Welcome to Extreme Makeover, Hospital Edition. After decades of studies, tests and duct tape solutions, a panel of judges in Washington, D.C., has determined it's time for a major renovation. The hope is that at the end of this makeover your organization will emerge more innovative, more cost effective and more integrated with your neighbors.

Like any rehab project, the process will bring headaches. You won't get extra money to pay for the work; in fact, your reimbursements will be cut significantly over the next decade. There will be fits and starts as the government and private sector sample new payment system designs. You'll be held more accountable for your performance. Oh, and you can't hightail it out of town until the hard work is finished; you'll have to run your day-to-day operations even as you oversee the transformation all around you.

Where do you start? Right in your own C-suite. Take a hard look at your executive team—including yourself—to make sure it has the right combination of skills for this undertaking. And if not, ask how you need to change the leadership mix to make sure it's up to the task.

Don't Just Manage—Lead

The Patient Protection and Affordable Care Act is the biggest change to hit health care since Medicare was launched 45 years ago. Some argue it's far bigger given that Medicare and Medicaid pumped new money into the system but didn't necessarily target the way care is practiced and delivered.

Shepherding organizations through this change will require new thinking. First and foremost, it will require leadership, not just management.

"Change management is the technical component. It is the step-by-step process for implementing change," says Thomas Dolan, president and CEO of the American College of Healthcare Executives. "Change leadership is the cultural part, and culture is the biggest issue."

Or as Michael Dowling, president and CEO, North Shore-Long Island Jewish Health System in New York, puts it, "Leadership, at its essence, is about embracing change and figuring out where you need to be. And leadership is about constant adjustment. We've laid out a vision for where we'd like to be in 2020. We are putting those components together; we are building the type of structure that we need to get there."

A big part of that is tearing down the proverbial silos that tend to dominate health care institutions. If the idea is to create an integrated delivery system centered on teams, leadership needs to mirror that.

"We perpetuate silo thinking when we think of the chief nursing officer or chief medical officer," says Marie Sinioris, president and CEO, National Center for Healthcare Leadership. She doesn't want hospitals to do away with those roles, or any other chief officer. But she says all hospital leaders must cross the boundaries of traditional job descriptions. The management team of the future will have to ask, "What are the outcomes that together we are accountable for?"

"We cannot thrive if leadership isn't team-based," Sinioris flatly declares.

Shared Risk

What does all of this mean on a practical level? One example: chief financial officers.

As the delivery system becomes more integrated and concepts such as accountable care organizations, bundled payments and value-based purchasing move from the test factory to the marketplace, a hospital's reimbursement strategy is no longer just about maintaining margins. The hospital takes on more financial risk as it becomes more accountable for the continuum of care.

To achieve that, the chief financial officer must become more supportive of process redesign and partner more closely with clinicians, says Rich Umbdenstock, president and CEO of the American Hospital Association.

And as hospitals accelerate their physician integration strategies, operational and financial executives will require new contracting skills. In the past, when hospitals and doctors came together in a management services organization or a physician hospital organization, negotiations typically centered on protecting one's own interests. Now, with shared risk, both sides will need to banish such self-protective attitudes or risk self-destruction.

"You'll be part of the same equation, working together with a fixed amount of money to maximize quality and minimize costs. That is an experience that people haven't had," Umbdenstock says.

Heirs, Spares

You may have a top-notch management team in place now, but Sinioris cautions, "'A' players may not be 'A' players in the future." The skills that made them successful to this point may not be sufficient to truly transform the organization. Leadership development and succession planning are suddenly urgent priorities.

It's something that John O'Brien and other leaders at UMass Memorial Health Care recognize. They've taken an "heir and a spare" approach for some 40 top management positions. That doesn't mean 40 people will be replaced; rather it is an effort to ensure that the organization is cultivating the talent it needs to thrive in critical areas. O'Brien, CEO of the Worcester, Mass., system, says several "change agents" have been identified as part of succession planning. Some have systems engineering backgrounds and expertise in Six Sigma or Lean management techniques, which will become more valuable in the coming years as hospitals are more compelled than ever to improve quality while becoming more efficient in their operations and care delivery.

All members of the C-suite have a personal coach to help them develop new competencies needed in the coming years, O'Brien says, noting that the coaching is now trickling down to the next level of management. "Those are our future leaders," he says.

O'Brien says the system is under tremendous pressure to reduce costs and become more efficient because of both the state's four-year experiment with reform and now the national law. UMass is trying to trim $70 million in anticipation of cuts in Medicare and Medicaid payments, as well as reduced rates from insurers looking to offset state-mandated caps on small group insurance premiums. To get there O'Brien says UMass needs to embrace new thinking. Having 20 years of experience isn't enough anymore, especially if those 20 years were focused on an outdated paradigm.

Learning by Doing

Leaders need continuous "action learning," says Sinioris—that is, learning by doing, not by sitting in lectures.

MemorialCare Health System's Memorial Academy has conducted leadership training for 20 of the system's managers a year for the past 15 years. About three years ago, the curriculum was changed to focus on the future of health care and the various ideas being floated for national health reform.

"A major piece was cost control, which is something hospitals had dealt with many times, but it is now universal, and there is greater intensity," says Barry Arbuckle, president and CEO of the Southern California system. "We need to get to a place where we can break even at Medicare rates. For us, that is a 20 percent reduction. That can't be done by traditional means."

So the academy refocused its year-long program on four initiatives that Arbuckle says are critical for MemorialCare to survive: productivity, Lean, utilization management and care model redesign—or PLUC as it is known within the system.

A physician academy was introduced in the mid-2000s; CEOs at each of the system's hospitals pick doctors for a similar yearlong learning experience. Like their counterparts in the leadership academy, the physicians must present a performance improvement project upon graduation.

"We would have paid a consulting firm hundreds of thousands of dollars to get these done," Arbuckle says of the performance improvement ideas, noting that MemorialCare gets the added benefit of now having physician leaders who are trained in system redesign.

For smaller hospitals, just finding the resources to free up physicians for leadership training will be a challenge.

San Luis Valley Regional Medical Center, a 57-bed rural hospital in Alamosa, Colo., has one orthopedic surgeon on staff. CEO Russ Johnson recognizes the need for the surgeon to be well versed in the nuances of health reform, particularly bundled payments.

"How do we free up his time so he can become a clinical leader so we can develop the things we'll need in bundling?" Johnson asks. "How do we look at hips and knees in a different way?"

The hospital is recruiting another physician so the orthopedic surgeon has time to delve into these leadership issues. "This represents a lot of risk because his surgery load will go down," Johnson says. "And I'll have to bring someone in who costs us at least $1,000 a day."

Physician Partners

Building a cadre of physician leaders will be critical going forward as patients and payers demand more integration and care coordination. "We need to shift from being hospital-centric to provider-centric," Johnson says. "We need to involve doctors in leadership and governance in meaningful ways while they are fully practicing doctors."

That can be a challenge for hospitals that don't have the same staffing model as an academic medical center. San Luis Valley has included physicians at every level of management, including four on the 10-member board of trustees. Three of those physicians are employed by the hospital.

Better efficiency, Johnson says, will come from driving out variation and moving toward agreed-upon clinical protocols and checklists.

Baptist Health System in San Antonio, meanwhile, is recruiting chief medical officers for its five hospitals. Previously, there was one CMO on the system level. Now, Baptist Health leaders recognize that health reform will necessitate greater doctor-to-doctor interaction, says Michael Zucker, chief development officer at Baptist. The CMOs will be part of the senior management team at each hospital.

Living in Two Worlds

It will take time to migrate from the fee-for-service world to ACOs, bundles and, though it might not be referred to as such, some form of capitation. How do you and the rest of the leadership team manage during the overhaul?

"It will be somewhat schizophrenic," acknowledges the AHA's Umbdenstock. But, he notes, many hospitals are already trying to figure out how they can become more efficient and position themselves well for the future.

"The best thing I've seen done is to create redundancies," says Brian Silverstein, M.D., senior vice president in the Chicago office of the Camden Group. "You can bring in someone to lead the capitation effort but have executives that still lead the fee-for-service side."

This approach allows hospitals to build the expertise necessary for the future without compromising current operations. "Move too quickly and you'll get killed," Silverstein adds.

Matthew Weinstock is senior editor of Hospitals & Health Networks magazine.

Sidebar - New Faces in the C-Suite