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New leader is not just a numbers guy

Warren Hern’s transition from Unity Health System’s chief financial officer to CEO was smooth.

Hern, 58, took over the top job on Jan. 1. He had been a finance officer at Unity for three decades, about as long as his former boss, Timothy McCormick, had headed the system and its predecessor, Park Ridge Hospital.

McCormick, who had announced his intention to retire in the fall of 2008, strongly recommended Hern as his replacement.

"Warren was absolutely the right guy at the right time," McCormick says. "He knows what we’re doing, and he’s deeply committed to our goals."

The health system includes a 274-bed community hospital in Greece, three skilled-nursing facilities, a campus at the former St. Mary’s Hospital in west Rochester, more than a dozen medical practices, several dental practices, a behavioral health center in Rochester, senior housing facilities and ACM Medical Laboratory Inc., a for-profit facility that does medical testing.

The system employs more than 5,000 people and ranked sixth on the Rochester Business Journal’s most recent list of the area’s private-sector employers.

Hern was the only internal candidate for the job. In the end, he turned out to be the only candidate, a field of one. One other of the system’s top managers would have been considered for the job but declined to be considered, search committee member Jeffrey Mapstone says.

The decision not to do a national search-an exercise often seen as obligatory for organizations of a certain size-was not reached easily, Mapstone says. Hern was seen as a likely choice from the outset. But selecting Hern without investigating whether someone elsewhere might be even better could have left the board open to criticism, and there was disagreement.

Three board factions existed, Mapstone says. One said a national search was absolutely necessary, a second wanted to forgo a search and choose Hern, and a third, which included Mapstone, was in the middle, looking to be convinced to do a national search or simply go with Hern.

Only after conducting a sort of virtual national search, going through all the steps boards typically take in a national upper-tier management search but without soliciting candidates, did the Unity board decide to hire Hern. And it made him interview for the job.

The virtual search was preceded by extensive inquiries to determine what Unity staffers wanted in a CEO. The search included sessions with a human resources and succession expert from the Wharton School of the University of Pennsylvania, along with consultations with a top executive search firm.

A point in Hern’s favor was his record as CFO. Last year, despite widespread financial uncertainty, Unity not only stayed afloat but wound up with what Hern says will be revealed as "our best year ever" when the system makes public its 2009 financial results in a month or so.

The Healthcare Association of New York State Inc., a trade group representing more than 500 of the state’s non-profit hospitals and nursing homes, says more than half of New York hospitals are trailing red ink. It projects a $3.4 million drop in state revenue for Unity in New York’s 2010-11 fiscal year.

Nevertheless, Hern predicts that Unity’s coming year will be "even better than the last one."

Full occupancy
Part of the reason for his confidence, Hern says, is ACM, the medical testing lab whose purchase he negotiated for Unity years ago. The laboratory had a large regional presence when Unity bought it. More recently, its global clinical trials business is expanding after its acquisition of a British clinical trials lab a few years ago, as is its out-of-state U.S. business. ACM accounts for roughly half of the system’s more than $400 million in revenue.

Unity’s relatively upbeat finances are also partly a consequence of Rochester’s shortage of hospital beds. Like Strong Memorial Hospital and Rochester General Hospital, Unity Hospital is 100 percent or more occupied for half the year or more.

Overcrowding is a boon insofar as high occupancy creates operational efficiencies. The system does not have to pay to heat empty rooms and brings in revenue sufficient to cover staffing costs.

While this is a point conceded by Mapstone, who heads the board’s finance committee, he also sees "a little genius" in Hern’s financial management.

High occupancy cuts two ways, Mapstone observes. Counterbalancing the operational advantages of full occupancy are downsides: Emergency rooms are easily clogged when there not enough rooms to admit patients. And care can suffer when facilities are frequently strained beyond capacity.

Strong Memorial, Rochester General and Unity received approval for ambitious hospital expansions in 2008. But after credit dried up in November 2008 and the recession put already shaky Medicare and Medicaid payments to hospitals in further doubt, Strong had to modify its plans. It put off construction of a six-story tower and switched to a new plan that starts with additions to the James P. Wilmot Cancer Center. Rochester General is keeping its own counsel as to when or if it will proceed with its proposed six-story addition.

When the credit crisis hit, Unity already had secured bond financing for the first phase of its expansion, an ambitious skilled-nursing project adjacent to Unity Hospital at the system’s 156-acre Greece campus. The system’s hospital addition-a new fourth floor on part of Unity Hospital’s three-story building-is funded and projected to proceed as originally scheduled.

Amy Tait, the CEO of Broadstone Real Estate LLC, which partnered with Unity last year to build a $30 million suite of medical offices on Ridgeway Avenue in Greece, calls Hern "fair and honorable, the ideal partner to work with, very quick to assess a situation, understand the implications and make a decision."

Hern’s record as CFO could take him only so far as a CEO applicant, however, Mapstone says. In the sixth month of its deliberations, the board had learned that Hern is well regarded by the staff. McCormick’s endorsement was a strong plus. And Hern had more than passed muster with the Wharton School consultant. The executive search firm, which used a proprietary algorithm to determine that he possessed all or nearly all of the qualifications Unity needed in a CEO, also gave Hern a thumbs-up.

Still, Mapstone says, the board needed final proof that Hern should be its choice, so in April it brought him in for a face-to-face interview.

Hern is does not cut a commanding figure. He is bespectacled and physically slight, standing roughly 5 feet 7 inches tall. His sandy hair is thinning, and he speaks softly.

For many on the board, Mapstone says, Hern was someone who for three decades had done a more than adequate job but still stood "in Tim’s shadow."

"We needed to see what his vision for Unity was, where he would take us in the future. When he finished his presentation, no one spoke a word. Not too long after that, we approved him. The vote was unanimous," Mapstone says.

When speaking about the health system, Hern does not dwell overly long on Unity’s financial performance. Even as CFO, he peppered annual reports on the system’s financial performance with extravagant praise for its staff, quality of care and focus on patients. Now he proudly points to patients’ positive reviews in surveys as proof of the system’s success.

Hern beams with satisfaction when he relates a story about how he recently took a call, expecting to be lambasted by a patient’s relative for some shortcoming or error. He instead was treated to a paean of gratitude for care well given.

The system’s success lies not in his facility with numbers, he insists, but in the quality of care it offers. It does well, Hern says, "because if they need care, patients want to come back here. You have to balance efficiency with patient satisfaction."

Hern also is proud of what he sees as the staff’s dedication.

"Even with the economy’s wider financial difficulties, we had no layoffs and we gave out raises last year," He says. "We looked for ways to see if we could give raises. Recognition for good work is a key to quality care."

His early start
Hern was born in New Jersey, where his parents lived at the time. When he was 3, his father, an engineer, got a job with Pfaudler Inc. and moved the family to Greece. Hern is a middle child; he has a brother four years older and a sister four years younger.

After he graduated from Greece Arcadia High School, Hern studied accounting at Southern New Hampshire University in Manchester, N.H., earning a bachelor of arts degree in 1974.

"I always liked numbers, but I didn’t see myself going into public accounting. I was more interested in finance," says Hern, who went on to earn an MBA from Rochester Institute of Technology in 1979, attending classes while he was working at hospital finance jobs.

When he graduated from the New Hampshire college, Hern took a job at Rochester General Hospital, where he worked in the finance department. He had no particular previous interest in health care, Hern says.

"I took the job at Rochester General because the people seemed nice and the idea of working for a hospital seemed appealing," he says.

By the time he was recruited to the finance department of the fledgling Park Ridge Hospital in 1976, Hern had more or less settled into health care finance as a career path.

McCormick, relatively new on the job, then headed Park Ridge, which had just moved into new and larger quarters in Greece. It had been a tiny Rochester hospital with fewer than 50 beds. In the Greece location it tripled in size and had growing pains.

Hern was hired to straighten out finances that had gotten out of line in the rapid expansion. By 1985, he had been named hospital CFO. His next big test would be Park Ridge’s merger with St. Mary’s Hospital in Rochester in 1996 to create Unity.

The merger
The melding of the two hospitals was the first of several hospital mergers in Rochester that resulted in formation of the city’s present-day health systems. Hern calls the merger in which St. Mary’s acute-care beds were moved to Park Ridge, while St. Mary’s beds were converted to long-term care and behavioral health and its building turned into a city campus with provisions for primary care, "the scariest time of my career."

It is now a point of intense pride to him that when the New York State Commission on Health Care in the 21st Century, commonly called the Berger Commission, issued a dire assessment of the state’s hospitals and nursing homes in 2006, it called the merger of St. Mary’s and Park Ridge the most successful combination of hospitals in the state.

Mapstone sees it as significant that Hern and McCormick chose to locate their offices in the St. Mary’s building, situating themselves in an inner-city neighborhood rather than in the grassy suburban reaches of the system’s Greece campus.

Around the time he graduated from college, Hern married a young Rochester-area woman he had met through mutual friends. They ultimately settled into a home in Victor, where Hern still lives. They had two children, a son, Tim, now 32, and a daughter, Tracey, now 30.

Hern’s wife of 36 years, Beverly, was a public school teacher until she retired some nine years ago. A few years later, she was diagnosed with ovarian cancer. She died last year. Neither her illness nor her death was something Hern spoke about much to any but close friends and family. Her death last year was a blow that Hern still finds nearly too painful to speak of.

"Warren is an intensely private man," McCormick says. "He cared for her deeply. I think it is something he has a lot of trouble speaking about."

Hern’s interests outside of work are not extensive. He golfs and skis occasionally. A good deal of his non-Unity time is spent in pursuits that take him not too far afield from health care and finance. He sits on non-profit boards and is on JPMorgan Chase & Co.’s regional board.

In 1996, he was national chairman of the Healthcare Financial Management Association, a professional society for hospital finance officers. He still belongs to the organization. Local boards Hern currently serves on include those of the Rochester Regional Health Information Organization and CP Rochester.

Mapstone says what most impressed the Unity board during the interview last April was Hern’s vision of Unity and his plans for the system’s growth, since in the past it has been tagged as something of the runt of the litter among the three health systems serving the area.

Under Hern, Mapstone says, "I think you’ll see we’ll have a growth view. We’re ready to break out, to step out of our comfort zone."

Warren Hern
Title: CEO, Unity Health System
Age: 58
Education: B.A. in accounting, Southern New Hampshire University, Manchester, N.H., 1974; MBA, finance, Rochester Institute of Technology, 1979
Family: Son Tim, 32; daughter Tracey, 30
Home: Victor
Activities: Golf, skiing
Quote (on managing the merger of St. Mary’s and Park Ridge hospitals): "It was the scariest time of my career."

2/5/10 (c) 2010 Rochester Business Journal. To obtain permission to reprint this article, call 585-546-8303 or e-mail rbj@rbj.net.

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