Hospital CEO Blames (almost) His Dog For Eating His Homework . . . I Mean Profits

In a quote qualitatively similar to “my dog ate my homework,” a hospital CEO blamed an “aggressive, direct competitor” for the downturn in his facility’s patient volume. The drop in business led to a significant financial loss, a staff layoff, and a near scrape with Chapter 11 bankruptcy.

It seems that the aggressive competitor’s “crime” was that it “funnel[s] health care dollars into other communities and away from [the hospital CEOs facility].” Literal translation: The competitor runs a more efficient business.

Wow, competition! That’s breaking news, huh?

Other than knowing that the CEO has an accountability issue, here are some takeaways for you:

1. Healthcare is a business, whether everyone likes that fact or not. Even the purest desire to deliver patient care doesn’t result in much benefit if there are no patients to care for.

2. Hospitals have spent billions “aligning” physicians to create systems that are more financially fragile. High overhead including bloated administrative costs make them more susceptible to failure and to failing big.

3. There’s competition in all aspect of business, including the hospital business and within the business of medical practice specialties. Competitors don’t give a [bleep] whether you fail, nor should they. You’re fooling yourself if you think that there’s something inherently wrong with a competitor poaching “your” business. It was never actually “yours.”

4. Is your practice or facility operated as an actual business? If not, then how can you expect it to be able to compete? Download a copy of The Medical Group Governance Matrix.

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Mark F. Weiss

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The Business of Healthcare

What A Tennessee Lawsuit Teaches You About Protecting Your Medical Group’s Business

You can’t build a bigger future for your medical group’s business if all you do is play is defense. You have to play offense, too: you must take affirmative steps to grow your business. But just the same, the failure to play defense can be fatal.

There’s a lesson in defense to be learned from the undercurrent of a lawsuit now playing out in Tennessee, in which the second largest hospital chain in the U.S., Community Health Systems (“CHS”) is suing Brian Bauer, the (fired) former CEO of its Fort Wayne, Indiana based Lutheran Health Network, seeking to prevent him from working with IU Health, a competitor in the Fort Wayne market. Following his firing by CHS, Bauer joined IU Health as CEO of its Fort Wayne unit.

Among the allegations are that Bauer, who apparently was not bound to any covenant not to compete, shared confidential and proprietary information with IU Health. CHS claims that sharing that information violates the terms of a CHS stock option agreement once in favor of Bauer. They also claim that Bauer violated the terms of that agreement’s non-disparagement clause.

Most interesting for our purposes is the fact that CHS is seeking an injunction preventing Bauer from engaging in any role with IU Health because Bauer inevitably could or would disclose or use CHS’ confidential or proprietary information.

According to an article in the Fort Wayne News-Sentinel, Bauer contends, among other things, that CHS’ lawsuit is “an attempt to sabotage that business relationship (between Bauer and IU Health) and curtail any potential competition.”

Last week, the trial court judge denied Bauer’s motion to dismiss the lawsuit. The case is now moving forward, with CHS’ motion for a temporary injunction to be heard soon. If granted, the temporary injunction could effectively be a knock-out blow to Bauer, as he’d be sidelined, unable to work for IU Health (and, potentially for any other competitor) for the months, if not years, until the final outcome of the case.

What you need to know for your own business purposes:

1. Covenants not to compete are creatures of state law. Some states favor their enforcement, others disfavor them, and still others don’t much like them but will still enforce reasonable restrictions.

2. In states that allow enforcement of covenants not compete, consider their use in your agreements with key players. Carefully draft them to increase the odds of enforcement. In some states, Texas for example, physician covenants not to compete are enforceable only if they comply with highly technical requirements.

3. In any state, even if it favors the enforcement of covenants not to compete and you use them in your agreements, consider the use of other key anti-competitive restrictions. There are many available strategies, both in terms of the way that agreements are structured within your entity, between your entity and its team members, and between your entity and third parties. For example, note that CHS’ alleged restrictions appear in a stock option agreement, not the typical place where they’d be found, and one in which, I’d assume, eyes get glassy with dancing dollar signs.

4. The use of litigation as a tool to project power is a fact of life. Don’t assume that trite sayings such as “speak truth to power” have much value other than as bumper stickers or motivational posters.

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Mark F. Weiss

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The Business of Healthcare

Why The Lack of Power Corrupts Absolutely: Dealing With Petty Bureaucrats

A few months ago, while waiting at the gate for a flight, I couldn’t help but notice a gate agent making some woman unpack and repack and unpack and repack her expandable carry-on suitcase because it was too wide to fit into the measuring “box” for carry-on luggage.

It was obvious from the gate agent’s face that she took sublime pleasure in the exercise of her “power.”

When I commented to her a few minutes later that I next expected her to make the woman remove her underwear, she responded, “no one gets on my flight unless I say so.”

The reality is that such mini-dictators, the peons of bureaucracy, are nearly replete of any actual authority. Frustrated by their inability to control their destiny, they act out their near total lack of authority by overcompensating within the one slice of power they have – in this case, the power to drive a woman close to tears because her suitcase had to be pushed into the measuring device instead of sliding right in.

You’ve run into these people. They’re at the DMV and the post office and the TSA.

And, they’re at hospitals: The petty midlevel “executives” who occupy places on an org chart that looks like IBM’s in the 1960’s or a plate of spaghetti. They are the bureaucrats who can say “no,” but who lack any authority to actually say “yes.”

Lord Acton commented that power tends to corrupt, and absolute power corrupts absolutely. It appears that the lack of actual power does the same.

The quill required to effectively deal with these people includes multiple arrows. Some are polite, others are political, and more than a few are pointed. An effective strategy involves knowing when and how to get the petty bureaucrat to open the gate, when and how to get around him, and when and how to get him pushed out.

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Mark F. Weiss

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Situation Transformer

Why You Must Understand How Sky-High Hospital CEO Turnover Impacts Your Practice

“I can’t put it in the agreement, but trust me on this. You have my word.”

Those are famous words from a hospital CEO. And, maybe you can trust him. But can you trust his successor?

Earlier this year, the American College of Healthcare Executives released the results of its annual hospital CEO turnover study.

Job security, or, better said, job insecurity, has held pretty steady over the last eight or so years: There’s almost a 20% chance that CEO Rob or Roberta won’t be on the hospital’s payroll a year from now.

In fact, depending on where in the U.S. you are, it could be a 67% chance.

So, what’s this mean for you as a physician group leader? Here are a few thoughts:

1. If you have any type of contract with a hospital, no matter how much you trust CEO Sally to be a woman of her word, you need contractual promises in the contract. “Yes, Sally, I trust you with my life. But, I don’t know your successor.”

2. Think on the bright side. If the CEO is a jerk he might not be there for long. On the other hand, if the CEO is a wonderful human being, he might not be there for long.

3. You must develop relationships with as deep a bench of hospital administrators, board members, and key medical staff members as possible. When the CEO leaves for her new position in the food services industry, you’ll need their backing when her replacement arrives.

4. New CEOs like to put their own stamp on things. That means doing an RFP for whatever your services are. Or, bringing in the XYZ group because they were at her old facility. You can’t control the outcome, only influence it. See point no. 3.

5. Buy “Good Luck!” and “Happy Retirement!” cards by the box when they’re on sale. CEOs always want you to cut costs and they’ll appreciate your foresight. Just don’t let them know ahead of time.

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Mark F. Weiss

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Assessing Risk

Another Hospital CEO (And His Senior VP) Sentenced To Years In Prison

It’s getting harder for hospital CEOs to stay out of jail. Or to get released.

OK, in all fairness, James R. Cheek was the former CEO of Hope Medical Park Hospital in Hope, Arkansas. Cheek will be spending 3 years in federal prison, followed by 3 more years of supervised release. He won’t be lonely, though, because his former Senior VP, Herschel J. Breig, Sr. received the same sentence. Both will be broke, because they were also ordered to pay $6 million in restitution to the United States Government.

In Messrs. Cheek and Breig’s case, it wasn’t cheating Medicare or bribing doctors for referrals that got them in trouble. In fact, it was something far less legally grey. Better said, it was something completely black and white: The failure of the hospital that they led as the senior executives, to collect, account for, and pay over payroll taxes to the I.R.S.

You can draw your own conclusion as to whether Cheek and Breig are (1) merely unlucky, (2) incredibly stupid, or (3) career criminals, because at the time of their sentencing they were already serving time in federal prison for nearly identical crimes committed in Texas in regard to payroll taxes from another hospital they once controlled.

Don’t join them.

Most instances of the failure to turn over payroll taxes aren’t as egregious as those of Cheek and Breig, who apparently pocketed some or all of the IRS’s missing money.

Instead, it’s often the case of the employer’s officers desperately dipping into the pot of withheld funds to cover legitimate business expenses, like a loan. They have every intention to come up with the cash and pay the IRS all that’s due. Unfortunately, their financial situation worsens and the government comes knocking.

Not every corporate officer is liable for the payment of payroll taxes, only those who’re responsible for the entity’s financial affairs.

Not every failure results in criminal prosecution. Those that don’t are pursued in civil actions, which seek both the original amount due as well penalties, which can be as much as the amount of the taxes themselves.

Unfortunately, it’s easy for medical groups to fall into the “failure to withhold and pay over to the government” trap, at least in the sense of civil liability. That’s the situation that can result from misclassifying employees, whether physicians or staff, as independent contractors. In the IRS’s view, as well as that of state tax authorities, the “employer” should have withheld and paid over payroll taxes for the “employees.” Obviously, that didn’t happen.

It’s one thing for an organization’s “responsible person,” for example, the medial group’s managing partner or its president and CFO, to think that the group is running a risk. It is. But so are the “responsible persons” who themselves are civilly liable for the failure to withhold, if not criminally liable as well.

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Mark F. Weiss

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