When Scott McFadden arrived at Lutheran Home & Harwood Place, Wauwatosa, Wis., eight years ago as the planned replacement for the retiring CEO, he met a long-term care community with an unusual business history: A nonprofit that relied heavily on private donations with a skilled nursing facility that was less likely than most to accept Medicare or Medicaid. Although the independent living units were doing well, by 2011, the projected loss was up to nearly $2.5 million for the nursing home alone.
Now CEO, McFadden shares with Long-Term Living his experiences in transforming the financially floundering campus through team leadership, new service models and a cultural realignment, all without sacrificing the main strength of the organization—its quality of care.
What was the community’s financial status when you became CEO?
Our care reputation was good, but we were clearly bleeding money. The gap between our government reimbursements and our actual expenses was growing rapidly, and every time the regulations changed, our expenses went up. We were 100 percent self-sufficient but had no safety net. I dug through previous financial reports and found that we hadn’t really been doing well for the past 20 years. Unfortunately, you can sort of use your mission as an excuse in the nonprofit world.
What were some of the cultural challenges?
Although we viewed our care as very resident-focused, it was a really reverent, formal atmosphere. It was more about whispers rather than laughter. Also, three years ago, we had only about 60 Medicaid residents. We were losing about $100 a day for anyone on Medicaid. So, at that time, the mindset was we’d almost rather have an empty bed than a resident on Medicaid.
We didn’t talk much about our true mission at the leadership level. But eventually we had to answer “question zero”—why are we here as an organization?
What was your initial approach to engaging executives to the changes?
I did some soul-searching and a lot of research first. Then I did a presentation on what had happened over the past 20 years and what would happen if we didn’t make significant changes. I got buy-in between the key stakeholders on the executive board and the leadership team before we went to the full board, because you can’t do it alone. We decided to bring in outside experts in business turnaround, and we committed to making every single change they recommended unless we had a really compelling case to not do it. Then we spent 10 times the time on execution than we did on analysis, because if you don’t execute well, then you’re not going to get results.
What changes has the organization made?
We had been one of the few communities that rarely took Medicare replacement plans or private insurance. We decided to forget all that, and now we’re in-network with all the major insurance providers. Then, when interest rates went down, we refinanced our debt for Harwood Place at a low, fixed rate and were able to put $330,000 back into the business. We started a transportation service to take referrals from hospitals and take our long-term and rehab residents between campuses and to their hospital appointments. That made everything easier for the hospital discharge planners. Now the hospitals are saying, “Wow. It’s a lot easier to work with them now.” Our food had been really terrible, so we hired an executive chef, and now we’re cooking seasonal and fresh. And today, we have about 90 residents on Medicaid. If you’re doing more charity care, it’s much easier to sell your organization as having a mission.
What about staff realignment?
We ended up changing 24 position descriptions and reduced the staff by 17. That doesn’t sound like a lot, but it was, because it was the first time we’d done any staff change on that scale. Half of my direct reports are new. We needed to have the right people in the right positions who believe in what we were doing. The new staff has brought in tons of new energy and ideas. Almost overnight, we changed our organization from being a slow-moving freighter to being really nimble. Now I wonder whether I can even keep up with them.
Any advice for other CEOs in your shoes?
You have to be self-aware and really honest with yourself. I came in from the outside with fresh eyes and thought, “We’re not as great as we think we are.” If you have someone who isn’t a good fit, then give the person the benefit of the doubt. But don’t wait so long that it impacts the business and the team. Listen to your vendors, because they know a lot. And as far as reimbursements go, yes, Medicare and the Affordable Care Act have created lots of complaints. But we decided to quit whining and find out what the opportunities are for us.