Preventing unnecessary CEO turnover in rural and critical access hospitals
Executive leadership is critical to the success of any organization — particularly for hospitals and health systems facing new regulatory and financial challenges. The need for strong and steady leadership has never been greater, yet turnover rates for top executives in America’s hospitals are high. CEO turnover rates average 18 to 20 percent per year, with turnover rates as high as 30 percent in some states, according to a report by the American College of Healthcare Executives. The complications of unstable leadership can have a significant short- and long-term impact on a hospital, quality of care and the broader community.
“CEO turnover can be especially challenging for rural hospitals dealing with decreasing reimbursement and increasing costs. Using the right tools and expertise, organizations can take steps now to reduce avoidable turnover and plan for smoother transitions,” says Alexander Yaffe, President and CEO of Yaffe & Company, a consulting firm specializing in executive compensation, leadership development and CEO transitions.
A costly problem
“Rural hospitals today face many of the same challenges as urban hospitals — meeting a wide range of health care needs while also facing the pressing demands of regulations — but rural hospitals often don’t have the infrastructure, resources and leadership in place that many urban hospitals have to address these challenges,” says Larry Unroe, Rural/Critical Access Practice Lead for Yaffe & Company. Unroe is a retired CEO of Memorial Health System in Marietta, Ohio.
“When a rural hospital loses a CEO unexpectedly, the cost of recruiting can be significant, and the hospital’s strategic plans may come to a grinding halt. When an organization loses momentum, physicians may get very uncomfortable about building a future around their specialty. This negative snowball effect can result in increased turnover throughout the organization,” Unroe adds. He also notes that an unstable leadership team can affect quality of care and also impact the organization’s financial and operational health, and can impact the overall community.
The recruitment time for a new CEO tends to be lengthy — sometimes it takes six, nine, or 12 months to bring someone in. “Not having executive leadership (or interim leadership) during that time can really compound the problem. Planning in advance leads to best results and the smoothest transition from one executive to another,” says John Tolmie, Senior Vice President and Senior Consultant for Yaffe & Company. Tolmie served for 15 years as CEO of not-for-profit hospitals and health systems.
Factors contributing to CEO turnover
Yaffe & Company designed a study to help the Kansas Hospital Education and Research Foundation identify the top reasons for turnover in Kansas, and the survey findings uncovered the following causes:
Bringing forward solutions
- Difficult relationships between the CEO and the Board
- The regulatory and reimbursement environment is becoming more challenging
- A chance for further professional growth and development
- Cultural misalignment
- Challenges with helping board members understand their roles (often, board members are appointed by local elected entities, without proper training and onboarding)
- Compensation and benefits (an inability to maintain competitive compensation)
Every organization should assess critical areas to ensure that talented executives can be recruited and retained. Following are some actions rural hospitals can take to plan ahead for CEO turnover.
Focus on board leadership. Board and Committee Chairs are critical to an organization’s success, but often, these leaders come from other industries and experiences. “Board education becomes very important, including staying current on major trends in health care, being involved in advocacy work, and helping the CEO be successful,” Unroe says. “When board members have a comprehensive view of their roles, they can do a better job of serving their community.”
Improve the vetting process. “It starts with creating a profile for candidates that clearly defines the unique needs of your organization and skill set required for the CEO role. This process also helps find a good match with a CEO who fits the organization’s culture,” Unroe says.
Set clear expectations. In many cases, CEOs are looking for compensation, clear expectations and opportunities to grow the organization. “Provide a quality annual performance review and touchpoints throughout the year,” Unroe suggests.
Provide opportunities for growth. “We’ve learned that once you get someone on board, giving that person opportunities for development is key — not only for the CEO but for their senior management team as well, so they can continue to hone skills.”
Review the compensation process. The board should have a formal compensation committee to ensure compensation is tied into a performance evaluation process so the CEO knows what’s expected. “Whether it’s variable pay or merit pay, it’s important to tie that into performance as a way to measure progress and success,” Unroe says.
Create a succession plan. With a formal succession plan in place, it’s easier to identify leaders who could step in on an interim basis or for the long term. “Whether you’re dealing with planned or unplanned turnover, having a succession plan can help you navigate through that transition in leadership,” Tolmie says.
When an organization recognizes the value of doing all of these things up front, the high costs of turnover — including its impact on the organization and individuals — can be avoided. “Even in rural markets where resources are tight, having a strategic plan that integrates board education, succession planning and a clear understanding of the organization’s mission and vision can be a valuable investment in the long term,” Unroe says.
Connecting the dots
Having a trusted adviser to help define the mission and vision, educate the board or solve a complex problem can make a difference. “We are able to connect the dots between what the data models show and bring best practices and recommendations to help drive future success,” Yaffe adds.
Yaffe & Company has been studying CEO turnover in rural and critical access hospitals, and plans to conduct a national rural health care CEO turnover study in partnership with National Rural Health Association. To learn more, visit www.yaffeco.com/healthcare-services.
NRHA commissioned the above piece from Yaffe & Company, a trusted NRHA partner, for publication within the Association’s Rural Health Voices blog.