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How hospital CEOs avoid the unemployment line

June 11th, 2014

by Kevin L. Shrake

CEOs are like vegetable trays at a holiday party. The host feels obligated to have one, but no one really wants them there. One CEO colleague remarked, "Being a CEO is like getting nibbled to death by a pack of ducks ... no one bite will get you, but the accumulating of attacks can be fatal." There is an incredible amount of "white noise" in healthcare executives' lives and hundreds of objectives to work on. However, the neck of the entire body of challenges can be isolated to one common objective: Improving financial performance.

The High Cost of C-Suite Turnover

The American College of Healthcare Executives' most recent annual survey revealed the following: The number one issue facing healthcare executives today is financial performance. A startling statistic from their survey also revealed that CEO turnover was at an all-time high of 20 percent annually. The math does not work this way, but that means that if everyone was "average" the entire population of healthcare CEOs would turn over every five years. It's not just the CEO who's at risk. The pressures to perform financially touches the entire C-Suite. The cost of C-Suite turnover can easily account for more than a billion dollars per year of severance packages alone. Add this to the inefficiencies that are created by having lack of continuity, poor goal completion and constantly changing strategic plans and you have an incredible amount of waste that burdens our healthcare system.


Confessions of a CEO: The Lies My Staff Told Me

Effective executives build a high quality team around them that they depend on to provide them with reports, advice and outcomes that center on the concept of delegation and accountability. Sometimes C-suite executives forget an important point related to their own accountability, which is to challenge the information and advice provided by their subordinates. Not only does this "sharpen" the skills of their team, but will often reveal some of the great lies they tell to the boss. The old adage is, "Bad news does not travel uphill." Here is a checklist of common lies we should challenge and the suggested response:

  • We have that covered. How do we have that covered? What are the statistics to support this broad statement? What are the alternatives to investigate?
  • It would not be cost effective to make a change. Is there a no-cost method to assess the proposed change? If there is no cost to looking at an alternative solution for a problem, why would we not want to look at it?
  • Don't worry about our supply spend, we have 90 percent compliance on our existing Group Purchasing Organization (GPO) contracts. How much of our total non-labor spend does that represent? What are we doing to reduce costs in our off contract spend segment?
  • Don't worry about our ability to connect electronically to our vendors, we have 75 of our top vendors connected, which represents 80 percent of our spend. We have thousands of vendors--what are we doing with the rest of them? What are the costs of our current process? Have we looked to other industries for alternative solutions? Doesn't every transaction cost the same to process regardless of the amount of spend?
  • Our patient satisfaction scores are safe from any Medicare penalties. Where do we stand in relationship to our peer group? How easy would it be for other organizations to improve their results and push us down into the lower quartile?
  • We are different. How different are we really from our competitor organizations? Why are some performing better than us? Have we benchmarked with best practice?
  • This cost reduction strategy is not a priority right now. What is the return on investment of other projects you are working on right now in relationship to the one that you chose not to pursue? Given our financial challenges, isn't every cost reduction strategy a priority?

Checklist for Remaining Employed

How do you beat the ominous 20 percent annual turnover? Consider these tips to avoid the unemployment line:

  • Never accept the answer, "we have that covered."
  • Look outside of healthcare for best practice and compare it to traditional practices.
  • Find a trusted advisor who has experience and aligned incentives.
  • Quit building out healthcare financial systems and trying to turn them into procurement systems--it's time consuming, costly and inferior to systems already available in other industries.
  • Connect to 100 percent of your vendors electronically.
  • Understand that technology exists that can pull together disparate systems and provide necessary connectivity. Don't accept that this can't be done.
  • Don't accept that owned physician practices must lose money. Look at ways to benchmark to best practice as well as measure downstream revenue to the hospital as a method to access profitability.
  • Take free money when there is an opportunity. Are you creating cash rebates at no cost for paying bills you have to pay anyway?
  • Lower your AP risk. Historical performance indicates that 1.6 percent of vendors we pay today, we shouldn't pay for one reason or another. Traditional healthcare methods of identifying risk are inadequate. Look to systems that use multi-factorial data base analysis and forensic protocols to avoid costs and lower risk.
  • Spend some of your energy on energy costs. You don't always have to buy capital equipment to significantly lower your utility costs. Methods exist that pull data from building automated systems and create ways to lower costs simply by taking what you have and making it run more efficiently.
  • Drive your error rates to zero. Quit setting goals that use nebulous percentages such as "95 percent or greater," and focus on a culture of "no errors."
  • Reduce your 30-day readmission rate by identifying and intervening with high-risk patients. Follow those patients across the continuum of care and provide support that improves health and minimizes the need for inpatient care.
  • Look at alternatives to the high-cost of equipment maintenance contracts. Companies make far more money servicing your equipment than selling it to you. Seek out industry experts that can create custom plans and work on your behalf in a vendor-neutral fashion.
  • Collect everything you have coming to you. Improve your bottom line by recovering every dollar that you can for work already performed. This requires close scrutiny of the entire revenue cycle process.
  • It is worth laboring over labor. Look for a best practice labor process that includes three integral parts. Benchmarking with like facilities that have high quality standards and sound finances, implementing process improvement protocols to assist in managing to your numbers and monitoring continuously for sustainability.
  • Build new sources of revenue and meet community needs. Typical programs that can improve margin and enhance community health include pain management, wound care and medical stabilization programs for drug and alcohol abuse.
  • Low costs and better patient outcomes are tied directly to an environment of satisfaction that includes, employees, physicians and patients. Creating a common language in your organization that promotes caring will result in positive financial results.

Challenge, don't accept the status quo, look for partners with aligned incentives, evaluate best practice outside of healthcare and quit paying consultants to write reports and identify opportunities. All of these thoughts, when combined with the checklist provided above, should allow for a better bottom line and assist in avoiding the unemployment line.

Kevin L. Shrake ( is a 35 year veteran of healthcare, a fellow in the American College of Healthcare Executives and a former hospital CEO. He currently serves as the Executive Vice President/Chief Operating Officer of MDR™, based in Fresno, California.


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