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Lomeo has jumpstarted Kaleida Health, but system confronts deeper challenges

Last year, at one of the monthly meetings Kaleida Health CEO Jody L. Lomeo holds with hospital union leaders, participants discussed the system’s plans to restructure the medical/surgical unit in Women & Children’s Hospital of Buffalo.

Union officials objected to shrinking the department in advance of the hospital’s move to the Buffalo Niagara Medical Campus. During the debate that followed, union representatives noticed Lomeo frequently looking down and tapping out messages on his smartphone.

“He’s sitting right next to me,” recalled James Scordato, a vice president with 1199SEIU. “He’s not even paying attention to the meeting?”

As the meeting wrapped up, however, Lomeo asked Scordato to stick around. It turned out Lomeo, through a series of texts, had cleared his schedule and directed administrators from Children’s Hospital to come down for a meeting. The sides found a solution that day.

“It’s not just lip service when he says ‘our labor partners,’ ” Debora Hayes, area director for the Communications Workers of America, said of Lomeo. “There’s substance behind it.”

Lomeo, who replaced James R. Kaskie in January 2014, faced formidable challenges when he took the helm of the region’s largest health care system and its largest private employer with almost 8,000 employees.

The hospital network needed to stem a $15 million loss from the previous year, repair relationships with its workers, move forward with a major investment in the medical campus and fend off competition from Catholic Health System.

In his first 12 months on the job, the relentlessly optimistic Lomeo has spurred a financial turnaround for the system, driven by a higher number of surgeries, fewer unpaid patient bills and savings through shorter hospital stays. He also has pushed for consistent treatment for patients. And he’s made a point of taking impromptu strolls around the hospitals to forge closer ties with doctors, nurses and other employees.

“This was an organization that wanted to be led. This was an organization that was ready to be engaged, because the turn here has been really quick,” said John R. Koelmel, chair of Kaleida’s board of directors and president of HarborCenter.

But more lies ahead.

The system is under pressure from the federal government and insurance companies that want to limit payments for joint-replacement surgeries, blood tests and other procedures, at a time when more care is shifting from hospitals to outpatient clinics. It must improve its performance on quality measures, because reimbursements increasingly are linked to infection rates, patient satisfaction and other outcomes. And it must strengthen connections with the primary physicians and rural hospitals that refer patients to its network.

“We’re knee-deep in a culture change that I think is doing very, very well,” Lomeo told The News.

Starting at the top

Lomeo’s path to the top job at Kaleida began 14 years ago, when then-County Executive Joel A. Giambra named him to the Erie County Medical Center board. Lomeo was working as a financial planner and had no medical training or health care experience before then.

He became the first chair of ECMC’s board after the financially ailing hospital shifted from a county agency to a public benefit corporation, and he led the search that selected Michael A. Young as CEO after Lomeo and the board forced out Dr. Roger Kaiser.

It was a tumultuous period in the hospital’s history, and physicians who knew Kaiser as a colleague were concerned about his removal, said Dr. Kevin Pranikoff, a urologist who was head of the association for ECMC’s medical staff. “It was seen by a lot of people as a bad, political move,” said Pranikoff, who now sits on the ECMC board.

Pranikoff said he came around on the decision to oust Kaiser and to hire Young, who had his own praise for Lomeo.

“He’s actually quiet, and a listener, but he likes to move quickly. He came from the investment world – markets change quickly,” said Young, who now runs the PinnacleHealth hospital system in Harrisburg, Pa.

When Young announced he was leaving, fellow ECMC board members convinced Lomeo to fill in for him. Lomeo served on the search committee for Young’s replacement and professed no interest in the job.

“I’ll never forget: ‘We just need you three months,’ ” Lomeo said. “It began, for three months, just repairing relationships. I was interviewing people to take the job.”

But officials inside and outside the hospital soon focused on Lomeo as the best candidate for the job. They praised the relationships he built with Kaleida, the University at Buffalo and other stakeholders, as well as his work in negotiations over ECMC’s budget and a new contract with its nurses’ union.

Lomeo shed the interim label in 2009.

In late 2013 and early 2014, as officials at Kaleida and parent Great Lakes Health soured on Kaskie’s leadership, discussions of a replacement soon centered on Lomeo.

Kaleida’s abrupt announcement of Kaskie’s ouster came as a surprise. Lomeo’s permanent appointment was far less of a shock. In fact, the system had to delay the news one week because Lomeo did not want to disappoint his children by rescheduling a long-planned family vacation.

Kaleida did not conduct a national search, nor consider other candidates, for the job.

Kaleida would not reveal Lomeo’s pay for 2014, and it is not required to do so until November. Kaskie, who declined to comment for this article, was paid $1.9 million in 2013.

More competition

When Lomeo took over a year ago, he confronted uneven finances and a revitalized competitor in Catholic Health.

The system’s revenues have held flat, averaging about $1.1 billion annually. But Kaleida made $18.8 million in operating income in 2010, lost $20 million in 2011, made $15.6 million in 2012 and lost $15.3 million in 2013, according to its audited financial statements.

“There were peaks and valleys, highs and lows, and too much of a roller coaster ride,” said Koelmel, the board chair.

Over the same period, Catholic Health saw its profits rise steadily from $16.8 million in 2010 to $31.9 million in 2013.

Catholic Health had advantages: a tighter connection with its physicians through the Catholic Medical Partners network; an accountable care organization, which coordinates care at a lower cost for Medicare patients, and saw Catholic Health earn an $8.4 million bonus for saving the government money; and alliances with rural hospitals that send complicated cases to Catholic Health hospitals for treatment.

All of that drove the growth in Catholic Health’s share of hospital discharges in the region, from 24.2 percent in early 2010 to 29 percent at the end of 2013, while Kaleida’s fell from 33 percent to 30.4 percent over the same time.

“Health care comes down to relationships, it really does. Because, let’s face it, when you go to a doctor, and a doctor refers you either to another doctor or to a hospital, you usually take that recommendation and go with it. So that network of doctors that the Catholics have is a wonderful resource for them. And I think one of Jody’s challenges will be to build up that kind of network for Kaleida,” said John E. Bartimole, president of the Western New York Healthcare Association.

Earning and saving

Lomeo’s first task was curbing expenses, which ballooned by $73 million between 2012 and 2013, the year before he took charge.

Lomeo and his budget team started by trying to shrink the length of stay for its patients.

Generally speaking, hospitals aren’t paid more to cover the extra cost of a longer patient stay. By starting to plan for discharge at the time of admission, Kaleida has shortened the average inpatient stay from 5.5 days to 5.1 days, a 7 percent decline that reduced the overall cost of care for each patient by 4 percent.

Then, they looked at boosting revenue. Kaleida made a point of enrolling in Medicaid those patients who otherwise would have been responsible for their own bills and unlikely to pay. Kaleida reduced payment denials and lowered the amount they wrote off as bad debt, said Jonathan Swiatkowski, the executive vice president and chief financial officer.

The system also saw an increase in inpatient and outpatient surgeries.

The changes had an effect on the bottom line. Between 2013 and last year, the system trimmed expenses by $5.8 million and boosted revenues by $24.7 million, turning a $15 million loss for 2013 into a $15 million operating profit for 2014.

Many hospitals seek to cut lengths of stay and other expenses, but Kaleida’s performance “goes above and beyond even what you’re seeing in the national trends,” said Gerard J. Wedig, a University of Rochester associate professor of business administration who studies health care finances. The question, he said, is whether it can be sustained.

Lomeo also made administrative changes. He hired new chief medical, chief financial and chief operating officers and added chief medical and nursing officers at each hospital.

In addition, after a hidden-camera investigation led to charges against 17 employees accused of neglecting a patient at Kaleida’s HighPointe on Michigan nursing home, Lomeo fired the accused workers and removed the facility’s director and its director of nursing.

Some changes are cosmetic, but Lomeo said they make a statement. For one, he moved his office and the offices of several other top system administrators from a building in Larkinville to old patient rooms on the 11th floor in Buffalo General. Lomeo said it was important he and the other executives be more visible and accessible. For a while after the move, he met some visitors in a tiny, windowless conference room.

In another change, he directed crews to brighten up the main lobby at Buffalo General, where they painted the walls and added new carpeting and furniture, “to make you feel a little more welcome.”

No naysayers

Lomeo periodically takes planned – and unplanned – tours of the system’s hospitals. And he began monthly meetings with representatives of unionized workers.

“We’ve got to lead from the bedside,” Lomeo has said – more than once.

The system’s workforce has declined by 709, from the equivalent of 8,557 full-time workers at the end of 2009 to 7,848 at the end of last year. But Lomeo said no widespread layoffs are planned. “The new word is ‘recruitment,’ ” said Lori Mariano, a manager at the Gates Vascular Institute.

In fact, when Kaleida made 24 layoffs on March 10, as part of an ongoing effort to change the culture at the hospital, the job cuts hit non-union, mid-management employees and not rank-and-file workers. And administrators recently negotiated a wage increase – a 2 percent increase in June, followed by 1.5 percent in December – with its major unions.

Lomeo took along a reporter and photographer on a recent visit to the GVI, where he gently interrogated the workers he met. Institute employees said they rarely saw his predecessor.

“It’s a palpable change, the minute he walked in the door. He leads by example,” said Dr. Ken Snyder, a neurosurgeon, before scrubbing for emergency surgery on a stroke patient.

While current employees lavished praise on Lomeo, former employees were reluctant to discuss him for this article.

In all, two former Kaleida CEOs, a former system chief financial officer and former system chief medical officer declined to comment or did not return messages. It was the same for a former CEO and chief operating officer at ECMC.

Varying reports

It’s hard to talk with Lomeo without hearing that Consumer Reports last year named Gates Vascular one of the country’s 15 best hospitals for heart surgery.

But the system gets good and bad news from Medicare’s Hospital Quality Initiative. The data shows, for example, that Kaleida’s hospitals meet or exceed the national average for unplanned readmissions and death rates for patients who received treatment for heart attacks, strokes and pneumonia.

However, in a patient-satisfaction survey, Kaleida receives scores below the state and national averages for communication with nurses and doctors, pain control and cleanliness of patient rooms.

And another Medicare report, this one on common, hospital-acquired infections, put Kaleida on the defensive when it came out in December. The agency announced the system would lose 1 percent of its Medicare payments for having a high infection rate.

“We’re accountable to those metrics and those numbers, and so we don’t shy away from it. Our job is to make it better,” Lomeo said.

Center of excellence

On the Buffalo Niagara Medical Campus, Kaleida is trying to build centers of excellence, organized around institutes and specific diseases, said Larry Zielinski, a former president of Buffalo General who teaches at UB.

“When I was running Buffalo General, our focus was on increasing our census, getting more referrals and getting more sick people into the system. Because that’s how acute care hospitals make money. And the whole direction in health care is exactly the opposite: It’s preventing people to get to that stage,” Zielinski said.

The buildings are costly to construct, and operate, and must be justified on financial grounds. That’s even more true as the federal government changes how hospitals are reimbursed, from the traditional fee-for-service model to one that rewards hospitals for avoiding unnecessary readmissions.

It’s up to Lomeo and his team to figure out how Kaleida will adapt.

“They’ve done a lot to advance our ability to care for the really, really sick in Western New York. And is that a service to Western New York? I think it probably is. Can that be your total and only focus today? Probably not,” said Dr. Thomas C. Rosenthal, chief medical executive of Optimum Physician Alliance, a group with ties to Kaleida and BlueCross BlueShield of Western New York. “But developing that right balance takes somebody with a crystal ball and chutzpah.”