During the first four years of his now decade-long stint at the helm of Tenet Healthcare Corp., Trevor Fetter spent a lot of time putting out fires. The company was embroiled in a couple of delicate litigation issues left over from its previous regime, and those cases drained the newly appointed CEO’s energy and focus.
Unfortunately, the legal entanglements left Fetter with little time to address a significant problem that had begun to affect both his company and the health care industry at large: a long-term growth slump that began in 2003 and persists to this day.
“From 2003 to 2006, I was focused most intensely on fighting fires and resolving legacy problems,” Fetter says. “But you could see the early signs of the slowing of growth in our industry around the beginning of 2003.”
The slowdown was largely being driven by a conscious initiative of employers and insurance companies to reverse the tide of ballooning health care costs. Companies were beginning to shift a portion of the health care costs they had traditionally borne onto their employees by increasing out-of-pocket payments such as co-pays and deductibles.
“Behind the scenes, employers’ HR departments were fixated on the percentage of total health care costs being borne by the company versus the employee,” Fetter says. “They were trying to move it from, say, an 80-20 ratio to a 70-30 ratio. And that made a big difference in the take-home pay of employees across American industry.”
It also started to make a dent in the revenue of companies such as Tenet, which owns and operates 49 hospitals and about 100 outpatient centers in 11 states and generated $9.58 billion in revenue in its most recent fiscal year.
“That and other factors have resulted in a prolonged reduction in the growth rate for our industry,” Fetter says. “And if that weren’t enough, when the recession came along in 2008, the suppression of growth expanded, and it has persisted. So our big challenge over the past few years has been how to overcome these pressures against growth.”
Tenet has faced that challenge by launching a handful of initiatives that, taken as a whole, have transformed the company into an innovator and a model for a more sustainable way to deliver health care services in the coming decades.
React to shifts
The first of these new programs, kicked off in 2007 and was dubbed the Target Growth Initiative. The program’s goal was to revise the Tenet hospitals’ menu of services to better fit the changing demographics of their communities, thus making them more competitive in their markets.
“What we did was to deconstruct our hospitals and look at them as a collection of service lines within a fiscal infrastructure,” Fetter says. “When you look at a hospital that way, you realize that some of the services you’re providing to the community are in a permanent state of decline, generally fueled by demographic trends.”
As an example, Fetter cites a hospital serving an aging community. In that type of market, the demand for maternity services will naturally decrease while the demand for cardiac services will naturally rise.
Tenet’s Target Growth Initiative enabled it to get out in front of these types of trends by investing more in service lines for which the demand was growing, even though that often came at the expense of cutting service lines for which the demand was shrinking.
“An example of this was at one of our hospitals in Los Angeles where they needed more space for operating rooms and equipment related to treating cardiac disease, while they had excess capacity for maternity and obstetrics,” Fetter says. “Another factor we had to consider is that in Los Angeles it takes forever to get permission to change a physical facility. It’s very difficult and very expensive.”
Tenet’s leaders also realized that there were competing hospitals nearby that had large, established maternity and obstetrics departments. So the company solved the puzzle by shutting down its maternity services at the Los Angeles hospital and using the freed-up space and resources to expand its cardiology capabilities.
“We repurposed those facilities to satisfy the need of the growing cardiology business,” Fetter says. “A change like that can make a huge difference if, for example, someone is having a heart attack. It might shorten their ambulance ride by 10 to 15 minutes. That can make a real difference in saving lives.”