John Kastanis, who currently serves as interim CEO of Quincy (Mass.) Medical Center (QMC), has led financial turnarounds at Southampton Hospital on Long Island and the Hospital for Joint Diseases in New York City. As interim CEO of Quincy, Mr. Kastanis has been tasked with capturing market share by recruiting specialists, rebuilding a primary care physician network, and continuing the hospital's journey toward financial stability. In this interview, he discusses why instability happens in the first place and how hospitals can achieve successful turnarounds.
Question: How do hospitals become financially unstable in the first place, in your experience?
John Kastanis: I would say categorically, those hospitals [that become financially unstable] are probably not paying attention to health reform agendas, mostly at the state level. I've noticed that where health reform is kind of onerous, it's usually at the state level and particularly with state-funded Medicaid programs. If you're not paying attention to health reform nationally, but particularly at the state level, you'll find yourself dealing with instability sooner or later.
Instability can also be caused by the break up of existing mergers or partnerships that break up. If you have a partnership or an affiliation that fails and you find yourself as an independent [facility], that could put you in a tenuous position.
Additionally, an uncommitted medical staff is guaranteed to put you in some kind of instability. If you're not keeping an eye on the strategies of your competition, which usually target your market share, that'll hurt you. Changes in demographics, [such as] a big wave of immigration that introduces uninsured patients, can also mean you move from having a good payor mix or mostly commercial insurance carriers to a lower paying mix with plans like the Massachusetts Commonwealth health plan or Medicaid.
Q: It sounds like those issues are dependent on careful attention to local and national trends by hospital administration. Would you say that inattention by hospital leaders is a major cause of instability?
JK: I would say it’s more about uncertainty regarding how new federal and state proposals will be effected, if at all. Over a decade ago, when we had the Clinton administration proposing a major shift in the whole delivery of healthcare, everyone thought that capitation was going to be a major trendsetter and it wasn’t. Going into this millennium, many hospital boards, executive leaders and hospital associations are more watchful of widening federal and sate budget deficits, and are trying to come up with more creative alternatives to some of the draconian budget cuts that have been proposed for Medicare and Medicaid programs.
Now we have actual federal health reform that was signed into law this past March by the president, after the majority Democratic Congress passed the act. So now everybody is watching the potential impact of the new reform bill. I would say that of late, hospital boards and executive leaders have been much more involved.
Q: You have been through several successful hospital turnarounds. Who needs to be involved in a turnaround from the beginning?
JK: Especially in the non-profit hospital setting, you need to get the board of trustees, executive leadership and physician leaders on board. This may sound a little biased on my part [as an interim CEO], but you also have to bring in some outside help. You need that “outsider perspective” to come in and give you some new ideas about what's going on and what directions you need to take.
[You also need to involve hospital staff] by having a lot of transparency and lot of communication, whether that's through email blasts or a blog or several blogs. You have to get everybody to understand the immediate and long-term plan, especially if you're financially unstable. If word has spread in the community about your instability, the community needs to know what you're planning to do, as well.
Q: During the Quincy Medical Center turnaround, you addressed problems with the community's perception of the hospital. How did you accomplish that?
JK: I stepped out first internally and held town hall meetings and explained the situation we were facing. I explained the external factors that, to a great extent, were not in our control, and said we had to be more responsive to those factors.
We also met with the editorial board of the local newspaper that had been a little more negative about the hospital than they had to be over the years. We were transparent with them, and that went a long way.
We also met with organized physician groups within the community that, for the most part, were hesitant to continue referring patients here. [In the past], we didn't do a good job communicating the fact that we are a high-quality, low-cost hospital. When you have physicians and insurance carriers looking to establish at-risk, capitated agreements, and they hear there's a high-quality, low-cost provider wanting to work with them, they take greater interest. We continue to maintain really good clinical outcomes, some of which are now posted on our website, which we didn't do in the past.
We also got the word out that we're here to stay, which took care of any misnomers about the fact that we were going to close soon.
Q: Once you have a team in place, what steps should the hospital take to regain financial stability?
JK: In order to begin to formulate a turnaround strategy for any financially troubled hospital, various external environmental factors affecting the hospital’s performance have to be examined so that the problem areas can be identified. Those external factors include the hospital’s market position, its reimbursement environment and payor mix, its pricing strategy, the regulatory environment, and the demographics and economics of its service area.
In addition to assessing the external environment, it is also necessary to do an overall assessment, including examination of internal operations, such as management’s competency and skills, medical staff relations, staffing productivity and clinical efficiency.
You also need a comprehensive organizational strategic plan that includes changes in non-financial aspects of the organization, such as: behavior, culture, policies and procedures, and structure. A hospital turnaround must be conceptualized as a process, not an event. Management must see their role as more than executing business plans. Effective leadership in a turnaround begins with a clear vision that focuses on continuous improvement. Traditional policies, practices and structure that insist on compliance and stifle innovation must be challenged. The main trait of a successful turnaround is a culture where staff accept change and not resist it.
Q: How did you cut costs and improve revenue at Quincy?
JK: There's always room for cost-cutting. Here, we had been rather lean, so when I first arrived, most departments had had significant layoffs, particularly at the management and middle management levels. But there was still an opportunity at the peri-operative area. We reconfigured OR availability and staffing and found some significant cost savings in the peri-operative area.
On the revenue side, it was basically about identifying what we called surgical leakage. We found that a lot of the primary care physicians were referring to specialists based at other hospitals, so we [concentrated on] some of the surgical service lines that showed a dramatic drop, such as general surgery, vascular surgery, urology and orthopedics, and went after that leakage.
Part of going after that leakage was affiliating with Tufts Medical Center, a highly-ranked academic medical center in Boston. They availed some of their top-branded specialists in surgical oncology, and we're now negotiating to associate with some of their orthopedic surgeons and vascular surgeons. Just having that branded academic medical center affiliated with us will be key to getting back the market share we lost.
Q: Many struggling hospitals choose to affiliate with a successful hospital as a way to grow profits, but a failed attempt at affiliation can be disastrous. How did you know the affiliation with Tufts Medical Center was the right choice for QMC?
JK: The key ingredient to our sensibility about [the Tufts affiliation] was that the majority of our physicians here at Quincy approached Tufts Medical Center on their own. We had a groundswell of support from the medical staff, indicating their trust in Tufts Medical Center’s reputation and their ability to commit to us as an affiliate. Tufts' working premise is that the community hospitals they affiliate with should be the main source of acute and primary care at the local community level, with Tufts Medical Center serving as a tertiary medical center. Tufts MC is there when a community affiliate hospital cannot treat particular diseases or trauma, and they would be on standby and ready to support those patients that can't be treated at the community level.
Q: As a veteran of hospital turnarounds, you must have seen situations where financial growth is possible, as well as situations where regaining stability is unlikely. How can hospitals tell whether a turnaround is feasible?
JK: [Turnarounds will fail] if market share cannot be realistically regained, and sometimes even when it is regained, it's not enough. This will happen if you're not gauging the change in reimbursement formulas or the change in regulations. For example, we now have this new concept of the ACO, which the federal health reform bill is touting, and we're not clear what that means because they haven't finished finalizing regulations. But here in Massachusetts, the ACO concept has not only been embraced, but legislated, and there are a lot of health systems that are applying formally to become an ACO. That structure calls for physicians and hospitals to partner together to accept risk on a per-beneficiary basis.
Giving Quincy as an example, we're trying to go through a turnaround based on the existing system and current reimbursement standards. But going into national health reform, which really takes full effect in 2014, we have to be aware that we have to structure this turnaround based on new health reform, not just on the existing reimbursement system.
So in some instances, no, you won't be able to accomplish a turnaround. Sometimes you may need to convert from an acute-hospital to a long-term care facility or an outpatient facility. When you realize you're not going to be able to succeed in a turnaround and continue as a standalone enterprise, you might also have to consider a merger, or some kind of partnership or affiliation. You either come out of the process with a complete successful turnaround, or you merge, affiliate, convert, or [file for bankruptcy] and close your doors.
Q: Once the hospital is financially healthy, how can hospital leaders make sure they maintain that success?
JK: You really have to have the board, executive leadership, and medical staff adhere to a strategic plan. It's not just the financial stabilization aspect; it's the cultural aspect, too. In the case of [QMC], they still have to hire a permanent CEO, and hopefully with the Board, he or she will continue to take the hospital through the process of [growing more successful].
I would also make sure there's a project management program underway, which may require an outsider's help. The financial strategic initiatives, in particular, will need bona fide project management to make sure the hospital is on schedule for all of the strategic initiatives it has developed.
The hospital should also stay involved with local, state and national associations to remain current with new reform developments, and remain an advocate for industry wide issues.
Q: What advice would you give to leaders of struggling facilities?
JK: There are a few lessons that I have learned. First, turnarounds are not about a few quick solutions, but rather, a compilation of numerous solutions (some of which may have been ignored) that add up to success. Second, by having all leadership involved, it’s possible to create good solutions that everyone buys into, while obviating the need for outside consultants. Since most management teams have varying degrees of experience in implementing new strategies, you need to customize support levels, and consider hiring a project manager to help facilitate the process.
Other important aspects include the conveyance of positive messages to all constituents on how improvements will begin to develop. Recognizing that physicians are leaders too, they should be very involved as well. And of course, all members of the C-suite need to be out in front and constantly holding themselves and the entire staff accountable for success.
Question: How do hospitals become financially unstable in the first place, in your experience?
John Kastanis: I would say categorically, those hospitals [that become financially unstable] are probably not paying attention to health reform agendas, mostly at the state level. I've noticed that where health reform is kind of onerous, it's usually at the state level and particularly with state-funded Medicaid programs. If you're not paying attention to health reform nationally, but particularly at the state level, you'll find yourself dealing with instability sooner or later.
Instability can also be caused by the break up of existing mergers or partnerships that break up. If you have a partnership or an affiliation that fails and you find yourself as an independent [facility], that could put you in a tenuous position.
Additionally, an uncommitted medical staff is guaranteed to put you in some kind of instability. If you're not keeping an eye on the strategies of your competition, which usually target your market share, that'll hurt you. Changes in demographics, [such as] a big wave of immigration that introduces uninsured patients, can also mean you move from having a good payor mix or mostly commercial insurance carriers to a lower paying mix with plans like the Massachusetts Commonwealth health plan or Medicaid.
Q: It sounds like those issues are dependent on careful attention to local and national trends by hospital administration. Would you say that inattention by hospital leaders is a major cause of instability?
JK: I would say it’s more about uncertainty regarding how new federal and state proposals will be effected, if at all. Over a decade ago, when we had the Clinton administration proposing a major shift in the whole delivery of healthcare, everyone thought that capitation was going to be a major trendsetter and it wasn’t. Going into this millennium, many hospital boards, executive leaders and hospital associations are more watchful of widening federal and sate budget deficits, and are trying to come up with more creative alternatives to some of the draconian budget cuts that have been proposed for Medicare and Medicaid programs.
Now we have actual federal health reform that was signed into law this past March by the president, after the majority Democratic Congress passed the act. So now everybody is watching the potential impact of the new reform bill. I would say that of late, hospital boards and executive leaders have been much more involved.
Q: You have been through several successful hospital turnarounds. Who needs to be involved in a turnaround from the beginning?
JK: Especially in the non-profit hospital setting, you need to get the board of trustees, executive leadership and physician leaders on board. This may sound a little biased on my part [as an interim CEO], but you also have to bring in some outside help. You need that “outsider perspective” to come in and give you some new ideas about what's going on and what directions you need to take.
[You also need to involve hospital staff] by having a lot of transparency and lot of communication, whether that's through email blasts or a blog or several blogs. You have to get everybody to understand the immediate and long-term plan, especially if you're financially unstable. If word has spread in the community about your instability, the community needs to know what you're planning to do, as well.
Q: During the Quincy Medical Center turnaround, you addressed problems with the community's perception of the hospital. How did you accomplish that?
JK: I stepped out first internally and held town hall meetings and explained the situation we were facing. I explained the external factors that, to a great extent, were not in our control, and said we had to be more responsive to those factors.
We also met with the editorial board of the local newspaper that had been a little more negative about the hospital than they had to be over the years. We were transparent with them, and that went a long way.
We also met with organized physician groups within the community that, for the most part, were hesitant to continue referring patients here. [In the past], we didn't do a good job communicating the fact that we are a high-quality, low-cost hospital. When you have physicians and insurance carriers looking to establish at-risk, capitated agreements, and they hear there's a high-quality, low-cost provider wanting to work with them, they take greater interest. We continue to maintain really good clinical outcomes, some of which are now posted on our website, which we didn't do in the past.
We also got the word out that we're here to stay, which took care of any misnomers about the fact that we were going to close soon.
Q: Once you have a team in place, what steps should the hospital take to regain financial stability?
JK: In order to begin to formulate a turnaround strategy for any financially troubled hospital, various external environmental factors affecting the hospital’s performance have to be examined so that the problem areas can be identified. Those external factors include the hospital’s market position, its reimbursement environment and payor mix, its pricing strategy, the regulatory environment, and the demographics and economics of its service area.
In addition to assessing the external environment, it is also necessary to do an overall assessment, including examination of internal operations, such as management’s competency and skills, medical staff relations, staffing productivity and clinical efficiency.
You also need a comprehensive organizational strategic plan that includes changes in non-financial aspects of the organization, such as: behavior, culture, policies and procedures, and structure. A hospital turnaround must be conceptualized as a process, not an event. Management must see their role as more than executing business plans. Effective leadership in a turnaround begins with a clear vision that focuses on continuous improvement. Traditional policies, practices and structure that insist on compliance and stifle innovation must be challenged. The main trait of a successful turnaround is a culture where staff accept change and not resist it.
Q: How did you cut costs and improve revenue at Quincy?
JK: There's always room for cost-cutting. Here, we had been rather lean, so when I first arrived, most departments had had significant layoffs, particularly at the management and middle management levels. But there was still an opportunity at the peri-operative area. We reconfigured OR availability and staffing and found some significant cost savings in the peri-operative area.
On the revenue side, it was basically about identifying what we called surgical leakage. We found that a lot of the primary care physicians were referring to specialists based at other hospitals, so we [concentrated on] some of the surgical service lines that showed a dramatic drop, such as general surgery, vascular surgery, urology and orthopedics, and went after that leakage.
Part of going after that leakage was affiliating with Tufts Medical Center, a highly-ranked academic medical center in Boston. They availed some of their top-branded specialists in surgical oncology, and we're now negotiating to associate with some of their orthopedic surgeons and vascular surgeons. Just having that branded academic medical center affiliated with us will be key to getting back the market share we lost.
Q: Many struggling hospitals choose to affiliate with a successful hospital as a way to grow profits, but a failed attempt at affiliation can be disastrous. How did you know the affiliation with Tufts Medical Center was the right choice for QMC?
JK: The key ingredient to our sensibility about [the Tufts affiliation] was that the majority of our physicians here at Quincy approached Tufts Medical Center on their own. We had a groundswell of support from the medical staff, indicating their trust in Tufts Medical Center’s reputation and their ability to commit to us as an affiliate. Tufts' working premise is that the community hospitals they affiliate with should be the main source of acute and primary care at the local community level, with Tufts Medical Center serving as a tertiary medical center. Tufts MC is there when a community affiliate hospital cannot treat particular diseases or trauma, and they would be on standby and ready to support those patients that can't be treated at the community level.
Q: As a veteran of hospital turnarounds, you must have seen situations where financial growth is possible, as well as situations where regaining stability is unlikely. How can hospitals tell whether a turnaround is feasible?
JK: [Turnarounds will fail] if market share cannot be realistically regained, and sometimes even when it is regained, it's not enough. This will happen if you're not gauging the change in reimbursement formulas or the change in regulations. For example, we now have this new concept of the ACO, which the federal health reform bill is touting, and we're not clear what that means because they haven't finished finalizing regulations. But here in Massachusetts, the ACO concept has not only been embraced, but legislated, and there are a lot of health systems that are applying formally to become an ACO. That structure calls for physicians and hospitals to partner together to accept risk on a per-beneficiary basis.
Giving Quincy as an example, we're trying to go through a turnaround based on the existing system and current reimbursement standards. But going into national health reform, which really takes full effect in 2014, we have to be aware that we have to structure this turnaround based on new health reform, not just on the existing reimbursement system.
So in some instances, no, you won't be able to accomplish a turnaround. Sometimes you may need to convert from an acute-hospital to a long-term care facility or an outpatient facility. When you realize you're not going to be able to succeed in a turnaround and continue as a standalone enterprise, you might also have to consider a merger, or some kind of partnership or affiliation. You either come out of the process with a complete successful turnaround, or you merge, affiliate, convert, or [file for bankruptcy] and close your doors.
Q: Once the hospital is financially healthy, how can hospital leaders make sure they maintain that success?
JK: You really have to have the board, executive leadership, and medical staff adhere to a strategic plan. It's not just the financial stabilization aspect; it's the cultural aspect, too. In the case of [QMC], they still have to hire a permanent CEO, and hopefully with the Board, he or she will continue to take the hospital through the process of [growing more successful].
I would also make sure there's a project management program underway, which may require an outsider's help. The financial strategic initiatives, in particular, will need bona fide project management to make sure the hospital is on schedule for all of the strategic initiatives it has developed.
The hospital should also stay involved with local, state and national associations to remain current with new reform developments, and remain an advocate for industry wide issues.
Q: What advice would you give to leaders of struggling facilities?
JK: There are a few lessons that I have learned. First, turnarounds are not about a few quick solutions, but rather, a compilation of numerous solutions (some of which may have been ignored) that add up to success. Second, by having all leadership involved, it’s possible to create good solutions that everyone buys into, while obviating the need for outside consultants. Since most management teams have varying degrees of experience in implementing new strategies, you need to customize support levels, and consider hiring a project manager to help facilitate the process.
Other important aspects include the conveyance of positive messages to all constituents on how improvements will begin to develop. Recognizing that physicians are leaders too, they should be very involved as well. And of course, all members of the C-suite need to be out in front and constantly holding themselves and the entire staff accountable for success.