DALLAS, Saturday, October 4, 2008 — For hospital boards and chief executive officers, the time to act is now. Waiting and hoping that the nation’s worsening economic ills will not affect health care is simply not a credible business strategy.
The economic news on Friday was not good. We lost another 159,000 jobs in September. More than 760,000 jobs have evaporated this year. Unemployment is currently at 6.1 percent and with deteriorating economic fundamentals, that number may top seven percent.
While Congress finally passed the credit markets rescue plan Friday, no one knows for certain if this will work or whether it will be sustainable.
Now is the time to Topgrade© your leadership team – to identify those executives and managers within your organization, or in the broader market, who are best suited to help you weather what could be a severe economic storm. You must identify those executives with a history of delivering on financial, operational and clinical performance commitments. Best effort performance will not be good enough.
We may be heading for the worst financial meltdown since the Great Depression. Consumers and companies are quickly moving to retrench which adds to the negative momentum. Bloomberg reports that the “…sinking labor market and rising borrowing costs raise the odds Federal Reserve policy makers will cut interest rates by their Oct. 29 meeting.” Some economists worry that this toxic combination of economic fundamentals could spark the dreaded “stagflation” which will only prolong what some financial analysts believe will be a fairly deep recession. Japan’s economic stagflation lasted 10 years.
“The financial panic is a body blow to business confidence, and companies are now battening down the hatches,” said Mark Zandi, chief economist at Moody’s Economy.Com in West Chester, PA. He was quoted by Bloomberg.Com before Friday’s jobless report was issued.
The healthcare industry, which some still believe is immune to economic swings, is facing serious consequences. Increasing unemployment will drive up the numbers of uninsured patients as workers lose company health benefits or as families dump their personal healthcare coverage to reduce household expenses. Hospitals will see an increase in bad debt. New Medicare rules which preclude reimbursement for the specified “never never” events may add to the financial misery of some marginal hospitals who face clinical quality and financial challenges.
The quality of an organization’s leadership team will determine which hospitals survive and which ones die. Having the best executives, the strongest managers and the most engaged employees is NOT an optional business strategy.
Board members have a fiduciary duty to ensure that their CEO and leadership team take all necessary steps to ensure that their hospital is a survivor. Directors who delegate this critical duty because they do not understand the complexities of healthcare will find that this defense will not assuage irate creditors, including bondholders.
Bond trustees and insurers will be quick to exercise their rights to assume control of a debtor hospital if their financial performance slips. Technical defaults of bond covenants will immediately bring increased scrutiny or intervention. In tight credit markets, the bond insurers have no intention of writing a big check to the bondholders.
CEOs who protect marginally performing colleagues because of long standing relationships may find that this questionable sense of loyalty is really a career ending event.
Tough economic times require leaders to make tough choices, from the executives they keep to the search firms they engage to find the best talent.
Relationships are important, but results are critical.
Accountability, like cash, will be king.
© 2020 John Gregory Self