September 13, 2004
The struggle to streamline | Eastern Maine Healthcare Systems' controversial reorganization plan aims to increase efficiency
By Taylor Smith
When an organization pledges reform, it's usually a good thing. But in the case of Bangor-based Eastern Maine Healthcare Systems, such a pledge has sparked a firestorm of debate. System administrators, health care consultants and community members have been squabbling in recent months over a proposed system-wide reorganization that EMHS administrators say would streamline the organization, making it more transparent and boosting accountability. Opponents, however, say the plan will centralize power at the top levels of the system, leaving community members who historically have been involved in EMHS decision-making without any real influence.
At the center of the debate is the proposed dissolution of EMHS' corporator model, in which more than 500 community members, or corporators, provide oversight for the trustees of Eastern Maine Medical Center and Acadia Hospital in Bangor. The corporators' primary responsibility has been the nomination and election of board members for each individual hospital, and board members for the hospitals' parent group, Eastern Maine Healthcare (which oversees EMMC and Acadia). But despite that relatively limited power on paper, corporators still have been intimately involved with the goings on at their community hospitals. If the community, for example, found evidence of widespread negligence on the boards of their local health care facilities, they would have some recourse to fix the problem.
Under the new plan, according to Norm Ledwin, president and CEO of EMHS, the corporator structure would be dissolved at the individual hospital levels and replaced by a new system-wide corporator structure that would be responsible for approving EMHS board members. The last step in the process ˆ which has included votes of approval by all the boards of individual hospitals within EHMS ˆ is for current corporators to vote on the changes late this month. Ledwin expects that the corporators ultimately will back the plan ˆ but not unanimously.
That's because the plan has rankled a vocal group of current corporators, who feel the elimination of corporators overseeing individual hospitals would remove a much-needed set of checks and balances within EMHS. "I think it's very important for the communities of Maine to continue to have a real voice in the future of their major institutions," says Tony Brinkley, chair of the English department at the University of Maine in Orono and a corporator for Eastern Maine Healthcare.
And as institutions go, EMHS is major. The network of hospitals and health care facilities under the EMHS banner is among Maine's largest nonprofit organizations, and its flagship hospital, EMMC, is the seventh-largest non-governmental employer in the state. EMHS employs more than 6,000 people in the nine counties it serves ˆ Aroostook, Hancock, Kennebec, Knox, Penobscot, Piscataquis, Somerset, Waldo and Washington ˆ and carries a payroll of nearly $300 million.
That means community members are willing to defend such an important piece of their local economy. Brinkley and his fellow members of the Good Governance Group, a loose-knit group of corporators who have been opposed to some of the EMHS changes, recently made headlines in the Bangor area after they responded angrily to a recommendation by Chicago-based health care consultant Jamie Orlikoff that EMHS completely disband its corporator model. Orlikoff, a high-profile governance consultant who has worked to restructure dozens of hospital systems across the country, has consulted for various subsidiaries of EMHS for more than a decade, and has been involved in the current EMHS restructuring since it began in 2001.
But as strongly as the corporators feel about the importance of their role in EMHS, Orlikoff feels just as passionately that the corporator model is outdated and inefficient ˆ and ultimately could harm the very organization corporators want to protect. "The corporators are playing with the single most important asset in that community," he says. "You need leadership that can operate in a very challenging environment with very little, if any, margin for error, and corporators don't meet that requirement. There's very little data that democracy is the best way of running a competitive business or organization."
Good governance
If any comedy is to be found in the disagreement over the restructuring of EMHS, it is in the irony that the organization's reformation was intended, in part, as a gift to the community. "Disney, IBM and General Motors are responsible to their shareholders, and nonprofits are responsible to their stakeholders," says Ledwin. "Our stakeholders are our community members and patients."
Ledwin says corporate governance issues have always been important to him. But the concept of organizational restructuring at EMHS in particular became an important goal after he heard the story of Sherif Abdelhak. The Egyptian-born, American-educated business man had spent much of the 1980s and 1990s building Allegheny Health, Education and Research Foundation, a mammoth health care system in Pittsburgh, Penn. AHERF was cobbled together through a string of acquisitions that included two medical schools, more than a dozen hospitals and hundreds of physicians' private practices.
Though Abdelhak's strategy didn't raise eyebrows ˆ consolidation had become all the rage in the health care industry in the 1990s ˆ the $1.1 billion in debt carried by AHERF in 1998 did. After AHERF filed for bankruptcy that year, details followed about highly compensated executives, lavish corporate spending and questionable financial practices.
The AHERF story became a lesson in health care governance, and one that resonated with Ledwin, who in the late 80s had served with Abdelhak on the board of directors of the Pennsylvania division of Irving, Texas-based Voluntary Hospitals of America. What's more, Ledwin had followed a similar path of consolidation since 1993, when he was selected to lead the growth of the Eastern Maine Healthcare network of hospitals. EMH was established in 1984 by EMMC administrators who, daunted by rising health care costs, figured there was financial strength in numbers, and that groups of hospitals banding together could result in greater operating efficiencies. When Ledwin joined the organization in 1993, EMH oversaw just EMMC and Acadia Hospital. During the next seven years, EMH grew rapidly, acquiring members such as Charles A. Dean Memorial Hospital in Greenville, Pittsfield-based Sebasticook Valley Hospital, Waterville's Inland Hospital and TAMC Inc., which represented a slew of health care facilities anchored by The Aroostook Medical Center in Presque Isle. In 1999, EMHS was created as the parent company of EMH and TAMC Inc. through a collaboration between the CEOs of all the participating hospitals, health care consultants and EMH's board of directors.
Two years later, Ledwin thought it was time to address the system's organizational structure. EMHS had grown by addition, weaving established hospitals or health care facilities into its system over a period of two decades. Each new addition brought its own governance principles to the system-wide organization, whether in the form of corporators, boards of directors or bylaws that dictated how decisions were made and leaders elected. "Our system and our hospitals had a garden variety of different committees," says Ledwin. "If you needed to get through six or seven layers of approvals, it could take a year to get a dialysis machine to Presque Isle instead of three months."
So, at an EMHS retreat held on Sept. 11, 2001, Ledwin asked board members how the organization could best develop state-of-the-art governance practices. On the cusp of corporate blowouts like the Enron, Worldcom and Adelphia scandals, Ledwin's interest in reorganizing EMHS's corporate governance structure was prescient. "Just because we're a nonprofit organization doesn't mean we shouldn't be performing on the same level as a Fortune 500 company," he says. "We pride ourselves on good management and quality care, so why not good governance principles?"
A connection to the community
The mission of effectively delivering health care to the nine-county region covered by EMHS has become more complicated as health care prices have continued to rise and the health care industry has become more complex. "There are pressures to continue to provide a high level of quality and do the best to reduce the cost," says Ledwin. "That's why the organization needs to be streamlined. That might not be in the interest of someone who wants control and power, but it is in the best interest of delivering health care to the region."
But for the same reasons that Ledwin wants to beef up EMHS' governance standards ˆ because, he says, EMHS is the "steward of public assets" ˆ he also is beholden to community members. As a result, the EMHS board of directors in August decided not to follow Orlikoff's recommendation to remove corporators entirely ˆ a decision that pleased Tony Brinkley, and one that he says was directly influenced by the collective voice of the corporators. "The board would have gone with Jamie Orlikoff's recommendations if the corporators were less resistant," Brinkley says. "It continues to be important to us that the role of the corporators has to be real. They should have real authority to elect board members and vote before any significant change in governance takes place."
Ledwin denies that the corporators' dissatisfaction with Orlikoff's recommendation influenced the EMHS board's decision. He says EMHS decided to maintain some semblance of the corporator model in order to "retain some connectivity" to the community. But Brinkley may be less pleased to know that the restructuring will reduce the number of corporators from roughly 500 to just 200. And Ledwin stresses that the members, as the corporators will be called, will represent a more diverse geographic area than the system's current corporators ˆ each county will have a certain number of members based on its share of the overall population of the nine counties (see "Corporator shuffle," this page). A full 84% of EMHS' current corporators are from the Bangor area, and Ledwin believes that pushing the geographic boundaries will allow residents of northern Maine a greater range of participation in the system.
Ledwin hopes to have the new members in place by the end of the year. But he admits the selection process will be labor-intensive, as the EMHS nominating committee will solicit nominations from local chambers of commerce, county commissioners, state representatives and other groups.
To stem the fallout from displaced corporators, individual hospitals can establish citizens advisory councils, members of which will be able to make recommendations to the hospital nomination committee for hospital trustee candidates. In exchange, CAC members will be expected to attend annual hospital meetings to become familiar with the hospital's strategic plans and receive education on contemporary health issues. "You can't continue to come to meetings with coffee and cookies and have a lot of interpersonal dialogue," says Ledwin. "You need to start understanding the complexity of these issues."
The increasing complexity of the health care industry is a main reason why the corporator structure is a fast-fading relic on the health care landscape. Jamie Orlikoff says there are roughly 1,000 hospitals in the U.S. that still use the corporator model, but that the number is shrinking every year. (He expects the model to be extinct in 20 years.) The reason, he says, is efficiency. Up until the early 1980s, hospitals were rewarded for being inefficient because Medicare reimbursement rates remained high. Rates also were inconsistent, meaning that one hospital might be reimbursed thousands of dollars more for a particular procedure than another hospital. But in 1983, new federal guidelines codified reimbursement rates, and hospitals used to certain reimbursement levels were forced to make do with much less revenue.
These days, cutting costs and streamlining operations is the name of the game. "Now, hospitals aren't rewarded for being inefficient," Orlikoff says. "Everyone's focusing on reducing health care costs, and the way you do that is by making health care organizations and hospitals more efficient. It's paradoxical, but in order to function as a charity, EMHS has to operate more like a business."
At the center of the debate is the proposed dissolution of EMHS' corporator model, in which more than 500 community members, or corporators, provide oversight for the trustees of Eastern Maine Medical Center and Acadia Hospital in Bangor. The corporators' primary responsibility has been the nomination and election of board members for each individual hospital, and board members for the hospitals' parent group, Eastern Maine Healthcare (which oversees EMMC and Acadia). But despite that relatively limited power on paper, corporators still have been intimately involved with the goings on at their community hospitals. If the community, for example, found evidence of widespread negligence on the boards of their local health care facilities, they would have some recourse to fix the problem.
Under the new plan, according to Norm Ledwin, president and CEO of EMHS, the corporator structure would be dissolved at the individual hospital levels and replaced by a new system-wide corporator structure that would be responsible for approving EMHS board members. The last step in the process ˆ which has included votes of approval by all the boards of individual hospitals within EHMS ˆ is for current corporators to vote on the changes late this month. Ledwin expects that the corporators ultimately will back the plan ˆ but not unanimously.
That's because the plan has rankled a vocal group of current corporators, who feel the elimination of corporators overseeing individual hospitals would remove a much-needed set of checks and balances within EMHS. "I think it's very important for the communities of Maine to continue to have a real voice in the future of their major institutions," says Tony Brinkley, chair of the English department at the University of Maine in Orono and a corporator for Eastern Maine Healthcare.
And as institutions go, EMHS is major. The network of hospitals and health care facilities under the EMHS banner is among Maine's largest nonprofit organizations, and its flagship hospital, EMMC, is the seventh-largest non-governmental employer in the state. EMHS employs more than 6,000 people in the nine counties it serves ˆ Aroostook, Hancock, Kennebec, Knox, Penobscot, Piscataquis, Somerset, Waldo and Washington ˆ and carries a payroll of nearly $300 million.
That means community members are willing to defend such an important piece of their local economy. Brinkley and his fellow members of the Good Governance Group, a loose-knit group of corporators who have been opposed to some of the EMHS changes, recently made headlines in the Bangor area after they responded angrily to a recommendation by Chicago-based health care consultant Jamie Orlikoff that EMHS completely disband its corporator model. Orlikoff, a high-profile governance consultant who has worked to restructure dozens of hospital systems across the country, has consulted for various subsidiaries of EMHS for more than a decade, and has been involved in the current EMHS restructuring since it began in 2001.
But as strongly as the corporators feel about the importance of their role in EMHS, Orlikoff feels just as passionately that the corporator model is outdated and inefficient ˆ and ultimately could harm the very organization corporators want to protect. "The corporators are playing with the single most important asset in that community," he says. "You need leadership that can operate in a very challenging environment with very little, if any, margin for error, and corporators don't meet that requirement. There's very little data that democracy is the best way of running a competitive business or organization."
Good governance
If any comedy is to be found in the disagreement over the restructuring of EMHS, it is in the irony that the organization's reformation was intended, in part, as a gift to the community. "Disney, IBM and General Motors are responsible to their shareholders, and nonprofits are responsible to their stakeholders," says Ledwin. "Our stakeholders are our community members and patients."
Ledwin says corporate governance issues have always been important to him. But the concept of organizational restructuring at EMHS in particular became an important goal after he heard the story of Sherif Abdelhak. The Egyptian-born, American-educated business man had spent much of the 1980s and 1990s building Allegheny Health, Education and Research Foundation, a mammoth health care system in Pittsburgh, Penn. AHERF was cobbled together through a string of acquisitions that included two medical schools, more than a dozen hospitals and hundreds of physicians' private practices.
Though Abdelhak's strategy didn't raise eyebrows ˆ consolidation had become all the rage in the health care industry in the 1990s ˆ the $1.1 billion in debt carried by AHERF in 1998 did. After AHERF filed for bankruptcy that year, details followed about highly compensated executives, lavish corporate spending and questionable financial practices.
The AHERF story became a lesson in health care governance, and one that resonated with Ledwin, who in the late 80s had served with Abdelhak on the board of directors of the Pennsylvania division of Irving, Texas-based Voluntary Hospitals of America. What's more, Ledwin had followed a similar path of consolidation since 1993, when he was selected to lead the growth of the Eastern Maine Healthcare network of hospitals. EMH was established in 1984 by EMMC administrators who, daunted by rising health care costs, figured there was financial strength in numbers, and that groups of hospitals banding together could result in greater operating efficiencies. When Ledwin joined the organization in 1993, EMH oversaw just EMMC and Acadia Hospital. During the next seven years, EMH grew rapidly, acquiring members such as Charles A. Dean Memorial Hospital in Greenville, Pittsfield-based Sebasticook Valley Hospital, Waterville's Inland Hospital and TAMC Inc., which represented a slew of health care facilities anchored by The Aroostook Medical Center in Presque Isle. In 1999, EMHS was created as the parent company of EMH and TAMC Inc. through a collaboration between the CEOs of all the participating hospitals, health care consultants and EMH's board of directors.
Two years later, Ledwin thought it was time to address the system's organizational structure. EMHS had grown by addition, weaving established hospitals or health care facilities into its system over a period of two decades. Each new addition brought its own governance principles to the system-wide organization, whether in the form of corporators, boards of directors or bylaws that dictated how decisions were made and leaders elected. "Our system and our hospitals had a garden variety of different committees," says Ledwin. "If you needed to get through six or seven layers of approvals, it could take a year to get a dialysis machine to Presque Isle instead of three months."
So, at an EMHS retreat held on Sept. 11, 2001, Ledwin asked board members how the organization could best develop state-of-the-art governance practices. On the cusp of corporate blowouts like the Enron, Worldcom and Adelphia scandals, Ledwin's interest in reorganizing EMHS's corporate governance structure was prescient. "Just because we're a nonprofit organization doesn't mean we shouldn't be performing on the same level as a Fortune 500 company," he says. "We pride ourselves on good management and quality care, so why not good governance principles?"
A connection to the community
The mission of effectively delivering health care to the nine-county region covered by EMHS has become more complicated as health care prices have continued to rise and the health care industry has become more complex. "There are pressures to continue to provide a high level of quality and do the best to reduce the cost," says Ledwin. "That's why the organization needs to be streamlined. That might not be in the interest of someone who wants control and power, but it is in the best interest of delivering health care to the region."
But for the same reasons that Ledwin wants to beef up EMHS' governance standards ˆ because, he says, EMHS is the "steward of public assets" ˆ he also is beholden to community members. As a result, the EMHS board of directors in August decided not to follow Orlikoff's recommendation to remove corporators entirely ˆ a decision that pleased Tony Brinkley, and one that he says was directly influenced by the collective voice of the corporators. "The board would have gone with Jamie Orlikoff's recommendations if the corporators were less resistant," Brinkley says. "It continues to be important to us that the role of the corporators has to be real. They should have real authority to elect board members and vote before any significant change in governance takes place."
Ledwin denies that the corporators' dissatisfaction with Orlikoff's recommendation influenced the EMHS board's decision. He says EMHS decided to maintain some semblance of the corporator model in order to "retain some connectivity" to the community. But Brinkley may be less pleased to know that the restructuring will reduce the number of corporators from roughly 500 to just 200. And Ledwin stresses that the members, as the corporators will be called, will represent a more diverse geographic area than the system's current corporators ˆ each county will have a certain number of members based on its share of the overall population of the nine counties (see "Corporator shuffle," this page). A full 84% of EMHS' current corporators are from the Bangor area, and Ledwin believes that pushing the geographic boundaries will allow residents of northern Maine a greater range of participation in the system.
Ledwin hopes to have the new members in place by the end of the year. But he admits the selection process will be labor-intensive, as the EMHS nominating committee will solicit nominations from local chambers of commerce, county commissioners, state representatives and other groups.
To stem the fallout from displaced corporators, individual hospitals can establish citizens advisory councils, members of which will be able to make recommendations to the hospital nomination committee for hospital trustee candidates. In exchange, CAC members will be expected to attend annual hospital meetings to become familiar with the hospital's strategic plans and receive education on contemporary health issues. "You can't continue to come to meetings with coffee and cookies and have a lot of interpersonal dialogue," says Ledwin. "You need to start understanding the complexity of these issues."
The increasing complexity of the health care industry is a main reason why the corporator structure is a fast-fading relic on the health care landscape. Jamie Orlikoff says there are roughly 1,000 hospitals in the U.S. that still use the corporator model, but that the number is shrinking every year. (He expects the model to be extinct in 20 years.) The reason, he says, is efficiency. Up until the early 1980s, hospitals were rewarded for being inefficient because Medicare reimbursement rates remained high. Rates also were inconsistent, meaning that one hospital might be reimbursed thousands of dollars more for a particular procedure than another hospital. But in 1983, new federal guidelines codified reimbursement rates, and hospitals used to certain reimbursement levels were forced to make do with much less revenue.
These days, cutting costs and streamlining operations is the name of the game. "Now, hospitals aren't rewarded for being inefficient," Orlikoff says. "Everyone's focusing on reducing health care costs, and the way you do that is by making health care organizations and hospitals more efficient. It's paradoxical, but in order to function as a charity, EMHS has to operate more like a business."
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