Picking up the beat
The words are as brooding as the Big River. “There’ll be no sunshine in the rain, no shelter from the pain…” His newsboy cap shading his brow, taut torso in a tight, black T-shirt, the singer coaxes Mississippi blues from his guitar, pouring out lyrics that he says were inspired by the devastation of Hurricane Katrina. A sax moans, and the hybrid sound carries traces of soul, even reggae.
As notes of “The Levee” fade, he flips his guitar behind his back, joshes with members of his band, called The City, and walks out the door of Shangri-La Productions. The studio on the south side of Lexington, Ky., is 400 miles from his day job.
In Charlotte, balding without his cap, in a tailored suit and blue-striped tie, Eugene Woods, 52, plays a different gig. Hired last April, he orchestrates Carolinas HealthCare System, a health care behemoth with more than 62,000 employees in 39 hospitals and 940 medical sites in three states. It recorded more than 12 million patient interactions last year, and revenue will approach about $10 billion this year. That is more than double the turnover of Duke University’s health care system. Only the system’s third CEO since 1981, Woods will be installed in May as chairman of the American Hospital Association, the principal lobbying voice for 5,000 hospitals.
At CHS, he’s inheriting a financial powerhouse with an enviable spread between revenue and expenses and a manageable debt load that have earned it one of the industry’s strongest credit ratings. While it’s a not-for-profit institution that doesn’t have shareholders or pay dividends, the system’s excess income — including operating income and investment earnings — topped a combined $730 million in 2014 and 2015, according to a Standard & Poor’s report in September. The business is fundamentally different from the one chartered in the 1940s as a public hospital to house the indigent sick, a role it played until 1981 when former CEO Harry Nurkin broadened its mission and kicked off a dizzying ascent to the top ranks of the nation’s health care systems.
“We have a saying, ‘No margin, no mission,’ and that mission is, we take care of all God’s children,” says Edward Brown III, chairman of CHS’ governing board. The authority sought a “charismatic leader who could take the organization to a whole new level.”
Woods takes charge at CHS during a time of unprecedented change, with the nation deeply divided over key industry issues: Is health care a right or a privilege? Are hospitals, doctors, insurers and drug companies overregulated? Should private-market forces play a bigger role? “We recently began surveying hospitals nationwide to see how ready they are for these massive changes,” says Kevin Schulman, a physician and health care professor at Duke University. “They are not.”
Among the greatest challenges facing hospitals are government mandates and growing pressure to treat sick people collaboratively, while limiting time spent in hospitals. When longer stays are necessary, the mission involves joining with a team of caregivers to heal patients and avoid repeat visits. “It may sound funny to consumers, but we don’t want you to come to the hospital,” Brown says. “We want you
to stay well.”
Woods uses as an example chronic obstructive pulmonary disease, the wrenching inability to process sufficient air to live. CHS looks at about 40 different factors and begins plotting post-release treatment even as the newly admitted patient is in intensive care. “Doctors, pharmacists, nurses and others work with them so when they go home, with diet, exercise and medication, we keep them out of the hospital,” he says. “We’re now seeing a 43% reduction in cost, and a 45% reduction in emergency-room visits.” Systemwide, 90% of so-called “patient days” occur outside the hospital.
Pressure for such collaborative approaches favors diversified, large health care systems over smaller, less robust peers, which is propelling the industry’s rapid consolidation: 85% of North Carolina’s hospitals are part of systems, up from 57% in 2007. The number of institutions CHS owns or manages and its collection of clinics, physician practices and other points of service have doubled over the last decade.
Both Woods and Brown make clear that further growth is inevitable, including beyond the Carolinas. “We believe we have an opportunity in the state and beyond to partner with other systems in a way that drives some of the advantages that scale can bring,” Woods says. Brown, CEO of auto retailer Hendrick Automotive Group and a former Bank of America executive, knows about interstate expansion. The system hired Woods “because he could build on the strengths we had and find opportunities to grow the organization,” he says. Those strengths include Woods’ experience at Irving, Texas-based Christus Health, which has more than 40 hospitals in seven states, Chile and Mexico.
The acquisition targets are likely to be aplenty. Many smaller systems are struggling financially, while Dallas-based Tenet Healthcare Corp. and some other highly leveraged, for-profit health systems have said they want to sell some hospitals.
But expansion also raises one of the system’s thorniest questions: Does its giant size and increasing market dominance give it too much financial clout? Government prosecutors think so; last June, the U.S. Department of Justice and N.C. Attorney General’s Office filed antitrust allegations that cited the system for adopting practices that prevent insurers from offering plans that encourage patients to use lower-cost physicians or facilities.
The federal charges flip the normal scenario in which hospitals buckle under pressure from insurers, says Robert Fuller, a former hospital administrator and now an attorney with the Los Angeles firm of Nelson Hardiman LLP. Insurers typically have leverage because of their large market shares: Four companies, including Blue Cross and Blue Shield of North Carolina, provide insurance for more than 85% of Charlotte-area citizens who have health coverage.
“You’ve got someone who normally plays the victim — a hospital system — and because of their market power in the Charlotte area, actually getting one up on Blue Cross and the others,” he says. “Former hospital administrators like myself sort of clap and cheer and say, ‘Go get ‘em.’ But this is all upside down. If Blue Cross were telling the hospital it couldn’t hire certain doctors, there’d be outrage and the David and Goliath victim structure might apply.”
The stakes are high, including potential fines if the government prevails. “If Carolinas HealthCare has the power to make this stick, they probably have the power to influence Blue Cross and the others to pay more than they would in a fully competitive market,” Fuller says.
CHS denies any wrongdoing and says its arrangements with insurers are commonplace in the industry. It has asked the court to dismiss the pending case.
Whether the Trump administration views the issue in the same light as its predecessor isn’t known. But North Carolina’s new attorney general, Josh Stein, is adamant. “I ran to protect the people of North Carolina, and that includes protecting them from artificially high medical costs,” says Stein, a Democrat who succeeded Roy Cooper, now the state’s governor. “We know that when a patient’s choices are limited, prices go up for everyone.”
Beyond the courtroom, Woods faces the same balancing act as other thriving not-for-profit groups with tax advantages not shared by privately held businesses: Is financial prowess and personal remuneration more valued than restraining prices? Does the powerful system have sufficient oversight?
CHS “is notoriously nontransparent and secretive,” says Charlotte lawyer Gary Jackson, who filed a lawsuit in 2014 to make public how much the system was awarded when it sued a bank for botching some investments. Though limited in scope, the court ruling has forced the system to release more financial information.
Eleven system executives earned more than $1.4 million last year, more akin to Bank of America and Wells Fargo than a not-for-profit institution, Mecklenburg County Commissioner Bill James says. (Though it has no financial or supervisory role, the commission appoints authority members.) “The difference is, Carolinas HealthCare, at least on paper, is a public, governmental institution.”
Outgoing CEO Michael Tarwater received a combined $11.5 million in 2015 and the first half of 2016, including $9 million in bonuses and incentive pay. Woods was paid $1.7 million in his first eight months, the hospital said in early February.
“They’re the big boys on the block, the bullies, and that’s inconsistent with their mission, which is to serve the public,” Jackson says.
Woods, who gained a reputation as a bridge builder in his previous leadership stints at hospital systems in Kentucky and Texas, defends the system as “extraordinarily transparent” and committed to serving all comers. He notes it’s the first time he’s worked at a system that held board meetings open to the public and press — though the quarterly sessions start at 7 a.m. and don’t permit public comment. Most board work gets done at committee meetings, says commissioner Al McAulay, a Charlotte executive-search company owner who led the panel that recommended Woods’ hiring.
Friends and colleagues who’ve known Woods for decades say his unusual background makes him the right person to lead a system that serves the gamut from rich to poor. His interest in health care has early roots. The son of a military father who was stationed in Spain, as a youth growing up in the Andalusian horse country, Woods was crushed when his Aunt Carmen went to a hospital to be treated for headaches and died from a medication error. She’d given him his first music album and triggered his lifelong interest in the guitar and composing. “I have friends throughout the country who play every once in a while when we can get together,” he says.
His career path became clearer years later during a Penn State University career day when Woods heard a CEO talking “about how in health care you can change lives and communities.” He landed his first job as a hospital quality director, rising to chief operating officer at MedStar Washington Hospital Center in the District of Columbia. In 2005, he was named CEO of Lexington, Ky.-based Saint Joseph Health System.
There, longtime friend and bandmate Tom Martin and other community figures say Woods shepherded the system from four hospitals to eight with a total of more than 1,000 beds. Two more mergers were underway, eventually creating Kentucky’s largest system, at the time Woods left to become president and chief operating officer of Christus Health in 2011.
“He’s dedicated to issues of increasing diversity in executive suites as well as boardrooms,” says Rick Pollack, president of the national hospital group. Woods has pushed AHA member hospitals to address “disparities of care among different populations, whether ethnic, racial, physical limitations, special care for veterans or whatever.” CHS’ consumers include some of the nation’s fastest-growing immigrant populations. “He’s worked in rural, critical-access hospitals, large urban teaching hospitals, regionally based systems like Charlotte’s and nationally based ones like Christus, both profit and nonprofit.”
Martin credits Woods with a global vision. “When he was here at Saint Joseph, with an African-American father and a Spanish mother, he’d go back and forth to Spain a lot. He’s got a pretty unusual and extraordinary background.”
Woods isn’t reluctant to acknowledge his mixed race, a parallel with Barack Obama, says Christus CEO Ernie Sadau. “He actively serves as a role model to other minority health care executives,” he says. The Becker’s Hospital Review trade journal in January named Woods one of the nation’s 60 top health care figures, the only one in North Carolina. Another on the list: Obama.
“Even before Gene came, improving the diversity of our board had been very much a concern to the board and senior management,” says CHS board chairman Brown. The board has focused on adding women and people of color in recent years.
Woods says that’s a priority for him, both here and nationally. While most hospitals don’t reflect their community makeup, he says 5% of CHS board members are Hispanic and 20% are African-American, comparable with the region’s demographic makeup. One of those directors is Woods; his predecessors Tarwater, CEO from 2002 to 2016, and Nurkin, from 1981 to 2002, were never on the board.
The epicenter is here, the state’s largest medical complex. The flagship, rambling Carolinas Medical Center with its Levine Children’s Hospital and Levine Cancer Center, more than 1,100 beds, sprawls 2 miles from downtown Charlotte. Woods is based here, and, outlining the system’s finances, some of his ideas might seem as unconventional to traditional hospital administrators as a youngish, multilingual, world-traveling blues-singing guitar virtuoso occupying the executive suite. Woods at times offers an unmistakable Silicon Valley tone.
“The competitive landscape is changing,” he says. “We’re no longer competing against just other health care systems but a whole host of different retail competitors. So convenience and connectivity are differentiators near the top of my goals list,” using social media, smartphone technology and other measures to connect with consumers, physicians and others — especially millennials.
CHS’ healthy vital signs give it a strong position to invest in new technology, which may be as important as new buildings. “We have to build infrastructure in bricks and mortar, but a lot of our investment will be in new delivery models, care models and analytics,” he says. With 30 million daily computer transactions, “one of our goals is to harness that better than anyone else to use the power of data to improve efficiencies and care.”
Hospital executives in other states are particularly interested in CHS’ computer-based technology and telemedicine and how they fit into improving primary care and improved mental-health offerings, Woods says. By bulking up and gathering immense amounts of patient data, Duke’s Schulman says CHS is well-positioned to provide best-practices care. Under Woods, the executive suite is also changing, with three of the 10 most senior executives departing over the last six months. In January, he named Ken Haynes, former head of Christus’ south Texas health care division, as chief operating officer.
CHS has the wherewithal to grow after reducing its debt since its acquisition of Concord’s Northeast Health System in 2007 and expanding its market share in the 13-county Charlotte area to 52%, according to Standard & Poor’s. Operating margin topped 5% in 2015. Its most recent hospital expansions occurred in Shelby in 2015 and Albemarle in 2016.
One trouble spot is a pension plan that is only 67% funded, below the 80% threshold that rating agencies view as an industry standard. The system pumped $92 million into the retirement plan last year and, like many companies, it now offers new employees a defined-contribution plan instead of the traditional defined-benefit option. “It’s clearly an issue, but we make sure it’s appropriately funded and as needs arise, we’ll deal with it,” Brown says.
Woods declines comment on the antitrust lawsuit, or whether he is more inclined to negotiate a settlement than his predecessor Tarwater. He notes that while the Justice Department is alleging nefarious pricing behavior, the federal Centers for Medicare and Medicaid Services has awarded CHS millions of dollars in a grant program promoting cost-cutting innovations.
“Any CEO coming in like this has to decide if he wants to be a peacemaker, reach a resolution and move on,” says Fuller, the Los Angeles lawyer. North Carolina clients have peppered him with questions about the antitrust action, he says. “You want to stand up for yourself, but it’s an enormous drain on executive time, not to mention fees. Is this really advancing one of your strategic goals? Or do you just let it happen and blame the old guy?”
For the new guy, it’s certain Charlotte will be a different experience for him in at least one regard. After stints at Saint Joseph and Christus, both affiliated with Catholic organizations, it’ll be his first as the head of a system that’s not faith-based. Whether the system’s relationship with the communities it serves, its business model and metrics try his executive faith may take years to find out.