Hospital CEO turnover rates remain at higher levels. Is your hospital prepared?

The stakes of executive leadership in the healthcare industry go beyond the business imperatives of financial stewardship. What happens at the top of a hospital's organizational structure trickles down to management and staff, with clear implications for the quality of patient care provided.

CEO turnover in U.S. hospitals has been at an elevated level for several years running. The average tenure of a CEO is about five years, making it essential for hospitals to recognize the importance of succession planning.

Let’s look at the data on hospital CEO turnover to underscore the factors it influences throughout the executive ecosystem.

In its latest annual report, the American College of Healthcare Executives (ACHE) found that the turnover rate for hospital CEOs stood at 17% in 2019.

That was down just 1% from a steady rate of 18% over the previous five years.

In fact, the turnover rate has been 17% or higher since 2012, the longest period sustained at this high level since ACHE began conducting its survey in 1981. Their rates are calculated based on information reported to the American Hospital Association, in combination with public sources.

At Michael Kelly Associates, our decades of experience in succession planning and executive search ensures your organization is prepared. Our Small Firm Advantage provides you with the attention and responsiveness to details.

Simply put, our adaptability is perfectly suited to the high-turnover environment at hospitals. We complete executive searches at a faster rate than large firms do because we know how to make your transition our priority.

“Organizations are evolving to meet a changing healthcare environment, resulting in restructuring and the movement of CEOs to different positions within health systems," said Deborah J. Bowen, president and CEO of ACHE. "In addition, more CEOs are reaching retirement age. Our turnover data underline the importance of organizations maintaining a focus on succession planning and developing our new healthcare leaders.”

Past research from ACHE has demonstrated the far-reaching organizational impact of CEO turnover at U.S. Hospitals. Their landmark 2005 study was based on a survey completed by more than 800 CEOs in the for-profit, not-for-profit and government hospital sectors across the country. At the time in 2005, the CEO turnover rate stood at about 14%.

One of the key takeaways from the ACHE survey is that executive change frequently has positive, beneficial outcomes for hospitals. But there are important areas that suffer.

More than 60% of current CEOs reported that financial performance improved after the departure of their predecessors. Employee morale (71%), medical staff relations (71%), board relations (69%), community relations (63%), and hospital culture (73%) also were seen as improving with the change of CEOs.

Conversely, about 30% of CEOs reported that strategic planning at their hospital was halted or postponed as a result of their departure. Another 29% reported a halt or delay in development of new services. About 35% said nearby competitors increased their marketing to take advantage of a perceived window to capture business.

Furthermore, CEO replacement also tends to come with broader executive change, according the ACHE survey.

Within one year of a CEO's departure, the hospital's chief medical officer changed 77% of the time and the chief operating officer changed 52% of the time. The vice president changed 97% of the time and the chief financial officer changed 42% of the time.

Notably, about 75% of hospitals found a replacement for a departing CEO within six months.

If you drill into the data on hospital CEOs specifically, you find that about 51% of those in their current positions previously had been hospital CEOs at other institutions.

Among those who were not prior CEOs, about 57% were promoted to CEO from within the hospital, while 32% were executives at other hospitals. The rest were either CEOs at non-hospitals or held other positions.

About 55% of CEOs surveyed said their departures were decided entirely by themselves. Only about 16% said their departure was chosen entirely by others. It's a somewhat subjective question, but it suggests that hospitals are often the ones playing catch-up and reacting.

If 2020 has shown us anything, it's that the business landscape of hospitals and the health demands placed on them can be dramatically altered under very sudden circumstances. While it is too soon to predict the impact the coronavirus pandemic will have on executive leadership at hospitals, there's reason to believe it may result in significant shake-ups and opportunities over the next few years and beyond.

There is no better time than now for a hospital to seriously evaluate its current position and recognize the need for a close look at their executive team.

Our Small Firm Advantage is second to none in this department. We take a meticulous approach to our clients' needs and will anticipate the kinds of challenges that tend to come with the territory of change. Our searches are tailored to identify candidates who recognize what the data suggests and understand how to avoid the vulnerabilities that arise with organizational change.

What the ACHE's research indicates is the need for hospitals to make succession planning a critical facet of their strategic planning. We can help you review and benchmark the internal and external candidates, ensuring that leadership transition follows a timely and thorough process.

CEO change is inherent to the hospital landscape. It's often the shot in the arm that uplifts and propels them forward, rejuvenating the organization and giving it renewed focus on areas of need. We're here to make sure it never becomes a roadblock or a distraction. We're here to keep you ahead of schedule.

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