Pursuing and ultimately completing a merger of large health systems can be like walking a political tightrope.
If the governance board leans too heavily on one company’s executive team to guide the integrated organization, it can throw the entire deal out of balance.
Enter the dual-CEO model.
Described as a bridge to completing a deal and appeasing both CEOs, experts tout a well-defined split-CEO arrangement as a potentially successful short-term solution. But one that extends beyond three years can bog an organization down with unnecessary bureaucratic layers and redundant executive salaries that contradict a merger’s “efficiencies” defense.
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The two-CEO model can work, but it’s an extremely delicate situation, said Michael Buchanio, a principal in West Monroe Partners’ healthcare practice. “It’s usually a temporary solution after a big merger,” he said. “Especially when you have two leaders or boards who don’t want to give up power.”
Edison, N.J.-based Hackensack Meridian Health’s dual-CEO model ran about 2½ years, by design. John Lloyd retired in December 2018 and the board transitioned to a non-representational governance model.
There was no power struggle or ambiguity thanks to the succession plan formed in the early stages of the merger, said Robert Garrett, now the lone CEO of Hackensack Meridian.
The hospital, physicians, academic and research divisions reported to Garrett while population health, ambulatory and post-acute departments reported to Lloyd. Support areas like human resources, finance and strategic planning provided dual reports.
Garrett and Lloyd would typically meet Monday mornings for areas that overlapped. About 95% of the time they agreed, and if there was any disagreement they were able to resolve it, Garrett said, adding that they respected each other’s complementary strengths.
“It really didn’t slow the decisionmaking process,” he said. “Looking at what we accomplished in the past two years, we were able to move quickly and complete some major initiatives. We had a good communication structure and didn’t get caught up in bureaucracy.”
In the right circumstance, chief executives know their respective systems intimately and can best identify during the integration process that areas can be consolidated, which services to grow and what departments can improve.
A beginning and an end
There is a lot of heavy lifting involved in integration, which could be aided initially by a dual-CEO model, said Tom Giella, chairman of healthcare services for executive recruiter Korn Ferry.
“But it’s important to have a start and a finish so people know their roles,” he said. “You need one CEO to chart and craft the vision of the organization when integration is done.”
Garrett cautioned that Hackensack Meridian’s situation was unique. The co-CEO model can unravel quickly if there isn’t a clear succession plan mapped out from the start, if there isn’t mutual trust and if responsibilities don’t capitalize on the individual’s strengths, he said.
“It should be used in limited circumstances where it makes sense,” Garrett said. “If the co-CEO model is not clear to the organization or to the communities you serve, it can be very problematic.”
One lesson Garrett and Lloyd learned: There shouldn’t be many other co-executive positions. Things get confusing and the co-CEOs will have to become arbitrators, Garrett said.
“Co-CEOs almost need to work double time around communication-related issues to prevent any internal challenges,” said Paul Bohne, a managing partner and leader of executive search firm Witt/Kieffer’s healthcare practice. “It does require some guardrails and a clear definition as to how power is shared.”
Economies of scale, operational efficiencies and data-sharing are used to defend nearly every merger. But a dual-CEO model seemingly thwarts any efficiency defense if bureaucratic layers are bloated and decisionmaking slows.
“It’s kind of funny to hear executives say they are creating a lean organization and the first thing they do is double their CEO and add an extra $6 million to the payroll,” Buchanio said. “One issue is that it really makes it difficult for departments to collaborate. It perpetuates the siloed culture.”
If a combined organization’s market power can increase reimbursement by 10%, that outpaces any potential synergies, he added.
Two of everything?
Some merged entities resemble Noah’s Ark, where there are two of everything, Giella said. The organizations try to be accommodating, but that backfires when the best employees leave because they can’t get anything done.
If health systems keep their local autonomy and senior management teams, they become an appendage, Giella said.
“It’s not one that is integrated into the bigger system,” he said. “Some talented people have to be cut out and that’s how it is—it’s one of the biggest parts of the efficiencies.”
Advocate Aurora Health employs a dual-CEO model with execs Jim Skogsbergh and Dr. Nick Turkal. When the merger closed in 2018, the two were reportedly going to continue oversight of their respective operations—Skogsbergh in Illinois and Turkal in Wisconsin.
A spokesperson said that both CEOs are responsible for the strategic direction and performance of the company.
CommonSpirit Health, the result of the Catholic Health Initiatives and Dignity Health merger, is also moving forward with Kevin Lofton and Lloyd Dean holding CEO titles. Dean oversees clinical, financial and human resources; Lofton directs advocacy, compliance, IT, international business, legal, philanthropy, system partnerships and governance.
In South Carolina, two CEOs, Michael Riordan and Charles Beaman Jr., will lead the new entity formed by a recent merger of the state’s largest health systems, Greenville Health System and Palmetto Health. But their contracts for the new organization, Prisma Health, will expire at the end of the year when a new CEO will take their place.
This strategy can eliminate any perception of partiality, Giella said. Far-flung mergers in particular can run into favoritism issues, he said.
If a facility improves operations and cuts back and those savings are reallocated to another state by corporate administrators, that could breed mistrust, Giella said.
“There’s a reason you rarely see co-CEOs in corporate America,” he said.
Taking another approach
Other healthcare organizations operate under another model that includes shared leadership.
American Physician Partners has implemented a regional and corporate dyad model that pairs operational and physician executives.
The emergency department physician management organization has about six regions and works with around 100 hospitals. The regional vice president reports to the chief operating officer and the regional medical director reports to the chief medical officer.
Regional executives have nearly full autonomy, which allows the organization to act quickly, said John Rutledge, CEO of American Physician Partners. There hasn’t been much debate as to who has the final say, but when those discussions take place it leads to healthy discourse, he said.
“You just need the right teams,” Rutledge said. “The dyad model teaches our regional physicians about the business side, and our regional vice presidents get great exposure to the clinical side.”
Christus Health recently reorganized under a dyad model at its Spohn Health System, which similarly pairs an administrative leader with a clinical leader. It’s a proven model tested at Christus’ other divisions in Texas and Louisiana, executives said. In addition, the system’s finance and operational leadership roles have been combined to try to improve alignment.
“My experience as a trauma surgeon and a healthcare leader have taught me that there’s a difference between leading a resuscitation room and leading a boardroom, but I’ve learned that many of the skills you need in both are similar,” said Dr. Osbert Blow, who will become Christus Spohn Health System’s president and chief medical officer.
Blow will work with Dominic Dominguez, senior vice president of South Texas health ministries and CEO of Christus Spohn. They are replacing Justin Doss, former CEO of Christus Spohn.
The co-CEO model can serve as a bridge to complete a merger, but it should not be relied on as a long-term solution to mask operational inefficiencies, experts cautioned.
The model can help retention and keep up morale because an employee may develop trust in their leader, mission and operational processes.
But it requires a delicate and measured approach, particularly with senior management teams that need a well-defined set of responsibilities, Bohne said.
“Show me a co-CEO model that lasts beyond a few years,” Bohne said. “Even with best of intentions, there’s usually a natural inflection point where the efficacy is challenged.”
Date: March 18, 2019