Uni­fy­ing a disor­ga­nized sys­tem

Modern Healthcare - - NEWS - By Steven Ross John­son

Health dis­par­ity might not have been a term Lloyd Dean, pres­i­dent and CEO of San Fran­cisco-based Dig­nity Health, was fa­mil­iar with as a child grow­ing up in Muskegon, Mich. But it was some­thing he quickly be­came aware of once he be­gan at­tend­ing school in a neigh­bor­hood more af­flu­ent than the one where he lived. “I was al­ways amazed when I would be talk­ing with my friends at school and they were talk­ing about go­ing to den­tal ap­point­ments and need­ing to leave school early to get vac­ci­na­tions,” Dean said. “That just was not heard of in my com­mu­nity.”

It was those early ex­pe­ri­ences that Dean said helped shape his view on health­care. “I’ve said that be­cause of the way I grew up, that if I ever had the chance to have an im­pact on health­care, I felt that it was some­thing that I wanted to do,” he said.

Now Dean, 63, stands as one of the in­dus­try’s most in­flu­en­tial people. A sup­porter of the Pa­tient Pro­tec­tion and Af­ford­able Care Act, he counts Pres­i­dent Barack Obama as one of his friends and is among a hand­ful of people out­go­ing HHS Sec­re­tary Kathleen Se­be­lius reg­u­larly called for ad­vice, ac­cord­ing to a 2013 For­tune mag­a­zine fea­ture on Dean. Be­cause of his ac­com­plish­ments, Dean is one of Mod­ern Health­care’s Top 25 Mi­nor­ity Ex­ec­u­tives in Health­care for 2014, the fifth year for the bi­en­nial recog­ni­tion pro­gram.

Since ar­riv­ing in 2000 at what was then called Catholic Health­care West, Dean is cred­ited with leading a ma­jor cor­po­rate turn­around. He took over CHW at a time when it had suf­fered four straight years of op­er­at­ing losses to­tal­ing more than $800 mil­lion and brought it to prof­itabil­ity four years later. The sys­tem has stayed on track ever since. Now with more than 300 sites in more than 20 states—in­clud­ing hos-

pitals; ur­gent- and oc­cu­pa­tional-care cen­ters; imag­ing fa­cil­i­ties; home health agencies; and pri­mary-care clin­ics—Dig­nity is the fifth-largest not­for-profit health sys­tem in the coun­try, with rev­enue to­tal­ing more than $10 bil­lion in fis­cal 2013.

“He has a very can-do, as­sertive style but with a nice re­fined touch that makes you want to work with him,” said Larry Baer, pres­i­dent and CEO for the San Fran­cisco Gi­ants who has worked with Dean over the past decade.

John Stumpf, chair­man and CEO of San Fran­cisco-based Wells Fargo, said Dean has the rare abil­ity of be­ing able to un­der­stand both the an­a­lyt­i­cal and hu­man sides of busi­ness. “He un­der­stands num­bers in­side and out, and he has a great abil­ity to con­nect with people,” Stumpf said.

Those who know him credit his col­lab­o­ra­tive yet de­ci­sive style of lead­er­ship as a big fac­tor in turn­ing around CHW, which at the time of his ar­rival was more of an ag­glom­er­a­tion of fa­cil­i­ties op­er­at­ing in­de­pen­dently rather than a sin­gle health sys­tem with a uni­fied vi­sion.

“I would say it was a set of var­i­ous fief­doms,” said Andy Pines, a for­mer man­ag­ing di­rec­tor of Cit­i­group’s health­care di­vi­sion in San Fran­cisco who has worked with Dean and Dig­nity for years. “Each re­gion, and in some cases each hospi­tal, had a sep­a­rate fidu­ciary board with many re­serve pow­ers and gov­er­nance rights. It was al­most im­pos­si­ble to cre­ate any ad­van­tages of be­ing a sys­tem.”

Part of Dean’s strat­egy was to re­or­ga­nize the sys­tem’s com­mand struc­ture to stream­line the de­ci­sion­mak­ing process. That en­tailed cut­ting more than 300 re­gional and cor­po­rate man­age­ment jobs and re­struc­tur­ing CHW’s 10 re­gional or­ga­ni­za­tions into four di­vi­sions headed by a pres­i­dent who re­ported to Dean. The re­sult was a re­duc­tion of 150 ex­ec­u­tive po­si­tions down to four, sav­ing about $70 mil­lion in an­nual costs.

A rapid ex­pan­sion strat­egy based on years of ac­quir­ing hos­pi­tals had left Dig­nity with $1.3 bil­lion in debt and a credit rat­ing that had been down­graded from triple B+ to BBB. The sys­tem hadn’t re­ported a pos­i­tive mar­gin since 1996.

To­day the sys­tem in­cludes 39 acute-care hos­pi­tals in Ari­zona, Cal­i­for­nia and Ne­vada and more than 10,000 physi­cians and 56,000 em­ploy­ees, with a re­newed goal to ex­pand both ge­o­graph­i­cally and in its ser­vices. Un­like be­fore, growth so far has not in­cluded ac­quir­ing more acute-care hos­pi­tals; the last time it did so was in 2007 with the pur­chase of St. Mary’s Re­gional Med­i­cal Cen­ter, a 269-bed fa­cil­ity in Reno, Nev. The sys­tem even­tu­ally sold St. Mary’s in 2012 to Prime Health­care Ser­vices, a for-profit hospi­tal chain based in On­tario, Calif.

The fo­cus of Dig­nity’s growth is in its out­pa­tient fa­cil­i­ties. The sys­tem ac­quired oc­cu­pa­tional-care firm U.S. HealthWorks in 2012 for $450 mil­lion in a deal that ex­panded Dig­nity into 15 more states. Since then, Dig­nity has added U.S. HealthWorks lo­ca­tions, broad­en­ing the reach of the health sys­tem to 21 states, Dean said.

“I would say Dig­nity through its ac­qui­si­tion of U.S. HealthWorks has ex­hib­ited a will­ing­ness to sort of think out­side the box,” said Brad Spielman, a se­nior an­a­lyst who cov­ers Dig­nity for Moody’s In­vestors Ser­vice.

It is part of a long-term growth strat­egy that was the ba­sis for the sys­tem’s re­struc­tur­ing of its gov­er­nance board in 2012 that ended its for­mal af­fil­i­a­tion with the Catholic Church. “It al­lowed us to be able to grow and part­ner with oth­ers, to help us ex­pand with part­ners that might not be Catholic but would be good part­ners from a val­ues per­spec­tive and from a vi­sion per­spec­tive,” Dean said.

CHW had found it­self fac­ing com­mu­nity op­po­si­tion to some of its ex­pan­sion moves through ac­qui­si­tions be­cause of its Catholic hos­pi­tals’ ad­her­ence to the U.S. Con­fer­ence of Catholic Bish­ops’ Eth­i­cal and Re­li­gious Di­rec­tives, which gov­ern care in all Catholic health­care fa­cil­i­ties and set rules for what care they can pro­vide or with­hold.

Dig­nity main­tains a core set of di­rec­tives as stated in its State­ment of Com­mon Val­ues that pro­hibit abor­tion and physi­cian-as­sisted sui­cide at any of its fa­cil­i­ties. But ob­servers say the sys­tem was show­ing signs of the dif­fi­cul­ties in­volved in try­ing to bal­ance its med­i­cal mis­sion with ad­her­ence to Catholic doc­trine.

Those is­sues came to a head in 2010 when one of its af­fil­i­ated hos­pi­tals, Phoenix-based St. Joseph’s Hospi­tal and Med­i­cal Cen­ter, was stripped of its of­fi­cial Catholic sta­tus af­ter the lo­cal bishop de­clared that the provider had vi­o­lated church di­rec­tives when doc­tors per­formed an abor­tion in 2009. The hospi­tal said the abor­tion was nec­es­sary to save the woman’s life.

“The sys­tem had ce­mented their com­mit­ment to per­form­ing best care prac­tices and had de­cided that the best way for­ward was to dis­as­so­ci­ate them­selves with the Catholic Church,” said Sheila Reyn­ert­son, ad­vo­cacy co­or­di­na­tor for the New York-based Merg­erWatch, a watch­dog group that mon­i­tors hospi­tal merg­ers in­volv­ing Catholic or­ga­ni­za­tions out of con­cerns over ac­cess to re­pro­duc­tive ser­vices.

Dean said the name change helped elim­i­nate con­fu­sion about the sys­tem’s will­ing­ness to seek part­ner­ships with en­ti­ties that were non-Catholic. “Some­times (with) our name ‘Catholic Health­care West,’ in some sit­u­a­tions, people felt that we would only re­late to Catholic or­ga­ni­za­tions,” Dean said.

Dig­nity also main­tains its Catholic iden­tity through its char­i­ta­ble mis­sion, reporting $1.6 bil­lion in un­com­pen­sated care in fis­cal 2013.

Dean ac­knowl­edged the sys­tem’s Catholic iden­tity had in the past blocked po­ten­tial part­ner­ships with other sys­tems. He said he ex­pects such is­sues to be less of a fac­tor as the need grows for dif­fer­ent providers to come to­gether in co­or­di­nated-care net­works such as ac­count­able care or­ga­ni­za­tions.

In 2009 Dig­nity en­tered into an agree­ment with Blue Shield of Cal­i­for­nia and the North­ern Cal­i­for­nia-based in­de­pen­dent doc­tors’ as­so­ci­a­tion, Hill Physi­cians Med­i­cal Group, to launch an ACO in Sacra­mento to serve more than 40,000 Cal­i­for­nia Pub­lic Em­ploy­ees’ Re­tire­ment Sys­tem mem­bers. In its first year, the col­lab­o­ra­tion was able to re­duce hospi­tal read­mis­sions by 22%, sav­ing around $20 mil­lion in costs. A sec­ond pro­gram based in San Fran­cisco was launched in 2011, and plans for a third such col­lab­o­ra­tion be­tween the three providers were an­nounced in March.

“I’m sure there are people out there that ... may have some con­cerns about how can a Catholic or­ga­ni­za­tion also have com­mu­nity-based (non-Catholic) fa­cil­i­ties,” Dean said. “But I think it’s more of the wave of the fu­ture rather than be­ing the ex­cep­tion.”

Those who know him credit his col­lab­o­ra­tive yet de­ci­sive style of lead­er­ship as a large fac­tor for his suc­cess in turn­ing around CHW.

CODY PICK­ENS

Dig­nity Health CEO Lloyd Dean com­bines an abil­ity to un­der­stand num­bers with a hu­man touch, says John Stumpf, chair­man and CEO of Wells Fargo.

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