Talking tough Featured

8:00pm EDT June 25, 2008

David Schmidt has seen constant turmoil since joining SCAN Health Plan.

Don’t get the wrong idea, Schmidt loves his role as CEO at SCAN, a Medicare Advantage HMO.

But when he joined the company in 2002, he had to deal with the final stages of bankruptcy, and just when things had finally started to look bright, he had to deal with a change in California policies that disrupted a major part of the company’s core business — providing in-home services for seniors who otherwise would need to live in a nursing home.

The changes in government policy had not come as a surprise, and Schmidt had worked to keep his employees informed every step of the way. This open and honest communication forms the foundation of Schmidt’s leadership style.

“You have to identify what are the critical problems, and I think you have to be explicitly honest, and you have to tell people what you’re going to do,” Schmidt says of the days leading up to the change in government regulations. “And then, do what you say you’re going to do, and hopefully, you make the right choices, and then people start making the right choices, and then it just begins to somewhat snowball.

“We communicated a lot to our employees. We let them know what was going on, we started communicating about (the change) probably 30 months before it occurred — that this was a potential issue, and then that it was an issue and so on and so forth.”

And when it finally came time to face the consequences of the loss of funding, the results weren’t pretty.

“We had roughly $40 million in cash and $75 million in unfounded liabilities,” Schmidt says. “So if the business is shut down on that day, not everyone would have gotten paid.”

That HMO specialization was a big portion of SCAN’s business, and while the company could stay healthy, it was forced to lay off more than 200 people when the funding stopped.

“This is a key part of who we are and what we do, and now, all of the sudden, we can’t do that anymore,” he says. “And how do you sustain the mission, how do you keep the people who are left, how do we keep them pulling in the same direction and supporting the same mission?”

The answer became using the troubled times to realign the more than 750 remaining employees behind the company’s vision of quality member care at the not-for-profit provider.

Establish a rapport

The key to pulling out of both the bankruptcy and the systemic change wasn’t just that communication attempts were made but that SCAN found ways to get the situation across to every employee. Instead of tucking away behind closed doors when things are going tough, you need to find outlets to let people know what’s going on in your business — especially if you have an inkling of things that will happen a few months down the road.

“We talk about our product, what’s going on in our marketplace, we talk about particular things about the company,” Schmidt says. “With the social HMO transition, we talked about that. I gave them the facts, and we talked very early about the idea that change was going to be part of our lives as soon as I got here because the first change was having to survive the near-death experience.

“We really communicated a lot about changes coming, saying this is what we think is going to happen, that either change can happen to you or you can have a role in its outcome, and wouldn’t you rather be someone who has a role in its outcome to determine your own fate?”

While Schmidt relayed the important facts to everyone, he knew that some of the extremely difficult financial details or long-term plans for the vision didn’t have to be broken down line by line. Instead, he says you can give most employees the CliffsNotes version while giving decision-makers the full novel. The CliffsNotes version at SCAN helped people understand where the company was headed with its updated vision.

“I do really believe it played a role,” he says. “I’m a big believer in kind of the social psychology of the organizations — fundamentally, it’s the people. You know the (Bill) Clinton thing, ‘It’s the economy, stupid’? Well, running a business, it’s the people, stupid. That’s the issue. So we made it OK to deal with the problems, we made it so the member comes first, but the enterprise has to do well, and we have to be financially successful, or we won’t be able to serve them.”

The end result was a better understanding from the employees when the layoffs happened.

“Walking 210 people out the door was not fun,” Schmidt says. “But we framed that around the fact that it was something we had to do to continue to be able to serve our members, so that gives you permission to do a lot of things as long as you are consistent.”

Encourage communication

The initial role of a leader opening up communications during a turnaround is very simple.

“I can tell them why I think it’s going to work, and because we’ve done the things we’ve said we’re going to do, I think we have some credibility there,” he says. “But I can’t make them believe, I can only give them reason to believe.”

Schmidt first led by example, taking time to walk around and talk to employees and to go out in the field. But beyond that, he found ways for communication to come from the bottom up.

One outlet he created at SCAN was a brown-bag lunch with 10 employees. The employees are nonsenior managers, and Schmidt sits down with them for a free-form lunch where they can ask any questions or give any comments they want about the business. And, though he says it doesn’t make him a great comedian, he tells the same joke every time to help take the edge off.

“I tell them what I expect and what I hope they get out of it,” he says. “And I actually tell the same joke every time, which is that, ‘This meeting is kind of like the ads about Vegas, what goes on in this room stays here. Now, I will make changes, and take action on stuff you tell me, but if you want anonymity, you have anonymity.’ And I give them some examples of things that people generally know that are changes that occurred at the company.

“And I don’t do anything that’s really threatening, but I show them things that really are the result of somebody asking a question in the brown bag.”

Though he can only talk to 10 employees at a time, results from those luncheons go a long way to help push communi-

cations from the bottom of the company. Keeping that anonymity in mind, Schmidt takes what he hears out of the meeting to other senior leaders and tells them to watch out for the problems he’s heard about. The surprising bonus to the luncheons that Schmidt has found is that most employees don’t want to complain about bad bosses or co-workers, they want to talk about systemic issues in their daily jobs. And since most come in as quasi-representatives of their position, hearing and fixing their issues can often balance out a whole segment of the employee population.

Lead the communication

In addition to his efforts to get others in his organization to feel comfortable with speaking their minds, Schmidt says it’s also important for a leader to constantly check to make sure they are communicating and following the vision regularly and honestly.

“It doesn’t happen by accident, obviously,” he says. “It’s not manipulative, but it is intentional. ... It’s one of the things that’s really important for me, for my job, I need to, in fact, exemplify that because if I am less than honest about that, if I’m not consistent, then it’s kind of like scolding your teenage kid on something, and they’re going, ‘Yeah, you’re a hypocrite.’”

To exemplify that type of communication, you have to go beyond letting employees know what’s going on during hard times. You have to truly become a model communicator for your company.

Schmidt leads an annual forum for the organization’s members and staff called “Straight Talks” — a sort of “state of the health plan” event. The senior managers use the occasion to communicate the vision of the organization to both members and employees alike.

That kind of effort to get out and communicate the vision has helped SCAN get its employees to believe in communication from the top. In fact, SCAN does an employee survey every two years, and 83 percent of employees say that their manager follows the vision of the company, and nearly 84 percent say senior management does, as well.

“As long as you’re honest with people, and you consistently tell them the truth, you’re doing the right thing,” Schmidt says. “And the right thing doesn’t mean giving somebody everything they want. It means if you can’t give somebody something they want, you do the best of your ability explaining why and empathetically listen to what their concerns are, so that’s what we do.”

As a result of leading communications during the tough times at SCAN, Schmidt has helped the company from the trenches of bankruptcy and governmental hindrances to new success. When he joined the company in 2002, it had roughly 52,000 members and didn’t have enough cash to survive another bump in the road. Today, SCAN has more than 105,000 members, $1.46 billion in 2007 revenue and more than $1 billion in cash to work with. Naturally, there were many motions needed to get the company to such growth from the ashes, but Schmidt says communication in a turnaround really salves wounds.

“I think words are pretty important,” he says. “Would it have to be the exact same words? Of course not, but the communication is really critical to anything that an organization does, that’s one of the things that I believe very strongly, and I think the right words and attitude are important, particularly in a turnaround. You need to be serious, but you also need to be optimistic; you need to believe that you can make it work.”

HOW TO REACH: SCAN Health Plan, (800) 247-5091 or