Today, Lloyd Dean is the face of a massive, 140-hospital system that struggled to find its footing after its 2019 merger.
Roughly two decades ago, he steered a previous iteration of CommonSpirit Health through similar challenges. Dean took the helm of Catholic Healthcare West as it bled money following a growth spurt.
Other leaders would have slashed jobs to stem the losses, but Dean brought in a new leadership team and—importantly—a long-term vision so people could see beyond the short-term losses, recalled Mary Jo Potter, a member of the Catholic Healthcare West search committee that picked Dean to be CEO back in 2000.
Catholic Healthcare West later became Dignity Health, which in 2019 merged with Catholic Health Initiatives to form CommonSpirit, a behemoth system of which Dean is currently CEO with operations in 21 states and $33 billion in revenue.
“I think Lloyd, having gone through it a few times, exuded a level of comfort and confidence in major changes that helped the organization go through those changes,” said Potter, managing director of Healthcare Angels, a Bay Area angel investing firm.
When 71-year-old Dean on Tuesday announced plans to retire in summer 2022, analysts and others said it makes sense given CommonSpirit appears to be more stable financially. It lost hundreds of millions in its first two years as a system, but managed to post a 3% operating margin in its latest annual filing.
“He’s put a lot of time in,” said Sister Carol Keehan, former CEO of the Catholic Health Association, who has worked closely with Dean over the years. “He’s paid his dues, and I know he wouldn’t do it until he felt the ship was sailing better.”
Not only that, the system is halfway toward its goal of shaving $2 billion from its expenses over four years, Dean said in an interview with Modern Healthcare. He said CommonSpirit has also hit metrics around admissions, earnings and payer mix. And it did so during the worst points of the COVID-19 pandemic.
“I think there is nothing more to this than, ‘Hey, I’ve overseen the largest merger that we’ve seen yet in the healthcare industry. I’m at an age and a place where it’s time to ride off into the sunset and leave the organization in good hands,'” said Kevin Holloran, a senior director with Fitch Ratings.
If Dean were 10 years younger, Tom Giella, Korn Ferry’s chairman of healthcare services, said he’d be surprised by his retirement. But given Dean’s age and that of Kevin Lofton, the former co-CEO of CommonSpirit who retired in 2020, neither departure was surprising, Giella said.
“He, I think, wanted to come up with one management team and do the consolidation you do in the first 18 months,” Giella said, “so that when the new CEO comes in, there’s a lot less heavy lifting as far as the integration goes.”
The Chicago-based system’s board of stewardship trustees has already begun the process of finding Dean’s successor.
Pandemic-driven or not, several healthcare CEOs have announced retirements since the start of the crisis that put unprecedented strain on hospitals. Among them: Baylor Scott & White’s Jim Hinton, Sutter Health’s Sarah Krevans, Allina Health’s Dr. Penny Wheeler and Acadia Healthcare’s Debbie Osteen.
A lot has changed since early 2020, and the coming years could be ripe for leadership transitions, said Suzie Desai, senior director at S&P Global Ratings and sector leader for its not-for-profit healthcare group.
In CommonSpirit’s case, there’s certainly more work to be done, but leadership has made progress toward integrating and finding efficiencies, Desai said.
“I think there’s a lot of good foundation and groundwork that’s been laid for them to move forward,” she said, adding that rating agencies like S&P always want to understand how that improvement will continue.
CommonSpirit’s fiscal 2021, which ended June 30, was its strongest yet. The not-for-profit system recorded $998 million in operating income on more than $33 billion in revenue, a 3% margin. Without federal stimulus grants, however, the system’s operating margin would have been just shy of 1%.
It’s still a noteworthy improvement from CommonSpirit’s $602 million operating loss in fiscal 2019, its first year as a merged system, an almost -3% margin. The system lost $550 million on operations in fiscal 2020—a 2% loss margin—and would have lost a lot more if not for $826 million in federal stimulus grants.
“I think we have without exception met or exceeded the financial targets that we have set for the organization,” Dean said. “I have to mention that we’ve been able to do that in one of the most difficult environments that this country has ever seen.”
Part of the struggle at the outset was that CHI had posted hundreds of millions in losses in each of the past several years leading up to the merger, whereas Dignity was more stable. Board meeting minutes show Dignity leaders were uneasy about CHI’s finances.
CommonSpirit’s initial credit ratings reflect that uncertainty, Dean said. He added that all three rating agencies are currently reviewing CommonSpirit and he expects rating upgrades in the coming year.
Not only that, the two systems had different management styles, with Dignity’s being centralized and CHI being more led by its local markets. Rather than pick one of those, Dean said CommonSpirit’s leaders have centralized 15 functions at the national level while also relying on division leaders.
“We are a fully integrated organization,” he said. “We are not just a collection of geographies.”
CommonSpirit’s individual markets still retain their legacy Dignity and CHI branding. The idea there is to take advantage of the brand equity systems like CHI St. Luke’s and CHI Franciscan have in their respective regions, Dean said. He views CommonSpirit as a “house of brands.”
“It’s possible we might move to a common brand one day, but that’s not planned right now,” he said.
Fitch’s Holloran added that rebranding is a very expensive, labor-intensive process. He worked for Henry Ford Health System when it rebranded as a system. He said the transition was deliberately gradual.
Commitment to equity
When Catholic Healthcare West’s search committee looked at CEO candidates, Dean wasn’t initially a top contender because they wanted someone with more hospital experience.
Although he came from Advocate Health Care, Dean was at a pharmaceutical company previously. Before that, he had been a junior high teacher, paralegal and local TV news anchor.
“But when we met him, we decided he was the kind of leader we needed,” Potter said. “We realized we wanted to err on the side of leadership characteristics rather than traditional resume characteristics.”
Since then, Dean has become a well-known name in healthcare viewed by many as a visionary leader. He’s made health equity, affordability and access core tenets of his career.
He’s also become one of the country’s highest paid not-for-profit health system CEOs, with $16.7 million in total compensation in the year which ended June 30, 2020. On top of that, he’s held lucrative corporate board seats, including stints with Navigant Consulting, McDonald’s Corp. and Wells Fargo & Co.
The mere presence of a Black man or woman in a C-suite role in healthcare was even less common in 2000 than it is now, and the fact that Dean and Lofton both led large systems for years opened doors for other minority leaders, Potter said.
“I think both of their leaderships have helped the whole dynamic in the industry,” she said. “Having talented leaders like that setting the tone, it just made a big difference in other diverse candidates coming up through the ranks.”
Dean said his commitment to diversity and equity have permeated his work at CommonSpirit. The system recently partnered with the Morehouse School of Medicine to commit $100 million over 10 years to increase the number of Black doctors.
Dean also worked with the Obama administration on the passage of the Affordable Care Act. He said he made Dignity one of the leading Medicaid providers in California.
Dean grew up in Muskegon, Michigan as the second oldest of nine children. He’s a first generation college graduate, having earned a bachelor’s degree in sociology and a master’s degree in educational leadership from Western Michigan University in Kalamazoo and an honorary doctorate degree in human letters from the University of San Francisco.
From his early days turning around a struggling Catholic Healthcare West while avoiding a “blood bath” to his current work building CommonSpirit, Dean has earned a reputation for being an “incredible leader,” Keehan said. He also understands the challenges of health inequities, she said.
“He is a never-ending voice for the dignity of everybody and the responsibility we have to always be aggressive in going after that,” Keehan said.