Lee Domanico, CEO of Portland-based Legacy Health System

Why would anyone want to be the CEO of a large urban health care organization fraught with enormous and unending challenges? Rising labor and drug costs, rapidly changing treatments and technologies, shifting third-party payer systems and an industry leadership vacuum when it comes to reform at the federal level are among the daunting issues.

PHOTO BY STEVEN LANE / THE COLUMBIAN

Lee Domanico, 54, president and CEO of Portland-based Legacy Health System, has been taking on those challenges since he combined studies in industrial engineering with hospital systems management while getting his master’s at Stanford University in the 1970s. Techniques already applied in other industries could be adapted to such things as hospital scheduling, productivity and operating room utilization. A career in health care appealed to Domanico’s social conscience. In 1982, he had his first hospital CEO job.

“I enjoy leadership, establishing a vision, then organizing the team in the broadest sense around that vision,” he said during a recent interview at Legacy Salmon Creek Hospital, part of the Legacy system. “There’s an appeal in bringing together physicians and employees to motivate and inspire.”

After joining Legacy in January 2006, Domanico reorganized top management, created direct lines of responsibility and set out to improve profit margins. So far so good. Legacy’s net operating profit increased from $28 million in fiscal 2005-06 to $39 million in fiscal 2006-07, which ended in March. Patient volumes, which have been flat for several years, have begun to grow. That’s particularly significant in a mature health care market with strong competitors including Kaiser Permanente, Providence Health System, Oregon Health & Science University and Vancouver’s Southwest Washington Medical Center.

Salmon Creek gains

Much of the profitability improvement can be attributed to reducing losses at newly opened Legacy Salmon Creek Hospital in Vancouver, which lost $27 million in 2005 and $7 million last year. Salmon Creek saw its first profits in June of $350,000. With an annual operating budget of $117 million, Salmon Creek is only one part of the huge five-hospital Legacy system, one of the largest employers in the four-county Vancouver-Portland metropolitan area with 8,000 workers and assets of $1.1 billion.

“The continued rapid improvement at Salmon Creek is a major factor in our numbers,” Domanico said. “A $350,000 profit is not bad for less than two years.” But Domanico isn’t ready to open more patient rooms at Salmon Creek, which now operates 151 beds out of its allotted 220. “My guess is we’ll wait until we’re north of 100 patients a day before we open up our sixth floor (adding 70 more beds),”Domanico said.

The hospital’s in-patient census has inched up from a daily average of 81 in the last fiscal year to 87 so far this year. Employment has increased from 610 to 680 full-time workers. The number of doctors admitting patients at Salmon Creek has climbed from 149 a year ago to 190.

Big picture

While guiding the Legacy ship is Domanico’s day-to-day challenge, he sees health care heading into deeper crisis on
several fronts.

PHOTO BY TROY WAYRYNEN / THE COLUMBIAN

“In the dark of night, I worry about the industry’s ability to continue to find physicians and other clinical care people to meet the needs,” he said. “Legacy is not at a crisis yet, partly because Oregon and Southwest Washington are good places to live. That helps us attract people to the area.”

Meanwhile, national industry reform must come soon, he said. “We’re reaching a tipping point because babyboomers will be hitting Medicare age over the next 14 years. That plus uncapped demand for health care services and rapid proliferation of (costly) medical technology along with government not paying a full share of the cost of services, all will force reform,” he said. “Most other civilized countries have figured out a way to limit demand.” That could mean waiting in line as in Canada and England or providing certain treatments and services based on age as in other countries.

Domanico sees the federal government establishing “marketplace rules that will help free enterprise establish cost-effective health care.” In other words, we Americans can’t have it all and not pay for it, he said.

“Up to now, we’ve not been willing to wrestle with what are rational choices for how to spend health care dollars,” said Domanico, who remains hopeful for the industry.

“The good news is that health care is on the campaign agenda of each (presidential) candidate for the first time since the early 1990s,” he said.