Ep. 027: Lessons from the $8 Billion Healthcare System's Collapse

0:00Welcome back Bridge Builders to Bread to Lead, the podcast transforming leadership across industries. I'm your host, Dr. Jake Taylor Jacobs, and I'm thrilled that you're here. We're currently ranked as the 30th top business and leadership podcast nationwide. And it's all thanks to listeners like you. Bridge builders, if you haven't already grabbed a copy of my book, Bread to Lead on Amazon, it's packed with strategies to elevate your leadership game. Got questions or ideas for the show? Visit us at breadtolead.com. And if you're finding value here, please take a moment to rate and review us on Apple Podcasts.

0:36Your support helps us reach more leaders. Now let's dive in and continue breeding excellence and leadership. Today's episode awaits Bridge Builders. Bridge Builders, first and foremost, welcome back to Bread to Lead. This episode is a very important episode, episode 27, as we are going to start tackling a lot more real life case studies. Really showing the concept of bread to lead And bringing it to life with things that are happening In the healthcare space with hospitals and organizations All across the country And in episode 27, the purpose of it And the title is The$8 billion leadership failure Lessons from a healthcare systems collapse And for those of you that are interested in Bread to lead and you're not in the healthcare space The reason why this podcast, to my belief, is still a very, very important podcast for you to listen is because we're not looking at health care business or operations or leadership in the scope that it only fits in health care.

1:48We're just using health care, the space that my company Sips Health Care Solutions is in. We're using health care and organizations as a as a niche or a focus to build off of. So all of the lessons that you'll learn if you're new to Bread to Lead, all of the lessons learned are transferable to any organization that you can imagine it fitting in. One being because some of you all know I'm a corporate fixer by trade. So I've worked with companies in every industry that you can imagine turning them around. But health care, the reason why I love the complexities of health care is because it's typically not seen solely as a business or an operational model.

2:36And you typically don't see big giant eight billion dollar companies just go tumbling down like we're going to be talking about today. So if you're new to the podcast, make sure you understand that this is a pod class, which means that when we get started, you should be having your notes out, screenshot in the evening, bookmarking certain things that we say that when you go back to it, you can always get the information so that you can apply. The goal of Bread to Lead is to ensure that as you leave or as you lead, you can take the information that we give you and apply it immediately to your organization.

3:15We want to thank every single person that's allowed for us to be able to position our organization or even our podcast as a top 30 podcast in the entire country in the business class. And we love everyone that is sharing, constantly sharing our podcast. And then we have leaders from the C-suite all the way down to technicians in the hospital facilities that are reaching out Letting us know that they are not only applying the information, but they're seeing drastic change So i'm excited about that. So let's go ahead and dig into a bridge builders today bridge builders We're going to be diving into something critically important Okay, the difference between planning for the future and actually leading from it and to illustrate this I do want to share a powerful, a real world example that's unfolding right now in the health care industry in May of 2024.

4:12Stewart Health Care, one of the largest private hospital systems in the country, filed for bankruptcy. Stewart Health Care, one of the largest health hospital systems in the country, did file for bankruptcy. And now on the surface, this might look like just another business failure. But what happened at Stewart offers us profound insights into the difference between planning and true future focused leadership. I want to break this down a little bit. And if you all love these case studies a little bit more than just the traditional way we've been doing our podcast episodes, please go to bread to lead dot com or find me on LinkedIn at Dr.

5:01Jake Taylor Jacobs or an Instagram Jake Taylor Jacobs. And let me know what you love to hear most and what you want us to dive more into. So we're going to break down what happened with Stewart Health Care. In 2010, Steward Healthcare was established as a for-profit hospital system. Their strategy looked absolutely amazing on paper. They would acquire struggling hospitals, turn them around through operational efficiency, and build a scalable healthcare network, Much like what my private firm would do and still does for private, small and midsize businesses, acquire them, turn them around and sell them or keep them in our portfolio.

5:42Or much like what we do here at Sips Healthcare Solutions, we don't acquire hospitals, but we are called into hospitals to turn around a lot of the surgical services departments. OK, Stewart Health Care had a CEO, Dr. Ralph De La Torre, who seemed perfectly qualified, a former cardiac surgeon with both medical expertise and business acumen. I just want to park here parenthetically just for a moment. And I want to say that just because someone has business acumen doesn't mean that they're perfectly qualified to actually run the business. And all too often that people think that education alone will permit someone's ability to be able to run a sizable organization.

6:27I always like to liken it to if you would never put a first year surgeon that just got out of grad school, medical school in in the seat of actually doing a heart transplant as there because they have the medical acumen. If you would never do that when it came to saving someone or performing a surgery, we should not be doing that with businesses, especially with business models where the consequence of not running it correctly is literally life or death. So, of course, he seemed like a perfect, perfectly qualified fit. But here's where it gets interesting. Bridge builders, despite having what appeared to be all the right pieces, leadership, expertise, financial backing and a clear growth strategy.

7:19The organization failed spectacularly by 2024, which is 14 years later, they were facing bankruptcy, closing hospitals and leaving communities without crucial health care services. All right. Without crucial health care services. This failure wasn't about the lack of planning. Stewart had plenty of plans. What they lacked was true future focused leadership. And let me show you the difference because this is crucial for every leader to understand. When you're planning for the future, you're essentially trying to extend your current reality forward. You look at trends, make projections and create strategies based on what you can see from where you are.

8:13But when you're leading from the future, you're doing something fundamentally different. You're starting with a clear vision of where you need to be and then working backwards to ensure every decision serves that future. So let's look at how this was played at Stewart. it. They're planning focused on growth through acquisition, which is a fine business model. If you truly weighed out all the risk and it's nothing that's new under the sun, they acquired dozens of hospitals across the United States and internationally. And on paper, this looked like a future focused leadership. But when we begin to dig deeper, we see they were actually making a classic planning mistake, confusing activity with progress.

9:02Before we move forward, I do want to let the bridge builders know all of you know that transformational leadership starts with the right mindset. Go and get my book Bread to Lead on Amazon today and learn how to lead from the future instead of just planning for it. Go to Amazon or go to Bread to Lead dot com to get a copy of my newest and latest book Bread to Lead. so here's what true future focused leadership would have looked like at steward okay so versus us thinking about what should have happened we're going to break down what it really looks like if we really want to talk about uh planning for the future in leadership okay instead of just asking, how can we grow?

9:58Stuart, the staff, the committee, the board should have been asking deeper questions. What will be sustainable with our health care delivery in the next 10 to 20 years? How do we ensure that our growth serves our communities long term? What capabilities do we need to build, not just buy? And let me break down three critical failures at Stewart that illustrate the difference between planning and leading from the future. First, at Stewart, they confuse expansion with evolution. Stewart Health leadership focused on getting bigger rather than getting better. They acquired dozens of hospitals, but reports show they weren't investing in maintaining these facilities.

10:52We saw pest infestations, equipment breakdowns and deteriorating conditions. This is what happens when you plan for growth without leading from a future vision of excellence. Secondly, they prioritize financial engineering over operational excellence. The leadership team backed by a private equity focused on short term financial metrics. rather than building sustainable operational capabilities. They were playing a numbers game instead of building a future ready health care system. And I want to stop here and say this doesn't just happen in this health care space. We see companies all the time that are so focused on growth that operationally it is impossible for that organization.

11:40when it finally hits its real barrier that forces it to focus on operational excellence, capability, and ensuring quality service for communities that organization will serve. When we only think about growth in the numbers game, business is not about numbers. Business is about delivering a service that is so good that customers, consumers, clients, and patients find so much value in it that they are willing to pay whatever price point that you put. And from that price point and paying it, you build your organization to support that. So service has to be the full focus of the entire organization that you build and quality of staff that are there.

12:30So the first one, they confuse expansion and evolution. The second one, they prioritize financial engineering over operational excellence. And thirdly, this one is crucial. Bridge builders. They failed to build an organization that can sustain itself beyond their immediate plans. While Dr. Del Latore reportedly receives the substantial compensation, hospitals were struggling with staff shortages and basic maintenance issues. This is what happens when leaders optimize for the present instead of building for the future. Now, let me share something powerful about true future focused leadership. It's not just about having a vision.

13:15It's about making decisions today that create capabilities for tomorrow. Let me show you what that looks like in practice. When I work with organizations on future focused leadership, we use what what we call future back framework. It starts with three fundamental questions. What must be true about our organization in the future for us to fulfill our purpose? What capabilities do we need to build now to make that future possible? And thirdly, what decisions can we make today that will serve the future while maintaining current operations? Bridge builders. Are you ready to transform your leadership from planning to true future focus?

14:01Visit bread to lead dot com for exclusive resources and strategies that will help you lead for the future. Let me share how this future back framework could have changed the trajectory at Stewart and most importantly, how you can use it in your organization instead of just acquiring hospitals. A future focused leadership approach would have started with building sustainable operational excellence. Let me show you what that means. So it's kind of ironic that their business model said that they would take underperforming hospitals, change them around, make them more operationally efficient and then tuck them in the portfolio.

14:43But it but the very basis of the business plan of operational efficiency was not their focus. It was not. So at Stewart. We saw a leadership team making decisions based on immediate financial metrics. They were playing what I call the now game, focusing on quick wins and short term gains. But true future focused leaders play the next game in the after next game simultaneously. Here's what that means. The now game is about current operations and immediate results. The next game is about building capabilities for emerging opportunities. The after next game is about creating options for future possibilities today.

15:35And let me give you a concrete example of how this works. When you're leading a healthcare organization or any organization, the now game might be about current patient care operational efficiency. The next game will be about developing new care delivery models and building digital capabilities. The after next game will be about reimagining what healthcare might look like in a decade in positioning your organization to lead that transformation. Stewart's failure teaches us something crucial. You can't sacrifice the now game for the next game or vice versa. They sacrifice current operations for expansion plans, but they also fail to build for the real future of health care.

16:23They were all playing neither game well. So let me share with you four pillars. A future focused leadership that I teach organizations, get a pen, write it down. I'm gonna share with you four pillars. And this this also goes for anyone that's leading a department. Where do you want to take that department? Now, create a future back framework from it and ask yourself, do I have the right staff? Is my talent? Is my team developed enough when I ask for consultants to come in? Are they always plugging holes or are they helping us to move forward the organization to where we want to go? Do I have career pathways that align with what the organization will look like in the future?

17:09What am I doing to be able to encapsulate this vision that I have for this organization, for my future, for this department to ensure that it doesn't crumble as we continue to grow? Future back thinking. This isn't just about planning. It's about truly understanding what capabilities your organization needs to build for the future. And as Stewart, they needed to ask what capabilities would a sustainable health care system need in 2030 or 2040? Instead, they were focused on immediate expansion. So when we're talking about truly building an organization, especially when you talk about acquiring other facilities, clinics, hospitals or businesses, you got to ask yourself, what is the true plan of this acquisition?

18:00And do we have enough inside of our organization or can we get resources outside of it to ensure operationally we're effective? We're effective. Now, this also goes to the lower level manager or leader. So many people are so focused on getting a promotion that we don't ask ourselves. What are we going to do once we get the job? What initiatives are we going to place? And I love the presidential campaign because they have to talk about the things and the initiatives that they already have been thinking about to put into place so that we can be able to what? Move it forward. Now, what happens here is although you have these plans in place, It still does not take away for the simple fact that you now have to gain buy in from all your other stakeholders to ensure that that plan can go into place.

18:49But if you do not have a framework from what you're building everything from, this is where the difficulty starts to happen when people get promoted but are not ready for the promotion. The promotion is not just about you making more income. It's you. What impact are you going to create as you are stepping into that position? So the framework. The future focused leadership framework. When we talk about building it, it's not just a plan. You have to think about what will the organization look like 10, 15, 20 years from now, and you build your organization from the vision that you have. So i'm working toward there.

19:31I know where I am and i'm building up milestones that we hit along the way No different than an architect building your home. The final product is a home The final product is a car The final product is a You know is whatever the architect is building or whatever they're drawing out. That's the final product The issue is that when we start building without a final product in mind So we're just one after the other, making mistake after mistake after mistake without considering what will the organization look like before. One of my favorite leaders in the health care space, his name is Angus at Boston Children's.

20:11He already has an eight year plan for when he's going to retire and he's building up his leaders and framework. We're coming in to partner with him. We're building up his leaders and framework and building what we call our next step leadership pipeline. where we're helping them develop the talent within the organization and managing that talent by ensuring that the right people get placed when it's time for them to get placed. Because he is trying to create the next level of leaders from the bottom up. So he's thinking of what his move is going to be for the benefit of Boston Children's for when he retires.

20:47He already has that framework. Many of us wait.

20:54We do nothing. And the hospitals don't force the leaders to have to prove a case of where are you taking this department or these set of departments in the next five, 10 years? How long are you committing to? And with that commitment, are we going to have a bulletproof plan to actually execute it? The second thing, capabilities building. True future focused leaders. invest in building capabilities, not just acquiring assets. This means developing operational excellence, leadership depth, innovation capacity, cultural strength. You have to think of an organization or your department like a table that needs four legs to stand up.

21:42Operational excellence, yes, you can have all the processes and systems in place, but if you don't have any leaders in place, no innovation that takes place, retention is going to be gone. No good leaders. If they're not in place, guess what? Retention is going to be out the window. Cultural strength. No culture. Retention is out the window. So how can you build an operationally excellent facility, organization or department if you continue to start over with the talent within your organization every one, two and maybe even three years? So you have to consider your organization or your department with four legs.

22:21I need operational excellence. How what's the depth of my leadership? Do I create an environment where innovation is at the forefront of our organization? And the fourth one, what is the culture? Does our culture there is a pulse? Do we have an identity as an organization to ensure that they're getting everything that they need? Now, number three, sustainable resource allocation. This is where Stewart really missed the mark. Future focused leadership requires balancing current operations versus future investments, growth versus maintenance, short term profits versus long term stability. there's a there's a haagen-dazs dance a ballroom type of dance that you need between servicing today and investing in the future and you can't be so focused on today because you won't have a future and you can't be so focused on the future because you won't have anything today you have to have almost like a reward system as we build this and hit this milestone we'll invest in the future when we build this we'll create innovation.

23:27When we build this, we'll invest into research. When we build this, we'll create. These are all stepping stones that you must create in order to really take your organization to the next level. And fourth, cultural architecture. This is perhaps the most crucial element. Future focused leaders build cultures that can sustain excellence over time. At Stewart, we saw a culture focused on financial metrics at the expense of operational excellence in patient care. That's what led to the bankruptcy. Not that they didn't have good assets that they offloaded, that could offload. It's because the main premise of their business model was to acquire underperforming hospitals and make them more operationally efficient.

24:26The issue was, it is obvious that they didn't have enough leaders in place that put an emphasis on operational efficiency more than bonuses, checks, compensation for more acquisitions, for more money, more revenue to be made. Now, let me give you specific strategies for implementing these principles into your organization. First, create what I call future focus forums. These are regular sessions where your leadership team steps out of the day to day operations to explore potential futures. But here's the key. These aren't just brainstorming sessions. They need to result in specific action plans that connect future vision to current decisions.

25:16Second. Implement capability mapping. This means regularly assessing what capabilities do we have? You know what capability capable means? Capable means in scripture, X is 18. Jethro tells Moses to find leaders who are capable. That means that they already have innately inside of them the ability to execute the job, not only well, but efficiently. Leaving as little waste as possible.

25:53So when I look at the capabilities of an organization, I'm looking at how well something runs, how developed my team is. Or do we even have the capability as an organization to do what is being asked efficiently, effectively and proficiently? Now, watch this. Now, after you look at your current capabilities, the next question you must ask yourself is. What capabilities will we need in the future? I know here at Sips Healthcare. I'm very much aware of what we need today. But I'm even more aware of the talent, the systems, the processes. The structure of the organization. I'm well aware of what we're going to need in the future for where we're taking this organization.

26:47And then after you figure out the capabilities of what you need today for your organization and the capabilities that you will need for the future for your organization, then you have to measure the gap in between. And how do we systematically build the capabilities that we need to start bridging the gap? And you bridge the gap now with cement with the ladder. One step at a time. There should be a ladder from today's capabilities climbing up to tomorrow's capabilities needed to ensure that we systematically have built the right things in place to ensure that we're good. Now, thirdly.

27:34We need to develop sustainability metrics. This goes beyond traditional KPI to measure to measure. So many people, KPI, KPI, KPI, KPI, KPI, KPI. It's the buzzword KPIs, KPIs, KPIs, no different than the lean method. Everybody wants to be lean, six sigma certified lean. It's just become buzzwords. When I'm really trying to build an organization that is more than just an organization, just full of KPIs, we build KPIs as if we don't have the human element within the organization. We're not talking to computers. We're not talking to AI alone Even with computers and AI You must bring context For the systems to actually be able to produce To the capabilities that we are asking So sustainability metrics are What is our capability building process?

28:34We know what we are capability wise as an organization I've tested all of my leaders I know where they are And I know what they must grow to In order to stay in the organization At the pace that we're in I know I know their developmental abilities. I know our system structures. I know that the technology that we're using today can get us by today, but that's not the technology that we need in the future. So I need to create a building process of what will the transitions look like and what am I willing to invest today to ensure that the capabilities that I invest in today service today and also builds for the future tomorrow.

29:10The second thing, cultural health. if your if your culture is shoddy there's nothing you can implement that will change anything if your culture is shoddy whatever the bad apples that are in your organization i'm sorry if they've been a bad apple for uh more than two years they're going to stay a bad apple get rid of them three long-term value creation what is the long-term value creation stop just thinking so short-sighted. There's so many organizations and executives that I've helped being able to turn their organizations around. And the only focus was, why are we so focused on a short side?

29:47You've been short-sighted running your organization or running your department for so long and it has not worked, has it? So let's just try if we start thinking about the long format, the long-term value creation, and let's see if something changes. I'm not saying to get rid of the focus of today's problems, but we can't solve today's problems with today's solutions. We have to solve today's problems with tomorrow's solutions. What can we innovatively do that can ensure that this will never be an issue again? And then the last one, when we're developing sustainability metrics, the stakeholder impact.

30:27How does it impact the stakeholders? The Stewart case teaches us something crucial about metrics. They were measuring growth and financial returns, but they weren't measuring the health of their organization, literally and figuratively. They weren't tracking deterioration of their facilities, the erosion of their culture and the sustainability of their operations. So with the future ready assessment. I'll give you a tool.