Scripps Sees ‘Sober Warning,’ Slashes CEO Positions

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Organizational overhaul prompted by signs of ‘harder times to come.’

Scripps Health failed to meet its operating budget last fiscal year for the first time in 15 years, prompting the San Diego-based health system to restructure its executive team and look to cut corporate services costs by $30 million.

Although the system remains on solid financial footing, the news came as “a sober warning of harder times to come,” Scripps president and CEO Chris Van Gorder wrote in a memo to staff and physicians last week. The memo, which Scripps released in full to HealthLeaders Media, was as much a rallying cry as it was a bulletin of somber news.

“We can sit back and fool ourselves into thinking change is not really needed, and risk the consequences,” Van Gorder wrote. “Or like our founders, we can have the courage to boldly move ahead and do what’s needed for our patients, our community and their legacy.”

The memo outlined several organizational changes coming to Scripps in the next 30-60 days, including the following:

  • CEOs: Rather than keeping a CEO at each Scripps hospital, the system will establish three regional CEOs.
  • COOs: In the absence of a CEO, COOs will take over daily operations at each hospital.
  • Corporate services: Scripps will look to cut costs on corporate services by $30 million. It will evaluate a shared-services model for corporate services to improve accountability.

The southern region—which will get one of the three new CEO positions—includes Scripps Mercy San Diego and Chula Vista, overseen by current CEO Tom Gammiere. The northern region will include sites in Encinitas, Green, and La Jolla, which are overseen by CEOs Carl J. EtterRobin B. Brown Jr., and Gary G. Fybel, respectively. The third region will comprise Scripps ancillary services.

It appears Etter, Brown, and Fybel are the most likely candidates to fill the new northern-region CEO and ancillary-services CEO positions. It’s possible, though, that Scripps could bring in outside talent, promote from within, or even shift Gammiere to the northern region. This is an overhaul, after all.

Scripps Not Alone

In his memo last week, Van Gorder noted that Scripps is far from the only healthcare organization to face the kind of financial pressures that prompted these changes.

“Hospitals and health systems across the country, small and large, are being affected in similar ways,” he wrote, citing two peer institutions: Partners HealthCare and the Cleveland Clinic.

Partners HealthCare, based in Boston, reported an operating loss of $108 million last year, Van Gorder noted. Last spring, Partners offered buyouts to 1,600 workers at its Brigham and Women’s Hospital and announced plans to cut costs by more than $600 million over three years, as The Boston Globereported.

“This is an effort fundamentally to change not our values and our culture, but how we manage ourselves, how we focus on efficiency, the patient experience, the service we deliver, and try to be reflective of the pressures of being efficient,” Partners CFO Peter K. Markell told the Globe.

Cleveland Clinic, meanwhile, saw its operating income slump 71% last year, Van Gorder noted. The clinic’s president and CEO, Toby Cosgrove, MD, said the healthcare challenges putting pressure on systems these days are “unprecedented in their size, speed, and scope.”

Harvard Business Review (HBR) and other publications have covered the problem, Van Gorder told his team, noting that declining reimbursement rates are squeezing healthcare organizations nationwide.

“For the past decade, the consensus strategy among hospital and health-system leaders has been to achieve scale in regional markets via mergers and acquisitions, to make medical staffs employees, and to assume more financial risk in insurance contracts and sponsored health plans,” HBR’s Jeff Goldsmith wrote in October. “In the past 18 months, the bill for this strategy has come due, posing serious financial challenges for many leading U.S. health systems.”

Fitch issues negative outlook for nonprofit hospitals: 4 things to know

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Fitch Ratings’ outlook on the nonprofit healthcare sector is negative for 2018, as the sector faces regulatory, political and competitive challenges.

Here are four things to know about Fitch’s outlook on the sector.

1. Fitch expects nonprofit hospitals and health systems’ profitability to continue to weaken over the next year. “Growth in Medicare and Medicaid volumes are weakening provider payer mixes at a time when providers are moving from volume-based reimbursement in greater numbers,” said Fitch Senior Director Kevin Holloran.

2. Fitch said several factors could adversely affect lower-rated hospitals’ operating performance in 2018, including growing pressure on salaries and continued erosion in payer mix.

3. The proposed tax overhaul bill, which would hamper nonprofit hospitals’ ability to issue tax-exempt revenue, could further pressure the industry, according to Fitch.

4. Although the nonprofit healthcare sector outlook is negative, Fitch maintained its stable outlook for ratings of healthcare issuers. “Fitch anticipates our revised criteria for the acute care sector will be published early next year, which should lead to an above-average, but still balanced, degree of rating movement during the year,” the debt rating agency said.