06/19/2013 06:13 pm ET Updated Aug 19, 2013

Helping Hospital CEOs Be Hospital Reformers

The recent news about wide variations in hospital prices underscores that successful healthcare reform requires hospital reform. But hospital CEOs face a difficult enough job as it is, without the added role of reformer. The inherent difficulty of hospital CEOs' jobs is a big part of the reason for the industry's inability to consistently meet expectations for quality, safety, cost, and patient satisfaction. It suggests that without a new approach and improved tools, a significant number of hospital CEOs will fail to meet tomorrow's reform expectations.

It is not an excuse to say that the hospital CEO job, even without reform, is just plain hard. As far back as 1918, Dr. Herbert Collins, superintendent of hospitals in Minneapolis, published an article in which he observed of hospitals and their CEOs (called "superintendents" at the time):

"....the modern general or special hospital is one of the most complex organizations of which we have any knowledge...the modern hospital superintendent must not only be a good executive, but he must know something of medicine, hygiene, pathology, and bacteriology; he must have some knowledge of the training of nurses and the supplemental training of medical students, as well as the ability to buy coal, meat and other foods; he must be an expert in the running of a large laundry and cold storage plant, and competent to manage something like a large hotel." [1]

Since 1918 the list of required hospital CEO competencies has only lengthened. One reason is the increased size of hospitals. In 1917, 70 percent of hospitals had fewer than 50 beds. Today 70 percent have more than 50 beds. Many of our hospitals have become like small cities. For example, when I was the CEO of Grady Health System in Atlanta, I managed over 1,000 beds, 16 floors, multiple off-site facilities, and a security department with more armed security guards than there are police officers in my current city of residence (Spokane, Washington).

Contemporary hospitals have also become unimaginably complex. In the 1930s, hospitals dealt with only a few basic medications, such as morphine, quinine, arsenicals, and digitalis. Today hospitals deal with a $280-billion pharmaceutical industry. Before 1972 CT scans didn't exist. Hospitals now perform over 50-million scans per year. Before 1970, physicians were board certified in 10 subspecialties. Hospitals today provide services for 135 additional subspecialties.

Hospital CEOs have responded to the specialized knowledge requirements by hiring specialists and outsourcing specialized functions. This is a reasonable approach, but it hasn't produced the desired results. That's because today's hospital CEOs need an additional skill: the ability to make data-based decisions that simultaneously incorporate the countless interdependencies of the modern hospital. This "systems engineering" approach requires special training. It also requires a revolution in hospitals' level of computerization, business intelligence resources, and capability to analyze "big data." It requires that hospital CEOs share with physician and nurse leaders the decision-making authority for clinical services. And finally, it requires that boards unleash hospital CEO innovation by always incentivizing CEOs to put quality, safety, and service results above short-term financial goals.

Failure to provide hospital CEOs with the necessary training, tools, support, and incentives will lead to what management guru Peter Drucker called "the fallacy of the one-man chief executive," in which complexity overwhelms the CEO, threatening organizational survival--in our case, the survival of today's hospitals and tomorrow's healthcare reform.

Dr. Andrew Agwunobi is a leader of the Hospital Performance Improvement practice at Berkeley Research Group.

[1] Herbert O. Collins, "The Relation of the Hospital Superintendent to Research," The Modern Hospital 10 (1918): 261. Print.