedly first told by a cynic, but it means that you essentially hire a consultant to tell you something you already know, or should know.
Walker and her colleagues at St. Joseph Health System in Orange, CA, have taken the old joke to heart.
"To some extent, every consultant relies on your internal knowledge," explained Walker, St. Joseph's senior vice president of strategic services. "And they have to repackage it and turn it around and give it back to you."
You could say that Walker and her team have "insourced" that concept. Essentially, St. Joseph's strategic services team, started two years ago from scratch, serves as a consulting group available to any clinical or administrative team in the healthcare system. But competition for their expertise is fierce, says Walker. That's the way it's supposed to be.
In part, the health system's senior executives are owed this service, because each senior executive has donated at least one member of his or her team to serve in the group.
"It was a challenge to get people to give up their right-hand person," Walker says. "The CEO had to do some convincing."
After all, it was the CEO's idea, as a way to both save money and utilize the talents and institutional knowledge of the people who already worked at St. Joseph's. The strategic services team would not report to a management silo of any kind. Instead, it would lead process improvement teams or other specialized projects identified by the senior leadership team as ideal for a consulting engagement.
Walker, who had control over who came to the team, recruited people with diverse skills in quality, marketing, IT, and clinical analytics, among others.
"Everyone was the master of some skill, and there was not a lot of overlap," she says, adding that "we didn't know what areas we wanted at first."
With so many unknowns, Walker built gradually -- looking for people who had demonstrated a track record of flexibility and success.
"It was not so scientific -- we said we want people who could live with some ambiguity and who [would be] comfortable working on a finance project today and a marketing project tomorrow," she says. "We also wanted people who would be comfortable working under a much different leadership style."
She ended up with a 16-person team that could be deployed SWAT team-style to pressing strategic issues the system was likely to face. That was two years ago.
Walker resisted the temptation to develop any type of reporting structure for a year because she wanted team members to realize that no priority—not even their former boss's wishes—was bigger than any other.
"We wanted people who could effectively float to the needs of the organization and leadership was based on the need," she says. "In healthcare, people have traditionally been comfortable with lines of authority. We wanted to change that."
The team meets for a half hour (and no longer) every Monday at 8:00 AM. They all stand so as not to get too comfortable. They use whiteboards to detail all the work currently in process. The team talks about what needs to get done this week and whether team members assigned to certain projects need to enlist help.
"Is there any dissatisfaction that I need to talk to one of the executive sponsors about?" Walker asks rhetorically, in her staccato meeting style. "Sometimes that person might be the holdup, and I might need to intervene."
The team incorporates individuals that come from both management and non-management backgrounds. It consists of one vice president of business development and the vice president of marketing. There are three associate vice presidents: one in quality, one in finance, and one in communications. It has four "generalist" directors, two project managers and four analysts.
The diversity of the work depends on the needs of the executive "sponsor." Consultants on the strategic services team dowork ranging from writing manuals, to business assessments, to business plans.
Team members wrote one business plan for wellness, and another for telemedicine. In the first nine months, Walker estimates the team saved the healthcare system $3 million for worth that would have otherwise been outsourced.
What has been difficult? Getting team members to report their productivity in the same way as in a consulting agency, "because healthcare people don't do that," Walker said.
The system hasn't abandoned the use of consultants, but it is very choosy on when to use them. For most projects, Walker says, the strategic services team already knows the background information and history of problems that could take a significant amount of time to educate an outside consultant, "which you also pay for," Walker adds.
Walker says she expected the program to succeed, but is "blown away by the results. Not only by the performance, but the level of excitement and happiness they have with their jobs. They are learning faster, and we just did an employee satisfaction survey. On every score, we got 100%. National benchmarks are 70-80%."
Walker makes sure her team acts in another way exactly like consultants. When the project is over, they're gone. "This is one-time work and then you leave it," Walker says. "Don't assume responsibility for how it is run."
If you're a CFO reading this because you were attracted to the headline, I can read your thoughts:
"It's about time somebody noticed!" some little voice in your head has to be saying.
That's because when you're doing your job right, nobody seems to notice much. But we notice. In fact, CFOs are the linchpin behind a new HealthLeaders Media conference launching next month.
We're bringing 30 of the best and brightest healthcare CFOs together to an invitation-only retreat at Torrey Pines in Southern California to talk about the stresses and opportunities in today's rapidly changing healthcare business environment. I'll be one of the moderators at the event, and the location couldn't be better.
I'm hoping the ideas we kick back and forth over two days of intense focus will help us understand the important realities of the immediate and medium-term future as they affect hospitals and health systems—from the CFO's vantage point.
All right, I'll grant you, handling the money isn't the sexiest of jobs, but it's definitely one that has all the answers—at least your boss and the several thousand people who depend on your forecasts and decisions think so.
The CFO's desk is also the place where strategy meets execution. Once a major strategic change has been adopted, it's among your responsibilities to make sure there's proper investment and oversight to implement it effectively.
Further, CFOs are bringing a variety of new talents to a job that only historically looks rote and boring. They are becoming de facto business development experts in addition to their role in allocating and monitoring expenses and income.
We've done some pre-event surveying to check the pulse of our group on a bunch of trends in healthcare, and although we're keeping a pretty tight lid on the results for now, I did see one or two that I feel compelled to mention.
For instance, our group of CFOs seems pretty confident that CMS's Value-Based Purchasing initiative won't sound the death knell for their institutions, though it might cause a little belt-tightening.
In fact, in the first year the incentives are put into place, 2013, nearly 20% of our group expects to see revenue gains compared to the prior year. More than 50% thinks its revenues will be flat—no cause for celebration, yet a surprising result in its own right —while about 30% think the initiative will cause a net loss compared to the prior year.
In another question, answers were perhaps not so shocking. For example, our CFOs predict that HCAHPS (Hospital Consumer Assessment of Healthcare Providers and Systems) will give them the most difficulty in reaching improvement or performance incentives—far ahead of such other choices as hospital-acquired infection measures or heart failure measures.
It will be interesting to see what new ways our group of CFOs is monitoring and acting upon the big trends in the healthcare business, from ACOs to cost containment to ICD-10 to Value-Based Purchasing. The initial and most important decisions surrounding these macro trends in the industry will be made with considerable input from this group, and we plan to dig deep on their solutions, challenges and expectations for the coming years in healthcare.
We are in a period during which we'll see perhaps the biggest amount of change in history as healthcare moves from being a service provider and price setter to a value creator and service differentiator.
Now before you fire up your email eviscerations and your Twitter tirades over that statement, let me finish. Of course, this is not always true. And sometimes when physicians exhibit disrespect, they have good reason.
Authority suggests being dictated to. Leadership suggests collaboration.
It's been said that physicians will adapt to changes in practice if they get data proving it's the best move for the patient. Banner Health, a 14-hospital system based in Phoenix, is testing that assumption.
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Before ACOs, bundled payments and the continuum of care became the coin of the realm of healthcare, leaders at hospitals and health systems were often seen by physicians as following their own interests (and to be fair, vice versa).
That is, the interests of the hospital or health system, which often didn't coincide with the interests of the physicians who were being dictated to. Thus, they did not follow. But smart organizations are changing the way they seek to lead physicians to new ways of practicing medicine in which the patient's well being is the key.
Thus the overused buzzword 'physician alignment.' But boiled down, the key might just be that they're injecting physicians into the leadership structure—something hospitals and health systems have had trouble doing in the past.
John Hensing, MD, is executive vice president and chief medical officer at Banner. I interviewed him as part of this month's leadership story in the magazine, "Time to Trash Your Org Chart?" but I didn't have enough room to use his interview in the article. That's a shame, because he and his colleagues are working on some innovative stuff from a leadership standpoint, evidenced by the fact that Banner is making a big effort to include physicians at the top of the leadership food chain. You can see why it just snagged one of HealthLeaders Media's Top Leadership Team Awards.
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"Where we're going will require an even higher level of clinical performance, financial discipline and sustainability," he says. "We're moving from a services-based to outcomes-based industry. That means clinical leaders will be essential."
Within the past five years, Banner has grown its CMO base more than eightfold, from three to about 20, and most of them are facilities-based, meaning they (presumably) understand the problems and unique situations facing practicing physicians at particular hospitals and physician practices. Edicts don't come down from on high anymore, rather, the local CMO works with physicians to tailor solutions in an environment where fee-for-service will become less common and reimbursement will be at risk, says Hensing.
The individual hospitals can serve as demonstration projects, if you will. Every fourth Wednesday, Hensing convenes a meeting in which the he and the CMOs who report to him spend four to five hours discussing initiatives and performance targets and to review overall strategy.
"We are fortunate to have a single board of directors overseeing fiduciary and quality accountability for every operating unit," he says. "That includes not only the hospitals, but the surgical centers and medical groups. All of our entities report clinical and financial performance up to a single board. That allows us to have a very important tool for standardization. Second, we have a single senior management team that reports to that board. All clinical leaders report to me. It's an operating company model with direct reporting to a central leader. That's uncommon in the nonprofit world."
In terms of establishing standards, physicians aren't dictated to. Instead, Banner convenes various leadership groups which determine the ways to achieve quality of care and outcomes targets -- for instance, adopting standardized antibiotic administration -- based on physician-generated solutions, of which there are dozens.
In fact, Banner currently uses a group of physicians and other clinicians who meet in a series of clinical consensus groups to establish standards in 12 different areas.
"It's really designed to adopt clinical rather than operational standards," he says. "It's not designed to grow business like a typical service line."
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Why? Well, for starters, no one's exactly sure how patient care standards and outcomes measures will evolve over time.
"If we're all doing it the same way, we're more able to tweak it later," he says. "We believe if we're all doing it the same, we're a lot more likely to be able to improve than if we're all thinking we're doing it the best."
Banner's annual strategic initiative process measures clinical performance, and the publicly reported ones, such as pneumonia, asthma, and surgical care are essential, he says. They're measured on a scorecard that's reported transparently throughout the organization.
Hensing says a key change in the attitude physicians take on the initiatives is reflected by the board's trust in site-specific CMOs and chief nursing officer.
"The key leaders at our hospitals are the CMOs and the CNO," he says. "They are partners in clinical performance at the facility and are key in their ability to work together and to prioritize a collaboration. Nursing is at least as important."
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Though Hensing doesn't think Banner has exactly figured out the challenge of motivating practice changes in physicians, it has changed the often contentious nature of the relationships between physicians and "corporate." When physicians think of autonomy as being able to do what they think is most effective for the patient, they're on the wrong track, he says. Decisions have to be backed up with clinical data.
"Acquiring clinical knowledge does not qualify you to provide better care," he says. "It's an essential but insufficient feature."
At this point, Banner is in the process of analyzing cost, processes, and clinical processes. "Do we have length-of-stay or cost variation that allows us to determine our complication rate? Our mortality, our morbidity? If there's high variation we want to go after that."
Banner is working hard on standardizing colon surgery now because it has identified that high levels of variation exist between hospitals and even individual surgeons in the system.
"This is not a fast process, it will take several months to assess data, make recommendations, and get to design for implementation," Hensing says.
So I think I'm correct in making the statement that physicians don't respect authority. In the past, as a group, they resisted being told how to better practice their craft not only by administrators without the MD title, but they also resisted those who did have it.
The assumption was that these authority figures could no longer be trusted because they'd gone to the "other side." That is (or was) that the physician in the leadership spot was representing the hospital's best interests on standardization of practice or medical implants or devices, because it favored the hospital's business activities, not necessarily because it had anything to do with improving patient care.
In many cases, as Hensing and his colleagues show, we've come a long way.
John Haupert is used to doing a lot of listening and research. That habit will be tested as the new CEO of Atlanta's Grady Memorial Hospital, the city's public hospital, takes the reins in October. The erstwhile chief operating officer of Parkland Health & Hospitals in Dallas was named Monday to head a hospital that less than three years ago was mired deeply in debt and political strife.
Before predecessor Michael Young took over Grady in September 2008, the hospital's operational oversight had been turned over to a private, nonprofit corporation in the wake of several years of financial missteps, a series of failed and controversial leaders.
Young, seen as a professional "fixer," after resurrecting the public hospital in Buffalo, NY, did as advertised, and dramatically improved Grady's financial underpinnings while driving a culture of innovation and quality improvement. Then he moved on, by heading back home to lead Pinnacle Health in Pennsylvania.
His brash style and bold decisions put off many, and, despite his successes, like many former Grady CEOs who didn't achieve much, Young's departure was undoubtedly welcomed in certain circles.
Such is the nature of a public hospital CEO's lot. Unlike many other hospitals or even large health systems, everyone seems to have a stake, and a say, about the decisions made concerning a public hospital.
No matter what decision you make as the leader, somebody's not happy. Haupert, still quite busy as COO of Parkland, is overseeing the construction of a $1.27 billion hospital and campus, had been seen as the possible successor to longtime Parkland CEO Ron Anderson, MD, who's been at his job 30 years. Haupert's opportunity, it seems is now, and it's not at Parkland.
So, a public hospital on the mend has its man, but will he be able to keep the momentum without ruffling too many feathers to be successful? I spoke with Haupert hours after his confirmation as the new CEO by Grady's board. Following is an edited transcript of our conversation:
HealthLeaders: How do you feel following the board vote?
John Haupert: It's exciting. For the next two months, I'll be in in-between-land between hospitals. So we've got a lot to get wrapped up between now and September.
HL: Where do you start at Grady?
Haupert: As with any transition, you start by doing a whole lot of listening and research. There are lots for me to catch up on how Medicaid funds are flowing in Georgia, and to really understand their whole revenue cycle. That's the starting point.
Texas has one of the lowest (Medicaid) rates in the country. Georgia is a bit more attractive. You can see the impact that's had on Grady. In fact, they've experienced declining OB cases because Medicaid is more attractive to private practitioners than it is here. Part of that whole revenue cycle look will be how to position Grady from a service level, because the quality is already there.
HL: You're familiar with the turnaround work of Michael Young, your predecessor, who's known as kind of a fixer. What role do you see yourself playing as the new CEO? Haupert: I'm definitely a consensus builder and my tenure will be about developing consensus that will lead to the institution's long term viability. Most of the challenges are physical plant-related. The problem for Grady all along has been on the net revenue side.
How much of DSH and upper payment level funding is actually flowing to the institution? Mike did a lot of work on the revenue cycle, but Grady is not complete with that turnaround. Another area they've paid a lot of attention to is on service to patients, and that's another area that has be exploited going forward for Grady to build profitable market share.
HL: Parkland is among the top one or two public hospital systems in the country, by a variety of measures. What fiscal disadvantages does Grady have compared to Parkland?
Haupert: The two systems have a lot in common. They operate large acute care hospital enterprises at the main campus. We're both in downtown areas. Parkland's primary care network is larger and looks different in terms of how we've intensified the capacity and size of the offices so they can see between 20,000 and 80,000 annual visits.
Most of Grady's are around the 20,000 level. There's probably a need to expand that primary care practice to get preventive and chronic disease care into the communities. The hospital itself is a 1950's facility and there are no plans to replace it. Parkland is fortunate to have an allocation from the property tax that brings in around $370 million annually. Grady has nowhere near that contribution from the counties flowing into its mission. The big puzzle is to make sure the funding is there to continue the mission.
HL: What immediate measures do you plan to take to make Grady into center of clinical excellence?
Haupert: I will have to make that call once I get there. Their relationships with Emory's and Morehouse's medical schools are really solid. I met with leaders at Emory when I was there and I came away very impressed with their commitment to Grady and the care provided. I don't have any grave concerns about quality, but I can look at it more closely once I get there.
HL: What are the political differences between the two, best you can tell?
Haupert: One of the big differences is that the business leaders of Atlanta back in 2008 approached the county commissioners about taking over the governance of the hospital. Since that happened, it's had a really positive impact.
Commissioners are well-intended, but you want a consistent stable governance structure and the business leaders have provided that. And the Woodruff Foundation's $300 million tied to that change in governance is a huge plus for Grady, compared to other public hospitals. As you know when you mix politics with governance, politics sometimes wins out and it's not the best for the patient.
In Texas, each public hospital is single-county based. The issues are the same. There's more demand for care from the uninsured and underinsured than there is money to provide it. It's working with those counties to figure out how best to use the dollars available.
But [there aren't] enough dollars to do everything that everyone needs. One of the big issues for Grady is that do you provide care to people in counties outside of those that support you with funding? The board at Grady has been discussing whether they can continue to provide that. We have that discussion here at Parkland all the time, and have pushed the legislators to give up something, especially in the outer counties, and that's not easy.
HL: Can you think of one particular thing in your career that has prepared you best to take this step, what would it be?
Haupert: So often executives go into difficult situations with their own version of a fix and don't take time to create the level of buy-in or collaboration that is needed to make that fix. I do take that time. That's just a part of who I am. It has served me well in my career, and they want someone who will invest the time to create lasting relationships and lasting improvement. These things are never just a quick fix.
HL: Michael Young made some unpopular, but mostly ultimately vindicated moves to turn Grady around financially. What initiatives were left unfinished, and what would you like to carry over from the previous regime?
Haupert: Several things need to be enriched. The way he went about productivity management is in place, and it was good. The revenue cycle work is huge--that has got to be continued. The focus on patient satisfaction that Mike began is still in its beginning phases.
He had really started looking at clinical service lines that weren't available in the market to try to create them in partnership with other institutions. They did that with stroke care, which is an amazing program that is not duplicated elsewhere. We need to find more like that. Those kinds of programs create profitable growth for the system which funds care for the uninsured and the poor.
One line of departure from the previous strategy would be reflected in my thoughts about how to balance the use of funds between the community clinics vs. acute care. We need to make an investment more on the community side than on the acute side.
I had a nice conversation with Sister Mary Jean Ryan last week. If you don't know why that was a privilege, you don't know who Sister Jean Ryan is. If that's the case, and you're in healthcare leadership, you just haven't been paying attention the past 30 or so years. The Franciscan Sister of Mary has actually spent 25 years (but who's counting?) as the first ever president and CEO of SSM Healthcare, the 15-hospital, four-state health system based in St. Louis.
A couple of days after we spoke, the 73-year-old retired, and just like that, one of the last sister CEOs was gone from running the day-to-day operations at one of the nation's most lauded health systems.
It really wasn't a surprise. Her retirement had been previously announced, and her successor has been groomed for years. In fact, Sister Mary Jean insists that she's not actually retiring—just transitioning.
"I don't consider what I'm doing to be retiring," she said.
She's relinquishing the president and CEO title but is remaining chair of SSM's corporate board. She also has three international trips—to Hong Kong, Singapore, and Sweden—coming up in quick succession as part of her effort to spread the gospel about quality in healthcare.
"If this is retirement, I'm going to go back to working," she jokes.
As I talked to her, she was busy whipping her home office into shape, grumbling softly about computers, modems, and other trappings of the home office lifestyle.
In case you don't know, Sister Mary Jean is kind of like one of those pop stars for whom no last name is necessary—at least within healthcare leadership circles. Her most lasting legacy outside SSM will be her pioneering work in the area of healthcare quality.
Inside, she says, "if people only remember that everything I tried to do was for the patients we serve and our employees, I would be happy with that. I've tried to convey to our people that I would never make a decision that involved the whole system if it didn't benefit the whole system. Everyone within the system gets their turn at benefiting more. I hope that people have understood how important that was."
Sister Mary Jean began her healthcare career as a nurse more than 45 years ago and recently celebrated her 50th anniversary as a member of her order. She's most well-known in healthcare for her embrace of continuous quality improvement philosophies to achieve excellence in healthcare quality.
"I look on 1990 as a pivotal year, because that is when we made decision to have a formal continuous quality improvement way of doing our work. It's not a program, because programs come and go. It's a way of life."
In 2002, the system became the first healthcare organization in the nation to receive the prestigious Malcolm Baldrige National Quality Award. Since that time, Sister Mary Jean has worked tirelessly to share SSM's lessons with others in healthcare and in other industries. But learning the lessons involved in the Baldrige quest wasn't always easy on the ego, she says, especially at first. Most organizations try for multiple years before they win a Baldrige award, and SSM was no exception.
"The Baldrige people put it to us this way: 'You want to be exceptional but we don't see that. You've compared yourself to the average.' As a result, every single year, we've refined and always look for improvement."
But what's best about Sister Mary Jean is not the awards and, yes, fame, that have come from SSM's journey under her watch, but her philosophy on leadership.
"You can talk about leadership and most people would talk about executives, but it exists at every level of the organization," she says. "Our employees go home, and when they get home, they become, in effect, the CEO or COO—and every other position—of a small corporation called a family. They do the planning, the teaching, in service education, transportation, maintenance, and long-range planning. We don't want them to come back to work and lose that leadership they've exhibited, because that's a waste of talent."
As a result of this philosophy, SSM has organized its CQI work under team-based leadership groups that other health systems are only learning, fitfully, to employ now. I'll let her explain:
"We rate highly the work that goes on in teams, and our employees rate it highly, too," she says. "We continue to rely on these people who come to work every day wanting to do a good job in housekeeping, maintenance, accounting, and nursing, and they all come up with great ideas."
With Sister Mary Jean's retirement from the president's office, she says she knows of only a few, "maybe half a dozen," senior leaders who are also member of religious orders in healthcare anymore.
"Our congregation was only in healthcare. That was our focus. We got very good at it," she says. She speaks in the past tense, because her order is no longer recruiting for vocations, and as the sisters age, their numbers become fewer and fewer.
"For those of us who are from congregations of women, this has been our life," she says. "What we recognize and appreciate is that for people we work with, it's not their whole life. They go home to spouses and children and have something beyond the workplace. Not to say they're less dedicated, but it is not their whole life. It's good that it isn't."
SSM has a new leader, but he's a familiar face. William "Bill" Thompson has been with SSM or its predecessors for 31 years, and was named Sister Mary Jean's successor.
He lists improving quality and safety for patients; making services more efficient; and improving the quality of care at the same or lower cost as his chief strategic objectives as he takes over. "I've been preparing for this role for two years," said Thompson. "It's a privilege, and it's also an awesome responsibility."
He's got big shoes to fill.
For her part, Sister Mary Jean isn't concerned.
"He's going do things a whole lot better than me," she says. "He's as committed to quality as I've been and he will find ways to make that even better, and I expect him to. If things aren't better for him having been there, then we've both failed."
I have no doubt Thompson will do his part.
Meanwhile healthcare, for its part, is certainly better for her having been there.
We're facing an impending leadership chasm in healthcare.
Why? For starters, the impact the baby boom generation is expected to have on demand for healthcare services isn't limited to artificial knees and hips. In fact, it means a large percentage of current senior leaders in healthcare have begun to retire, and that trend will only pick up steam in the coming decade or so.
So what do you do?
Luckily for you, we tackled that problem right here in Nashville in a Roundtable you can find either in the July issue of HealthLeaders magazine or at the link I just provided.
In it, we discussed just these trends—and possible solutions—with some of the top hospital and health system talent in the country. Replacing a key leader is not something you want to contemplate when retirement (or other reason for departure) is common knowledge. Rather, you want to build systems and processes that help you develop future leaders from within your organization.
San Diego-based Scripps Health, where one of our panelists, Veronica Zaman, is corporate vice president of talent management, is on a leadership team that has undergone a 10-year process of identifying its internal talent because it simply makes sense. It's expensive to replace good talent with the volatility in the market today.
"The discussion and the transparency around what we're doing related to succession planning has just been a jump start," she says. "A lot of our talented frontline managers, directors, and those young VPs that are just starting off really seem energized by the fact that they could come to a place like Scripps Health and have a full career there."
Tom DeBord, now president of Summa Healthcare's Barberton Hospital, credits help from senior colleagues in his eventual transition to president after starting at the hospital 23 years ago as director of accounting. The culture of servant leadership is ingrained throughout the system, where senior executives serve as "teachers" in actual classroom settings to help mentor the younger generation who will eventually step into leadership roles at the system.
"All of us have worked really hard to build confidence in our brand within our communities, and having folks in place who can step in is essential to maintaining the trust that the community has in that brand," he says. "I worked hard and I felt like I deserved to get the opportunities, but I had somebody helping me along the way."
Alan Bradford, chief human resources officer at Baptist Healthcare in Birmingham, AL, came to healthcare from the grocery business, but has worked hard to instill a sense of possibility within the system, so that junior executives don't necessarily feel the need to go elsewhere to advance. But that doesn't mean making promises you can't necessarily deliver, he says.
"You have to be bluntly honest with them: We're training you and developing you because you're showing potential, but we don't have a clear, defined role open for you. But when we do have a position, we're not going to hire it from the outside if we have a viable candidate inside. We'll take a risk on someone internally that we wouldn't take on an external person."
Take a look at the transcript for this event, which I moderated, if you haven't already. It's free, and it's required reading for executives who want to make leadership development a top priority, straight from executives who already do.
