An M.D. as CEO Redraws the Big Picture

By Richard Lacayo

On the second floor of the Duke Clinic, Dr. Ralph Snyderman is making rounds. That would be nothing special if he didn't run the place. Snyderman is chancellor of Duke University Medical Center, so for him to be looking in on patients is a bit like Bill Gates debugging code on a Windows program. Still, it's something he does one month every year, usually in June, like most other doctors at Duke. Right now he's checking on the progress of James McAllister, 73, who has a spinal tumor. McAllister is doing well enough to leave a high-cost intensive-care ward soon for rehabilitation. "That's better for him," says Snyderman. "And cheaper for us."

That's how Snyderman has to think. As Duke's CEO, he's both doctor and businessman. More than that, he's the chief visionary behind Duke's risky refashioning of itself as a health "system," one he's gambling will prove profitable enough to subsidize Duke's money-losing missions in teaching and research. Once, Medicare payments and privately insured patients paid for everything, no questions asked. Now HMOs question everything. The Balanced Budget Act, passed by Congress last year, will mean big cuts in Medicare payments, which, when added to the pervasive weight of managed care, threaten to suffocate places like Duke.

The hard start to his plan has the hospital cutting $30 million annually from its $654 million costs for at least three years. It gets more controversial after that. His real gamble is to push Duke into a range of new businesses--all aimed at creating something like a health-care shopping mall, with everything from its own HMO to primary-care clinics, retirement communities and hospice care, for a good part of the surrounding population.

What Snyderman is doing is not unique, but it is much talked about in medical circles. If it works, he's a genius. If it doesn't, Duke could go the same route as the University of Minnesota, which sold its hospital, or the University of Pennsylvania, which reported a $40 million deficit this year. Much of the money for the expansion comes from borrowing--$280 million. But Snyderman is convinced that growth will pay off, in no small part by making Duke the hospital of choice for enough patients and doctors that it can obtain more favorable contract terms from HMOs for patient care. "What we need is sufficient market clout that we cannot be rolled over," he says.

Few doubt that Duke needed to change in order to survive, but to some doctors Snyderman represents a shift of power from the stethoscope to the calculator. In 1993, he replaced a longtime department chair with a doctor who also held an M.B.A. A group of dissidents petitioned Duke's board of trustees protesting the changes. But Snyderman survived, and last May his contract was extended again for five years.

Not a few Duke doctors complain that the volume of patients they must see each year has exploded. "Doctors are expected to do patient evaluations in 10 minutes," says a former division chairman at the hospital. "We used to have 30 to 40 minutes." Periodically, harried clinical researchers get profit-and-loss statements that compare the costs of their scientific work with the revenue they generate through patient care.

The effort to control costs has also led to more standardization of medical practice, which doctors accustomed to answering only to their own instincts don't like. In recent years the hospital has adopted written treatment guidelines called clinical paths or care maps for two of their largest departments. Among other things, the maps attempt to rein in costs by guiding doctors away from unnecessary testing or the priciest medications. The guide for postoperative liver transplants has 21 items that advise, for example, just when to provide warming blankets--and when to order blood tests.

Another purpose of the care maps is to help move patients more quickly toward discharge. To be sure, shorter stays are not all bad. Infection rates decline, and moods improve: Who wants to stay in a hospital any longer than he has to? And much of the reduction has been accomplished simply by reducing bureaucratic bottlenecks and redundant bedside visits. But that approach is also risky. Cardiac patients hustled out after five or seven days may not be in a mood to recommend the place to others. Duke's slogan is "Brilliant Medicine/Thoughtful Care." Snyderman knows he has to deliver on the second half. He also knows that, for all the risks of changing the system, the risks of doing nothing are worse.

--By Richard Lacayo