“We ask our key leaders to provide us with names of prospects to keep in mind if the day comes when they retire or leave,” he said. “It’s a work in progress, and you have to adapt it from time to time.”
This systematic process is often where most hospitals and health systems fail, recruiters and management consultants said.
“I bet every hospital says they have a succession plan. The question is whether this is a living and active document,” said Christine Mackey-Ross, chair of the AMN Executive and Doctor Leadership Search. “Development plans must be owned by very committed people.”
Less than a third of hospital leaders surveyed in 2018 said they had updated their CEO succession plan in the past two years, according to the most recent version of the American Hospital Association’s governance report. Similar to the findings of the Governance Institute, the report found that less than half of hospitals and health systems had a formal succession plan.
“It is the most important long-term decision of the board to choose a CEO. But the reality of COVID, competition, reimbursement levels and inflationary cost structures makes planning difficult,” said Tom Giella, health services manager for executive recruiter Korn Ferry. “The board’s job, as guardians of the hospital’s mission, is to think about the future, not the past and not even much about the present.”
Succession planning decisions carry more weight in a tumultuous healthcare environment. Boards are tasked with finding a CEO who can manage the shift to remote care, work with new payment models, declining reimbursement levels and a shifting workforce.
Those who qualify for the job will receive a pay raise, experts said. Total cash compensation for hospital CEOs increased 17.2% from 2021 to 2022, according to a survey of 493 hospital CEOs by consulting firm SullivanCotter.
Compensation for senior hospital executives has increased steadily over the past decade. But salary increases are not necessarily tied to performance. They’re often based on competition, said Steve Sullivan, chief executive of Pearl Meyer.
“I don’t think there’s a cap on what vendors will pay to find a CEO who can manage a complex healthcare system. Recruiters get their requested rate,” he said.
When hospitals seek new CEOs, leadership needs to be transparent with employees, consultants said.
John Muir, for example, held a series of town hall meetings to brief employees on the research process and answer any questions, Odne said.
“We gave as much information as possible about the process and the timeline,” she said. “Employees have had to deal with so much around the pandemic and the nursing shortage, so they needed to know the board was taking this seriously and working hard.”
Without ongoing dialogue, employees are more likely to leave the organization as they wonder if their project will continue under new management and if their work will change, AMN’s Mackey-Ross said.
“Even if a CEO leaves unexpectedly, there should be a hanging No. 2 in the wings. It shouldn’t be a disruptive event,” she said.