Feature in Becker’s Hospital Review (June 2017)
Building Future Health System Executives
Disruption in healthcare will continue to be profound, widespread and unpredictable, regardless of what ultimately happens with the Affordable Care Act, or the recently introduced American Health Care Act of 2017. Despite unprecedented efforts by all players in the industry to lower costs and improve quality, healthcare spending in the U.S. hit $3.2 trillion in 2015, an increase of 5.8 percent from the year before.
As retirement approaches for many of the most influential leaders in the industry, Americans are living longer and using far more healthcare. According to the CDC, the average life expectancy for a 65-year-old American has increased by about 35 percent since Medicare was implemented in 1965.
The other half of the story is the explosive and costly developments in medical science. Today there are exponentially more things a provider can do for patients, and accepted standards of care for the same diagnosis can vary in cost by a factor of 100.
A New World for Health System Leaders
These changes are exerting pressure on large health systems from every direction. As a result, the skills required to lead these organizations are different and vastly more complex than they have ever been. As the industry consolidates, health system CEOs manage larger, more geographically dispersed and diversified enterprises. Today’s healthcare leaders must deploy capital across a vast array of possibilities, shifting from a fixed asset view to a portfolio view. They need to increasingly acquire, merge with or form tightly orchestrated business alliances with physician groups, insurers/risk managers, and numerous other players.
To achieve these mandates and compete for healthcare consumers, providers are expected to use data to predict the need for and plan care, and demonstrate quality and value after delivery.
“An important trait we are looking for in future leaders is comfort with uncertainty because this industry is changing so fast,” says Anthony Tersigni, President and Chief Executive Officer of Ascension. “Leaders need to make predictions about the future and communicate that vision to associates in a way that moves them toward it.”
The Leadership Skills Required to Survive
As the healthcare industry transforms, it creates a growing a talent void. The skills of many experienced executives are no longer suited to the current industry dynamics. The best competitors are scrambling to attract the scarce “new model” leaders within the industry, recruit from outside the industry where possible and accelerate the development of their internal high-potential executives.
“There is an ‘industrial revolution’ going on in healthcare. The environment, market and regulatory realities and the executive tool kit needed to manage are all being dramatically disrupted,” says George Halvorson, the former CEO and Chairman of Kaiser Permanente. “The key attribute of executive healthcare leaders in the future will be the ability to understand and anticipate change; and to shape change if you have that opportunity.”
There are models for healthcare leaders to use as guides for success. The automotive, consumer electronics, utility and telecom industries have all undergone major disruptions due to competitive shifts and deregulation. As will be the case in healthcare, the winning organizations in these industries were those whose leaders were able to change and adapt to a new market reality.
Egon Zehnder has worked with many of the world’s leading health systems to create high quality executive development and succession planning processes. In addition to our own expertise, we recently spoke with executive leaders from a range of top health systems to learn how they are developing their high-potential talent and creating effective succession plans.
Based on these conversations and research, four critical themes have emerged as requirements for success:
1. CEOs Must Drive Leadership Development and Succession.
The most effective CEOs leverage HR and talent management teams for program development and process management, but they hold themselves personally accountable for succession planning.
“I owned succession planning as the CEO. The board held me accountable and I held my executive team accountable,” says George Halvorson. “At the officer level you could not receive your annual appraisal if you did not have three potential successors on an explicit development path.”
2. CEO leadership is the single strongest predictor of success.
Without careful preparation and ongoing leadership from the CEO, critical succession decisions can expose misalignment on the board and among management. In addition, effective CEOs invest personal time in mentoring high-potential executives across the organization, participating in the programmatic leadership development efforts of the organization in meaningful, visible ways.
Organizations Must Understand, Develop and Promote the Traits and Skills that Predict Leadership Success. CEOs and boards must clearly articulate the skills needed to deliver on the organization’s strategy. In the best organizations, this is a finite list of skills and leadership competencies that are well-defined and broadly applied.
“We use the same criteria for internal promotion and external recruiting. In a perfect world, assessments are completed before a candidate meets the hiring manager. We use a psychometric tool and also assess for mission orientation. These two dimensions are accurate predictors of strengths and weaknesses and potential for success that you often don’t see in an interview,” says the Chief Human Resources Officer for a $5 billion health system.
“At our organization, the competency model has not changed but the emphasis has,” says Cathy Fraser, the Chief Human Resources Officer at the Mayo Clinic. “In the current environment, we are more concerned about business acumen and external orientation.”
3. A Formal Succession Process is Required.
“If you start the process a year before an executive retires, it is replacement planning, not succession planning,” says Herb Vallier, the Executive Vice President and Chief Human Resources Officer at Ascension. “There is not enough time in one year to develop someone to a new level.”
Leading organizations commit to regular review—annually, and occasionally more frequently—for the CEO, board, and key stakeholders to review and discuss the organization’s succession pipeline. This formal process means keeping job descriptions current, training leaders in assessment and feedback, creating development and review plans for key executives, and measuring development against established goals.
4. Winners Invest Substantially in High-Potential Talent.
Effective organizations draft high-potential employees into development cohorts as soon as they are recognized. These organizations create a culture of comfortable transparency about identifying these executives. They have the sensing capabilities through their succession- planning processes to identify significant talent gaps. This also alerts them to the need to go outside for talent years before a critical vacancy arises.
Development opportunities for high potentials give them breadth and depth tailored to their development needs. These are primarily based on role assignments and expansions of accountability. “Today we have more and more system roles and fewer and fewer hospital roles by design. We have reorganized several times in the past few years to create roles with broader scope and to give hospital-based executives enterprise projects to lead,” says David Blom, the President and CEO of OhioHealth. “We need to develop executives with strategy and physician relationship aptitudes.”
Finally, high potentials should have executive sponsorship and exposure. Senior leaders get to know them and their abilities by working directly with them on the critical problems of the business. At Mission Health, they are addressing this by creating new synthetic positions with
the title Chief. “These positions sit above Vice Presidents in scope and responsibility and at times may be intentionally ambiguous,” says Dr. Ronald Paulus, the President and CEO of the health system headquartered in Asheville, North Carolina. “They are purposely designed to aggregate responsibilities and give future leaders the learning opportunity of larger, more complex and diverse roles to prepare them for the next phase of their career.”
What Health System Leaders Must Do Now
While the stand-alone acute care segment of the industry declines, large health systems increasingly control the most important and expensive segments of US healthcare delivery. With balance sheets and access to capital that much of the fragmented industry does not have, health systems have the most to gain in today’s market, but also the most to lose.
Success requires managing the traditional business at unprecedented levels of quality and efficiency. Increasingly, additional value will be generated from new services, knowledge of overlapping sectors, data analytics and technology, consumer services, risk management and many other areas.
The leadership traits required to succeed have shifted dramatically from faithful stewardship to informed risk taking in an uncertain environment. In this extraordinarily complex world, health system leaders must quickly embrace a new role as market makers.
Story published in Becker's Hospital Review.