Leading organizational change, especially in the medical organizations is a challenging task for the Chief Executive Officer. This paper describes characteristic features of the health care environment in Massachusetts, the state of the Tufts/NEMC in the 1990s and medical center’s weaknesses in the next decade. It analyses the actions that were taken by a new CEO to improve the existing situation based on the case study about Ellen Zane, women-CEO whose leadership style and dramatic turnaround of Tufts/New England Medical Centre is the bright example of strategic management practice.
Medical Services Development in Massachusetts
Regarding the background of the medical services development in Massachusetts and their current state in 1990s and a decade later, it should be pointed that the medical industry in Massachusetts employed more than 12% of total state’s workforce. Medical services provided by the largest Medical Academic Centers and other smaller medical enterprises accounted for more than 11% of the gross state product. Moreover, the Boston area was well-known as the destination where hospitals combine cutting edge technologies with enormous educational funding. However, it is undeniable that the costs for the high-quality services were provided to the patients at the high level. One of the most important factors that influenced the drastic changes in health care environment in Massachusetts was the deregulation of hospitals in 1991. Top management of the medical centers was forced to build new surviving strategy and keep the financial stability of their companies. Mergers and conversions became popular operations in the medical industry in Massachusetts.
It is necessary to point that Tufts was known as one of the oldest hospital operating in the United States. It was famous for the innovation policy it promoted in particular multiple clinics establishment, possibility of patients to cooperate with the assigned nurse, visiting nurse association. However, financial position of Tufts/NEMC remained weak. The company reacted to the changes in the business environment very slowly and inadequately. The process of the cash flow control and operational productivity improvement was ineffective. Moreover, Harvard-Pilgrim Health Care refused to provide insurance coverage for Tufts/NEMC explaining it as the high costs.
In 1997, Tufts/NEMC began to search for partners that could improve its fiscal instability. The merger with the Lifespan Corporation located in Rhode Island was the choice of the top management that expected to allow the company expanding its activity in the form of academic medical centers development in Rhode Island. Unfortunately, top management underestimated the complexity of the merger process of two different organizational structures and the consequences associated with it. As a result, such a merger failed because of the impossibility of effective coordination of joint work. This failure cost $30 million to Tufts. In 2002, this merger was terminated due to misunderstanding among the management of the companies in perception of business conducting and inefficient distribution of official authority or rather deprivation of those from Tufts/NEMC.
Change Organizational Structure
It should be stated that appointed new CEO Ellen Zane was not afraid to take drastic measures to change organizational structure and the way operational performance was led. She underlined that market of medical services was “unforgiving and tough”. Before accepting the position of CEO, Zane conducted a rapid diagnosis to evaluate the scale of the catastrophe. Main findings that revealed the complexity and neglect of the situation were related to the size of the Tufts/NEMC in particular its insignificance compared with such giants as Caritas, Partners and CareGroup; and to the weaknesses in the indicators of operational efficiency such as operating margin, average length of stay, accounts payable and receivable, and cash on hand. Moreover, “after reviewing the managed care contracts, Zane also realized that Tufts/NEMC was woefully underpaid”.
Consequently, the actions implemented within the hospital by Ellen Zane included staff changes, senior management replacement, putting an emphasis on the outreach and communication, proposal of the “Agenda for Change”, improvement of the length of stay time. Moreover, Zane directed her efforts on the reforming the negotiation process with the representatives of the insurance companies, enhancing the reimbursement rates and enlarging the medical center’s network.
Cardinal changes affected the Tufts/NEMC’s staff. Zane began with choosing the colleagues who had to be her main supporters and drivers for change. She replaced those co-workers who did not fit her long-term vision of the company’s development. This especially concerned the strategy direction and development and fundraising. New CEO understood that the financial crisis taken place in the company during previous years decreased the motivational level of all employees, and consequently, the level of satisfaction with their work was extremely low. Zane introduced town meetings practice with the aim to communicate face-to-face with the medical staff to unite the team. It is considered that staff changes that Zane made were successful, because in the middle of 2006 there was a positive balance in the ratio of physicians left and joined the Tufts/NEMC.
In addition to the major changes in the formation of the new management team that expected to support Zane’s initiatives and developed stabilization as well as development strategy, Zane focused at the rebranding of the Tufts/NEMC in the Boston area, assuring her medical center’s financial footing through the real estate sale, communicating the clear message to the staff about the need of cost cutting and advantages of efficiency initiatives and control over these processes, and enlarging the scale of Tufts/NEMC operations through the networks and affiliates rebuilding.
Ellen Zane as Example of the Organizational Leader
Regarding the cost cutting initiative, Ellen Zane and her vice-presidents focused on the length of stay reducing. Special internal e-mail was introduced with the particular aim so that medical representatives could direct their explanation and complaints about the delay in the length of stay to the hospital’s leaders. Areas where quick improvements could be made were identified and prompt feedback to the physicians concerning the effectiveness of the medical care and unnecessary reasons for the delay were provided. It is noteworthy that the reasons for every step that Zane made was communicated to the departments at each meeting she held.
According to Cawsey, Deszca and Ingols (2012), Ellen Zane is the bright representative of the manager with well-developed strategic thinking since Zane did not act only according to the short term needs of the medical center, but she demonstrated the long-term vision of the business conducting. She found a way to keep doctors and other medical staff on track and improved the cash flow and efficiency of operations with the aim to use the available resources adequately. She was able to overcome the toughest financial situation for the Tufts/NEMC that finished the financial year in 2005 with the $18 million surplus comparing to the $60 losses at the previous periods due to extreme desire to implement changes with the long-term perspective for her organization.
Ellen Zane is an example of the organizational leader who demonstrated that it is necessary to take a risk in setting and implementing efficient goals and tools for their achievement, conducting an aggressive policy in staff recruiting, and following specific path during the negotiations with the representatives of the health insurance providers. Ellen Zane was successful to shift organization she was leading to the new stage of sustainable development and provide new competitive advantage to it comparing to the competitors at the highly competitive market of the medical services.