Leading an organization through change.

Since I took over the group in 1965, there have been four big decisions:

* Deciding not to be a hospital-based group.

* Becoming a foundation.

* Buying out all the assets of the doctors.

* Merging with Sutter Health Care in an integrated system and building and moving to a new campus.

Deciding Not to Be a Hospital-Based Group

In the late `60s and early `70s, we decided we weren't going to be a hospital-based group practice. The decision was fortuitous. It was impossible to build a hospital in a residential area, so we went completely the other way. We were going to be outpatient everything. We had the first CAT scanner on the west coast, the first surgical center, the first mammography. We went to Texas, where mammography started, and learned it. We had great radiologists who said we have to get into this imaging business. We studied a lot and had many meetings. It was a calculated risk, but it seemed to us that it was worth it. Then I had to sell it to the board.

I work through committees. I don't do anything by fiat. I listen a lot. On our board, we don't take any votes; it's all done by consensus. By the time a decision is made, it isn't the leader who's out there. One of the worst things you can do as a leader is be the general on a white charger, doing battle with the enemy, and have the troops back on the other side of the river around the campfire saying, "What is that damn fool doing over there?"

Becoming a Foundation

AMI and HCA were trying to get into the insurance business. Insurance people were trying to get into the health care business. Neither one knew what they were doing, and most of them failed and went back to what they do best, but we were prime targets for a takeover. It was not what I wanted or what I thought Russ Lee had founded the clinic for. I wanted an institution that would be a public trust and would live in perpetuity. I knew patient fees were going down before they did, because Medicare was coming and the private sector always follows the public sector. I do not understand the AMA or even the American College of Surgeons point of view of fighting for fee for service. It's dead. It costs us more to get the chart out than we get remunerated for seeing a patient on the RBRVS system. We knew what was coming on the horizon, and that we had to get other monies in here.

The only way I knew to get the money was through philanthropy and low-cost financing. We wanted to be in a foundation like the Mayos. We had all sorts of problems. The doctors thought I was giving away the store. We individually went out and talked to every single partner. It took us six months with dinners and conversations. We had 130 partners. We just pounded this in, and we finally got a unanimous vote to go into the foundation.

In January 1981, we started the Palo Alto Medical Foundation for Health Care Research and Education using the old 501(C)(3) charter of the research foundation, which is now called the Research Institute. This was the biggest move. It took an unbelievable number of lawyers and accountants and actuaries. I firmly believed that was the only way to go, because we needed more money. I wanted an institution that couldn't be bought out. And I convinced our doctor board of that, and we all convinced the partners. It wasn't easy. We are a not-for-profit, tax-exempt, charitable institution, just like a Catholic Church or Stanford University, and nobody can acquire us this way. We get money through philanthropy and low-cost financing.

Doctors don't want to give up control and that is what kills them. You've got to get past the control issue. Theoretically, we gave up control. We had to explain to these guys that, while they were giving control to a lay board, these laymen were their patients, their friends. The doctors still were not convinced, and I had to keep saying we were going to raise money. We raised 30 million dollars in six years without really trying. The doctors then were convinced these laymen were so wonderful that they couldn't do without them.

Buying Out All the Assets of the Doctors

Six years later, we bought the doctors out. In 1981, they still owned the land, building, and equipment in a separate corporation that they had. They felt that they owned it, even though the laymen were running it, but if we didn't raise any money, which we all promised to do, they could take it back in their charge. They didn't want to be in charge anymore for two reasons. They trusted the laymen and me and the board, but, most important, they were in a situation in which it would be hard to attract new doctors. When I bought into the partnership in 1954, the buy-in cost $5,000, and you paid it off in two years. In 1984, the buy-in was more than $200,000, and you are not going to recruit a guy who has to put his name on a $200,000 chain letter. We floated tax-exempt bonds way down at 5 percent interest, which we could easily pay off in 30 years out of the health care division, and the doctors gave a gift of $9 million. All of sudden, not only was the foundation getting all the money from health care and research, but it owned everything; therefore, the foundation was finally in a position of strength in 1986.

Merging with Suffer in an Integrated System and Moving

and Building a New Campus

We felt we were in a terrible position here in the middle of a residential area. We couldn't expand. We were all over the place, all over 9 blocks. We needed a new campus. We had a retreat in 1992 and decided two things - we have to be in managed care big, and we needed a partner with deep pockets. All of sudden out of the woodwork came the for-profit guys wanting to buy us, and I said, "We just got out of that." They were honest and all, but I've sat on enough public boards to know that the fiduciary responsibility of a public board member is to increase shareholder equity. If we wanted to do something in education, and they wanted shareholder equity, you know which was going to win out. So Sutter came along with exactly the same philosophy. They were a hospital system, but they were closing down their hospitals and doing outpatient everything. Seven years before, the doctors were worrying about giving up control to laymen. Now it was the laymen who worried about giving up control. It's the control issue that is a killer in this whole thing. If you can get over that, it's terrific.

So we went with Sutter. This is the best partnership we ever had. They gave us $50 million. We're building a new campus. We are raising $40 million. We'll float bonds. We'll pay off the old bonds and float another $25 million. We'll fund appreciation and pay off the bonds out of health care. And we will have a brand new campus. All of this takes a lot of time, and you can't do it by fiat. The secret of leadership is to do the thinking, trying to be ahead of the game, such as predicting that fees are going down, by predicting that only the large organization will survive. We figured out a long time ago that to be big you have to be in a large integrated system. So we gradually go along dragging people, getting their consensus without votes. I think that is what leadership is all about.

When you do something that doesn't go well, how do you respond

to criticism?

The first thing you have to do is admit it. Take the blame. The buck stops here. If it goes right, take the credit. If it doesn't, take the blame, but don't dwell on it. Say, "Well that was a mistake. We never should have done that. What are we going to do now?" Get over it. I always remember one thing - all you need as a politician is 51 percent. I've had 91 percent, but there are always the doubters and the naysayers.

Do you ignore them? Do you listen to them?

You have to listen to everybody, because the "what ifers" are the ones that try to kill you. Sometimes my board and I have not thought of the "what ifs?" You have to listen. The only way you will ever convert these guys is to listen carefully. You sometimes incorporate some of their ideas, because some of them are good. Leadership is dynamic, and if you just go bulldozing through, you are going to lose. You have to be willing to change.

I always bring things down to money. I'm a capitalist. We live in a capitalist society. While we want to do education and good things, when it comes down to it, the first thing is they want to put food on the table and send their kids to college. Nothing talks louder than money, and that's really the only way I know how to persuade doctors.

What gives you the courage to lead into unchartered territory?

I attribute a lot of it to athletics. As a quarterback, even if it was wrong, I had to make them think it was right. I was used to taking responsibility. If it is wrong, admit it, but you better have most of it figured out ahead of time. After weighing it all, you've got to have the guts to do it. You lead the troops, but you never get too far ahead. If they are not behind you, it is not going to work. You have to be a politician, diplomat, persuader, good salesman.

Barbara J. Linney, MA, is Director of Career Development American College of Physician Executives, Tampa, Fla.