Zephyr Healthcare Advisors is not in the business of executive recruitment; however, we have a good vantage point, having worked with numerous hospital systems and independent hospitals, observed the effectiveness of teams, and witnessed multiple CEO transitions. One of the many challenges in healthcare, in general, and for the hospital sector in particular, is CEO turnover. The industry has seen the average length of service for a position drop from 10+ years (15 to 20 years ago) to 5 years (5 years ago) and now to approximately 18 months. As a result, organizational effectiveness and continuity have become impaired to some degree for many organizations. A deliberate approach to hospital CEO succession planning has never been more critical. More than ever, it is imperative to have a careful evaluation process that is robust and takes into consideration key criteria beyond years of experience, compensation, and how well someone knows the “traditional way” to run a hospital. In my experience, promoting from within tends to be a more successful path than bringing in an outside candidate, but obviously, it depends on several factors:
1. Maximize Internal Culture and Team Dynamics
Sometimes, the internal culture and team dynamics are suboptimal or even broken, and new “outside” leadership is necessary. However, in other situations, these elements are the “secret sauce” to organizational identity, prosperity, and customer service. I think this is one of the most (or the most) important criteria in selecting a successor CEO. Bringing in an outside leader can actually be a disruptive force in this regard and can lead to failure.
2. The “How” Is More Important than the “What”
Sometimes it’s more about the “How” than the “What.” Maintaining team equilibrium, delegating with confidence, and preserving the positive elements of organizational culture are essential. Internal candidates are often more savvy and better equipped to understand and deploy the “How” based on their history and experience with the hospital. Physician and nursing interaction and relationships are particularly critical in achieving a successful future course for the hospital.
3. Be Clear in Defining the Expected CEO Role
Many hospital systems have adopted more of a local facility COO model (but giving the title of CEO) with corporate oversight structures that have extensive resources and functions that make most of the actual organizational decisions. Independent hospitals and smaller systems still need a “true CEO” with broader skill sets. In recent years, we’ve seen some poor choices in selecting a new outside CEO, with a mismatch between the candidate’s abilities and the organization’s needs. Conversely, we can point to several successful CEO transitions where internal candidates had “the right stuff” and were able to successfully work with the Board, the leadership team, and the medical staff to improve the organization while balancing expectations of key stakeholders.
4. Keep What is Working
A good incoming CEO will assess what works and what does not and embrace certain legacy policies and approaches that should be maintained, versus trying to change everything. One daunting challenge of an executive leadership change is the amount of time it takes for the incoming CEO to do his/her organizational “diagnostic” and formulate the new strategy. Today, many hospitals are financially challenged and, frankly, do not have 6-12 months to accommodate such a process when changes are needed in short order. This can also be a variable that favors an internal candidate, allowing them to avoid the organizational learning curve and mobilize the team more nimbly and quickly.
5. Embrace Change and Bring Innovation
Initiating change and innovation often favors an outside candidate, who can marshal fresh and innovative solutions. Organizations can get stuck in the “this is how we do it” mindset and be resistant or unable to change in vital areas. However, this factor is difficult to weigh in and of itself. Sometimes, there can be a difficult counterbalance between being a change agent and the effects that changes will have on the organizational fabric. This can be a tightrope to walk for many incoming CEOs.
6. Effective Leaders Must Know What They Don’t Know
Running a hospital is inherently complex and becoming increasingly so, with the headwinds of reimbursement challenges and cuts, workforce challenges, “make versus buy” decisions, and figuring out the efficacy/cost-benefit of adopting new technologies and innovations (e.g., AI platforms). Individual hospitals cannot be all things to all people, and it is imperative to evaluate “make versus buy” decisions, including partnerships and how to implement improvements that will enable the organization or facility to survive and, hopefully, thrive for years to come. Our (biased) view is that an outside expert can help give an objective assessment of areas that require improvement (opportunity assessment) – at the right price point, on the right timeline, and with the proper coordination. The degree of specialization and complexity in areas such as revenue cycle, pharmacy (including PBM), IT, cybersecurity, and others is staggering in today’s environment, requiring strong expertise from outside experts rather than seeking a solution from generalists with only a high-level understanding.
7. CEO Needs to Have a Vision of “The Hospital of the Future”
As has been indicated, while experience can be critical, it can be a deterrent if there is a need to “get out of the box.” Effective young and upcoming leaders can potentially embrace new paradigms including technology and innovation and have a sense of key pillars of the hospital of the future – ambulatory care delivery models, virtual health models, “hospital at home,” new architectural designs, and innovation and technology that will make hospitals more efficient, cost effective, customer friendly and ultimately more successful. This is easier said than done, but organizations should aspire to achieve this mindset and have it embodied in their CEO.
In summary, selecting a new hospital CEO is always challenging. There is no true or proper formulaic solution. Yes, you need to look at the usual suspects (number of years as a CEO, references, stated leadership philosophy and vision, etc.), but in our experience, more times than not, a qualified internal candidate can have advantages over one on the outside which is primarily rooted in understanding internal organizational cultural (and landmines), preserving the secret sauce of a hospital, leveraging the existing team where it makes sense, keeping what works, and embracing new ideas related to the hospital of the future.
