Beyond the Signature: Venture Capital Firms Attract Healthcare CEOs

What are the consequences for these health systems if they do not have a comprehensive succession plan?

Alex Kacik: So, as I mentioned earlier, only 44% of the 260 hospitals surveyed in the Institute’s 2021 Governance Report maintain a written and updated CEO and senior management succession plan. A bad executive hierarchy and a health system that costs between five and 15 times his base salary. This came from a source who quoted a report from Acadia, which is a consulting firm.

So outside of the financial consequences, if the transition isn’t communicated well in terms of the intent behind the transition and the process, you know, other employees can leave. Rumors circulate about job changes, layoffs and restructuring, and things quickly snowball. I was speaking with health systems to understand what their plans are. And an anecdote from Scripps Health, San Diego told me that their CEO has a pre-written letter locked in a safe that he wrote his picks for next in line for his position and other positions of management. Only he and his secretary have access to it in case of an emergency and something happens to him. But as their communications team regularly updates a draft internal memo notifying employees of an unexpected change in management. As for planned departures, they have three levels of management training programs, where employees can learn about how different departments work, they can have these question-and-answer sessions with management. That being said, it is a profitable and well-established system. I imagine that organizations with fewer resources and a less experienced board of directors find it difficult to detach themselves from day-to-day operations to develop their succession plans.

So, Gabe, I had another question. And that’s something we brought up earlier. But if I asked you five years ago that top healthcare CEOs were going to leave that position for a venture capital firm that invests in healthcare technology, what would you say?

Gabriel Perna: I would have been downright shocked. Now, obviously, no one could have predicted a pandemic. Not only did it create turmoil within health systems, as he said, and drive many of these people to leave. But it created this opportunity for digital health and transformation. You know, people have realized that they can get treatment outside the hospital and the doctor’s office at home, it’s very attractive. We’ve gone from less than 1% of visits done via telehealth to 80%, where it’s sort of settled and now around 20%.

It’s a huge change, you know, from less than one to 20%, it’s a huge change. And it basically happened overnight. But even seeing all this is still very surprising. I’ve covered this industry for over 10 years, and for a very long time healthcare has had to struggle to embrace technology, especially with EHRs. But it seems that important people see the value in front of them, see the opportunities available to them and make that change. I mean, Dr. Harrison, he was the CEO of Intermountain Health, which probably made him one of the most powerful people in the whole state of Utah. So for him to leave that to a VC, you know for a VC that invests in health tech, that says a lot, I think.

So I think we’ll see that more than if guys like him and Klasko set the standard, I think you’ll see others make the switch.

And as CEOs change jobs, Alex, what will be the impact on salaries? We were talking about this earlier, you know, the salary is an incentive for some of these guys to make this change. But, you know, on the health system side, what is that impact?

Alex Kacik: With more turnover, you’re just going to have upward pressure on base pay and bonuses. So especially now, succession planning, the discussions have more weight, because things are so tumultuous in the healthcare community. You know, boards are tasked with finding a CEO who can, as you said, manage the move to remote care, which is a pretty big overhaul, working with new payment models, tiers declining repayments and a shifting workforce. So those who qualify for the job will get a pay raise, said the experts I spoke to.

In fact, Caroline, our financial reporter, just ran a great story in this week’s magazine about executive salary trends. And some of the data we got from executive compensation consultancy SullivanCotter showed total cash compensation for hospital CEOs increased 17.2% from 2021 to 2022, according to the survey of hospital CEOs. 493 hospital CEOs. It’s a bit more than average. And, you know, I imagine, over the next year, we’ll gradually see those salary increases. However, compensation for hospital executives has steadily increased over the past decade.

I thought one of the interesting things a source told me was that pay raises aren’t necessarily tied to performance. Of course, some incentives are based on performance, but they are often the product of competition. So, you know, as you see different entrants coming into the market and competing for similar levels of talent, you know, that could be the main driver there.

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