CEOs at risk in hos­pi­tal shake-ups

Ex­ec­u­tives un­der pres­sure in health care’s shift­ing land­scape

Northwest Arkansas Democrat-Gazette - - BUSINESS & FARM - TODD ACK­ER­MAN HOUS­TON CHRON­I­CLE

HOUS­TON — Af­ter Michael Covert sub­mit­ted his res­ig­na­tion as chief ex­ec­u­tive of­fi­cer of the St. Luke’s Health Sys­tem in June, the ini­tial an­nounce­ment came not from his Hous­ton bosses, but from the Colorado head­quar­ters of St. Luke’s owner, Catholic Health Ini­tia­tives.

The Hous­ton Chron­i­cle reports the in­ter­nal email, sent to Catholic Health CEOs around the na­tion and ab­sent cus­tom­ary ex­pres­sions of thanks, widely was in­ter­preted as ev­i­dence the move was driven by the na­tional of­fice, un­happy about St. Luke’s mul­ti­mil­lion­dol­lar losses.

Around the coun­try, health care sys­tem gov­ern­ing boards in­creas­ingly are los­ing pa­tience as their hos­pi­tals strug­gle to ad­just to a rapidly shift­ing health care land­scape — one char­ac­ter­ized by de­clin­ing in­sur­ance re­im­burse­ments, a push to get pa­tients into out­pa­tient clin­ics, pol­icy un­cer­tainty in Washington and the re­place­ment of the old fee-for-ser­vice model with val­ue­based care. The com­bined forces have re­sulted in a sharp down­turn in the op­er­at­ing mar­gins of hos­pi­tals.

The log­i­cal fall guy: the CEO.

In just the past six months, the CEOs of 30 medium to large hos­pi­tals around the na­tion have de­parted, ac­cord­ing to Ja­nis Or­lowski, chief health care of­fi­cer for the As­so­ci­a­tion of Amer­i­can Med­i­cal Col­leges. Some were be­cause of re­tire­ments and ca­reer ad­vance-

● ments, but many were in­vol­un­tary.

“That’s an in­crease in turnover, prob­a­bly a re­flec­tion of the cur­rent volatil­ity of the health care mar­ket,” said Or­lowski. “Many hos­pi­tals are los­ing money now and the fu­ture only looks rock­ier, with more unin­sured and less Med­i­caid sup­port. Boards want the right per­son to lead them into such tur­bu­lent times.”

Nowhere has there been more change at the top than Hous­ton — home to the world’s largest med­i­cal com­plex — where not just Covert, but MD An­der­son Can­cer Cen­ter’s Dr. Ron DePinho and Memo­rial Her­mann Health Sys­tem’s Dr. Benjamin Chu also re­cently left un­cer­e­mo­ni­ously. A fourth CEO, Texas Med­i­cal Cen­ter’s Dr. Robert Rob­bins, also stepped down in April but it was to be­come pres­i­dent of the Univer­sity of Ari­zona.

The shake-ups demon­strate the chal­lenges and pres­sures CEOs face from board mem­bers who, in ad­di­tion to watch­ing the bot­tom line, now feel more pres­sure to stay en­gaged and ahead of change. Har­vard Univer­sity health-pol­icy pro­fes­sor Ashish Jha said CEOs are “likely to strug­gle if they’re still op­er­at­ing un­der the as­sump­tions of the hos­pi­tal in­dus­try of 10 years ago.”

The Hous­ton de­par­tures also show the dif­fi­cul­ties out­siders — Chu, Covert and DePinho all came from out­side the state — face nav­i­gat­ing Texas Med­i­cal Cen­ter, known for its tricky geopol­i­tics. Bay­lor Col­lege of Medicine Pres­i­dent Dr. Paul Klot­man, one of the few to suc­ceed, calls it the “most com­plex po­lit­i­cal en­vi­ron­ment I’ve ever been in, in­clud­ing New York City — a prod­uct of 57 in­sti­tu­tions next to each other, com­pet­ing and col­lab­o­rat­ing.”

Hous­ton’s turnover was big news not just lo­cally but na­tion­ally, where more than one observer in­voked the phrase “drop­ping like flies” to de­scribe the city’s re­cent spate of de­par­tures. The moves drew at­ten­tion be­cause DePinho and Chu, in par­tic­u­lar, are na­tion­ally known fig­ures.

The Hous­ton CEOs and rep­re­sen­ta­tives of their boards all de­clined in­ter­view re­quests or were not avail­able, spokes­men said.

“It’s kind of un­usual to have so many prom­i­nent peo­ple dis­ap­pear that quickly in one city,” said Jeff Gold­smith, pro­fes­sor of pub­lic health sci­ences at the Univer­sity of Vir­ginia.

Gold­smith and oth­ers said they were most sur­prised by the June 19 exit of Chu, con­sid­ered a big-time hire by Memo­rial Her­mann in 2016. Mod­ern

Health­care mag­a­zine ranked him No. 8 on its 2017 list of the na­tion’s “Most In­flu­en­tial Physi­cian Ex­ec­u­tives and Lead­ers,” a tes­ta­ment to his rep­u­ta­tion as a lead­ing thinker about the changes in the in­dus­try.

Memo­rial Her­mann lay­offs were part of Chu’s short ten­ure, about 110 in the spring, 350 the week af­ter his de­par­ture. Sys­tem of­fi­cials in­sist there was no con­nec­tion be­tween the two, not­ing its fi­nan­cial chal­lenges and ini­tia­tive to be­come more ef­fi­cient pre­dated Chu’s hir­ing.

In­stead, Chu and Memo­rial Her­mann turned out to be a poor fit, said peo­ple fa­mil­iar with the sit­u­a­tion — a first-time CEO whose ex­pe­ri­ence at a long-es­tab­lished man­aged-care con­sor­tium in Cal­i­for­nia did not pre­pare him for a sprawl­ing health sys­tem rel­a­tively new to such changes. Chu strug­gled, they said, to ad­just to the new role and the cul­ture change.

So did DePinho, whose 5 ½-year ten­ure was full of tu­mult, in­clud­ing fi­nan­cial dif­fi­cul­ties that led to the lay­offs of 778 em­ploy­ees in Jan­uary. Fi­nan­cial ex­perts said MD An­der­son’s prob­lems — it lost more than $460 mil­lion over 16 months — came as a sur­prise be­cause can­cer care is con­sid­ered so lu­cra­tive in the health care in­dus­try.

In his res­ig­na­tion speech, DePinho, whose back­ground pri­mar­ily is as a lab­o­ra­tory sci­en­tist, made ref­er­ence to the chal­lenges faced by to­day’s hos­pi­tal lead­ers when he noted that it had be­come clear to him that MD An­der­son needs “a new pres­i­dent who will in­spire greater unity and a sharp op­er­a­tional fo­cus on nav­i­gat­ing the tec­tonic changes in health care de­liv­ery and eco­nom­ics.”

Covert’s res­ig­na­tion came as much a sur­prise lo­cally as Chu’s the week be­fore. The St. Luke’s board of direc­tors did not re­quest it nor see it com­ing, said Klot­man, a board mem­ber.

In ret­ro­spect, the de­par­ture may have been in­evitable.

St. Luke’s and two sis­ter sys­tems of CHI hos­pi­tals in Texas re­ported a $51 mil­lion de­cline in a key mea­sure of op­er­at­ing in­come be­tween July 2016 and March 2017, com­pared with the same pe­riod the year be­fore, ac­cord­ing to CHI fi­nan­cial reports. Dur­ing that pe­riod the Texas divi­sion laid off 810 em­ploy­ees and cut its pay­roll by 1,295 jobs, most of them at St. Luke’s.

CHI made no se­cret of its dis­ap­point­ment, in­clud­ing at an in­vestor pre­sen­ta­tion in Fe­bru­ary.

“The Texas divi­sion fi­nan­cial re­sults for the fis­cal year to date (are) be­hind ex­pec­ta­tions,” ac­cord­ing to the slide pre­sen­ta­tion made to in­vestors by CHI of­fi­cials. “Vol­umes and ser­vice line mix have de­te­ri­o­rated and la­bor costs have in­creased.”

In that re­spect, Or­lowski sug­gested, Covert’s de­par­ture was not sur­pris­ing.

“Covert got three years, a typ­i­cal time frame at which CEOs lose their jobs if boards don’t see a bounce back from sig­nif­i­cant fi­nan­cial strug­gles,” she said. “Boards com­monly make a change at that point if there’s not a quick turn­about.”

Hous­ton Chron­i­cle/MICHAEL CIAGLO

Texas Med­i­cal Cen­ter in Hous­ton is one of 30 medium to large hos­pi­tals around the na­tion to lose its chief ex­ec­u­tive in the past six months.

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