“We ask our key leaders to provide us names of prospects to keep in mind should the day come that they retire or leave,” he said. “It’s a work in progress, and you have to adapt it from time to time.”
That systematic process is often where most hospitals and health systems fall short, recruiters and management consultants said.
“I bet every hospital says they have a succession plan. The question is, is it a living, active document,” said Christine Mackey-Ross, president of AMN executive and physician leadership search. “Developmental plans have to be owned by very committed people.”
Less than a third of hospital executives polled in 2018 said they had updated their CEO succession plan within the past two years, according to the most recent version of the American Hospital Association governance report. Similar to the Governance Institute’s findings, the report found less than half of hospitals and health systems had a formal succession plan.
“It is the board’s most important long-term decision to pick a CEO. But the reality of COVID, competition, reimbursement levels and inflationary cost structures makes it hard to plan,” said Tom Giella, head of healthcare services for executive recruiter Korn Ferry. “The board’s job, as stewards of the hospital’s mission, is to be thinking about the future—not the past and not even much in the present.”
Succession planning decisions carry more weight amid the tumultuous healthcare environment. Boards are tasked with finding a CEO who can manage the shift to remote care, working with new payment models, waning reimbursement levels and a workforce in flux.
Those who qualify for the job will get a pay boost, experts said. Total cash compensation for hospital CEOs rose 17.2% from 2021 to 2022, according to a survey of 493 hospital CEOs by the consultancy SullivanCotter.
Hospital executive compensation has increased steadily over the past decade. But the pay increases aren’t necessarily linked to performance. They are often based on competition, said Steve Sullivan, managing director at Pearl Meyer.
“I don’t think there is a ceiling on what providers will pay to find a CEO that can run a complex healthcare system. Recruiters are getting their asking rate,” he said.
When hospitals are searching for new CEOs, leadership needs to be transparent with the employees, consultants said.
John Muir, for instance, conducted a series of town halls to update employees on the search process and address any questions, Odne said.
“We gave as much information as possible about the process and the timeline,” she said. “Employees have been dealing with so much around the pandemic and nursing shortage, so they needed to know the board was taking this seriously and working hard.”
Without an ongoing dialogue, employees are more likely to leave the organization as they wonder whether their project will continue under new leadership and if their jobs will change, AMN’s Mackey-Ross said.
“Even if a CEO leaves unexpectedly, there should be a No. 2 hanging in the wings. It should not be a disruptive event,” she said.