Preventing civil war: A case study for physician CEOs - Management - physician executives - Case Note

Physician Executive, March, 2002 by Kevin Glynn

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"THE MEDICAL EXECUTIVE Committee unanimously votes no confidence in the leadership of the current administration."

These are not words a physician CEO looks forward to reading. Yet, the medical staffs at the hospitals in a prominent regional system recently sent letters containing this language to the board of trustees.

What led these individualistic physicians to band together against a perceived common adversary? How did the CEO meet the challenge? What can be learned and how can such a crisis be prevented?

How it happened

The board retained an imaginative, charismatic physician consultant to assist in strategic planning. A recognized expert with a dazzling clinical and management pedigree, he swooped in with a dramatic vision to create an integrated delivery system.

He proposed that the nearly 2,000 physicians who practice at the hospitals come together under one umbrella organization to partner with the hospitals and take back part of the premium dollars from health plans. The centerpiece of his proposal was a physician-hospital partnership designed to reorganize care of the system's patients.

Many physicians embraced the vision as a way to enhance collaboration with the hospitals. But while acknowledging the vision, many also foresaw having to turn over control of their practices to the hospital system, so they resisted.

Coincidentally, the CEO of the system was about to retire and the very boldness of the physician consultant's plan was so appealing that the board invited him to succeed the departing CEO.

Once ensconced as president of the system, the new physician-CEO forged ahead. He created a medical group, renegotiated contracts with health plans and began constructing the infrastructure for the grand design.

But as he fleshed out the concepts, the mistrustful doctors became more vocal. Nurses began to question the strategy, as well.

Determined to make the plan work, he tightened his hold. He let go executives who were ambivalent to his ideas. He orchestrated monthly presentations to the board extolling the benefits of his plan and implied that the farsighted doctors were behind him, with only a vocal minority of reactionaries in opposition.

Despite reassuring e-mails and broadcast faxes to employees, nurses and other caregivers became anxious. Many had worked 20 years in the system's hospitals and feared risking seniority benefits by speaking out. It was fine for the doctors to oppose the CEO; they had their practices and could admit to other hospitals.

Dark days

The first year, the system coasted through with a 5 percent return on investment, which everyone interpreted as a sign the plan was working.

The second year, however, ROI dropped to 2 percent, and in the third year, serious difficulties became visible when health plans angry about having their contracts canceled retaliated by reducing payments to the various physician groups and IPAs within the system.

The picture darkened when the census dropped at the largest hospital in the system since managed care patients were being diverted elsewhere. In addition, surgical specialists took cases to other hospitals and freestanding surgi-centers to demonstrate their independence from the new CEO's plan.

Obstetrical and emergency department volumes, the lifeblood of the hospital, fell off as well. Operating income was recorded in red ink.

The medical executive committee asked the CEO to a special meeting to voice their collective concerns. At the meeting, he reassured doctors that market forces would prove him correct, but remained aloof and formal toward his medical colleagues.

Upset because they felt he wasn't listening to them, the committee sent a letter to each member of the board voting "no confidence" in the CEO and took advantage of unrest at the other hospitals to persuade them to join the campaign.

The CEO dug in his heels, delegating responsibility for liaison with the medical staffs to the senior vice-president. The doctors contacted the press to mount public opinion against the plan, lobbied board members in social settings. In their offices, they reiterated their concerns to patients. Finally, the doctors started advising grateful patients to put off making donations to the hospital system.

After the next board of trustees meeting, the CEO resigned and the chief operating officer was named interim president. He began decentralizing power to the hospital business units, set up new agreements with the medical groups and IPAs, and established a policy-making group composed of the chiefs of staff and administrators of the constituent hospitals. The board created two additional seats for physicians and formed a permanent physician relations committee.

Within a few months, all began to feel the healing effect of these actions and the board named the interim president as permanent CEO. He proceeded cautiously, forging alliances with the physicians and working to lower operating costs.

He bargained with health plans to eliminate terms which penalized the medical groups if the hospitals did well. He stayed close to the physician leadership and encouraged the hospital administrators to do the same.