CEOs leaving Hospitals – A Rising trend in the healthcare industry

 Wayne Carter CFO's Corner, RCM
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Hospital CEOs are leaving their roles in a high rate

According to the latest data from global outplacement and business and executive coaching firm Challenger, Gray & Christmas, Inc., hospital chief executive officers (CEOs) are stepping down or leaving their positions more than last year. The report indicates that hospitals announced 18 CEO leaving last month, bringing the total number of CEO leaving hospitals to 41 so far this year. This represents a 58% increase from the 26 CEO leaving announced through February last year.

The report also indicates that more CEOs are leaving their posts so far this year. In February 2023, there were 167 announced their leaving, and in January 2023, there were 112 announced leaving. According to the firm, February’s CEO count is the highest monthly total since January 2020 when 219 CEOs stepped down.

CEOs leaving trend at its heights:

CEOs leaving trend at its heights
The trend is not limited to the healthcare industry, as 279 CEOs across US Hospitals have exited, nearly matching the 276 leaving that happened within the first two months of 2022. According to Andrew Challenger, who is a senior vice president and leadership expert at Challenger, Gray & Christmas, Inc., American Hospitals across different sectors are getting ready for significant transformations, leading to more frequent changes in leadership than usual.

Hospitals, in particular, are facing a new normal. Challenger stated in the report that “As hospitals recuperate from the pandemic, consolidate, and cope with labor shortages and rising expenses, we can anticipate a surge in CEO leaving.”

What do the experts and survey say about CEOs leaving healthcare organizations:

CEOs leaving healthcare organizations
The latest “National Hospital Flash Report” from Kaufman Hall found that hospitals are still operating on negative margins, with last month’s median year-to-date operating margin index coming in at -1.1%. However, the index dipped just slightly from January 2023’s index of -0.8%, suggesting some stability for hospitals.

Kaufman Hall experts noted that the recent period of stability could inspire hospitals to reimagine the definition of a successful hospital in 2023. With all these shifts, several CEOs are stepping down. According to the Challenger Gray report, 47 CEOs are either transitioning to a C-level role or becoming board members. Meanwhile, 68 CEOs have retired so far this year.

On average, CEOs are the most senior executives in a hospital, with an age of around 59 years across various industries. They also have the longest tenure in the C-suite, typically lasting for about seven years. Data from the American College of Healthcare Executives (ACHE) suggests that hospital CEOs tend to resign earlier. A hospital CEO typically serves for approximately five years on average. Furthermore, according to a separate report by ACHE, hospital CEO turnover has remained constant at around 16% in recent years.

Hospitals operating on thin margins are also a cause for CEOs leaving:

cause for CEOs leaving
The report notes that hospital operating margins took a small dip in February, but this was the eighth month in which changes to month-to-month margins decreased relative to the last three years. Erik Swanson, Senior
Vice President of Data and Analytics with Kaufman Hall, says that “after years of erratic fluctuations, over the last several months we are beginning to see emerging trends show the factors that impact hospital finances include labor costs, expenses related to goods and services, and changes in patient care preferences.”

For months, hospitals have been dealing with fluctuations in care volume and high labor and supply costs, resulting in slim margins. However, some critics have disputed that the financial performance of hospitals is not as critical as the organizations are portraying it to be. Hospitals did not receive a payment hike recommendation from the Medicare Payment Advisory Commission (MedPAC) prior to this. MedPAC concurred that the present rate along with the statutory 1 percent would be sufficient to maintain Inpatient and Outpatient Prospective Payment System rates near the actual costs of healthcare.

The Kaufman Hall report states that although hospitals have shown some improvement in their finances, external economic factors such as labor shortages, increased material expenses, and the growing popularity of outpatient care continue to impact their financial stability. Kaufman Hall reported that hospital labor costs remained stable in February, despite the ongoing clinician shortages, indicating less reliance on contract labor. As per a recent analysis by the American Hospital Association (AHA), hospital contract labor expenses increased by 258% in 2022, as hospitals tried to cope with the worsening labor shortages.

The decline in charges and increase in other expenses in hospitals:

decline in charges and increase in other expenses in hospitals
In the meantime, there was a 6 percent year-over-year increase in non-labor expenses last month. According to the report, the main factor driving hospital expenses has shifted from labor to goods and services due to inflationary pressures.

According to the Kaufman Hall report, hospital finances are still impacted by external economic factors such as labor shortages, higher material expenses, and a growing trend towards outpatient care. The report also noted a steady increase in outpatient revenues, which began during the COVID-19 pandemic in 2020. The report stated that outpatient revenues rose by 14 percent between February 2022 and February 2023.

There were also reductions in discharges, patient days, and emergency department visits, which can be attributed to the shorter duration of February. Last month, the average hospital stay was shorter on a per-day basis. On the other hand, there was an increase in the volume of ambulatory surgery centers and outpatient operating room minutes.

According to Swanson from Kaufman Hall, the current financial performance of hospitals is a new reality. Swanson proposed that hospitals may redefine their objectives, vision, and concept of achievement in 2023 in response to the expense and revenue challenges that are currently present in the long haul,” he stated.

Overall, while the report indicates a slight decrease in hospital operating margins in February, it also points to signs of stability in the hospital financial landscape. External factors like labor shortages and inflationary pressures are still affecting hospitals’ finances, and the shift to outpatient care continues. Hospitals may need to redefine their goals and strategies in response to these challenges.

According to Deborah J. Bowen, FACHE, CAE, ACHE’s president/CEO, hospital leaders have been instrumental in the recovery from the post-COVID crisis, highlighting the importance of strong and capable leaders. She added that healthcare leaders have been focusing on future plans beyond the pandemic, including succession planning and developing a pipeline of leaders who can tackle the challenges of tomorrow while still addressing immediate patient needs.

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Wayne Carter

I've been working in healthcare industry of the United States in various types of departments since 2013. Started my career from the bottom as a Accounts Receivable executive, Practice management team handler, Entire Practice Management and now I'm employed at BillingParadise as a Content Lead. Areas of Expertise: End-to-End Revenue Cycle Management, Content Writing, Digital Marketing, RCM applications and Software, Healthcare Business Development, Healthcare Sales, and Healthcare Automation.

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