Each year, trendspotters try to identify shifts in the hiring of new leaders at the nation’s hospitals: veteran hospital CEOs? Doctors with management skills? Successful insiders? Outsiders from other industries? All of the above?

Hiring trends matter because they hint at new directions in an evolving health marketplace. With turnover at a near record 18 percent – among the highest rates reported in the last 15 years – what may be most revealing is why so many CEOs are leaving their posts and how new ones are selected.

“The driving factor is the complexity in the new health care environment,” says Donald Mueller, CEO of Children’s Hospital at Erlanger, in Chattanooga, Tennessee. “It calls for new kinds of leaders and [hospital] boards recognize that.”

Health care is, and always has been, one of the most dynamic industries in the U.S. With the passage of the Affordable Care Act, however, the pace of change has accelerated dramatically, with a new emphasis on payment reform, prevention and population health.

New competitive pressures, along with a shift from fee-for-service medicine system based on providing high-quality care at lower cost, have increased demand for entrepreneurial leaders. The abandonment of fee-for-service medicine means that “you will no longer be able to crank up your volume to increase your bottom line,” Mueller says. “Either hospitals will change the way they think and start being more innovative or they won’t survive.”

That means rethinking everything, from the scope of services provided to the way in which they’re delivered. Hospitals seeking to bring in new patients and keep costs down are building new alliances – sometimes even with traditional competitors – and adapting new technologies, including electronic health records, to meet their institution’s evolving needs.

The shift to electronic health records is just one example of the kinds of high stakes, high-complexity decisions today’s hospital CEOs must make, says Andrew Agwunobi, a pediatrician and managing director of health care performance at Berkeley Research Group. “With a large electronic medical records system that costs hundreds of millions of dollars,” he says, “there’s a desire to leverage the investment and make sure it’s working for the organization.”

The health care marketplace is changing too. Hospitals and private-practice physicians can no longer expect patients to come to them. Increasingly, patients opt for more convenient care available through retail outlets such as Wal-Mart and CVS, Mueller says. Now that health plans make patients pay more of the cost, they’re also far more cost-conscious. People are no longer choosing their provider based on whether a doctor went to a prestigious medical school, he says. “Now they’re asking, ‘How do I get quick access and keep my out-of-pocket costs low?'”

Given the complexity of the new health care marketplace, hospitals are increasingly focusing on team-building and succession planning, sometimes years in advance, says Deborah Bowen, president and CEO of the American College of Healthcare Executives (ACHE), which published the turnover study.

In 2014, the organization surveyed of 1,112 community hospital CEOs to ask about CEO succession planning. The survey found that slightly more than half of the 470 respondents reported that their hospitals took steps to plan for a smooth transition to a new CEO, using such structured activities as coaching, feedback and formal mentoring. That’s considerably more than the 21 percent of freestanding hospitals and 30 percent of system hospitals who reported using the approach in studies carried out in 2004 and 2007.

“When looking at succession planning,” Bowen says, “hospitals are looking at talent development within their organization, not just replacing the CEO. I do think there are people who are looking at internal succession more than ever.”

Some hospitals prefer CEOs with a medical degree because more than half of the nation’s doctors have gone to work for health systems. Doctor-CEOs understand these physicians’ concerns, Agwunobi says.

The ACHE survey found that three-quarters of the respondents were involved in finding their replacements. Like any other successful corporate leaders, hospital CEOs want to leave their institutions in capable hands, says Chris Corwin of the executive search firm Witt/Kieffer. As the search for a successor unfolds, they may spent weeks or months wrestling with a simple question:

“Who am I leaving behind to carry on?”


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