It would have been an ambitious proposal for just about any organization, but a plan rolled out to its board in February to spend a half-billion dollars on a capital expansion was particularly bold for Children’s Hospital of Orange County, an institution in genuine danger of financial failure a decade before.
“We just took a plan to our board to build a new patient tower that has a price tag of $510 million, and we’re moving forward with it,” says Kim Cripe, president and CEO. “It really is ironic. Exactly 10 years ago, I was sitting in front of them explaining how we’re going to turn this place around and obviously people were wondering if we were going to make it, and now we’re sitting in front of them with a plan to spend $510 million, and we’ve got the financial wherewithal to do it.”
That’s nothing short of remarkable, given the hospital’s situation when Cripe was promoted from chief operating officer to president and CEO in 1997. The hospital had been in a downward spiral of financial loss for several years, which threatened to close it down. It would continue to lose $48 million between 1997 and 1999.
The hospital slipped into danger primarily because of a fundamental change in 1996 in the reimbursement scheme for hospitals mandated by the state’s Medicaid insurance program for the indigent population, a group of patients that the hospital, by its charter, is required to serve regardless of their ability to pay. The change in reimbursements also had the effect of steering patients to other hospitals, eroding its market share.
“The fundamental incentives within the reimbursement system changed, and you were providing a high level of care, so the kind of simple answer is we weren’t able to cut our costs as fast as reimbursements were reduced to us, and we found ourselves quickly in a loss position over time,” Cripe says.
To counter shrinking market share and the effect of stingier reimbursements from Medicaid, Cripe put together an aggressive blueprint for new and expanded services that would make it a provider of high-value, high-tech services, which would set it apart from other hospitals in its region, and a plan to streamline the hospital’s operations, thereby cutting costs.
While cost-cutting was an imperative in the recovery, her objective was to take a two-pronged approach to reviving the hospital’s finances by taking an aggressive stance on cost reduction while leveraging its strengths in the marketplace.
“The first thing to do was to sit down with my executive management and the medical staff leadership and develop a business plan,” Cripe says. “It was really a twofold plan. It was certainly a financial turnaround plan, but I constantly refer to it as a twofold approach. A large piece of it really was dealing with cutting costs and dealing with the reimbursement side of it renegotiating contracts, those kinds of things. But we also needed to increase our market share because of the kind of hospital we are to maintain the scope and the breadth the depth we are committed to, so clinical services, research and education we needed to build up the critical mass. It wasn’t just the typical financial turnaround where you’re focusing completely on reducing your expenses, gutting staff, those kinds of things.”
Increasing market share meant building the high-value, high-tech services within medical specialties like orthopedics, oncology and cardiac care. That exclusivity would be a magnet for insurers who wanted to cover certain advanced services available only at Children’s, thereby steering more patients to the hospital.
A new team
For Cripe, the challenge was to get a new team together in time to turn the ship around before it sank.
“I think the overarching risk was we needed to recruit an extremely new management team, and could I get a management team in place quickly enough to stop the bleeding and support the investment in the service lines,” Cripe says.
The task turned out to be more than simply replacing a few positions. Cripe and the hospital’s board decided that the task before them required an entirely new team with different skills than the one in place. Over an 18-month period, Cripe replaced all 13 members of the hospital’s senior management team.
“I needed a different type of team to run the hospital in the manner that the plan described,” Cripe says. “We needed to run the hospital like a business, and I needed people that had that skill set and experience.”
Rather than replace the existing members exclusively with managers who had experience in a health care environment, in some cases, Cripe recruited individuals with business skills that were not narrowly focused on health care.
“I was looking for people with strong financial skills who could achieve a financial turnaround,” Cripe says. “There were key areas where I needed that expertise finance, IT, those kinds of areas but I was also committed to growing the operation and the enterprise, so I hired someone in a business development position, hired someone in marketing from outside the industry, hired a new human resources vice president from outside the industry. I needed a blend of executives with a diverse set of skills. We couldn’t wait and do this part over the next 18 months, and then shift gears and move over and do that part.”
As a bridge across those 18 months, Cripe tapped the management expertise of another hospital to fill in gaps left as she changed out the executives.
But even with the outside management assistance, Cripe needed to be sure she selected the right in-house managers. She says that having a precise vision of where she wanted to take the hospital was key when it came to selecting a new management team.
“I think the whole key, and I don’t think it matters what business you’re in as an executive or CEO, is to be real clear on where you’re trying to take your company,” Cripe says. “Then, when you’re interviewing people, depending on what their particular responsibilities are, being really clear on, over the next three to five years, what success would look like in that particular area, what you need that person to accomplish, and then the interviewing is so much cleaner. It’s really amazing how simple it is, but if you’re not sure as the president of the company where you want to go, then it’s the old adage, ‘Any path will take you there.’ I think that’s really true when you’re hiring people.
“I needed a sophisticated team with a good track record. One of the really fortunate things was the quality of the care at the institution was really outstanding. I think having been there and knowing that, it wasn’t a matter of having mediocre health care taking place. It was really the business acumen that needed attended to strategic planning, business planning. We had some terrific clinicians, but the business part fell apart.”
Hiring the right people
While she didn’t have direct knowledge of the requirements of each position she was hiring for, Cripe says that identifying the right people for the leadership team was a matter of determining what an individual would have to accomplish in each position.
“You can’t have complete knowledge of them technically of how you do them, but I have found that you can have a really good feel for what you want that person to get done,” Cripe says. “Then, when you’re interviewing people and you’re talking to them about what they like to do or don’t like to do, I found if you listen carefully, you can get a pretty good indication of whether someone’s a builder or a maintenance person, those kinds of things, their chemistry, their passion.
“I think the one thing I’ve learned is how critical it is to really understand the job you’re hiring someone to do. You can say, ‘I want to hire a great CFO,’ but what in particular do you need that person to do? Like a COO, are you talking about someone to build facilities or something else? So I think you have to be really clear on the direction you’re taking the company and what you need that person to do, and then hiring the absolutely best and brightest person that you find with that skill set and not be intimidated by people who are smarter than you or know more than you know.”
Her strategy has paid off. By 2000, the hospital went into the black and had revenue of $185 million. By 2006, its revenue more than doubled to $377 million.
While Cripe needed a team with a strong business orientation to turn the hospital around, leading a team that is more business-oriented and entrepreneurial in its approach than a traditional hospital team can be a challenge. She looks for a variety of personality types to maintain equilibrium.
“With a large team I try to find balance,” Cripe says. “Thirteen Type A people in a room can be a challenge.”
Cripe says the key to keeping the team focused is to make sure everyone knows what the goals are.
“It’s a very dynamic team, and if I don’t pay close attention to it, it could potentially go in different directions,” Cripe says. “But if all of us are clear over the next quarter or the next 12 months that we need to accomplish whatever it is we’re working on, it’s amazing how well people can work as a team when they’re trying to accomplish it together. I think we’ve learned that by focusing together, the results are much greater when we work as a team.”
Cripe says the key to staying on track with both long-term and short-term objectives is planning, planning and more planning.
“We spend a tremendous amount of time on strategic planning,” Cripe says. “We meet a minimum of every two weeks, and we go on executive planning retreats quarterly, and we really stay focused on the strategic plan. We’re updating it annually, and every three years, we adopt a new strategic plan. I think just staying focused on the plan and on our vision and on the strategic initiative for the year are critical to keep people moving in the same direction.”
Cripe is a CEO who insists on remaining visible in the organization as well as in the community, but she also believes that whether an organization is in a turnaround or a growth mode, it’s critical that the CEO remain visible and engaged with her team.
“I can’t imagine going through something like that and sitting in your office all day,” Cripe says. “Your staff needs to know it’s going to be OK and that you’re there for them, you know what they’re doing, you know how hard they’re working.”
HOW TO REACH: Children’s Hospital of Orange County, www.choc.org