No lollygagging for Dr. Lally.

Fifteen years as a U.S. Army Special Forces medic equipped Jim Lally with a number of useful if esoteric skills.

He learned to parachute from a plane at high altitude, knife through enemy waters in SCUBA gear, fire a bullet into a target accurately by day or by night with any of an arsenal of weapons, organize a clandestine field hospital, diagnose and treat major wounds and diseases without supervision and even wield a backpack nuclear device. (Don't ask.)

Along the way he earned a medal for heroism.

It was a basic special operations attitude, though, that has served him most practically in civilian life, he believes.

"It was pushed on you that aggressive, diplomatic behavior is good," he says. "You set a goal and you work to achieve it."

So when Lally, now a Chino, Calif., osteopathic physician, decided a few years ago that his hometown hospital was not being well served by its absentee corporate management, he took a no-nonsense path:

"I wrote them a letter and asked them to sell it to me."

When that frontal tactic was ignored, Lally started telephoning--first to the administrative offices, then when those calls were spurned too, to executives' homes at night.

Today, Lally's Veritas Health Services owns and operates Chino Valley Medical Center. But to get it, he also had to raise $30 million and endure a nasty flurry of figurative house-to-house skirmishing.

Right places, right times

James Michael Lally, DO, MMM, FACOFP, FACPE, FAOASM, CPE, CMD, grew up a nomadic Army brat. Born in 1954 in Sendai, Japan, where his sergeant-major father was then stationed after having survived the Bataan Death March at age 17 and prisoner-of-war camps for the duration, Lally is an extraordinary mix of bloodlines. His father was "shanty Irish," he says, his mother Japanese--but half East Indian from her father's side.

"I'm so mixed," he says.

To add to the hybrid American vigor of the family tree, Lally's wife Diana, whom he met in Chino and married nine years ago, is "a beautiful Hispanic woman," he says. They have two children, a son Joshua, 12, from her first marriage, and a daughter Kaitlyn Bai, 7.

Upon graduation from high school in 1972--the 13th school he attended--Lally followed in his father's and older brother's bootsteps. Brimming with youthful testosterone, he enlisted in the Army to fight in Southeast Asia as an infantryman. He quickly advanced through basic combat training to Airborne and Ranger schools, but by then U.S. forces were being withdrawn from Vietnam. He sublimated his disappointment by tackling what he considered the biggest challenge in the Special Forces: becoming a medical corpsman.

In fact, his father had been an Army corpsman too.

Over the next four years, Lally acquired all the tools of the special operations elite--sniping, escape and evasion, mountaineering, small boat handling, intelligence gathering, guerilla tactics--along with the extraordinarily broad grounding in medical treatment techniques and group leadership under pressure.

When his hitch was up in 1978, Lally succumbed briefly to the lure of a secret politico-military adventure being organized by ex-Green Berets. It was aborted--a fortunate reprieve from youthful folly, he says looking back. He spent several months as a pharmaceutical salesman. Then, an opportunity arose to return to active duty as a warrant officer.

Lally became the first Army reservist selected (out of almost 700 applicants) for training as a physician assistant. That entailed two years of full-time academic study and clinical rounds--on top of regular military duties. It led ultimately to his assignment as staff physician to the U.S. and Caribbean Peacekeeping Forces when the Rangers and the Marines landed under fire on Grenada in late 1983.

"I was the primary care provider for over 700 militant personnel and responsible for the emergent care of any and all local nationals in the proximity of the military installation," he says. "The position allowed me to provide primary care and assistance to over 600 medical students (at the U.S. medical school on the island) and United States embassy personnel and their respective families in a Third World nation."

He also established an "extensive and well-coordinated 'de-worming' program directed primarily at the [local] pediatric population."

Lally doesn't like to talk much about his military camel actually. Of the circumstances that led to his Army commendation medal for heroism (one among many decorations and badges he is entitled to wear, including the Legion of Merit) he mumbles only modestly: "I was in the wrong place at the wrong time."

In part, his reluctance stems tom a disdain for the vainglorious rehashing of war stories that might issue from "some guy in a bar." In part, it stems from nostalgia--"I start missing it," he admits. Indeed, he says, that sort of reminiscing "can kind of mess up the whole day."

Underlining the high-adrenalin rigors that stoked his attachment to special operations is the incident that abruptly ended it.

In 1987, during a routine parachute jump--one of hundreds he had notched--he broke his back.

Keeping busy

Lally left the Army after two surgeries and reconciled himself to a sharp career dogleg. He applied for admission to the College of Osteopathic Medicine of the Pacific at Western University in Pomona, Calif.

"My supervisor in the flight surgeon program, Jeff Stone, had been very supportive," Lally says. "He pressured me to consider going to medical school and he facilitated the interview. I owe him forever."

Lally describes himself as a late-bloomer. He earned his baccalaureate degree through night classes in the Army. He says of his acceptance into medical school, "I almost thought they felt sorry for me." But he graduated with a clutch of honors and added to them during internship and residency.

He had already assumed leadership roles in California and national osteopathic professional associations. By 1994, when he joined with a partner to establish a family practice in Chino, he'd begun a long list of activities including:

* Affiliation with a city sponsored free clinic in nearby Montclair

* Team physician for a high school--the first of five for which he still volunteers

* Staff physician to the World Hwa Rang Do (a Korean martial art) Association

* National team doctor for the United States Shooting Team--after answering a newspaper ad for volunteers. (The team had built a practice range in Chino during the 1984 Olympic Games.)

Perhaps in reaction to his peripatetic youth, he accomplished all of this--plus courtship and marriage to "a local girl"--within a radius of about 25 miles.

Life held more zigs, however. In 1996, the feds came calling. The U.S. Department of Health and Human Services calculated that Lally's partnership, Inland Physicians' Services, Inc., had been overpaid by Medicare by some $580,000 over a three-year period.

The case was determined to be administrative without any evidence of willful wrongdoing, and after extensive review, the partners entered into a voluntary repayment program.

"We were cleared but the shadow was cast," Lally says. "Anyone wanting to distort the situation or provide misinformation was able to have a field day because the agreement was posted on the HHS Web site."

As a military PA, Lally excelled in complex administrative assignments. But it was time, he decided, to get more in-depth business training. In 1998, he enrolled in what was then a newly developed Master's of Medical Management program offered by the American College of Physician Executives through Carnegie Mellon University's Heinz School in Pittsburgh.

As a finale to the curriculum, each student was required to undertake an independent project. Lally's choice could be considered aggressive: he announced that he would acquire a hospital.

Health care is local

Canyon Ridge Hospital was an inviting if risky target of opportunity. A 59-bed psychiatric inpatient facility in Chino, it was on the financial ropes. Its remote owner, Nashville-based Behavioral Healthcare Corporation, itself teetered at the edge of bankruptcy.

"I found a real estate investment trust that wanted the property," Lally says. He lined up investors, leased back the medical care side to his newly organized Inland Mental Health Associates, and wrapped up the deal (and his MMM project) in 2000.

"It was a very trying experience," he acknowledges. "But I believe in taking care of people in this Zip code in Southern California. Under the excellent management of Diana Hanyak, who's the CEO at Canyon Ridge, we've been able to turn things around."

Meanwhile, the same scenario was developing only a mile down the road. Chino Valley Medical Center, the city's sole acute-care hospital--a 256-bed for-profit owned by Columbia HCA--was floundering.

"They were trying to run it from Tennessee," Lally explains. "But health care is local."

Lally, the two-term chief of the Chino Valley medical staff, sat down and wrote his letter asking to buy it.

Some of his physician colleagues from the city's largest independent practice association had themselves been eyeing the purchase possibility, however. When Lally made his overtures public--he'd once again enlisted the REIT and the Mardel Group, a hospital management company whose principal, Norm Martin, arranged a $30 million loan from GE Capital--a nasty firefight erupted.

Petitions opposing the sale were circulated among the medical staff and local residents. Doctors from the competing IPA floated "concerns" about Lally's ethics, citing his brash with Medicare. They questioned the financial soundness and motivations of his investors. He was defeated for re-election as chief of staff.

"It was a complete disruption of my professional and family life," Lally says. "It almost caused us to back out. But we looked at the pros and cons and elected to go forward."

A vote of confidence from the hospital's employees was a deciding factor, he says. Even more encouragement came from his wife. "I have a very, very supportive and wonderful spouse," he declares. "If she's happy, everything's happy."

He also credits the ACPE's Charisse Jimenez, project manager of degree programs, for stalwart morale-boosting when his character was being pilloried in the press.

"I would e-mail her the articles and ask what I should do," he says. "She was very empathetic. She said, 'Just focus on the deal.'"

On April 7, 2001, the keys to Chino Valley Medical Center were turned over to Lally's Veritas Health Services, Inc.

"Veritas is the Special Forces motto," he points out. "It means truth. We're providing truth in health care."

Lally had offered all 262 physicians on staff an opportunity to share in the action for a $50,000 investment. Sixty-eight signed letters of intent, he says--but in the end only 12 followed through.

Intramural professional relations were rocky for a time. His opponents threatened to redirect all their referrals elsewhere. But amity has slowly been restored, he says, and "I think things are now heading towards very, very positive situation."

One of Lally's first acts of ownership (the hospital remains a for-profit) was to shake up the board of trustees.

"I got the police chief, the fire chief, the city manager and a council member to come on board," he notes. "They're all professionals who represent the community, who come to meetings and sit at the table and ask questions and talk about quality and policy issues.

"We're not making any money," he quickly adds. "There are a million uninsured in California, and I think they all must live in Chino.

"We do an $8-million or $9 million-a-year MediCal business," he continues, "but MediCal only pays us about 30 cents on the dollar. We get $3 million from our cash patients--I wish 100 percent of them paid their bills. The hospital is only keeping ahead because we have a very creative CEO, Mak Nakayama, and money in reserve.

"Our community deserves a good hospital," he declares.

He thinks he's helped it keep one. Proudly, he points to the 2003 Quality Index of California hospitals published by PacifiCare, a major state health insurer.

Chino Valley Medical Center is one of 66, among 202 surveyed, that received an "A" grade.

Mission, objective

"Dr. Lally's very personable, very down-to-earth, very approachable," says Heather Mendoza, public relations representative at Chino Valley Medical Center. "Very generous ... extremely generous! He'll throw employee parties, he has barbecues for us, he gives the staff Nordstrom gift certificates.... In fact, if I had to use one word to describe him, that's it: generous."

Lally growls of himself, "I'm not the most altruistic guy in the world." But you wouldn't know that by his ongoing work for the high schools. Or his continued service as medical director of the Montclair free clinic. Or his efforts to start a similar program in Chino for "the people in the void, who're working but not making enough money to afford insurance."

A big swatch of his volunteer time has been taken up by his burgeoning involvement in USA Shooting. Lally is now vice chairman as well as chief physician of the national governing body for Olympic shooting sports, and is expected to assume its chair after the Athens Games of 2004. He's traveled the world applying his osteopathic manipulative skills to treatment of the musculo-skeletal injuries that are part of the competitive shooter's lot.

"Maybe I live through them vicariously," he admits.

For his own recreation he still practices judo, usually with his daughter.

"I feel my life is just blessed," Lally says. "The Special Forces gave me the ability to think things through. If I say 'I have a mission, an objective and a route to the objective,' people get a little uneasy. But it's no different in business ... or in life."

So what's his next objective?

"We're looking to build a bigger hospital for Chino," he says, "hopefully in partnership with the city. We might go for non-profit status."

Anything else?

He hesitates. "I'm not sure I should be saying this." Then he lets go. "My goal," he declares, "is I want the Surgeon General's job."

Lally explains that he's a huge admirer of the incumbent, Richard Carmona, MD---another former Green Beret.

"He's an incredible, incredible guy!" Lally says. "He's going to get the wheels rolling on some health care issues I'd like to keep going. That would be my ultimate contribution to health care."

He pauses again, clearly uneasy at such self-revelation. Then he laughs.

"Well, if I focus on it, and talk about it--the worst that can happen is, I don't get it." He shrugs. "And sometimes if you talk about things they happen."

Especially if you've got a mindset forged in Special Operations.

David Ollier Weber is a frequent contributor to this journal and 2002 winner of the eighth annual award for trade journalism presented by the National Institute for Health Care Management Research and Education. He can be reached in Mendocino, Calif., at [e-mail].