Converging interests Featured

8:00pm EDT June 25, 2008

Dave Gallatin had no training as a health care executive, but thatdidn’t stop him from taking the reins of three merging hospitalsthat were losing a combined $27 million from operations.

Sure, he had a long association with Westmoreland RegionalHospital and the former Westmoreland Health System, serving onits board of trustees since 1983 with terms as vice chairman andboard chair, but he had no formal training in leading a health careorganization.

Yet, when Westmoreland and Frick hospitals, which merged in2001, joined forces with Latrobe Hospital, the board decided hewas up to the challenge of leading what would become ExcelaHealth as CEO.

“Serving as a chairman of the board, it became clear to the boardthat our CEO was really not able to integrate that merger very well,and the financial performance really deteriorated very rapidly from2000 to late 2002,” he says. “The board felt it was time to look for anew leader.

“What happened was, we actually started very quickly with mergerdiscussions with Latrobe Hospital in late 2003. It became clear that itwasn’t an appropriate time to look for a new CEO since we knew wewere going to be in transition, so I agreed to stay on through the merger process, and I am still here today.”

In 2005, Excela Health formed and things began to turn around forthe merged hospitals. The operating margin was a positive 1.5 percent, growing to 2.2 percent in 2006 and to 2.4 percent in 2007.

After the acquisition of Mercy Jeannette Hospital on May 1, theorganization now employs 4,500 employees and is projecting revenueof $450 million for 2008, an increase from the $372 million posted inJune 2007.

“I’m really pleased and proud that right after the merger, we turnedthe corner,” he says. “And we’ve been producing profits from operations really from day one, which has allowed us the luxury of saying,‘OK, now that we’re not losing money from operations, again, whatcan the organization become? What is the next level for this organization? How do we become truly a long-term provider of care for thecommunities that we serve?’

“So, our mindset went from going from managing a monthly P&L[profit and loss statement] to I had to transition to managing a five-year strategic plan.”

Here’s what Gallatin learned from guiding the organization throughthe merger process and transitioning it to growth mode.

Plan and listen

Prior to the merger, the organizations engaged consultants to helpthem put together an operating plan, which was really a to-do list ofthings to get accomplished in the first years of the merger. That included back-office consolidation, staffing the organization and clinicalconsolidation.

“We couldn’t share information between the organizations prior tomerger, so we used a consultant to help us process that information,”he says. “But it was time and effort well spent because it gave us anagreed-upon plan for the first several years of the organization.”

Gallatin says the preplanning was vital in making the transitionsmooth.

“Typically, in health care mergers, they merge, then people figure outwhat to do next,” he says. “We took the proactive approach and really tried to have a really well-defined operating plan for the first coupleof years, in particular, of the merger that would allow us to bring theefficiencies and generate the economies of scale that we thought we could do as we did this merger.”

The leadership of the merging organizations formed the StrategicIntegration Group to facilitate the merger and bring people together.However, Gallatin says, people were, at first, hesitant to speak theirminds on ideas.

“There was some concern about what you could say in the roomand if it would be totally well received or people were afraid theymight show a sign of weakness by saying something,” he says.

Gallatin says a key to leadership is listening, which is a good way tocreate an environment where ideas are shared.

“It’s more about engaging in conversation, I guess, than it is in justlistening,” he says. “It needs to be a two-way conversation. But, youreally need to be hearing from your executives and your direct reports— what’s really on their mind, what their concerns are about, howthey can conduct their day-to-day responsibilities in the organization. You really need to be an active listener, which means respond tothe concerns that are being brought to your attention.”

Once you’ve heard the opinions, it’s important to get guiding principles down on paper, so everyone knows the direction the company isgoing. When developing those guiding principles, remember what youwant your organization to become.

“You focus on the reason your organization exists,” Gallatin says. “Ifit’s an accounting firm, it’s probably there to serve the shareholders ormaybe another higher purpose. The advantage we have is that we areowned by the communities that we serve. So, really, making a profitis a means to an end for our health system. We need to do that so wecan produce the resources to replace our depreciating assets, to buythe technology that we need to provide the care for the community.”

Start by thinking in terms of your mission and vision before anymerger.

“Come to some agreement prior to a merger — is that the combinedmission of this new organization and, if not, why are you merging?” hesays.

Gallatin emphasizes the need to establish principles and reasons forthe merger and to keep those reasons in the forefront of your mind atall times. He also reiterates the need to plan ahead as much as possible.

“Plan your work and then, after the merger, work your plan,” hesays. “As much planning as you can do and agreement you can getpremerger, whether it’s government or whether it’s operations orwhether it’s things like communications — as much preplanning asyou can do is certainly worth the investment of time and resources todo that. You need to be careful you do it appropriately and in a legalway, but it can be done.”

Focus on the future.

Though there has been some attrition as the organizations consolidated functions and some people have been moved around, therewere no direct layoffs associated with the merger.

“We didn’t merge to shrink,” he says. “We merged to grow the organization. I think that’s been a big part of our success. We have been ableto provide that growth for the organization, so people may not bedoing exactly the same things they used to do, but they certainly havemore opportunities in this organization today then they would haveprior to the merger.”

To set sights on the future, Gallatin and the organization formed theExecutive Strategy Council, which is a present-day incarnation of theStrategic Integration Group.

The council exists to make sure the organization is staying on track

with its strategic plan. The council comprises senior leaders and vicepresidents — essentially, those with system responsibilities.

The council meets weekly to avoid overanalyzing information.Additionally, the weekly meetings keep everyone’s attention focusedon the long-term strategy and away from the day-to-day operatingproblems.

“It really keeps strategy at a higher level,” Gallatin says. “Many strategic plans can become a plan that is put on the shelf somewhere andreferred to when needed. Ours is actually a work in progress everyweek, as we see things that are changing in the external and internalenvir onment. We can really monitor our performance relative to theplan and have the folks who are necessarily involved day in and dayout on their operating responsibilities to think more strategically.”

There is also an agenda set for the meeting to make sure the discussion sticks to the long-term strategy of the organization. Keeping thetopic focused is a main key in establishing a group like the ExecutiveStrategy Council.

“You clearly want to have objectives for the group,” he says. “Youwant to have a focus for the group. It can’t just be a ‘come as youplease and talk about what you want.’ Things that are discussed in thisgroup, for example, need to have strategic implications. So, I thinkyou need a focus for the group and a purpose — kind of a missionstatement and also a defined agenda every week, and the person leading the group really was responsible for putting the agenda together.”

While the meeting is not an open forum for anyone to attend — theorganization has town-hall and group meetings for that — employeescan come to their direct reports and discuss an item they feel may beappropriate for the council. The executive it is brought up to is free tothen bring the issue to Gallatin to appear on the agenda, but only if theitem fits with the council’s objectives.

“Certainly, anyone can request items be put on the agenda, but itneeds to be a specific, thoughtful, planned process in terms of whatare the big issues the organization is facing that impact all of us on astrategic level that need to be discussed,” he says. “So, it really is aboutstructuring your free-flowing conversation.”

Gallatin looks at each issue and the extent to which it impacts theother participants in the meeting.

“If an executive has a problem with his own direct report for example, that obviously wouldn’t be appropriate for discussion,” he says.“But, if there is an issue with culture, for example, where we’ve got agroup of employees who may be across campus who are feeling oneway or another, that would probably be an appropriate topic of discussion.

“The metric would be, how many people in that room have responsibility over the issue or how many people in the room does that issuetouch?”

Once an issue is brought up for discussion during the meeting,everyone is expected to listen and respect everyone in the room. Therules are defined, specific and in writing as far as what the objectivesof the group are and the expectations of each member.

“The rules of the game in the council are that we all listen to eachother’s concerns, and that we engage each other in good conversationand that we all are encouraged to participate and give opinions,” hesays. “The group actually, many times, reaches its own kind of consensus. But, the understanding is, whether or not you support thatconsensus in the room, you certainly need to support that consensuswhen you leave the room. So, it’s really been establishing the habit ofhaving all our executives even though they have many people reporting to them day in and day out, many of our executives have theopportunity to talk with their peers about what’s on their mind on aweekly basis.”

While Gallatin says he sees the need for unofficial hallway conversations, he wants his executives to be able to communicate in an official manner

“Instead of getting a consensus by having to talk to seven of your peers individually, you can bring it into the room and talk as a group,”he says. “I think that encourages much more openness and responsibility, when you do it that way.”

As Gallatin begins to focus more on the future of the company, KimHollon was hired in March as CEO of Excela Health Hospitals andexecutive vice president of the Excela Health system to handle moreof the day-to-day operations.

Gallatin says he realized he was much too involved in the day-to-dayoperations, and as they developed the strategic plan, it became clearthat to achieve the strategic vision, it would take much more than justgetting better at operations.

“It was clear to me once we had that strategic plan that we had tomove in that direction,” he says. “I think that’s a natural progression ofthe organization as we moved from really worrying about surviving asa new entity, getting our operations in place. Now that we’ve done thatnow, we need to look at long-term survival. So, it was totally a logicalprogression of the organization from survival mode to really a fulfillment of what we could become in terms of the vision.”

HOW TO REACH: Excela Health, (877) 771-1234 or