The North Shore-Long Island Jewish CEO sets his sights on Manhattan.

By: Gale Scott

Times are tough for New York City hospitals. Costs are rising, many patients are losing their health insurance, and hospitals are getting pounded by wave after wave of state and federal Medicaid cuts. So it's hard to fathom why the financially successful North Shore-Long Island Jewish Health System has chosen to take on two ailing hospitals in Manhattan.

“Challenges make the juices flow,” says Michael Dowling, chief executive of North Shore-LIJ, which recently agreed to run Lenox Hill Hospital on the Upper East Side and will open an urgent-care center on or near the Greenwich Village site of the former St. Vincent's Hospital.

For Mr. Dowling, entering Manhattan puts his 15-hospital system under a spotlight and offers the best chance to raise its national profile. He says he has no plans to acquire other Manhattan institutions. But under his aegis, the Long Island system has experienced rapid growth, most of it through mergers and acquisitions, and observers are betting that Mr. Dowling will continue to look for M&A targets and hire talent away from rivals.

“Moving into Manhattan shows clearly they want to play with the big boys,” says one Manhattan health care lawyer.

Mr. Dowling says only that the organization is keeping its options open, focusing on improving its performance. “We're going to make North Shore-LIJ one of the best systems in the U.S.,” he says. That means offering the highest quality of care and being financially successful.

“When they put out those lists of the nation's best hospital systems, we don't routinely make the top 10, just occasionally,” says a system spokesman. “We want to make them all the time.”

To understand how an upstart collection of hospitals on suburban Long Island has positioned itself as the savior of a Manhattan institution like Lenox Hill, look no further than Mr. Dowling, a 60-year-old former West Side dockworker from Limerick, Ireland. “We had a thatched roof and a dirt floor, but we loved to read Shakespeare by candlelight,” he says. His late mother, deaf from the age of 6, offered advice he never forgot: “Don't ever let your circumstances limit your potential,” he says. He came to New York as a 17-year-old and found his first job working in the electrical room of a Circle Line ship.

Work/study
He got his bachelor's degree from Ireland's University College Cork in 1971, attending part-time to work in New York as a construction worker, longshoreman and plumber.

Those blue-collar trades also paid his way through Fordham University, where he got a master's degree in social work in 1973. As a student, he did case work in the New York City school system.

In 1983, he went to work for Gov. Mario Cuomo, rising to become commissioner of New York's Social Services Administration. In 1995, he was recruited to join Empire Blue Cross Blue Shield as a senior vice president, but a few months later left to work at what was then a small Long Island health care system as chief operating officer. North Shore Health System merged with former rival Long Island Jewish Medical Center to form North Shore-LIJ in 1997. Mr. Dowling's predecessor inked that deal, but Mr. Dowling soon saw that merging could supercharge growth. In 1997, North Shore-LIJ had annual revenues of $2.3 billion. By 2009, it had grown into a $4.5 billion system.

Following a deal, Mr. Dowling typically distributes pink slips, installs new leaders and ties managers' financial rewards to meeting specific performance goals. He believes in achieving results with his own team.

“I would never allow consultants to serve as system executives,” he says.

Mr. Dowling is the chief executive of each North Shore-LIJ institution, and the system has a single board of trustees. After each acquisition or merger, the trustees of each institution are brought onto the system's sprawling 130-member board as “a way of keeping our ties to the communities,” Mr. Dowling says. But a smaller, 24-member executive board makes systemwide decisions.

“Half of our hospitals were losing money at one time,” Mr. Dowling says, “Some were losing as much as $20 million a year and would have closed if we hadn't come along.”

In 2008, the average operating margin for hospitals on Long Island was -0.8%, according to the Healthcare Association of New York State. North Shore-LIJ's margin was 1.7%, and it rose to 2.7% in 2009.

Fitch Ratings analyst Jeff Schaub, who follows North Shore-LIJ, credits Mr. Dowling's “relentless attention to management” for the system's success.

“Mike is brilliant,” says Dr. Michael Stocker, former chief executive of Empire Blue Cross Blue Shield, who once recruited him. In his executive role, Mr. Dowling excelled at blending disparate departments. “He's practical but principled,” Dr. Stocker says.

North Shore-LIJ's deal to take over operations of Lenox Hill Hospital represents a gamble that the system's clout with vendors and insurers will help the ailing but prestigious hospital negotiate better contract terms. The agreement is not a merger; the hospital continues to exist as its own corporate entity, with North Shore-LIJ as its corporate parent. Also, North Shore-LIJ is not taking on the hospital's long-term debt.

But the system's executive board will struggle with budget decisions, such as where to invest in upgrades. And there's plenty to worry about. The 652-bed institution lost more than $30 million last year and pro-jects a $15 million loss this year. On the bright side, for several years, Lenox Hill has reduced its losses through steps that included trimming staff while pouring resources into lucrative departments like cardiac care and orthopedic surgery. The hospital has said it was in turnaround mode when the recession hit.

Things will pick up
$4.5B BILLION ANNUAL REVENUES of North Shore-LIJ system in 2009 Fitch ratings analyst Gary Sokolow follows Lenox Hill, which sits in one of Manhattan's wealthiest ZIP codes. He says the crash was particularly devastating for the hospital's plastic surgery business, though that will surely pick up with the economy.

Mr. Dowling is optimistic about Lenox Hill's prospects. “Some hospitals take a longer time to turn around than others. We will invest to make this one very successful,” he says.

He is less sanguine about the future of St. Vincent's Hospital, which North Shore-LIJ has agreed to maintain solely as an urgent-care clinic. Since the bankrupt hospital's assets are tied up in court, it is not clear where that facility will be, but Mr. Dowling says he agreed to run it “to serve the community and fill a need. We'll be lucky if we break even.”

At the same time, his Lenox Hill venture could profit because some patients who come to the urgent-care center will be taken to Lenox Hill if they need hospitalization. To sweeten the deal, the state Department of Health has agreed to give the Long Island system more than $9 million to set up the emergency clinic.

Mr. Sokolow is optimistic about Lenox Hill's future. “Overall, its balance sheet is in decent shape,” he says.

Dr. Stocker says he's seen Mr. Dowling prevail in the toughest situations. “He can be forceful, but he usually doesn't have to be, because he's got charm,” Dr. Stocker says. “He turns on the brogue.”

TO BUILD A BETTER BUSINESS MICHAEL DOWLING molded a small group of suburban Long Island hospitals into a $4.5 billion powerhouse. Along the way, North Shore-LIJ's chief executive learned these management lessons.

CENTRALIZE OPERATIONS One CEO per system is enough. The same is true for your procurement, HR and legal departments.

LEARN FROM ALL STAFFERS I meet everyone who works here. I'm always walking around the hospitals, talking to people. I get ideas on everything from improving the patient-intake process to keeping the floors cleaner.

DON'T BE AFRAID TO JUDGE A guy dozed off at our first meeting. I told him to work someplace else.

KEEP YOUR PROMISES If I say I'll do it, I do it.

USE CONSULTANTS SPARINGLY They should be short-term and used only for specialized tasks.

LEARN THE CULTURE FOLLOWING AN ACQUISITION Don't come in and shake the crap out of everyone. Take your time.

MAKE PERFORMANCE A TEAM EFFORT If one hospital has an underperforming department, analogous departments systemwide work to fix it.

KNOW THAT THE OLD REGIME USUALLY HAS TO GO You can't change the stripes on a zebra.