Comparative Study of Case Study Summaries With APA Table

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Ellen Zane – Leading Change at Tufts/NEMC by Cynthia Ingols and Lisa Brem. Reproduced with permission of Cynthia Ingols in the format post in a course management system.

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Ellen Zane – Leading Change at Tufts/NEMC It was a difficult decision to take this job. But there was something about the history of Tufts- NEMC and its importance to so many stakeholders that really grabbed me as the epitome of what one could do in one’s career. I’d also learned not to be adverse to risk. You have to take risk, not stupid risk, but you have to take risk. — Ellen Zane, CEO, Tufts/NEMC

By Cynthia Ingols

Lisa Brem Simmons College School of Management

Boston MA USA

Ellen Zane brought a cup of coffee into her home office. It was 4:30 a.m. and she was, as usual, starting the day

early. She fired off a few emails to her senior staff and looked over the Women’s Business magazine on her

desk. Her photograph was on the cover, highlighting the article on the turn around she was attempting to

execute at Tufts/New England Medical Center (Tufts-NEMC). It was the summer of 2006 and it had been an

incredibly rough two and a half years since she accepted the CEO position at the ailing Boston hospital. Since

then the hospital had survived the worst of its financial troubles - they were meeting efficiency goals and for the

first time in years, more doctors joined the hospital than left it. Tufts-NEMC posted an $18 million gain in

2005, after losing nearly $60 million since 2001 (see Exhibit 1 for financial statements). People were smiling

and thanking Zane in the corridors.

But that was a piece of the problem. This was the tricky part, she thought, in one of her rare moments of quiet

as the pre dawn light slowly infused the room. Zane realized that she was still deeply worried about the future:

This place was just so fragile and I still consider it fragile. It’s one month forward and one month back. This market is unforgiving and tough - I swim with the sharks and nobody glad- hands us. I tell the staff all the time - not a minute do we take our foot off the gas.

Zane struggled with how to maintain the solidarity that the financial crisis had created among Tufts-NEMC’s

5,000 employees.1 She knew from her 30 years of experience in hospital management that sustaining change in

Boston’s cutthroat medical industry was the hardest part of any turn around. She had been successful before

with Quincy Hospital, but Quincy had been a much smaller player. Tufts-NEMC was a 450 bed Academic

Medical Center (AMC) that was the primary teaching site for Tufts University School of Medicine, and

conducted over $50 million in research each year. It had 17,000 admissions in 2005 and generated $600 million

1 Tufts/NEMC employed roughly 5,000 people, who accounted for 3,000 full-time equivalent (FTE) positions in 2006. This case was made possible by a grant from The Patrina Foundation. The authors developedthis case solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management.

Copyright © 2006 Cynthia Ingols & Lisa Brem. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Dr. Cynthia Ingols, ([email protected]) , Simmons School of Management.

mailto:[email protected]

in revenue. Unfortunately, while Boston’s other AMCs merged, built networks, and grew stronger, Tufts-

NEMC had for years floundered directionless in Boston’s rough seas. As Zane headed to her office overlooking

Boston’s Chinatown she wondered: How could she create and sustain true and lasting change for Tufts-NEMC?

The Health Care Industry in Boston “Health care, together with education and computer technology, is what Massachusetts is

known for throughout the world.”2

Home to several high-profile Academic Medical Centers, the Boston area was a world-renowned destination for

health care services. Massachusetts General Hospital (MGH), Brigham and Women’s Hospital (BWH), and

Beth Israel/Deaconess Medical Center were affiliated with Harvard Medical School, Boston University Medical

Center with Boston University, and Tufts-New England Medical Center with Tufts. These large AMCs led the

way in capturing $2.3 billion in National Institutes of Health (NIH) research grant money, second only to

California. Massachusetts hospitals employed 12.2% of total labor pool, and accounted for a whopping 11.7%

of the gross state product. Health care expenditures per capita were between 27% and 29% higher than the

national average from 1990 to 2000 (see Exhibits 2 - 9 for Massachusetts health care statistics). Consumers,

health plans, and governing bodies tended to accept that heath care in Boston cost more in accordance with the

high quality and cutting edge services the region provided.

Nationally, however, years of under-funding by federal and state governments and rising enrollment left

Medicare and Medicaid payments lagging behind surging medical costs. Hospitals in Massachusetts and the rest

of the nation amassed significant debt in the 1970s and 1980s as they refurbished older facilities, expanded

services, and purchased expensive new technologies. While reimbursements fell behind rising costs, hospital

discharges declined sharply in the 1980s, as did the average length of stay. In Massachusetts, a decrease in

hospital births and non-resident discharges3 led to an overall decline of 24% in total hospital discharges from

1991 to 1996. The increase in outpatient surgeries also affected hospitalizations.4

Throughout the 1990s, Massachusetts health care insurance plans followed nationwide trends when they merged

into three large competitors: Harvard Pilgrim Health Care, Blue Cross/Blue Shield of Massachusetts, and Tufts

Health Plan. These “big three” plans wielded increasing power in the marketplace, and their movement to

managed health (HMO) plans resulted in lower payments to providers5 and more oversight on costs and medical

services. All three expanded regionally, to entice large regional and national companies to offer their plans to

employees. HMOs used capitated payments, meaning they reimbursed providers based on number of ‘covered

lives’ in the provider system. Thus, providers of health care services such as hospitals and doctors believed

volume and efficiency of services to be the most important factors in future financial success.

In 1991 Massachusetts deregulated hospitals for the first time in ten years. These conditions succeeded in

making an impact – threatening the financial viability of hospitals and moving them toward more efficient and

2 Ferguson, Christine C. “Massachusetts Health Care Trends: 1990-2004,” Massachusetts Division of Health Care Finance and Policy, March 2003, page 5. Accessed from: www.state.ma.us/dhcfp August 7, 2006. 3 Non-resident discharges refer to number of patients from out of state. 4 “Analysis in Brief - Massachusetts Inpatient Hospital Trends,” Massachusetts Division of Health Care Finance and Policy, Number 6, April 2004, page 1. Accessed from: www.state.ma.us/dhcfp August 7, 2006. 5 Provider refers to any hospital, AMC, or ancillary service that provided medical care.

www.state.ma.us/dhcfp

cost effective management practices. Boston’s health care leaders struggled for a strategy to survive in the new

environment. Mergers, closures and conversions loomed.

The leaders of MGH and BWH made the first decisive move. Managers at both hospitals believed they needed

additional leverage to hold their own in negotiations with the ever more powerful health insurance plans. They

also envisioned building a network of community primary care and specialist providers who would refer

tertiary6 patients to the member hospitals, thus bolstering volume. In 1994, when the news of the merger of

these two behemoths - forming Partner’s Healthcare System, Inc. (Partner’s) - became public, it was a seismic

change in the landscape of the New England medical industry. Others quickly followed suit. From 1990 to

2000, there were 47 acquisitions and mergers and 19 acute care hospital closures, not including the formation of

10 major hospital systems in Massachusetts.7

Following the market consolidations in the 1990s, the turn of the twenty-first century years were difficult ones

for Boston’s hospitals and insurers. Both Harvard Pilgrim and Tufts Health Plans were hindered by regional

over-expansion. In 1999, Harvard Pilgrim went into receivership after posting a $226 million loss, while Tufts

Health Plan lost $42 million. Community hospitals also continued to struggle from high debt, inadequate

reimbursements, high labor and pharmaceutical costs, and failed merger or network integration attempts. In

Massachusetts particularly, consumers began to migrate to the more expensive AMCs from the smaller regional

or community hospitals, seeking what they perceived to be higher quality of care. Cuts in payments from

Medicaid, Medicare, and private insurance plans continued to plague many providers. To encourage more

efficient management and cost containment practices among its providers, HMOs started to move away from

capitated care and toward pay-for-performance plans.

Even some AMCs felt the pressure on their organizations. CareGroup - another Massachusetts-based hospital

umbrella organization - posted a loss of $215 million over 1999 and 2000 and lost market share and network

physicians. Partners, however, grew and remained strong, reaching 5,600 doctors in its Partner’s Healthcare

System, Inc (PCHI) network. In a seminal flexing of its market strength, Partner’s negotiated up to 30%

increases from all three major health plans, at one point refusing to continue a contract with Tufts Health Plan

until it agreed to higher payments.8

By 2005, the provider market was dominated by four major hospital systems: Partners, reporting a surplus of

$30 million, Caritas Christi, CareGroup (which had decentralized most of its operations back to its member

hospitals), and Boston Medical Center. See Exhibit 10 for provider descriptions. When the dust settled on the

consolidation activity, there were approximately 25 acute care, five psychiatric, and five rehabilitation hospitals

6 Those patients who needed high levels of care, such as surgery. 7 Ferguson, Christine C. “Massachusetts health Care Trends: 1990-2001,” appendix iii - vi. 8 Community Report - Boston, Mass. Third Visit 2000-2001. Center of Studying Health System Change, Report 11 of 12, summer 2001. www.hschange.org.

http:www.hschange.org

in the metropolitan Boston area, with Partners leading in market share.9 On the insurer’s side, the major health

plans recovered, with Blue Cross/Blue Shield of Massachusetts coming out on top, Harvard Pilgrim regaining

strength, and Tufts maintaining a third position.

According to one survey of the Boston health care industry, trends though 2005 were:

� AMCs faced lack of capacity from years of merging and downsizing, while admissions moved to AMCs

from community hospitals;

� pay-for-performance (quality incentive) programs were gaining in popularity, using measures such as

cost, efficiency, IT capacity, admission rates, and patient satisfaction to bolster reimbursements;

� hospitals struggled to recruit new doctors and nurses - with AMCs poaching from each other;

� nationally, the growing number of uninsured and underinsured people increased the amount of bad debt

hospitals carried. Although mitigated in Massachusetts by strong safety net programs, collections were

still a rising concern.10

History of Tufts/NEMC11

New England Medical Center, originally the Boston Dispensary, was one of the oldest hospitals in the United

States. Started in 1796 by the philanthropic activities of historical Boston figures Samuel Adams and Paul

Revere, the Boston Dispensary was the first permanent medical facility in New England. First envisioned as a

community medical service for the poor, the hospital quickly gained a reputation for innovation. It was the first

US hospital to assign nurses to patients, to form a visiting nurse association, and establish dental, rehabilitation,

venereal disease, lung, food and nutrition, and evening pay clinics. It pioneered employer-paid clinic treatment,

well-child services, and moving x-rays. The first modern test for syphilis, the first group psychotherapy

experiment, the first human growth hormone and immuno-suppression therapies were developed at the Boston

Dispensary. In 1929 New England Medical Center was formed by the merger of the Dispensary and Tufts

College Medical and Dental Schools. By 1965, it added the Floating Hospital and the Pratt Diagnostic Clinic-

New England Center Hospital.12

In recent years, the tradition of innovation continued, with strong programs in cancer treatment, transplants, and

neurosurgery. In 1992, with the addition of a maternity service, Tufts-NEMC became the first full-service,

private teaching hospital in Boston. The Neely House, opened in 1997, was a unique bed and breakfast style

home located within the hospital for cancer patients and their families. And in 2001, Tufts-NEMC opened a

transplant exchange program, the first of its kind in the US, which allowed family members of transplant

patients to donate kidneys to patients on the global waiting list, thus increasing the number of organs available

for transplant.

9 The Boston metropolitan area was generally described as being inside Interstate 495. Statistics provided by Massachusetts Health and Educational Facilities Authority, Revenue Bonds, Partners HealthCare System Issue, Series F (2005). Accessed from: www.mehfa.org August 7, 2006. 10 Community Report - Boston, Mass. Center of Studying Health System Change, Report 11 of 12, December 2005. www.hschange.org. 11 Information in this section derived from www.nemc.org and www.bostonhistory.org/m_china.php accessed June 7, 2006. 12 The Boston Dispensary archived records. A summary available online at: simmons.edu/resources/libraries//archives/char_coll/char_coll_027.htm accessed August 9, 2006.

www.bostonhistory.org/m_china.php

http:www.nemc.org

http:www.hschange.org

http:www.mehfa.org

http:Hospital.12

http:concern.10

Financially, however, Tufts-NEMC was struggling. Although in the 1990s the hospital had posted gains, it was

largely due to a write-down in assets, and not improved efficiency or an enhanced revenue cycle. The hospital

had fallen prey to the same negative market forces that had taken their toll on other non-affiliated hospitals in

the 1990s. By 1996, it was $240 million in debt (up from $130 million in 1990) and was losing physicians,

market share, and hospital acquisitions to Partners and CareGroup. Like many AMCs, Tufts-NEMC was slow

to react to market pressures, and ineffective in improving processes and cash flow. In a particularly devastating

blow to the hospital, Harvard Pilgrim Health Care discontinued coverage to Tufts-NEMC in 1995, citing high

costs. As Zane explained:

Harvard Pilgrim HC had taken Tufts-NEMC out of their network and it had almost killed the place. A doctor in Hyannis wants to send a patient to Boston. He or she has to ask ‘does this patient have Harvard Pilgrim?’ The situation caused doctors to have to think too much about insurance. It was just easier to send everybody to the Brigham. So, for Tufts-NEMC, not being in that contract was incredibly hurtful.

The Lifespan Merger In the mid-1990s, Tufts-NEMC began to actively look for a partner to remedy its fiscal dilemmas. It needed

more clout against the health plans, more referrals from community hospitals, and a partner with deep enough

pockets to help pay for growth to compete with Partners, CareGroup, and the other Boston systems. It was in

talks with Columbia/HCA, a for-profit hospital chain from Tennessee that wanted to expand its presence in New

England. If the merger went through, it would be the first AMC owned by a for-profit company in New

England. This did not sit well with some of the board members, faculty, and community, who strongly wanted

to preserve Tufts-NEMC’s non-profit nature.

In late 1996, the hospital was treating a high-ranking official from the Lifespan Corporation, a regional non-

profit hospital system formed in 1994 with a merger of the Miriam and Rhode Island hospitals.13 One of Tufts-

NEMC’s physicians explained the hospital’s dilemma and talks began between Lifespan and Tufts-NEMC to

merge. Tufts-NEMC leadership saw benefits to joining with Lifespan, such as needed capital, a chance to gain

back the Harvard Pilgrim Health Care contract, and the potential referrals from the Rhode Island system. On

Lifespan’s side, Tufts-NEMC was enticing for its status as an AMC, its base in Boston, and its expertise in high-

level care. The merger would create, as one journal wrote, “a $1.5 billion, 14,500-employee health care giant

with the ability to serve 70 percent of the entire New England market” and would rival the $1.8 billion Partners

system and $1.1 billion CareGroup.14 In January 1997, Tufts-NEMC and Lifespan officially announced the

merger, which became effective in November of that year. Ed Schottland, Senior Vice President – System

Integration at Lifespan and appointed COO at Tufts-NEMC at the time of the merger, explained:

Lifespan was interested in Tufts-NEMC because it gave them instant access into Boston and made them the regional system they wanted to be. The plan was to create Lifespan of Rhode

13 The Miriam and Rhode Island hospitals were the two largest hospitals in Rhode Island and affiliated with Brown Medical School. 14 “NEMCs bold move,” Boston Business Journal, January 17, 1997 and Van Voorhis, Scott. “NEMC discusses hospital network,” Boston Business Journal, January 24, 1997. Accessed online at: http://boston.bixjournals.com July 21, 2006.

http:http://boston.bixjournals.com

http:CareGroup.14

http:hospitals.13

Island and Lifespan of Massachusetts – of which Tufts-NEMC would be the hub – both overseen by an overarching corporation.

Tufts-NEMC is a tertiary and quaternary15 medical center, we do bone marrow, solid organ transplants, and we have a neo natal intensive care unit. They didn’t do any of those things in Rhode Island. The only BMT16 program allowed in Rhode Island was at Roger Williams Hospital. So Lifespan got instant access to highest levels of care. The merger filled out the service complement with a high class, well respected organization with great outcomes and great medical care. Everyone assumed that we would be able to direct our patients here from Rhode Island. We would have a system of care, just as Partners was trying to do with their North Shore hospitals.

The marriage was not a happy one however - the hoped for synergies never materialized. Rhode Island

regulators objected to large amounts of capital migrating to Boston and required Lifespan to reduce the amount

Tufts-NEMC was to receive to $8.7 million a year for 10 years, down from 30 years as originally planned.

Although Harvard Pilgrim did eventually re-contract with Tufts-NEMC, some in the industry believed that

legislation or litigation would have forced that outcome regardless. The referrals also did not pan out. As

Schottland explained:

Physicians make their own decisions about where they refer. Physicians like to refer primarily based on personal and professional relationships. A secondary reason they didn’t refer to Tufts- NEMC was they felt that if they started to support a program here they might never get approval within the Lifespan system to get that program down in Rhode Island.

This was a unique system since there were two medical schools - Brown and Tufts. The Brown faculty wanted to have the programs, like bone marrow transplants, in Rhode Island. So there was a certain reluctance to cooperate at times.

Another problem with the merger was the ‘brain drain’. Lifespan took many of the administrative and support

functions out of Tufts-NEMC and centralized them in Rhode Island. Tufts-NEMC lost their human resource,

finance, purchasing/supply chain, and IT, an area where Tufts-NEMC had been ground breaking in the past.

The anticipated growth in acquisitions also failed to take place. Hospitals that had previously affiliated with

Tufts-NEMC, such as Faulkner, another Tufts Medical School teaching site, joined Partners instead, while

Tufts-NEMC was busy finalizing its merger with Lifespan. In 2000, Lifespan/Tufts-NEMC also lost Hallmark

Health System in Malden. As one industry journal wrote:

Every time a decision had to be made, Tufts-NEMC President and Chief Executive Officer Tom O’Donnell, M.D., traveled 55 miles across the state line to Providence, R.I. There he conferred with the 21-member board of his parent system, Lifespan Corp. He would return to meet with his own 21-member board, then respond to Hallmark. […] The extra corporate layer proved to be too much. Hallmark, at the time a four-hospital system, walked away from the deal.17

Adding insult to injury, Quincy (Mass.) Medical Center and MetroWest Medical Center spurned Tufts-NEMC,

citing that the “local hospitals did not think of Tufts-NEMC as a Massachusetts hospital.”18

15 Quaternary refers to most advanced level of care, such as bone marrow and organ transplants. 16 Bone marrow transplant 17 Duff, Susanna and Becker, Cinda. “Here we go again,” Modern Healthcare, Chicago: Sep 9. 2002, pg. 8. Accessed online at: http://proquest.umi.com, July 20, 2006. 18 Ibid.

http:http://proquest.umi.com

But perhaps the worst thing about the merger was that insurance contracting was done in Rhode Island.

Lifespan did not understand the cost of doing business in the Boston market and therefore settled for

reimbursements rates far below the average for an AMC in Boston. Lifespan, struggling to keep control of five

acute-care hospitals, suffered an operational loss of $34.1 million on total revenue of $1.3 billion ending fiscal

year 2001. Zane explained her take on the Lifespan merger:

When Partners came together it freaked out the whole market and everybody was looking for a partner. Long story short, Tufts-NEMC hooked up with the Lifespan system in Rhode Island. I could not understand why they did it. It was an ill fated, ill conceived, ill constructed, and ill- implemented merger and it had no meat on the bone. The health care market in Rhode Island might as well have been Siberia it was so different from eastern Mass.

In the summer of 2002, five years after they merged, both Lifespan and Tufts-NEMC agreed to separate at a cost

of $30 million to Tufts-NEMC. Financial results for Tufts-NEMC for fiscal year 2002 were dismal – a loss of

$12.3 million on revenue of $476 million; and 2003 was looking worse – a loss of $38.5 million on revenue of

$582 million. The Massachusetts Attorney General’s office stepped in to ensure that the hospital would meet

bond covenants. O’Donnell and the chairman of Tufts-NEMCs board called Ed Schottland and enticed him to

come back as COO. Schottland took the job and set about recreating the administrative departments lost in the

merger. He also started initiatives to stem the millions of dollars that Tufts-NEMC was losing monthly.

Schottland targeted improvements of $30 million in cost savings in the supply chain and human resources. He

began a year of initiatives designed to improve the bottom line. In the first nine months of 2003, Tufts-NEMC

reduced staffing levels by 200 FTEs through attrition and consolidation and made improvements in supplier

contracts. The hospital also began to look at selling some of its 1.5 million square feet of prime real estate to

gain needed capital. The Board, meanwhile, set about looking for a leader who could take Tufts-NEMC out of

the shadow of Lifespan and orchestrate a true turn around.

Ellen Zane Ellen Zane was educated at Waltham Public Schools, and later graduated from George Washington University

and Catholic University in Washington, DC with masters in both audiology and speech-language pathology.

She spent her entire career in health care, starting in 1975 as a speech language pathologist at Lawrence

(Massachusetts) General Hospital. In 1979 she took a job as director of speech and language pathology and

audiology at Morton Hospital in Taunton. Under the mentorship of the COO of Morton, Zane worked her way

up to vice president of professional services until taking the COO job at Quincy (Mass.) Hospital in 1987.

When Quincy’s CEO left in 1990, both Quincy’s board and the city’s mayor convinced Zane to take on the task

of turning around the hospital, which was on the brink of closure. Like many community hospitals, Quincy had

taken out bonds to renovate its ailing facilities. When the Medicaid/Medicare and HMO reimbursement rates

lowered drastically, Quincy found it almost impossible to meet payroll and other expenses. Hampered by years

of nepotistic and political hiring practices and high competition in the surrounding area, the hospital was in

danger of defaulting on its bonds. Zane recalled her decision to take the job at Quincy as the most difficult in

her career:

It was the hardest decision I ever had to make, since I really felt that failure was not an option. Closing a hospital as the result of my first CEO job would have been awful. However, at the same time, women weren’t getting CEO jobs. I needed an underdog job to try to prove myself, since it wasn’t likely that a woman was going to get a job at what I called a ‘Bloomingdale hospital’ - Mt. Auburn, Newton Wellesley, Beverly, or South Shore. Those weren’t coming to women in those days. But the main reason I took the job was that I could see the steps it would take to fix it. When I had a very quiet, private conversation with myself, I knew that if I could figure out the road map of what to do, then I would just need the grit to do it. And I could see the way. So I jumped off a cliff and took the job. It was the best decision I ever made.

From a grass roots point of view the opportunity I got at Quincy was the bedrock foundation to my management prowess. And it was really hard. It taught me not only the value of risk, but it taught me that if you took a job that no one else wanted to do because it was too hard, then all the benefits accrue back to you. If you are successful at it, you are only better because it was harder. All these good old boys with the cushy jobs around me at richer hospitals – I believe - aren’t as good at managing simply because they didn’t have to be.

Quincy was unique in that it was managed by HCA, a for-profit hospital management chain that owned and

managed hospitals across the US. In addition, Quincy had a strong union and civil service workforce. Working

for HCA honed her business acumen and decision-making abilities. Working with unions helped Zane

understand the need for clear, open, and honest communication and financial transparency. As Zane recalled:

I sat down with stewards of all the unions and showed them the financial statements and highlighted all the things I wanted them to learn - like days cash on hand and cash reserves. I taught them the meanings of those things and explained that we had no money and that I was worried about meeting payroll. One of the biggest joys of my career came when I left Quincy hospital and met with the stewards for the last time and one union steward said to me: ‘How many days cash on hand do we have?’ The fact that they had learned that and appreciated it taught me the value of transparency, the value of admitting that I needed help and I couldn’t do it alone.

She also learned the importance of reaching out to the community. As Zane explained:

I got in my car and drove out to community doctors who weren’t referring many patients to us. I asked them: ‘What would it take for you to use Quincy Hospital?’ They said simple things like parking. All the construction had closed the parking lots. It was not that intellectually complex. The doctors also complained that employee work ethic was dismal. The employees didn’t smile or pick up a candy wrapper off the floor. They treated the hospital as though it existed solely for them and their paychecks. They didn’t believe the day of reckoning was coming. Hearing that from the community doctors was incredibly valuable for me.

After a successful run at Quincy, she was tapped in late 1993 for a groundbreaking job with the nascent Partners

organization. As Zane recalled:

I got a call from Dr. H Richard Nessen. He was the CEO of the Brigham and Women’s Hospital. He told me they had just gotten permission from the Attorney General to merge the General [MGH] and the Brigham [BWH]. This was huge, giant, gargantuan news. He told me they wanted to build a vast network of physicians throughout eastern Mass. And that he wanted me to come run it.

I told him I had no idea how to do that job, but he said that no one did, it was completely new. He said he needed a leader. He told me that he had academic physicians who were lining up at his door to do this job, but that he didn’t want to give it to any of them. He felt that academics wouldn’t understand community doctors or community hospitals, and would turn them off. He was right about that.

Zane was successful at building what came to be called PCHI19, Partners Community Heathcare, Inc. At

Partners, she gained expertise at negotiating affiliation agreements with physicians and contracts with health

plans, and with building consensus with disparate groups. Zane recalled her time at PCHI:

I went from this incredibly resource poor environment at Quincy, where I was plugging holes and trying to meet payroll, to this environment that was so resource rich. There were so many smart people around, but there was no trust between the Brigham [BWH] and the General [MGH] people, they were fierce competitors for years. So each committee had to have counterparts from each organization. Trying to develop a strategy in that environment was a challenge. The committees were made up of type A personalities who wanted me to build a network overnight. I felt this intense need to get the strategy going very, very quickly. So we spent the summer of 1994 building the strategy. The most incredible thing for me is, when I go and talk to investment bankers or health plans now, PCHI is all they talk about. PCHI was the most formidable market transforming activity other than the [MGH/BWH] merger itself. PCHI is the 800-pound gorilla in this market. And I knew it and started it before it even had a name. It was very rewarding, and very hard.

As Partners grew, so did their clout in the marketplace. Zane was the lead negotiator in the famous clash

between Partners and Tufts Health Plan, which culminated when Partners decided to no longer accept Tufts

subscribers due to the plan’s low reimbursement rates. Her bargaining skills and strategic planning won the day

for Partners. In the end Tufts agreed to substantial rate increases. After that encounter, Zane’s reputation as a

tough and savvy negotiator became legendary.

Zane Moves to Tufts/NEMC In late 2003, after 10 years with Partners, Zane was thinking of slowing down. Her husband had sold his

successful business and had retired and Zane was hoping to do the same. She was getting ready to give her

notice at Partners when she received a call from Lawrence Bacow, the President of Tufts University. Bacow

was on the board of Tufts-NEMC, which had recently decided to dissolve the merger with Lifespan. He was

looking for a new leader for Tufts-NEMC, and felt that Zane had the right mix of skills to build and implement a

successful strategy for the hospital. Met by her initial reluctance, Bacow reminded Zane of the hospital’s

historical significance, its importance for its 5,000 employees, Tufts University and Chinatown’s economy.

Zane recalled her reaction after the meeting with Bacow:

There were two enormous feelings that came over me. One was on the positive side: wow this could really be important. To help this ailing organization means to really help a lot of people in their careers, their lives, the economy, and the University. The other feeling was: this is so daunting - I’m frozen. It was so scary.

In July 2003, O’Donnell announced his resignation, clearing the way for Zane, the first non-physician and

female permanent CEO in Tufts-NEMC’s history. Reaction from both industry pundits and employees at Tufts-

NEMC was uniformly positive. As one expert wrote:

At this time and in this place, there is no one better for the top job than Ellen Zane. The first non-physician chief executive, she comes onboard at a time when tough decisions need to be made. Yes, she has the necessary management skills, but she also has demonstrated a

19 Pronounced “peachy”.

passionate commitment to preserving the relationship that exists between physicians and patients and between this hospital and the community it serves.20

John Greenwood, VP of Finance, explained some of the things he felt Zane brought to Tufts-NEMC:

We lost our identity during the Lifespan merger. We also lost touch with the Mayor’s office and Beacon Hill,21 and making sure our concerns were being heard. So when Ellen came on board, for the first few months we spent a lot of time on Beacon Hill. She brought visibility and a very recognizable name in the market.

Accountability was also a big leadership trait that came on board with Ellen. She and the consultants she brought in assisted the leadership in diagnosing what the issues and root causes were, as well as prioritizing them. Then she held someone accountable for fixing it. We’d done a lot of diagnosis before, so we had an idea of what the problems were, but Ellen provided the leadership to drive the projects to completion.

She also provided unity to the physicians throughout the hospital. There used to be two autonomous physician corporations with faculty/staff physicians. Both groups were completely separate. The first year she came, Ellen pursued merging the two boards into one entity and eventually made it happen. So now there is input and a synergy between the faculty at the hospital. They speak with one voice.

Michael Burke, senior vice president and CFO added:

Ellen is so acutely aware of what’s going on in the market - she’s been in this market her whole life, she built PCHI. She knows all the players. She knows whom to call and she has the personal relationships so that people are willing to work with her.

Ellen is also the kind of person who takes action. She gets 80% - 90% of the information she needs and then she does something. Most academic medical centers have what I call ‘analysis paralysis.’ You can accept the status quo, but the reality is things never stay the same - they either get better or they get worse. And if you are not actively working to improve them, they will get worse. This place was constantly assessing what to do, but not doing anything. And things got worse, year after year after year. Now what we’re doing is assessing the data, assessing the market, and acting, and doing, and getting things done.

Diagnosis: Critical (2004) When Zane came on board, she brought in a consulting group called BDC Advisors, Inc. They gathered data to

determine why Tufts-NEMC was losing an estimated $3 million a month. Zane sat down with Schottland who

gave her the bad news: Tufts-NEMC was not losing $3 million a month; since the split with Lifespan the

number was closer to $6 million. Zane recalled how the new reality changed her priorities:

Although I had done a fair bit of due diligence before taking the job, I was still shocked to find out that we didn’t have two years of cash on hand: we had 10 months. So it changed everything overnight. Because strategy was the last thing I could worry about - I had to worry about payroll. This place was hemorrhaging millions every month. It was incredibly important to begin to think about how to stabilize.

Zane and BDC conducted what she called a ‘rapid diagnostic’ to quickly determine how to stem the losses.

BDC concluded that, although Tufts-NEMC was on the right path with Schottland’s initiatives, they were still

behind industry benchmarks for many areas, such as days in accounts receivable, accounts payable, average

20 Lutch Bender, Ellen. “A new chapter for the venerable Tufts-NEMC,” Boston Business Journal, December 26, 2003. Accessed online at: http://boston.bizjournals.com July 21, 2006. 21 The Massachusetts legislature

http:http://boston.bizjournals.com

http:serves.20

length of stay, operating margin and days cash on hand. There was also more savings to be had in the supply

chain (see Exhibit 11 for BDC analysis). After reviewing the managed care contracts, Zane also realized that

Tufts-NEMC was woefully underpaid.

Another challenge for Tufts-NEMC was its size. In any other market, Tufts-NEMC would be considered one of

the biggest players. But in Boston, it was dwarfed by Partners, CareGroup, and Caritas. Tufts-NEMC

fundraised $10 million in 2005, up from $5 million the year before but impossibly behind the $200 million

Partners raised. Tufts-NEMC was the smallest teaching hospital in the Boston area, but it was the primary

teaching site for Tufts Medical School and was the 11th highest paid in NIH research funding. Underwriting that

research cost Tufts-NEMC $15 million a year. Maintaining the level of services and research required for a

major medical center was extremely difficult for an organization without the volume of cases or endowments

enjoyed by its competitors. Zane realized early on that however difficult it may be, it was absolutely crucial for

Tufts-NEMC to remain an AMC:

We made a conscious decision to keep funding research because we are an AMC with a tripartite mission, which includes clinical excellence, research and teaching. If you take one of the legs off that stool we are no longer an AMC and I would venture to say that no fewer than 80% of the doctors who practice here would leave. They are here because they want to work in an AMC.

Treatment (2004 – 2006) Zane set to work on building her management team and reopening the managed care contracts. Along with

Schottland and BDC, she pushed hard on cost cutting and efficiency initiatives to bring Tufts-NEMC in line

with industry best practices. Zane continued plans to sell real estate in order to get the hospital on some solid

financial footing while giving these initiatives time to take hold. She also felt the need to re-establish Tufts-

NEMCs brand in the Boston market place, to set about rebuilding affiliations and networks, to reverse the trend

of hospitals poaching Tufts-NEMC’s physicians, and to retain the talent it had.

Staff Changes Once Zane assessed the mission, she set about evaluating the senior staff. She greatly appreciated the

experience and expertise of people like Shottland and Deeb Salem, Tufts-NEMCs chief physician. But others

she felt needed to be replaced. Within two weeks she replaced the senior vice president of strategy with

Deborah Joelson, a network building expert who Zane recruited from Partners; and the vice president of

fundraising and development with Deb Taft, who had been extremely successful at the Dana Farber/Jimmy

Fund. In all, she replaced seven members - half of the senior management team. Zane shared her thoughts on

the senior staff turnover:

One of the people I fired was a favorite of one of the board members. I spent a lot of time listening to that board member telling me that I had no right to fire his guy. But in the end he supported me. There was no question that I had to do it.

If you ask most people about me they will tell you I’m very good at picking people. I really do believe that is a skill I have – it’s gut level for me. I’d like to get credit for picking good people, not for a brilliant turn around, strategies, or anything like that. I’m only as good as the people

around me, and I do pick great people. I have a sixth sense. I can tell when I go into the waiting room for interviews whether they have a shot. For most of these characters here I knew it wasn’t going to happen. There were a couple of other positions in the administrative round that I changed pretty fast. The COO Ed Schottland was very solid. He was only here about 9 months. He came from Lifespan and I am very grateful to this day that he was here and that he stayed. I would be toast without him.

Schottland added:

It was chaos here before. I think it’s easy to disrupt the COOs role, especially in an organization this size. People used to go around the COO to the CEO - it doesn’t take long before you are neutralized.

Ellen has been very supportive of my role. She’ll either say: ‘you really have to talk to Ed about that’ or she’ll just have me in the room when they talk to her. Now, most people in the organization don’t attempt to go around me. I appreciate that … that’s important to me. Ellen’s let me continue to run the operations in an appropriate way. We understand our roles and we know when to ask each other for help and advice.

Deb Taft, the new vice president for fundraising and development, talked about why she joined Tufts-NEMC:

If I could be a part of creating a fundraising department that was vibrant and strong, this would be a career moment for me. I had people stopping me in the street saying ‘I can’t believe you are taking this job’. But what greater thing could there be than helping this place survive? It deserves to be here. Keeping this place alive was important enough for Ellen Zane not to retire. Ellen recognized that I had what she called fire in the belly. That was her number one criteria in bringing me in.

Communication and Outreach Ellen is a remarkable communicator of good news and bad news. She was somehow able to be fully transparent about what was going on and have people appreciate that she was being honest with them about the situation. And no one felt that they had to bail out of here because the place was going down the tubes. I don’t know how she did that. - Deborah Joelson, senior vice president for market development and planning.

Very early on, Zane led a series of ‘town meetings’ where she presented financial facts, specifics on new

initiatives, and areas targeted for growth. Because the hospital worked around the clock, Zane scheduled a

series of meetings at various times throughout the day and night, to ensure that everyone had a chance to attend.

The meetings worked so well to disseminate information that Zane continued to do them twice per year on all

shifts. She also augmented them with regular emails updating the staff and physicians on finances and other

topics. As Deeb Salem, Tufts-NEMCs chief physician explained:

The things that she and Ed do are quite remarkable. Periodically they have town meetings for the entire staff. They go out of their way to talk to everybody, even the housekeeping staff. They have sessions in the middle of the night so they can talk to the night shift.

Taft agreed:

Ellen does the town meetings in every shift, and she wants the senior staff and VPs there because every shift matters. I’ve been at employee parties and holiday parties helping her serve dessert from midnight to two a.m., and we’ve brought desserts to the emergency department when they are so busy they can’t get there. Ellen greets people and introduces herself and says ‘thanks for coming.’ That is a big thing for an employee who’s never met the CEO. So the staff starts to feel like she belongs to them. She laughs and says she gets more emails from the staff than anybody. But the fact is, she does.

Zane explained what she saw as the benefits of the town meeting format:

I did a lot of town meetings. I was new - I had to get to know employees and I had to tell them what was going on. I put up this chart, which turned out to be a wonderful chart. It had all the losses this place experienced during the Lifespan era. The $40 million loss in 96, the $20 million loss in 97. Loss after loss after loss after loss. That adds up to $250 million. I threw the chart up at my first board meeting. I threw it up at the Board. And I said a lot of people have got egg on their face. That’s what I said to my Board. I used the same chart with the employees.

Then after those town meetings - to my utter shock - I would come back to my office and I would have 20 emails from employees who had been sitting in the audience and they were saying thank you. It was so incredible. People would say: ‘I want to help. I knew something was wrong but no one was ever honest enough.’ It was really encouraging. And that was the pearl I learned - that you can tell people bad news. But you have to do it in such a way that you are viewed as being honest, open, credible, and consistent.

Zane explained that the culture of Tufts-NEMC made it easier for her to effect change:

The one thing about this place that is so fabulous - that I can take no credit for - is that it has a different, better, unique culture. I had been used to the Harvard culture where there was all this bravado and testiness. This culture is much warmer - much more collegial - much more cooperative. And I call it an ‘Avis - we try harder culture.’ I tell them: ‘Guys, we have to go left,’ and they say ‘ok.’ At Partners you’d need a committee and two years to get a decision. Maybe it’s because this place is smaller, I don’t know.

I’ve never, ever worked in a place, where employees who’ve been there for decades, physicians who’ve been here a long time, will spontaneously, unsolicited, come up to me and say ‘I love this place. And I’m sorry to see what’s happened.’ Even physicians who have left - and it hemorrhaged doctors in the tough days - felt that way. I called up a lot of them and asked them to have a cup of coffee with me and tell me why they left. All of them - to a person said - I didn’t want to leave.

Zane used a variety of mediums to get the word out and to manage the turnaround effort. She held weekly

senior staff meetings with Schottland, the general counsel, the CFO, the vice president of external affairs, the

vice president of development, and the senior vice president for market development and planning. The focus of

the meetings was mostly external, with Schottland providing updates on internal operations from his weekly

meetings with the operational vice presidents, the CIO, the vice presidents of clinical services and the vice

president of human resources. Zane also met regularly with the board of trustees.

She reached out to physicians in an attempt to both spread her message for change and to retain them in the face

of active poaching from other AMCs. She worked hard on both retention and recruitment. In 2005 she

convinced three neurosurgeons to move from Beth Israel Deaconess Medical Center to expand Tufts-NEMCs

minimally invasive neurosurgery department. Schottland described the outreach that he and Zane conducted to

physicians:

When Ellen came, she came with the reputation, credibility, and ability to deliver a hopeful message that prompted people to change and gave them more hope.

One thing we’ve done since she came here - that I’ve never done anywhere else - is spend an incredible amount of time talking to physicians, both recruiting and retaining them. Ellen leads that charge, although I spend a lot of time with her on it. It’s one of our challenges being in Boston - it’s so hard to recruit from out of town - and everyone is stealing from everyone else.

The neurosurgery department was a great example of an Ellen coup. She led the negotiations on recruiting those new doctors. Our group, which was split between Beth Israel and Tufts- NEMC, announced that they wanted to consolidate to a single hospital. We gave them a better deal and they are doing a great job here. They are young and aggressive - great surgeons. Ellen is very good at recruitment and retention. She knows it’s important. You can’t run a hospital without physicians and they are very expensive to replace. A lot of hospitals have recruitment and retention programs, but most times the doctors don’t get to talk to the CEO. This is a smaller and friendlier place in a lot of ways. It’s not hard to get to Ellen or me. For physicians, that’s a big deal. To have access to Ellen in particular is enticing for them, and she’s very good at talking to them.

Not only did Zane work with physician groups, she began a monthly tour of different wards in the hospital to get

in touch with patients and nurses. Salem explained:

Once a month Ellen and I tour a ward together and she speaks to patients. She’ll ask them: ‘How’s Tufts-NEMC treating you? Why did you come here? What can we do better? The patients who understand it are shocked that the CEO is talking to them. She also learns from the patients and the floor nurses. They see that she really cares because she’ll walk around their floor. When she’s done touring, she’ll talk to the head nurse and say, ‘You guys are doing a great job.’

When you talk to the patients yourself, you get a whole new feel for things. We found that a lot of people liked the intimacy at Tufts-NEMC as opposed to one of the larger hospitals like Children’s. We’re thinking about how to use that fact in our marketing. Another thing we learned was that a lot of people didn’t like the food here. So now the food service is working to change the whole menu.

Agenda for Change In 2004, Zane, Shottland, and BDC initiated a second round of cost cutting and efficiency plans designed to

improve Tufts-NEMC’s processes. It was called the Agenda for Change. Along with improving the

reimbursements, it included restructuring, and basic ‘blocking and tackling’ as Zane called it:

Blocking and tackling means the day-to-day gritty operations. The eight areas we wanted to improve were: length of stay, managed care contracts, accounts receivable, FTEs, supply chain, real estate, ambulatory clinics, and research costs. We focused really hard on those things. I think a lot of people in my job like the limelight - they want to give speeches. But the fact is if your house isn’t in order, the limelight is fleeting. My first year here I resigned from most of my boards, backed off from a lot of things. I had to stick to my knitting. At the very beginning, I really hunkered down, and then I slowly started to come up for air.

The latter half of 2004 Joelson and Schottland, along with the vice president of human resources, and the

director of business planning, developed a restructuring plan. The plan created eight product lines that were

essentially business lines: cardiac, cancer, surgery, general medicine, transplant, OB/GYN, pediatrics,

psychiatry, and neurosciences. Every service in the hospital was included in one of these product lines. This

was different from the past, when some services were left out of the product lines. As Schottland explained:

It’s very hard to be all things to all people. That is one of our greatest challenges programmatically and financially. But, because we are committed to doing that, we really can’t afford to have key constituents feeling they are unimportant. We can’t deliver care in transplants, for example, without infectious disease or internal medicine. The product lines here give everyone an opportunity to have a forum to talk about their programs. It is also a way to drive decision-making down to the physicians and give people who deliver the service control of that service.

The chief of cardiology was the clinical head of the cardiac product line, for example. He partnered with a

clinical vice president – an administrator. Together, they were responsible for developing and implementing

annual business plans, with goals, objectives, and budgets for the product line. The CFO and COO approved the

budgets every year and reviewed the business plans monthly. The business plans were the venues by which

decisions were made on investments in staff, facilities, infrastructure, and technology. The plans directed

decisions regarding whether, and how much, to grow and how to accomplish that growth. Some of the areas

Tufts-NEMC hoped to grow were core services, such as cardiac and cancer programs, pediatrics and maternal

health, psychiatry, bariatric/obesity surgery, and organ and bone marrow transplants.

Support services such as pharmacy, nursing units, and radiology, however, were outside the management

structure of product lines. Schottland explained why:

A lot of hospitals have tried product lines in different ways. One way is the matrix structure that we have and the other way is a purer structure. We weren’t big enough to be pure. We can’t have a free-standing heart hospital or cancer center. We can’t afford to never put a medical patient on the cardiac unit. If we don’t have a cardiac patient we need that bed to put someone else in. We have to have the flexibility. So that’s why the product lines can’t control the nursing units. The head of cardiac would want to keep those beds just for cardiac patients and we can’t afford to do that.

Length of Stay On the operations side, one of the most important cost saving initiatives was to reduce length of stay (LOS).

The consultants that Zane brought in identified that Tufts-NEMC was keeping patients a day and a half too long,

compared to other AMCs. David Fairchild, Tufts-NEMC’s new chief of general medicine, chaired the 30-

person Care Management Committee, which was charged with reducing LOS. Fairchild and his committee set

about educating the staff about the importance of reducing LOS, changing attitudes about patient care, and

attacking and identifying procedural failures called ‘unnecessary delays’ in various ways:

� The team set up a special internal email address – LOS delays - where staff could send a complaint or

description of an unnecessary delay that impacted length of stay. This delivered useful information

directly to hospital leadership regarding causes of delays.

� The BDC consultants identified areas where Tufts-NEMC could improve, such as use of tracheotomies

and blood transfusions.

� Use of data, which drilled down to individual physicians’ LOS statistics year over year, and presenting

that feedback to physicians frequently.

One major issue that the email address identified was the use of ‘PICC lines’. PICC lines were more durable IV

lines that allowed patients to continue their medication at home. Specially trained nurses had to insert the PICC

lines, and many times the doctor discharged the patient too late in the day, and these nurses were not available.

Another problem with PICC lines arose when the nurse was unable to insert the line and needed fluoroscopy to

aid the insertion. In the old system, the nurse informed the doctor that the PICC line was unsuccessful, then the

doctor arranged for the patient to go to the fluoroscopy suite. Doctors conducted teaching rounds between 10:30

a.m. and 1 p.m., so if the nurse was unable to insert the PICC line, the patient often had to wait until the next

day for the fluoroscopy suite to become available.

Fairchild and his committee came up with new procedures to remedy the situation. They required doctors to

make decisions on discharges before they went on teaching rounds and they gave the nurses who inserted PICC

lines the authorization to send patients directly to fluoroscopy if the PICC line could not be inserted by the

nurse. Within a year of raising awareness and using more efficient procedures, the committee was able to

reduce LOS by a full day, saving Tufts-NEMC $2 million per year. Fairchild explained how Zane’s leadership

helped with the LOS project:

Ellen brought a sense of urgency. She and the consultants identified a few key initiatives. One was the contracting initiative that she was heading, and another was reduction in length of stay for hospitalized patients. Ellen brought a compelling vision supported by compelling data for where we needed to go. One of the most compelling pieces of data was a graph showing our LOS compared to all our competitor hospitals. We were an outlier, above the line by a day and half! A one-day reduction in the average length of stay across our hospital is worth millions of dollars. I took that graph around to every department meeting I attended. After that it was just a matter of identifying what was causing the delays. There was almost no resistance to changing procedures, since everyone understood that length of stay was crucial to financial turn around, and that financial improvement was the first step toward fulfilling the vision for the future of NEMC. That is where good leadership came in.

Contract Negotiations The hospital had just completed a round of contract negotiations with insurers when Zane joined Tufts-NEMC.

She realized how critical it would be to immediately increase rates, so she went to the major health plans and

asked them to reopen negotiations. Zane discussed her talks with the insurance companies:

Because I went toe-to-toe with the insurance companies when I was at Partners, I was afraid they would think ‘it’s payback time’ since I no longer had the same leverage. To my utter delight none of them did that. They all had the attitude that it wasn’t personal, it was a business decision. My argument to them about why Tufts-NEMC should get higher rates was simple. I said to them - look if you guys want the strong to get stronger and the weak to get weaker, then don’t open these contracts. But if you want competition in this market, you need to open these contracts. And they did. It wasn’t a cakewalk, they didn’t just write me a check. We fought about it. But the truth is they all stepped up to the plate and I will always be grateful to Blue Cross, Harvard Pilgrim and Tufts.

The improvements in the contracts were absolutely critical to the financial bottom line. As Shottland explained:

After Ellen arrived, we discovered that we were getting paid really poorly. We improved our reimbursement by $20 – $25 million. That was the missing piece. That’s what brought us from where we were - which was a $10 million loss - to actually making some money last year. That was Ellen’s guidance and leadership that did that.

Network Building Zane went to work bringing back the affiliations and networks Tufts/NEMC had lost in the past. By October of

2004 the hospital announced plans to affiliate with Children’s Hospital in order to augment the services of the

Floating Hospital for Children, which was fragile and had lost sufficient scale over many years of neglect and

poor management. Zane was able to move quickly on affiliation agreements, not allowing deals to get bogged

down in red tape. Deborah Joelson, senior vice president for market development and planning, related one

example of this:

One of the first things I had on my desk when I arrived here was an affiliation agreement with a community hospital. I finished negotiating the deal and went to Ellen and said, ‘Ok we have an agreement.’ She said ‘Great, let’s do it.’ I said, ‘What, just sign it? No committees? No … nothing?’ At Partners, an agreement like that would take months, if not years, if it were ever to get done, because of all the internal constituencies that needed to approve everything. It was just a lot more complicated. So I always laugh when I think that she said ‘just do it, trust your instincts and just go ahead.’ With the sense of urgency and lack of resources that we have here, we don’t have the time to spend noodling over every little decision.

A year later, Tufts-NEMC won a major coup when they affiliated with Primary Care, LLC, (PCLLC)22 one of

the state’s oldest and largest primary care independent networks. The new network became part of Tufts-

NEMC and was called New England Quality Care Alliance (NEQCA). Zane recruited Jeffrey Lasker, the

former chairman of the Partners physician network to run it. PCLLC had for nine years negotiated contracts (a

large percentage of which were Medicare risk products, such as Secure Horizons) for its 164 physicians, which

served 500,000 patients. The group felt that they needed to become affiliated with an AMC and sent out a

proposal request to systems in the Boston area. Joelson recalled how Tufts-NEMC closed that deal, when every

other hospital was vying for the practice:

We had almost no network, and few people to manage the network we had. We didn’t have the infrastructure here to deal with payer contracts. That had been done at Lifespan. The PCLLC physicians wanted a seat at the table - that was most important to them. We saw an opportunity to integrate PCLLCs infrastructure into Tufts-NEMC, and not only give them a place at the table, but make them a table. We created an organization – NEQCA – that they ran, that provided something to Tufts-NEMC that we didn’t have.

This is also an example of where Ellen is so good. If you need her at a meeting she goes. We literally met every week for two months with PCLLC and Ellen was there every week to meet with them. Quite frankly I don’t think many CEOs would have sat down once a week to make this happen. She is willing to get her hands dirty, but she’s a leader when she does. She doesn’t micro manage the process, but she makes herself available and it’s clear to everyone that this is important and that it matters to her.

Working with Tufts University Zane cultivated a close working relationship with Bacow and Michael Rosenblatt, the new dean of Tufts

Medical School. She recognized the importance of the hospital and the University to each other. She sat on the

board of overseers for the medical school and worked to build joint initiatives in research and fundraising. As

Zane described:

It is very famous in AMC cultures that Deans and hospital CEOs don’t get along. There is usually a tremendous amount of tension. One of the things I’m proudest of - and I think the Dean would say this too - is that we get along extremely well. He started his job three weeks before I started mine, neither of us own a lot of the problems here or at the medical school so we started with a clean slate. The relationship is so strong between us. We have now developed a joint fundraising plan. We’re better together than apart. That gives Larry Bacow a great deal of pleasure. He really is vested in Mike’s success and mine.

22 Pronounced ‘Pickle’

Taft explained the disconnect that Tufts-NEMC had with Tufts University in the past:

Some years ago, Tufts-NEMC actually took the Tufts name off of its signs and logos. That was a big mistake. They were not building the Tufts name, or building that relationship. In a Harvard medical town, Tufts-NEMC was not leveraging one of the top trump cards they had: the terrific and growing reputation of Tufts University, their nutrition school, medical, dental, veterinary schools. So they had all of that at Tufts-NEMC, and it wasn’t being leveraged.

In the real estate arena, Tufts-NEMC held many buildings on and around the Tufts University campus on

Kneeland Street in Chinatown. When Tufts-NEMC decided to sell one building it made sense for the University

to purchase it. In one local business journal, Zane explained her thinking:

If you drive down Huntington Avenue, you know when you’re at Northeastern University. When you’re at Commonwealth Avenue, you know you’re at Boston University. But if you drive down Kneeland Street into Chinatown, you don’t know you’re at Tufts. You don’t get the feeling you’re in an urban campus.23

The University and Tufts-NEMC were in the ‘preliminary stage of looking at how to make the area more like a

traditional urban university campus. The university held ‘town meetings’ to discuss the issues and is hiring

planners to develop possible scenarios’ the magazine reported.24

Prognosis: Short and Long Term Outlook Leadership is about what’s next. A lot of initiatives were started before Ellen got here, but she added the extra ‘umph’ to make it happen. Now it’s about what is next. What is the strategy. We’re still a small hospital, we’re still challenged every day because of our size to meet the financial basics to succeed. – Ed Schottland, COO

In 2006, with her leadership team established, the sale of a building to Tufts University for $28 million adding

needed capital, cost savings initiatives in place and improved managed care contracts, Zane was starting to move

to the next phase: building a strategy for the future. Zane and her team were working with the Board in a major

strategic planning initiative. In addition, Joelson was doing marketing research, the first Tufts-NEMC had

conducted in years. They were trying to answer questions such as:

� What scale should Tufts-NEMC be?

� How can we best market ourselves?

� How can we differentiate ourselves in the market place?

� What is the best way to work with community hospitals and physicians?

As Joelson explained:

We are trying to create an alternative. Our goal is to be big enough to have the scale we need to operate efficiently and to be able to provide sufficient sub specialties to be an academic medical center – the principle teaching hospital of Tufts University School of Medicine. We don’t want to be as big or expensive as Partners. We have 3% market share; Partners has 25% market share. We’re at best a 400-bed hospital; Partners has 2,000 beds. We see ourselves as a network of some physicians and some community hospitals, and as a lower cost alternative in the market. We can be effective with the new pay for performance contracts. It is more

23 Hollmer, Mark. “Tufts-NEMC wants a more campus feel in Chinatown,” Boston Business Journal, June 30, 2006. Accessed online at: http://boston.bizjournals.com July 21, 2006. 24 Ibid.

http:http://boston.bizjournals.com

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efficient and less expensive to keep the care local, so our strategy is to try to move the care that can be moved to community hospitals where we have relationships.

On the marketing side, we are implementing what we call an anti-invisibility advertising campaign. Our market research determined we had no identity in the market. We also learned that we were a house of individual brands – the doctors – rather than a brand in itself. As a result, we are building a physician-to-physician marketing campaign, using NEQCA as that the starting point. We also plan to grow NEQCA from 600 to 1,000 doctors by 2010.

Perhaps the biggest plan to come out of the strategic initiative was the partnership with New England Baptist

Hospital, another Tufts Medical School affiliated teaching hospital, to build a new 190-bed hospital in the

Boston suburbs. If the plan came to fruition, it would be the first hospital built in Massachusetts in 25 years.

Although the site had not yet been selected, Zane was quoted as saying that:

In the past, hospitals have asked people in the suburbs to come to them and pay more for parking than the co-pay on their health insurance. Our view is: Wouldn’t it be a good idea to take sophisticated academic medicine and bring it to the people?25

This type of bold planning gave the employees at Tufts/NEMC confidence about the future. Deeb Salem gave

his viewpoint on where the hospital stood in mid 2006:

I’ve never been more optimistic. There are still a lot of problems. But the main source of anxiety is what happens if Ellen decides to leave. That’s the problem having somebody that good. We’ve seen how well she runs things. But with her in charge I do have a lot of hope.

Zane finally saw the light at the end of the tunnel she had entered in January 2004, but she knew that her work

had only just begun. She needed to find a way to keep the staff on track for the turn around. She needed

improved efficiency and cash flows to keep wind in the sails in order to move the rudder in the right direction.

She also knew that Tufts-NEMC was far from a safe harbor:

I have lots of friends at Partner’s - but business is business - if they could steal my best bone marrow transplant surgeon they would. It’s the way it is. That is the deal. I can’t let down my guard for a minute.

I am able, now, to spend much more of my time on strategy, on the future, on where this place is going. That is, frankly, why I took the job. I didn’t come here to pull down accounts receivable, I came here to do something to position this place for the future.

25 Rowland, Christopher and Bailey, Steve, “Tufts Affiliates Plan Hospital in Suburbs,” The Boston Globe, September 8, 2006, page A1 Section: Metro/Region. Accessed online at: www.boston.com/news/bostonglobearchives September 13, 2006.

www.boston.com/news/bostonglobearchives

Exhibit 1 – Tufts/NEMC Income and Expense for fiscal years 1989 – 2005 (in thousands)

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Revenue:

Net patient services revenue 218,820 230,616 272,108 297,351 314,445 301,385 309,938 281,791 287,076 299,930 318,145 341,894 371,273 397,212 473,012 452,786 495,005

Direct expenditures on grants, contracts and other activities 21,063 21,423 23,083 25,608 28,467 33,302 60,805 52,059

Recovery of indirect costs on grants and contracts 5,770 7,129 5,778 7,900 8,883 9,762 55,205

Software including support and consulting 12,009 14,660 18,934 23,469 28,777 6,175 Other revenue 22,340 23,949 16,788 14,443 14,801 13,961 13,690 17,917 22,797 24,045 22,561 26,228 36,055 33,790 51,686 42,853 48,232

Endowment earnings contributed toward community benefit 9,229 10,647 16,512 7,949 1,596

Net assets released from restrictions used for operations 3,435 2,272 3,037 3,020 4,753 4,526 17,259 2,924

Net assets released from restrictions used for research 44,001 41,314 47,582 37,702 38,250 53,196 52,891 55,901 Total Operating Revenue 267,993 283,117 329,766 359,962 385,530 381,879 413,210 357,942 365,078 380,640 394,939 435,253 455,999 475,601 582,420 565,789 602,062 Net Investment income 5,151 698

Unrestricted gifts, grants and awards/net assets released from restrictions 535 817 1,104 936

Adjustments to prior year estimates with third party payors 12,600 11,342 11,800 Total Revenue 273,679 284,632 329,766 359,962 385,530 394,479 425,656 370,678 365,078 380,640 394,939 435,253 455,999 475,601 582,420 565,789 602,062

Exhibit 1 (continued) – Tufts/NEMC Income and Expense for fiscal years 1989 – 2005 (in thousands) 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Expenses:

Salaries and wages 104,574 113,557 128,739 143,124 158,511 160,183 167,380 146,900 184,746 191,629 180,206 203,449 222,489 227,706 297,827 295,645 308,057 Employee benefits 15,591 18,920 21,163 23,407 26,004 26,787 31,130 24,581 24,031 21,531 21,058 24,098 25,491 28,543 55,918 57,004 56,416 Purchased services of physician groups 23,033 24,579 29,648 31,236 35,354 32,051 39,620 37,176 34,021 35,875 36,416 40,201 43,075 49,461 40,303 47,627 Supplies and expenses 63,924 68,740 77,499 87,684 96,660 102,688 132,843 119,242 115,950 95,124 109,120 119,730 135,132 140,891 158,501 141,793 140,371 Interest 8,266 8,561 8,048 8,165 9,194 8,996 12,115 14,230 14,164 13,983 13,775 13,576 13,350 13,193 12,561 12,044 11,607

Depreciation and amortization 15,687 15,382 18,914 19,188 22,548 26,065 32,033 32,996 32,646 14,525 15,168 16,034 18,076 18,959 21,410 23,976 23,307

Direct expenditures on grants, contracts and other activities 21,063 21,423 23,083 25,608 28,467 33,302

Uncompensated care/provision for bad debts 16,433 7,911 12,171 18,878 14,087 12,796 16,187 17,175 18,853 18,344 19,492 21,309 17,099 15,747 15,934 21,184 12,541

Other Expenses (6,250) (138,500) 14,638

Total operating expenses 268,571 279,073 319,265 357,290 390,825 402,868 425,058 392,300 390,390 389,157 394,694 434,612 471,838 488,114 626,250 591,949 599,926

Income (loss) from operations 5,108 5,559 10,501 2,672 (5,295) (8,389) 598 (21,622) (163,812) (8,517) 245 641 (15,839) (12,513) (43,830) (26,160) 2,136

Nonoperating Gains and losses:

Net unrestricted investment income 8,611 9,748 6,090 5,242 2,995 805 5,461 4,561 7,974 4,421 9,226 4,040 2,277 2,102 2,041 2,838

Net realized gain on sale of investments 1,490 1,405 1,814 3,876 3,770 6,570 2,357 2,253 9,711 9,100 6,083 5,506 2,691 (2,150) 3,429 4,842 11,074

Gain on sale of TSI and other property 72,958 (245) 19,698 2,075

Other nonoperating losses 50 (1,063) (28) (196) 188 234

Total nonoperating gains, net 1,490 10,016 11,562 9,966 9,012 9,565 3,162 80,672 14,272 16,829 10,476 14,732 6,731 127 5,335 26,769 16,221

Excess (deficit) of revenues over expenses 6,598 15,575 22,063 12,638 3,717 1,176 3,760 59,050 (149,540) 8,312 10,721 15,373 (9,108) (12,386) (38,495) 609 18,357

Total other capital items (11,814) 4,765 13,455 (3,070) 18,041 5,888 2,636

Excess (deficit) of revenues over expenses 6,598 15,575 22,063 12,638 3,717 (10,638) 8,525 72,505 (152,610) 8,312 10,721 15,373 (9,108) (12,386) (20,454) 6,497 20,993 Source: Company Records

Exhibit 2 – Boston Comparative Demographic and Health Care Indicators

Demographicsa Health System Characteristics Health Care Utilizationc

Boston Metropolitan Areas 200,000+ population

Population 4,579,137 Staffed Hospital Beds per 1,000 Population (2002)

2.2 3.1 Adjusted Inpatient Admissions per 1,000 Population

240 197

Persons Age 65 or Older

12.7% 10% Physicians per 1,000 Population (2003)b

2.8 1.9 Persons with Any Emergency Room Visit in Past Year

20% 18%

Median Family Income

$39,182 $31,301 HMO Penetration (including Medicare/Medicaid)c

37% 29% Persons with Any Doctor Visit in Past Year

86% 78%

Unemployment Rate

5.2% 6.0% Medicare-Adjusted Average per Capita Cost Rate, 2005

$768 $718 Persons Who Did Not Get Needed Medical Care During the Last 12 Months

3.6% 5.7%

Persons Living in Poverty

9% 13% Privately Insured People in Families with Annual Out-of- Pocket Costs of $500 or More

33% 44%

Persons Without Health Insurance

5% 14%

Source: Center for Studying Health System Change, Community Report Number 11 of 12, December 2005.

a Statistics for year ending 2003. b Includes nonfederal, patient care physicians, except radiologists, pathologists and anesthesiologists. c Markets with population greater than 250,000.

Exhibit 3 – Number of Acute Care Hospitals and Available Beds in Massachusetts (1990-2001)

5000

10000

15000

20000

25000

120

150

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

Number Available Beds Number Acute Care Hospitals

Source: Massachusetts Health Care Trends: 1990-2004

Exhibit 4 – Total and Operating Margins for Acute Care Hospitals in Massachusetts (1990-2001)

-3 -2 -1 0 1 2 3 4

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

Total Margin Operating Margin

Source: Massachusetts Health Care Trends: 1990-2004

Exhibit 5 – Distribution of Health Care Expenditures in Massachusetts (1990 and 1998)

1990 1991 1992 1993 1994 1995 1996 1997 1998

Expenditures (in billions) Percent of Gross State Product

Source: Massachusetts Health Care Trends: 1990-2004

Exhibit 6 – Distribution of Acute Care Hospital Revenues by Payment Source in Massachusetts (1991 and 2001)

Self Pay/Free Care

Other 5% Other Self Pay/Free Care 3% 3%

8% Medicaid

Medicaid 12% 10%

Medicare Medicare 39% 39%

Managed Care 12%

Managed Care 30%

Private/ Private/Commercia l Insurance Commercial

28% 11%

Source: Massachusetts Health Care Trends: 1990-2004

Exhibit 7 – Distribution of Patient Disposition at Discharge from an Acute Care Hospital in Massachusetts (1990 and 2001)

Died Died

Home 82%

Hospital 3%

Other 2%

Nursing Home 4%

Home Care 6%

Home 65%

Nursing Home 10%

Hospital 7%

Other 3%

Home Care 13%

Source: Massachusetts Health Care Trends: 1990-2004

Exhibit 8 – Inpatient Days and Discharges for Teaching versus Community Hospitals in Massachusetts (1990 and 2001)

1,000,000

2,000,000

3,000,000

4,000,000

Inpatient Days

1990 2001

0 100,000 200,000 300,000 400,000 500,000 600,000

Discharges

1990 2001

Teaching Community Teaching Community

Source: Massachusetts Health Care Trends: 1990-2004

Exhibit 9 – Acute Care Hospital Discharges per 1,000 Population and Average Length of Stay in Massachusetts (1990 – 2001)

149 150 151 147 137 130 125 126 126 126 125 127

6.82 6.43 6.16 5.97 5.68 5.39 5.2 5.11 5.01 5 4.9 4.9

100

120

140

160

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

Discharges Average Length of Stay

Source: Massachusetts Health Care Trends: 1990-2004

Exhibit 10 – Major provider networks and other care institutions in the Greater Boston market

Name Acute Care Hospitals Physician Networks

Other Facilities Medical School Affiliation

Employees (FTE)

Revenues/ Net Assets26

Admissions (2004)/ Discharge % (2003)

Partners Health Care System

MGH, BWH, Faulkner, Newton-Wellesley, North Shore Medical Center (NSMC), McLean (mental health)

PCHI Spaulding Shaughnessy-Kaplan, RHCI, Partners Home Care, 2 Skilled Nursing homes

Harvard Tufts (Faulkner & NSMC)

35,300 $395 million $1.5 billion

87,616 20.8%

Boston Medical Center (BMC)

Boston HealthNet Quincy Medical Center

Boston University 4,429 $752 million $1.06 billion

28,173 6.0%

CareGroup Beth Israel Deaconess, Mt. Auburn Hospital, New England Baptist, Beth Israel Deaconess- Needham

Community Care Alliance

Joslin Diabetes Center

Harvard Medical School

5,000 (Beth Isreal Deaconess)

$24 million $95 million

33,640 9.0%

Caritas Christi Healthcare

Caritas St.Elizabeth’s St. Anne’s Fall River, Holy Family Hospital and Medical Center, Caritas Norwood, Caritas Carney Hospital Dorchester, Caritas Good Samaritan Medical Center Brockton

Caritas Physician St. Joseph Nursing Care Center, Neponset Valley Nursing Association, Good Samaritan Hospice, St. Mary’s Women & Infants Center of Dorchester

Tufts Medical School

12,000 $90 million $20 million

15,781 11.6%

New England Medical Center

Tufts-NEMC Floating Hospital For Children

NEQCA Tufts 3,000 $487 million $389 million

17,000 2.7%

Hallmark Health System

Lawrence Memorial, Melrose-Wakefield Hospitals

Ell Pond Medical Association

Malden Medical Center, other long term care, home health and diagnostic services.

Tufts (family practice), Hallmark School of Nursing

$225 million $180 million

2.7%

Source: Massachusetts Health and Educational Facilities Authority. Accessed from: www.mehfa.org August 7, 2006. WebMD Quality Services. Accessed from: www.webmdqualityservices.com August 7, 2006.

26 From IRS Form 990 fiscal year ending 2003. Available at: www.guidestar.org/findocuments/2004.

www.guidestar.org/findocuments/2004

http:www.webmdqualityservices.com

http:www.mehfa.org

Exhibit 11 – Tufts/NEMC Operational Indicators versus Industry Benchmarks

Industry Benchmark NEMC (FY 2006) Translated Impact on Budget

Impact on Cash

Days in Accounts Receivable 48.8 55.6 $ 775,416 $ 7,049,234 Accounts Payable Days 60.0 51.2 $ 1,203,061 $ 10,936,918 Average Length of Stay 5.5 5.79 $ 2,085,627 $ 2,085,627 Operating Margin 1.9% 0.4% $ 10,169,579 $ 10,169,579 Days Cash on Hand 110.7 89.4 $ 609,468 $ 5,540,621 Commercial Insurance Contracts $ 40,000,000 $ 40,000,000

Source: Company records