Article published 2007 Modern Healthcare Dysfunction in the executive suite Why so many CEOs fail to deliver for their organizations

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1 Article published 2007 Modern Healthcare Dysfunction in the executive suite Why so many CEOs fail to deliver for their organizations Michael Sandnes is a healthcare practice director in the Baltimore office of Executive Sounding Board Associates, a turnaround firm. A slowing economy, increased government regulation, an aging workforce, aging facilities and a problematic reimbursement system are among the factors that make healthcare management in the 21st century particularly challenging. Yet nothing spells trouble for a healthcare delivery system more than the lack of strong executive leadership. Where top management can often insulate a not-for-profit or for-profit organization from many of the pitfalls brought on by a difficult environment, history shows that dysfunction in the executive suite is the quickest path to financial struggle (and, often, ruin). Great leaders encourage trust, commitment and professionalism, generate consensus among management teams for the organization s future direction, and have the means to implement a sound game plan for achieving quality and profitability. You can tell great leadership by simply walking into a hospital, nursing home or continuing-care retirement center. You can feel it in the air, just as you can by entering a four-star hotel. Conversely, it does not take much digging to conclude that a chief executive is not up to the task. In all my years as a healthcare consultant and executive I have never met an organization that failed with a great CEO and management team. Conversely, most organizations will eventually reflect the ineptitude of its leadership. Why do CEOs fail? From my perspective, here are the most likely reasons: They don t properly manage the board of directors/shareholders. Many boards are comprised of individuals who lack the appropriate background to take an organization through rough waters. As times change, the skill level required by the facility s leadership must also change. Additionally, many boards become too involved in the day-to-day operation of the facility instead of focusing on the bigger picture, such as corporate governance, strategic planning, and the longterm vision and mission. The CEO s responsibility is to challenge the board to focus on these strategic initiatives and, if necessary, to make tough decisions. For example, when a 378-bed acute-care facility located in a rural setting on the eastern seaboard started to experience financial difficulties, it became quickly apparent that the financial point man on the board, a local accountant, did not have the necessary experience and skill. The CEO, moving expeditiously, hired an experienced consultant who could take the organization through bankruptcy. Likewise, in a struggling 256-bed acute care facility in an inner city in the 1

2 northeast, a new CEO came in saddled with a board that had mushroomed during his predecessor s reign to more than 35 members. As a result, nothing got done. There was no clear committee structure and no consensus for accelerating the strategic planning process. His first course of action, which was not a popular one, was to streamline the board to a far more manageable 16 members who were willing to work proactively on behalf of the hospital. They micromanage because no infrastructure has been set up. In this scenario, employees have no clear idea of who is responsible for what. As a result of a CEO often being pressured to produce financial results, he or she has failed to put into place any strategic planning process. The employees lack a clear sense of direction as to where the organization is going and what is really important. There tend to be no operating systems, no accountability and no communications. Benchmarks have not been established within the organization in terms of employee and patient satisfaction, quality of care, employee turnover ratio and financial health. Whereas successful organizations resolve problems at the lowest levels, which allow them to operate efficiently, here there tends to be more of a rumor mill mentality as more time is spent worrying about what needs to be done, and the possible repercussions, than actually doing it. It becomes more of a numbers game than a people game. They don t communicate effectively. This is a problem common to all businesses, but especially so in a high-tech, high-touch industry such as healthcare. In some cases, the only communications to employees occur via e- mail, which removes the personal touch. There are no regular department director or employee town meetings. The CEO spends little time on the floors, informally chatting with staff. As a result, employees remain in the dark. They feel disconnected from management. Little things like distributing a biweekly employee newsletter or medical staff quarterly can go far in keeping people abreast of developments and changes, and minimizing rumors. They fail to recognize talent within the organization. As a result, little personal connection with employees exists. Longtime employees have not been encouraged to develop their abilities, so when their skill set becomes obsolete they are either unprepared to cope or end up being forced out. The facility rarely recognizes employees for their good work in terms of giving employee awards or performance-tied incentives. Younger employees receive little if any mentoring. Since quality employees in the healthcare industry are in great demand, they tend to leave when feeling ignored or neglected. In addition to the inability to recognize talent, these CEOs also fail to take action against those bad apples in senior management who cause turmoil and turnover. They lose touch with the market competition by often getting caught up in offering high-tech services while ignoring the basics. The recent decision by the Berger Commission in New York City to close hospitals because they are overbedded is likely to be repeated over and over again around the country. In 2

3 order to convince patients, third-party payers, employees and medical staff that they merit their attention, CEOs need to return to the basics of healthcare. The focus must be on building a talented workforce and quality organization that promotes excellence. Has the building been maintained? Is it clean? Is someone there to greet visitors? Are certain customer amenities coffee, use of computers in clear view? Are there opportunities for patients and their families to communicate with physicians, nurses, specialty services (e.g. pharmacy, lab), etc? Do the employees seem to care about the facility? They don t recognize the importance of effective marketing and customer service programs. Often possessing more of a financial orientation, these CEOs fail to see the value of marketing and fear risk. Yet, there is virtually no risk in marketing, if the right people are in place. Marketing affects every healthcare organization. It brings in business by developing and cultivating referral relationships and involves everyone in the organization from the CEO down to the housekeeping staff, and involves everything from the type and quality of medical services to the presentation of food served to patients. A CEO can focus on tight expense controls, but he or she must not neglect great marketing services and implementing customer service programs that can change an organization virtually overnight. The lack of quality programs can drive costs up and interfere with quality care. In many inner city hospitals, for example, patients view the emergency room as their own physician practice. This not only affects cost, but since the ER is set up to triage patients rather than dispense family medicine, it is also not particularly effective in terms of quality of care. Facilities must educate patients and gain the support of the local community. They don t implement effective operating and financial systems. A lack of efficient accounting and billing systems can result in old contracts with managedcare companies that pay lower-than-market rates, participation in outdated purchasing programs that don t take advantage of discounts, and inadequate recruiting efforts which may, for example, lead to the high utilization of agency nurses which can affect quality of care and cost. Very often, department heads do not receive monthly statements regarding their overall performance in spending, productivity and the budget process, which is in shambles in terms of a lack of control or direction. They lose touch with developments in the industry, including regulatory changes. Since the industry lives in a highly regulated environment, the CEO cannot live within a bubble. He or she must network with the competition and attend trade association meetings as a means to supporting appropriate grassroots efforts in terms of regulations and reimbursements on the federal and/or state levels. Within the industry, changes will continue to occur, and the chief executive must not only be aware of the changing climate but be prepared to roll up his or her sleeves. 3

4 They are inflexible and unable to think out of the box. A CEO must have a vision, but must also be flexible enough to move in any direction dictated by the marketplace. CEOs who choose to return to providing the same traditional services after emerging from bankruptcy, for example, are often likely to end up driving through the same potholes. Instead, they need to explore new alternatives, new options that will be financially feasible, serve the community, support the operation and fit within their mission. As an example, a troubled healthcare delivery system in Texas reversed its course by unloading two of its facilities and turning the others into a specialty rehab within an LTAC setting, while converting part of its beds to a CCRC campus setting. Others have contracted out to management companies offering dietary, ER, rehab or cardiology services, for example, or alternative services like hospice, cancer treatment or Alzheimer s care. Selecting the right candidate Of course, the best chance any health organization has of maximizing the likelihood of competent leadership begins with the selection process. A selection committee comprised of board members or corporate officers with expertise in finance, healthcare, banking and community relations, must first identify the requirements and expectations of the organization in moving forward and then find a candidate who most closely fits in terms of his or her experience, abilities, temperament and political connections. The recruiter must be expected to conduct a comprehensive employment and federal background checks many now also do psychological profiling and provide a dossier that includes the candidate s record in terms of the quality of patient care, employee retention, profitability, banking/political connections, etc. And the compensation package must not factor in the decision. CEOs demanding top dollar are often worth their weight in gold and will make up the added cost quickly in terms of finding new revenue sources and/or cutting unnecessary expenses. It s no different than the football team that looks to hire that coach that will take them to the Super Bowl. You go after the leader with the best track record, the one who has proven to be a winner over and over again. Michael Sandnes Managing Director-Healthcare Practice for Executive Sounding Board Associates for the Baltimore Office. He leads turnaround and crisis management engagements with emphasis in areas, profit restoration/improvement, organizational restructuring/planning and M &A Integration in the healthcare arena. He is a Vice of Membership in the Chesapeake chapter of the Turn Management Association. Contact information - Telephone: and msandnes@esba.com 4

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