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The stakes are high as Jody L. Lomeo takes over as interim chief executive of Kaleida Health.

He must bring financial stability to the region’s largest hospital system, which has lost money in recent years while its main competitor earned profits.

He must find ways to cut costs without compromising the quality of patient care – and without jeopardizing Kaleida Health’s major investments in the growing downtown medical corridor.

And as head of the largest employer in the area, he must improve relations with workers at a time when layoffs are likely.

To Lomeo, who confronted similar challenges at Erie County Medical Center, the answer to healing what ails Kaleida Health must – and will – come from within the organization.

“We need to pick up the pace, accelerate what we’re doing, perform better, better engage our employees, better clarify our vision, better clarify our purpose,” Lomeo said in an interview.

While the ouster of James R. Kaskie this month as Kaleida Health’s chief came as a surprise to the public, officials of the hospital system say the decision resulted from an extended review of Kaleida Health’s operations and finances.

Kaleida Health had nearly $1 million in losses in 2011 and 2012. And that was on more than $2 billion in revenue.

Meanwhile, Catholic Health – the region’s other health system – earned $53.4 million over those two years, according to its consolidated financial statements.

“It doesn’t take a CPA” to realize that Kaleida Health’s financial performance was not a model for future success, said John R. Koelmel, chairman of Kaleida Health’s board of directors.

Lomeo, chief executive of ECMC since 2009, faces other challenges, according to officials inside and out of Kaleida Health. Those challenges include:

• Improving the working relationship with its 10,000 employees and physicians.

• Adjusting to a decline in business, partly the result of more local doctors doing procedures in their own facilities.

• Responding to competition from Catholic Health that has, from Kaleida Health’s perspective, led to duplication of some complex and costly services in the region.

Culture change

There are no easy answers. While Kaleida Health officials aren’t offering specifics, it’s clear that layoffs are a strong possibility, in part because Kaleida has treated fewer patients in recent years.

And Kaleida Health is big. It includes four hospitals – Buffalo General Medical Center, Women & Children’s, Millard Fillmore Suburban and DeGraff Memorial – as well as the Gates Vascular Institute, the Visiting Nursing Association home care agency and HighPointe on Michigan, a large nursing home.

So Kaleida Health must bring expenses in line with the demand for services, Lomeo said, while expressing optimism that bottom-up changes will lead to more patients and bigger revenues. To do that, Lomeo said, he’s striving for a culture change.

And in his first weeks on the job, Lomeo said he has concentrated on meeting with executives, physicians, union workers and other employees to address their concerns and to bring them his message of employee-driven change.

“In order for the organization to have better financial results, the culture of the organization needs to change,” he said.

He did not speak more specifically about job cuts, but he said, “It’s a results-driven business.”

“As volumes go up, we’re going to have to be able to flex up. As volumes go down, we’ll have to flex down. This system historically has struggled with that ability to flex. So expenses have stayed in the system while volume has gone down,” said Lomeo, who was appointed Jan. 31.

Cori Gambini, a registered nurse and president of Communications Workers of America Local 1168, which represents nearly 4,000 Kaleida Health workers, has attended several meetings with Lomeo and appreciated his emphasis on supporting the bedside caregivers.

“He wants to talk about growth, not layoffs,” Gambini said.

Lomeo said he faced a similar challenge at ECMC. Health care administrators praised Lomeo for his strong relationships with labor, his willingness to seek collaborations where possible and his ability to change the culture at ECMC.

“I brought a different style, brought a leadership style there that, in my words, I would tell you that the organization needed. I hope you don’t think that is arrogant at all,” Lomeo said. “But really just getting them to believe in something much greater than what they had. Getting them to understand that collaboration doesn’t mean you’re necessarily losing anything.”

Lomeo will be asked to bring the hospital’s services and payroll in line with patient demand.

“We know for a fact locally, and it’s probably true across the country, the volumes are down, the volumes of business are down. So it demands a redefinition of the business model,” said Francisco M. Vasquez, a member of the Kaleida board and president and CEO of Child and Family Services.

Seeking better relationships

One of the significant trends in health care is hospitals partnering with physician groups.

Kaskie’s departure brought calls for Kaleida Health to do a better job of forming collaborations with doctors, as well as comparisons to the job the Catholic Health system has done.

Catholic Health benefits from a close relationship with Catholic Medical Partners, the group that represents the hospital system’s affiliated doctors. Kaleida Health is affiliated with Optimum Physician Alliance, which was just formed last spring.

“They’re several years ahead of where Kaleida is, just from what we can see, and it’s that physician integration piece that I think has positioned them much better for health care reform going forward, than Kaleida,” said David J. Uba, chief executive of Excelsior Orthopaedics.

ECMC under Lomeo has sought “significant” input from surgeons with Excelsior, leading to efficiencies and improvements in care at the hospital, Uba said. The changes included getting patients to physical therapy sooner after surgery, which can improve outcomes.

There is a nationwide trend of doctors and hospitals working together to reduce the length of patient stays in hospital, as well as to prevent hospital admissions and readmissions soon after a patient is discharged.

“Relationship-building is important today, and the Catholic Health system has excellent relations with its physicians,” said Dr. Irene Snow, medical director of the Buffalo Medical Group and a former member of the board of Great Lakes Health, the parent organization of Kaleida Health and ECMC.

For example, she cited how Buffalo Medical Group, one of the largest physician groups in the region, worked with Catholic Health on a program in which the group’s patients stay on a dedicated floor at Sisters Hospital, enjoy direct admissions into the facility and see physicians from the group.

Snow said the program, which Catholic Health also supports financially, has resulted in better communication, fewer unnecessary readmissions, for which hospitals can face stiff penalties, and improved patient satisfaction.

“If we can reduce length of stay, the arrangement becomes a win-win for us and the hospital, which recoups the financial support,” she said.

Kaleida losing patients

One reason for the drop in patient levels is the shifting of many surgical procedures to outpatient facilities.

The procedures are cheaper at outpatient facilities, such as Excelsior’s Buffalo Surgery Center, because those centers don’t have the high overhead and legacy costs of the hospitals, and they are run more efficiently.

There can be a difference in price of hundreds or even thousands of dollars for a procedure, between a hospital and an ambulatory surgical center, and the centers can perform twice as many of the procedures as a hospital in the same amount of time.

“Like most large organizations, they were slow to react,” Excelsior’s Uba said of Kaleida Health.

Further, a not-insignificant number of physicians practicing in the region, some affiliated with Catholic Health, send some of their complex cases to hospitals in Rochester, Pittsburgh and Cleveland.

“Competition’s inherent, but it can’t be at the expense of the best interests of this community. When we’ve got a world-class children’s hospital here at Bryant and Hodge, we can’t have other systems sending their children down the Thruway to Rochester,” Koelmel said at a news conference.

The Cleveland Clinic said it has seen a slight increase in the number of its patients coming from the Buffalo area but the hospital couldn’t provide data. Strong Memorial Hospital and Golisano Children’s Hospital in Rochester said 568 of their patients discharged in 2012 came from Erie or Niagara counties, most for liver transplants, treatment of heart failure or children’s cardiac care.

Local competition

While Koelmel said Kaleida Health’s rivalry with Catholic Health did not play a part in the decision to oust Kaskie, the hospital systems have engaged in an intense competition for patients and physicians.

“While every business doesn’t operate in a vacuum, and we certainly evaluate what we’re doing, how we’re doing it within the context of the world around us, this is a decision about the performance of Kaleida,” he said.

Kaleida Health embarked on a strategy of trying to make key services, such as heart procedures, regional destinations for patients because of the depth and breadth of their capabilities. Construction of the Gates Vascular Institute – which consolidated Kaleida Health’s heart, stroke and vascular medical programs – exemplifies that plan.

“Kaleida, their focus has been on building the centers of excellence,” said Art Wingerter, president of Univera, citing the Gates Vascular Institute and the new Women & Children’s Hospital, for which construction is expected to start this spring.

“But execution is the far greater task,” Wingerter said.

Kaleida Health officials have argued over the years that the community should have one regional neonatal intensive-care unit – not one within Kaleida and another in Catholic Health that compete with each other. Likewise, they see a benefit from the organizations collaborating on such high-end services as heart surgery to reduce referrals of patients for some complex procedures to hospitals in other cities.

“The competition should be more about this region against Pittsburgh, Rochester and Cleveland,” said Edward F. Walsh Jr., a past Kaleida Health board chairman.

Walsh said he wished Kaleida Health and the Catholic Health system had a closer relationship. He suggested the hospital systems explore ways to build trust and lower overall health costs in the community by first examining possible collaborations on such services as laundry and the purchase of blood and medical supplies.

Officials of Catholic Health declined to comment. However, in the past, they have cited the benefits to consumers of competition. In addition, they have said that their hospital services are based on serving their patients.

A job with a shelf life

Hospital CEOs can earn enormous salaries, but they are under intense pressure to produce results.

“Running a large system such as Kaleida … is probably one of the most challenging professional activities known to human endeavor. They are constantly facing enormous problems and challenges,” said Kenneth E. Raske, president and chief executive officer of the Greater New York Hospital Association.

Kaskie’s pay for 2013, and his severance package, weren’t immediately available. He received $1.56 million in 2011 and $1.37 million in 2012, according to IRS filings. The drop was the result of part of his pay being performance-based.

“We all recognize, all of us who operate in service of this community, that leadership oftentimes – not always, but oftentimes – has a shelf life and should have a shelf life,” said Vasquez, a member of the Kaleida board and president and CEO of Child and Family Services.

Lomeo, formerly a financial consultant, was appointed by then County Executive Joel A. Giambra to ECMC’s governing board in 2001.

He did not have extensive experience as a hospital administrator before being named interim chief of ECMC in 2008, and permanent CEO a year later, but he is lauded for his people skills and his willingness to meet personally with workers.

“Jody has a track record of being highly visible like that,” said Dr. Michael Cropp, CEO of Independent Health.

“And it’s more than just being present, physically – it’s being fully present, and listening, and being empathetic to the issues and the challenges they face on a daily basis. And I think Jody has demonstrated his ability to get that and to be responsive to those needs and concerns.”

email: hdavis@buffnews.com and swatson@buffnews.com