Category Archives: Leadership Preparation

Steward Files for Bankruptcy and It Feels All Too Familiar

Posted on by • Posted in Bankruptcy, Failure, Financial Advisor, Financial Benchmarks, Financial Forecast, Financial Literacy, Financial Planning, Financial Reserves, Financial Stewardship, Financial Strength, Financial Viability, Financial Vital Signs, Financially Distressed, Health System, Hospital, Hospital Industry, Investment Banking, Leadership, Leadership Culture, Leadership Implementation, Leadership Investment, Leadership Preparation, Leadership Vision, Strategic Balance Sheet Management, Strategic Leadership, Strategic Plan, Strategy Sustainable Long Term • Leave a comment

https://www.kaufmanhall.com/insights/blog/steward-files-bankruptcy-and-it-feels-all-too-familiar

Steward Health Care’s Chapter 11 bankruptcy filing on May 6, 2024, brought back bad memories of another large health system bankruptcy.

On July 21, 1998, Pittsburgh-based Allegheny Health and Education Research Foundation (AHERF) filed Chapter 11. AHERF grew very rapidly, acquiring hospitals, physicians, and medical schools in its vigorous pursuit of scale across Pennsylvania. Utilizing debt capacity and spending cash, AHERF quickly ran out of both, defaulted on its obligations, and then filed for bankruptcy. It was one of the largest bankruptcy filings in municipal finance and the largest in the rated not-for-profit hospital universe.

Steward Health Care is a for-profit, physician-owned hospital company, but its long-standing roots were in faith-based not-for-profit healthcare. Prior to the acquisition by Cerberus Capital Management in 2010, Caritas Christi Health Care System was comprised of six hospitals in eastern Massachusetts. Caritas was a well-regarded health system, providing a community alternative to the academic medical centers in downtown Boston. Over the next 14 years, Steward grew rapidly to 31 hospitals in eight states, most recently bolstered through an expansive sale-leaseback structure with a REIT. Per the bankruptcy filings, the company reported $9 billion in secured debt and leases on $6 billion of revenue.

Chapter 11 bankruptcy filings in corporate America are a means to efficiently sell assets or a path to re-emergence as a new streamlined company. A quick glance at Steward’s organizational structure shows a dizzying checkerboard of companies and LLCs that will require a massive untangling. Further, its capital structure includes both secured debt for operations and a separate and distinct lease structure for its facilities, and in bankruptcy, that signals significant complexity. Bankruptcy filings in not-for-profit healthcare are less common, although it is surprising that the industry did not see an increase after the pandemic. Not-for-profit hospitals that are in distress seem to hang on long enough to find a buyer, gain increased state funding, attain accommodations on obligations, or find some other escape route to avoid a payment default or filing.

Details regarding Steward’s undoing will unfold in the coming weeks as it moves through an auction process. But there are some early takeaways the not-for-profit industry can learn from this:

  1. Remain essential in your local market. Hospitals must prove their value to their constituents, including managed care payers, especially in competitive urban markets, as Steward may have learned in eastern Massachusetts and Miami. Prior strategies of making a margin as an out-of-network provider are no longer viable as patients must shoulder more of the financial burden. Simply put, your organization should be asking one question: does a managed care plan need our existing network to sell a product in our market? If the answer is no, you need to develop strategies that make your hospital essential.
  2. Embrace financial planning for long-term viability. Without it, a hospital or health system will be unable to afford the capital spending it needs to maintain attractive, patient-friendly, state-of-the art facilities or absorb long-term debt to fund the capital. Annual financial planning is more than just a trendline going forward. The scenarios and inputs must be well-founded, well-grounded in detail, and based on conservative assumptions. Increasing attention has to be paid to disrupters, innovators, specialized/segmented offerings, and expansion plans of existing and new competitors. Investors expect this from not-for-profit borrowers. Higher-performing hospitals and health systems of all sizes do this well.
  3. Build capital capacity through improved cash flow. It is undoubtedly clear that Steward, like AHERF, was unable to afford the capital and debt they thought they could, either through flawed financial planning of its future state or, more concerning, the complete absence of it. Or they believed that rapid growth would solve all problems, not detailed financial planning, the use of benchmarks, or a sharp focus on operations. Increasing that capacity through sustained financial performance will allow an organization to de-leverage and build capital capacity.

When the case studies are written about Steward, a fact pattern will be revealed that includes the inability or unwillingness to attain synergies as a system, underspending on facility capital needs given a severe liquidity crunch, labor challenges, and a rapid payer mix shift.

Underlying all of this will undoubtedly be a failure of governance and leadership as we saw with AHERF. It will also likely indicate that one of the most precious assets healthcare providers may have is the management bandwidth to ensure strategic plans are appropriately made, tested, monitored, and executed.

While Steward and AHERF may be held up as extreme cases, not-for-profit hospital governance must continue to focus on checks-and-balances of management resources. Likewise, management must utilize benchmarks, data, and strong financial planning, given the challenges the industry faces.

The Leadership Theories of Coach John Wooden: “Be Quick—But Don’t Hurry”

Posted on by • Posted in Character, Effort, Leadership, Leadership Culture, Leadership Preparation, Preparation, Teamwork, Thought Leaders, Thought of the Day, Urgency • Leave a comment
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The struggle continues as hospital executives work overtime to return their organizations to necessary profitability, essential competitiveness, and offering an appropriate level of clinical access.

As noted in this blog several months ago, management guru Peter Drucker always maintained that hospitals were the hardest of all American organizations to run successfully. If Drucker were still alive, he would—without question—double down on that observation.

The question must be asked whether historical hospital leadership structures and strategies are still adequate to cope with a fast-changing healthcare industry that features a different level of financial problems, an unrecognizable workforce, and a shape-shifting patient population? This is a leadership question that requires a thoughtful and sophisticated answer.

To paraphrase Albert Einstein, we cannot solve our hospital management problems with the same level of leadership that created them.

So, we are collectively on the hunt for leadership and managerial solutions. The leadership ideas must be different, original, and challenge conventional thinking. Successful healthcare executives these days must be active readers and learners. Winning ideas are everywhere but you need to be both curious and aggressive to find them.

In that regard, let’s turn our curiosity toward the theories and teachings of Coach John Wooden. For our younger readers, John Wooden was the coach of the of the UCLA men’s basketball program from 1948 to 1975. During that time, he won 10 NCAA national championships in 12 years and at one point his teams won 88 games in a row. ESPN’s “Page 2” readers voted him the greatest coach of all time.

But John Wooden wasn’t just a basketball coach; he was a manager, an executive, a teacher, and a philosopher. There was nothing random or laissez-faire about his approach to leadership. Coach Wooden led through a series of principles that he applied with absolute consistency.

Players changed, the opposition changed, and external factors changed, but Coach Wooden’s essential approach to leadership did not vary or change.

The central tenet of Coach Wooden’s leadership philosophy was the somewhat Zen-like principle of “be quick—but don’t hurry.”

At first blush, this organizing principle doesn’t seem to make much sense, especially to the casual reader. John Wooden believed and taught that there were two keys to successful performance, both in sports and otherwise. First, quickness and a sense of urgency was absolutely necessary to winning in a competitive environment. But for Coach Wooden, quickness itself was not sufficient for consistent success. Quickness had to be accompanied by emotional and professional balance in order to achieve team and organizational excellence. So, from Coach Wooden’s perspective, a great athlete or a great executive had to not just move and think quickly, but also had to make sure that he or she was moving to a place of personal balance. Coach Wooden believed that this concept of personal balance was the key to real success at both the team and individual level. To find that place of balance you needed to be quick, but to retain that balance you had to be sure not to hurry. In other words, “be quick—but don’t hurry.”

“Be quick—but don’t hurry” was the central principle of John Wooden’s leadership style but “be quick—but don’t hurry” was also the platform on which an entire management and leadership theory was built. This led to other key Wooden tenets including:

  1. Focus on Effort, Not Winning. Amazingly for a coach that won 10 national championships, the UCLA players always said that Coach Wooden never talked much about winning. Instead, he talked about individual and team effort. He talked about the process, the belief that the right leadership combined with exceptional effort would inevitably deliver remarkable results.
  2. A Good Leader Is First a Teacher. John Wooden’s first job out of college was teaching high school English. And for the rest of his career, he always thought of himself as a teacher. Wooden taught through four components: demonstration, imitation, correction, and repetition. Coach Wooden had this absolutely right from my perspective: To be a great leader and executive, you almost always have to be a great teacher first.
  3. Teamwork Is a Necessity. Bill Walton, one of Coach Wooden’s most accomplished and greatest players, said it best: “Coach Wooden challenged us to believe that something special could come from the group effort. We live in a society that is constantly pushing us to be individual, to be selfish. But Coach Wooden constantly focused on the group, and how there could be no success unless everybody believed in the same goal and everybody came out of there feeling good about the success of others.”
  4. Failing to Prepare Is Preparing to Fail. This quote is often attributed to Coach Wooden, but it was first said by Benjamin Franklin. Coach Wooden was extraordinarily well-prepared. Even after years and years of amazing and unprecedented success, Coach Wooden still scripted each and every practice. He was famous for arriving to practice early to make sure everything was in order and that, in fact, he and the team were completely prepared to get the most out of that afternoon. Hospitals and health systems have “practices” as well: They are called “meetings.” What is the standard for preparation in your hospital organization? What is the quality of the work both before and after meetings? What is the level of preparation for consequential meetings such as rating agency presentations, Board approval of major initiatives, and important discussions with external parties? The longer my consulting and business career goes on, the more I have come to believe in and rely on impeccable preparation.

This blog covers just a few of Coach Wooden’s many approaches to and commentaries on management and leadership. But the above observations are a useful start. It is important to disclose that this blog post was guided by and drew quotes from an excellent book, Be Quick—But Don’t Hurry: Finding Success in the Teachings of a Lifetime, which was written by Andrew Hill (a former UCLA player) with the assistance of John Wooden. The book was published by Simon & Schuster in 2001 but as readers can easily see, the book by Messrs. Hill and Wooden remains absolutely relevant today. The book is a short read but will prove to be a good use of your time and your curiosity.

Learn and be smart. Those are the key attributes for today’s healthcare executives. Yesterday’s executive techniques are no longer getting the job done. Hospital leaders must be better in order to deal with the long list of obstacles that are preventing hospital success. Coach Wooden invented a unique roadmap to executive learning and leadership. That Wooden roadmap is definitely “old school,” but that roadmap and its attendant theories and methods are absolutely worth your attention.