5 core management mistakes in health systems: Key causes of failure and business erosion

As we look over the past 10 to 15 years in healthcare, there are several core management mistakes we see repeating themselves. These unfortunate patterns can be the key causes of failure, hurting the sustainability of an organization. Avoid the following five errors:

1. Failing to build next generation of leadership in management. Many healthcare organizations are built around a core leadership team. When that team fails to build a second level of leadership, the organization may struggle to revitalize and trend itself for the next generation. Evanston, Ill.-based North Shore University Health System, Downers Grove, Ill.-based Advocate Health Care, Toledo, Ohio-based ProMedica, Englewood, Colo.-based Catholic Health Initiatives and Dallas-based Methodist Health System are all examples of systems that have done a fine job of building a next level of leadership internally, positioning these organizations to survive and to take on new challenges.

Nearly 76 percent of CEOs were promoted from within in 2013, according to Strategy&'s 2013 Chief Executive study. CEOs hired from within tend to stay longer, perform better and increase a company's share price more quickly, according to Forbes. To consistently run business on the same level, healthcare organizations must keep both the present and the future in sight. However, many great health systems with wonderful CEOs do not have the depth to steer and drive the organization for the next generation. In fact, this lack of depth in leadership often causes systems to look for strategic partners.

Failing to develop future leaders can be a potentially catastrophic problem for smaller markets especially. We have recently seen two smaller systems run out of options with no sufficient leadership in place to replace long-term leaders. In the words of his Wharton professor, Stephen Klasko, MD, MBA, President and CEO of Thomas Jefferson University and Jefferson Health System advises, "You should always have five people under you who think they can do a better job than you, and three of them that are right."

2. Not planning for rapid changes in collections and health IT systems. Over the years, we have seen a couple different hospital systems fail based on quick, unthoughtful changes in their health IT and automated revenue systems. We saw a specifically successful hospital actually go bankrupt based on a change that led to a great deal of uncollectibility over a sustained period of time. "Hospitals or health systems replace their health IT systems about every 17 years," Michael Blackman, MD, CMO of McKesson Enterprise Information Solutions, wrote for Becker's Hospital Review. "That makes upgrading or replacing your health IT system more like buying a new house than buying a new smartphone. Like buying a new house, in which you anticipate your space needs for the next decade or two, providers must do the same with their health IT systems. They must anticipate their information needs for the next decade or two." Changing collections and health IT systems requires major forethought for healthcare organizations. 

3. Not allowing great leaders to thrive internally. Most systems have been guilty of this in one way or another. They do their best foster a leader's development and then see that person depart to go to a different health system. A core job of leadership is to constantly be grooming and working closely with great people so there are always opportunities available for those people to thrive. Employees ranked "opportunities to use skills and abilities" as the most important determinant in their job satisfaction, according to a Society for Human Resource Management survey. In fact, "Employees don't just want their skills used; they want them stretched," wrote author Liz Wiseman in Harvard Business Review. This job in and of itself, while allowing leaders to develop their own careers, can be very time consuming. It requires working closely with the best people to make sure they are constantly challenged, yet not overwhelming leaders with micro-managing their employees' careers.

4. Letting one great facility become two mediocre facilities. Not all hospitals and health systems become more robust after an expansion. Instead, some become more fragile and vulnerable to unexpected challenges. By raising expenses or debt, these systems may be less able to weather changes in reimbursement or the loss of key physicians or payers. Years ago, we saw a hospital with one core facility that was hyper-successful establish a second hospital. The first hospital did 8,000 to 10,000 cases per year and was highly profitable. When they added a second facility, cases were partially split with the first system. Each hospital was significantly less profitable than the first hospital and the total profit margin was significantly lower. Before a hospital or health system grows, it must consider expanding expenses. If a system is looking to expand, it must examine the depth of its market and determine if demand is high enough to support a significant increase in the bottom line. Opening a second facility can nearly double expenses, so a health system must carefully double and triple check revenue projections to determine if an expansion is right for its market.

5. Failing to develop a core reason for being. One third of healthcare consumers said they would consider using their most familiar national brand for any treatment or surgery, according to a recent study from National Research Corp. Developing a unique strategy and establishing a brand or specialty is integral to success. We have seen many community hospitals — big and small, chains and independents — erode as they fail to define their own specific strategy.

For example, in a high-paying urban setting, we have seen certain systems fail to develop any specialty or strength to establish the system as a top hospital choice. In contrast, systems that were once rated as fine, or as better than mediocre, become incredibly serious systems by developing a great managed care or physician affiliation system.

Chicago is home to several successful hospitals with clear visions. For example, Rush University Medical Center and Midwest Orthopaedics at Rush together established Rush as a destination for orthopedic care. North Shore University Health System, based in Evanston, Ill., is an example of a system that raised the bar outside the city. North Shore established the suburbs as a destination for physicians and patients to deliver and receive high-quality care. Lastly, Northwestern Memorial Hospital has built a brand so strong that most health plans for Chicago employers and employees must include NMH or local employees will protest strongly to their employers.


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