What it Takes to Be the New CEO
Snapshot
With hospitals moving beyond their four walls to establish ambulatory care facilities, take on financial risk and prepare for the move to value-based payments, they’ll need an entrepreneurial spirit that’s open to change.
On May 1, Susan Fox, R.N., MBA, took over as CEO at 292-bed White Plains Hospital, serving Westchester County north of New York City. In the works for five years and announced last year, the smooth transition of leadership from retiring CEO Jon B. Schandler is a case study in effective succession planning.
Yet, the organization Fox will lead, and the future she will lead it into, are very different from those her predecessor inherited 38 years ago. And Fox is a very different CEO — by design.
For most of Schandler’s 38 years at the helm, White Plains thrived as an independent community hospital. With his background in public accounting and hospital operations, he built strong operating margins and a solid capital base at White Plains, even though many patients left the county for such advanced services as spine surgery and cancer care.
Today under Fox, White Plains is transformed into a tertiary referral center in the Montefiore Health System. With her background in physician network development and management, and clinical quality and process management, she has improved care efficiency and quality, enabling the introduction of higher margin, higher acuity services and profitable pay-for-performance contracts with every major payer. White Plains now provides advanced inpatient cardiac, orthopedic and cancer services that are fully integrated with physician office, home care, rehab, long-term care and other community services.
The story powerfully illustrates many of the urgent challenges hospital CEOs face today, and highlights the experience, skills and personal qualities needed to successfully address them. “The CEO of the future will be someone who understands the continuum of care, from inpatient to physician offices to ancillary services to home health, pharmacy and nursing homes, and is capable of bundling it all around providing excellent service at reduced cost,” says Tom Giella, managing director, health care services, for executive recruiter Korn Ferry in its Chicago office.
Indeed, the growing demands of population health management and accountable care appear to be major factors driving CEO turnover rates to record highs — breaking 20 percent for the first time in 2013 and averaging more than 17 percent over the past five years.
“The continuing trend of consolidation among organizations, the increasing demands on chief executives to lead in a complex and rapidly changing environment, and the retirement of leaders from the baby boomer era may all be contributing to this continuing higher level of change in the senior leadership of hospitals,” says Deborah J. Bowen, president and CEO of the American College of Healthcare Executives, which conducts annual CEO surveys. “The findings also serve as a reminder for health care organizations to continue to ensure they have appropriate strategies in place — including robust succession planning — to successfully manage senior leadership changes.”
For CEOs starting today, as well as those in midcareer, new skills, experiences and personal qualities will be needed to succeed, says Giella. “You can’t just crank out inpatient care and expect to be paid on discounted fee for service. That still works now, but if you have 10, 15 or 20 years to go, you need to adapt to the new model.”
New challenges, new skills
In 2010, these challenges weighed heavily on Schandler’s mind. With health reform looming and the revenue base rapidly shifting to outpatient services, he knew the independent hospital/voluntary medical staff model wouldn’t remain financially viable much longer. “We needed to do strategic planning differently to get to where we wanted the hospital to be.”
So, White Plains set out to develop more-specialized services, along with a network of physicians to provide and feed them. The goal was to keep more patients and revenue at home while doing a better job of serving community health needs.
At the same time, Schandler looked to retire in five years. “I quietly talked to the board about how we could create a transition that made sense.” That meant recruiting an executive with the capacity to be CEO, and the skills and experience to help transform the White Plains operations and culture into a clinically integrated health system before taking the helm. “In a time of rapid change, we felt everyone would be better served if we could make a seamless transition,” Schandler says.
The leadership gaps White Plains identified closely parallel those identified in a survey of hospital senior executives, conducted by Spencer Stuart for the American Hospital Association. These include developing nontraditional health partnerships, population health management, transformational/change management and advanced financial expertise to manage new payment and risk models.
In Fox, then senior vice president for physician and ambulatory network services at North Shore-LIJ Health System, Schandler and his board found their woman. In addition to 14 years’ experience building networks and managing large-scale integrated physician operations, Fox had broad experience in strategic planning and rationalizing health care operations from a stint as senior manager at consultants Ernst and Young — not to mention clinical street cred from her days as a pediatric intensive care nurse and nurse manager. She brought the deep clinical development and operating experience needed to truly integrate White Plains’ historically committed voluntary medical staff into a coordinated care delivery system.
After joining White Plains in 2010 as senior vice president of administration, Fox had five years to demonstrate and develop her abilities. She first focused on clinical program development, including bolstering the hospital’s quality management and clinical support services. Nursing was a special focus, and multidisciplinary rounds were introduced to help ensure closer collaboration and coordination of care including therapists and case coordinators.
These improvements, in turn, helped to attract selected specialists who were invited to work for the hospital full time as employees or contract partners through a hospital-physician organization. At the same time, Fox engaged community physicians in White Plains’ vision of better coordinated care.
In 2014, White Plains joined Montefiore Health System as a tertiary care hub for the system’s regional network in the lower Hudson Valley. While White Plains retains substantial local control and has its own board, Fox also will report to the CEO and board at the Montefiore system, which is now considered the hospital’s parent.
In addition to making substantial capital investments, Montefiore offers expertise in population health management and at-risk reimbursement from bundled payments to capitation.
As many hospitals across the state struggle, White Plains’ revenues are up and its length of stay is down 14 percent despite a substantially higher case mix. Quality has been recognized with a Joint Commission Top Performer on Key Quality Measures award in 2013. Payers are noticing, too. The hospital already has pay-for-performance contracts with all major payers, and is positioned to take on bundled payment and capitated risk.
But as necessary as experience and skills are, hospital leaders also must embody enthusiasm for change and the possibilities of a transformed health system for improving patients’ lives and health. Here are some of the characteristics and qualities a new CEO may need to succeed in an ever-changing health care world.
SKILL Change champion
1 More than 80 percent of hospital executives see transformational change/change management among the most critical leadership skills in the next few years, along with innovative thinking/creativity, and critical thinking/strategic planning, the AHA survey found. Yet, 41 percent see change management skills lacking in their C-suite. Indeed, developing change management as a core executive competency is among the key recommendations of the AHA’s 2014 report “Building a Leadership Team for the Health Care Organization of the Future.”
Leading change requires imagination and flexible thinking first of all, says Carol Geffner, president of Newpoint Healthcare Advisors, Newport Beach, Calif. Executives with experience implementing new care models or incorporating new technology have an advantage. Even developing a small program provides insight into how to envision change, and create a constituency that will benefit and demonstrate incremental results that build confidence in the new model.
Incremental change is what most systems can expect for the time being, if for no other reason than that reimbursement doesn’t completely support value-based care in most places, Geffner says. “We are in the first stages of [moving from] volume to value. We have to figure out how to keep our revenue base strong while we create value-based systems.”
SKILL Data-driven
2 Perhaps the most significant change in the health care environment is that hospital performance data are now available to buyers and patients, says Paul H. Keckley, managing director, Navigant Center for Healthcare Research and Policy Analysis. Those data increasingly drive contracting and purchasing decisions. Mastering it is an essential strategic skill for hospital CEOs — and one that often is lacking.
“I have done hundreds of hospital board retreats and, invariably, everyone sees quality of care and their medical staff as their greatest strengths,” Keckley says. “It’s like Lake Wobegon, where all the children are above average, but that’s not reality. And the people who can tell you who does what well come from the payer side, not the hospital side.”
Insurers and employers increasingly use commercially available analytics and models that pinpoint inefficient or inappropriate care. CEOs need to be familiar with these as well, and develop the internal capacity to capture and analyze data to drive performance improvement and strategic decisions.
The CEO must lead the transformation because it requires major capital investment, as well as overhauling clinical and administrative structures and practices. It also requires an ability to speak truth to power, persuasively, Keckley adds.
In the past year, Phil Dalton, senior vice president of physician strategies at VHA Inc., worked with California’s attorney general to arrange mergers and acquisitions of 30 failing hospitals. The CEOs and the boards “were ignoring the signals of market change and financial distress,” he says. “The boards want to remain independent, and the CEOs do, too, because they like the autonomy.” However, “you have to put providing services to the community ahead of the board’s comfort level. Distressed hospitals need a leader willing to tell the truth, even if it means things have to change.”
SKILL Motivated executive
3 To succeed not just as an analyst but as a transformational leader, the new CEO also must be motivated to do what is necessary, says executive recruiter Peter Rabinowitz, president of P•A•R Associates, Boston. “If the board sees a need to rationalize the organization, which may mean some people have to go, the CEO needs to understand and want to go through with it — not just building, but taking people out if necessary. If you have someone who doesn’t want to do that, they will not be a good candidate.”
On the other hand, while change often means new roles for many employees, it doesn’t always require mass layoffs. Scripps Health in San Diego has undergone a complete operations reorganization, saving $350 million in costs without a layoff, says system CEO Chris Van Gorder. He believes committing to the well-being of employees builds trust and helps them to take the risks needed to truly change.
Rabinowitz advises developing an organizational strategy first and letting that drive the CEO candidate selection process, as White Plains did. Figure out in concrete terms what needs to be accomplished by a specific time, and then find a candidate with the skills and motivation to do it.
SKILL Clinically competent
4 Creating a clinically integrated delivery network implies a high level of clinical competence to assess needs and gaps in the system, develop new clinical capabilities to address them and coordinate complex services going forward. This requires close cooperation among physicians who will be asked to work together and individually in new ways.
The new CEO doesn’t necessarily need that level of clinical competence personally. But as the “owner” of system resources and processes, the CEO must convene, develop and lead clinical leaders who can develop a physician plan that fully supports system strategies.
Charisma and a coherent vision of how that future system will work — backed by evidence-based practice and credible performance data — are essential to gain physician support, Giella says. “You need physician buy-in. It’s easy to acquire a doctor’s practice; it’s much harder culturally and technologically to integrate them. If they are still running their own business and not referring to the system, it’s not going to work.”
Boards often seek a physician as CEO. This may not be necessary or always wise, Dalton says. “There is an assumption that because they are physicians they understand clinical integration, but I often don’t find that to be true. They are highly intelligent and talented, but their experience generally is not in running organizations, and if it is, it is a physician organization.”
In fact, more nurses have the management background to take on senior leadership roles, says Michael Rowan, president for health system delivery and COO at Denver-based Catholic Health Initiatives. “Nursing historically has been more involved in management, and they are clinicians.”
Nonetheless, CHI appreciates the value of physician leadership and proactively identifies and develops physicians as future leaders. Many of its local systems use dyad management in which services are headed by both a clinical and administrative leader.
SKILL Financially focused
5 Important as it is to develop new models of care for the long term, declining Medicare payments and the demands of the Affordable Care Act have put many hospitals in an immediate financial bind. Improving efficiency through productivity and effective financial management is a strategic priority.
But while operating efficiency has been important since the advent of DRGs, value-based payment raises it to a whole new level of complexity that the new CEO must master. “It means having to think about efficiency across the entire spectrum of care, not just vertically, but how to operate as a network of care and use the network to gain new efficiencies,” Geffner notes.
That requires mapping the system and how the patient moves through it, Geffner says. What are the patient’s needs? How do we bring that knowledge to bear to create a new kind of delivery system?
As with clinical leadership, the CEO doesn’t need to be a chief financial officer, but the top leader does need a firm grasp of how changing reimbursements and financing affect the system’s ability to transform into an integrated network, Dalton says. “With bundled payments and capitation, reimbursement has strategic and operational implications that can’t just be left to the CFO. It takes a team — that is a word that is more important for the future CEO. You can’t understand this all by yourself, you need to restructure to be more collaborative internally.”
SKILL Matrix manager
6 With the rise of large regional and national systems, loss of autonomy is one of the biggest changes CEOs face. The new CEO must be able to function in an environment of collaborative decision-making with peers as well as within reporting relationships to system experts in such areas as clinical quality, finance, supply chain and operations.
“Hospitals have always been vertically organized into departments: cardiology, radiology, pathology. Now that hospitals are becoming health systems, they have to have not only these vertical structures, they are creating horizontal structures,” Geffner says. This is known as matrix management, common in such other fields as engineering and aeronautics, where multiple disciplines work together to execute complex projects.
Facility and regional CEOs operating within a larger system need to understand the boundaries in which they operate, which can vary a lot. Some systems give local CEOs broad goals and leave it up to them to create a culture that can achieve them. Increasingly, though, systems are highly prescriptive in how local operations are structured, down to specifying physician preference items, as well as clinical pathways for entire episodes of care. Adhering to such pathways is critical to maintaining quality through rigorous process control, and achieving maximum economies of scale.
Such protocols generally are developed collaboratively, with lots of opportunity for local input. Even so, they tend to cast the local CEO in an operating rather than strategic role. “This is a tough issue that hundreds of CEOs face right now. If you look a decade out, there will be very few independent hospital leaders,” Geffner says.
In 2010, Scripps Health adopted a matrix system across its four hospitals and 19 outpatient clinics, making managers responsible for cost and quality across the system. The goal was to identify best practices and standardize them systemwide.
“Initially, I think everyone thought I was crazy,” Van Gorder acknowledges. “The hospital CEOs didn’t like it much that they weren’t going to be kings of the castle anymore and they had to collaborate with the other CEOs. ... Five years later, the result was $350 million in cost savings without layoffs. They have seen the value and now they believe in it.”
At CHI, senior management roles at the national, local system and facility levels are integrated, says Rowan. Locally, leadership is formally divided between the CEO who heads the regional health system, and presidents who head individual hospitals.
The regional health system CEO is responsible for building out the entire continuum of care, including hospital, home care, post-acute, rehab and primary care, as well as creating physician networks that include both employed and independent practitioners. Their brief also includes articulating strategy and operating the entire system to maximize value for CHI and the communities it serves. Regional CEOs report to Rowan in the national office.
Market presidents are responsible for operating one or more inpatient facilities as efficiently as possible within the integrated network. Presidents also are responsible for connecting elements within the system to increase the effectiveness of care delivery and population health management, and for representing the system in the local community. They report to the regional CEO.
Candidates for regional CEO generally have significant experience operating complex health organizations, as well as strategic planning and risk contracting. “It doesn’t hurt to have some time on the payer side,” Rowan says. Presidents need five years or more of facility management experience along with the ability to build and lead accountable management teams, and manage outcomes.
SKILL Conflict resolver
7 Change is inevitably accompanied by conflict, and successful leaders in health care must be expert in managing it, says Leonard J. Marcus, founding director of the Program for Health Care Negotiation and Conflict Resolution at the Harvard T.H. Chan School of Public Health.
Marcus advocates a two-part approach to build consensus out of conflict. First is resolving issues as they emerge. “People are concerned about what they may lose — market share, value, income — and some are just resistant to change. It’s in their nature.” Acknowledging and addressing fears with facts helps to keep them from blowing up.
Second is articulating a value proposition in which people want to participate. Identifying ways in which the emerging organization can meet everyone’s common interests — professional, personal and economic — creates an upside that everyone can buy into, Marcus notes. “Resolving conflict is preventing the downside, the upside is creating value.”
Achieving this requires what Marcus calls meta-leadership. “Meta-leaders bring an orientation toward building connectivity across systems so people can see the value of being part of the enterprise, and are able to guide and motivate activity toward being part of that value.”
Developing meta-leadership skills involves three dimensions of practice skills and the person, says Marcus, co-director of the National Preparedness Leadership Initiative, who trains both health care leaders and government officials. The first is based on emotional intelligence. It includes developing self-awareness, self-regulation, empathy, social skills and the ability to engage the emotional intelligence of others. Second is understanding and engaging the contingencies you face. Third is building connectivity of effort, which includes building a strong team reporting to you as well as strong connections with bosses, boards and others to whom you report, as well as to other organizations, including community health, insurers, regulators and government.
This requires specific leadership training. “Often, the people who rise to leadership have great technical skills, but haven’t been trained to lead and don’t orient their work toward leadership,” Marcus says. “The biggest ‘aha’ moment is when you realize you are not born with leadership skills any more than you are born with cardiac surgery skills; you have to develop them.”
SKILL Agile learner
8 Even more important than specific skills, experience or even general intelligence is learning agility, Giella says. At Korn Ferry, it is considered the leading predictor of success in leadership roles — and critical for leading change.
“Learning agility is the ability to assess a situation quickly and adapt with responses that may not have existed in the prior state,” Giella says. “If you’re trying to get your receivables from 110 days to 50 days, it’s all tactical stuff that you have done before. But when you have employed physicians and you have leakage, figuring out how to get them to admit to your hospital is an entirely new challenge requiring a solution that didn’t exist before.”
Learning agility is especially important for dealing with technology, Giella adds. “With new technology every six months, you need someone who can take a new concept and run with it. Uber didn’t exist five years ago and now every cab company in the world is scared to death of them. Now everyone needs to be very nimble.”
Giella looks for candidates who have experience with startups or turnarounds. “What have they done that is innovative? It is easy to say what your operating margin or market share is, but these are quantitative outcome measures. Better questions are: What programs have you started? How did you do things differently? How did you adapt to new competition? Did you develop new physician relationships or start your own insurance product, or did you stay the course and do nothing? It’s a more holistic assessment of the hows and whys of what you did that goes beyond day-to-day operations to strategic thinking.”
SKILL Strategic visionary
9 At 94 percent, critical thinking and strategic planning were identified as the top skills needed to lead health systems in the next few years, followed closely by innovative thinking and creativity, and transformational change/change management. The new CEO must be able to articulate a vision of a better organization, and inspire others to accept and work toward it, Giella says. “The CEO is now an integrator of different models of care into a seamless system where patients can access care at the right time and location.”
Scripps’ Van Gorder agrees. “I spend 25 to 30 percent of my time being a teacher,” he says; that includes regular tours of his facilities, conducting Q&A sessions and explaining system strategy. He also emphasizes listening, and personally responds to every email from employees to keep everyone in the loop.
Above all, the new CEO must inspire, Giella says. “We are in uncharted territory and there is a lot of nervousness. We need someone who is incredibly positive — 'We can take that hill, guys, follow me.’ ”
Howard Larkin is a freelance writer in Chicago.
Is non-health care experience a plus?
oving health care from providing discrete services to fostering overall population health requires new and diverse skills. Customer service, insurance operations, process improvement, information technology and human resources are just a few. And more health care organizations are hiring from outside the industry to get them.
But what about the CEO?
Executives with a lot of health care experience, particularly building physician networks and multidisciplinary management teams, are still the best candidates, says Phil Dalton, senior vice president, physician strategies at VHA Inc. Other critical skills include understanding payer relations and health care market strategy.
“It is really hard to take someone who is non-health care and put them in the health care CEO role. You may be looking for innovation, but a fairly heavy background in health care has to be a qualifier,” says Dalton, who has extensive experience developing health system strategy and leadership.
Michael Rowan, president for health system delivery and chief operating officer at Catholic Health Initiatives, agrees. “Fundamentally, we have to have the skill set required to do the job.” For a regional market CEO or hospital president, that includes significant health facility management experience.
CHI tries to hire internally, Rowan says. The system, which currently includes 110 hospitals in 45 markets, also systematically evaluates employees at the vice president level and above to determine what skills they need to develop to move up, and provides training and experience to groom future leaders.
Still, sometimes it must go outside for the skills it needs. In particular, CHI is bringing in people with experience in strategic planning and leading complex organizations — retail executives who can help with customer engagement, data analysts and health plan professionals with experience in managing risk and contracting.
Tom Giella, who heads health care services for executive recruiter Korn Ferry, also says that most top leaders still come from health care. But he is seeing more and more outsiders in other roles. “At the CEO level, we are not seeing it yet, but the last four HR people have come from outside health care,” Giella notes. Organizations with dozens of locations, tens of thousands of employees, and complex training and succession planning needs require more sophisticated human resource talent than can be developed at a 300-bed hospital, he explains.
As the health business model moves toward population health management, Giella believes more CEOs could come from other backgrounds. “We are still primarily hospital systems, so we are going to get hospital executives. Hospitals still have the biggest budget and dominate the system. But as we move toward a health system, hospitals will be a cost center, and insurance, wellness, outpatient services, pharmacy, home health and physicians will gain importance. When you have a system that employs 1,000 physicians and has a big insurance arm and wellness operations, you may need different leadership.” — <em>H.L.</em>