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Internal Disorder 

Memorial Hospital's executive director Mike Schrader calls it quits

For Mike Schrader, the writing was on the wall when a new, conservative City Council swept into power in April. The executive director of the city-owned Memorial Hospital had been warned almost a year earlier that his push to provide health-care benefits for same-sex partners of hospital employees might ultimately lead to his downfall.

And yet, Schrader charged ahead. In doing so, he either demonstrated a courageous commitment to principle, or a bullheaded lack of political savvy, depending on whom you ask.

Either way, he lost.

Just walking away

Just four months earlier, a sharply divided City Council had voted to extend same-sex benefits to all city employees. But Schrader's wish was short-lived. A new, conservative-leaning council was elected in April with backing from the Christian right, and as its first order of business, it revoked the citywide domestic-partner benefits on April 22. Schrader asked that the hospital be allowed to keep the benefits, but the council ignored him.

Two months later, Schrader announ-ced publicly that he was stepping down as Memorial's director -- citing his frustration with not only the reversal of benefits but also the city's decision not to challenge a new state law that would allow citizens to carry guns inside the hospital. He had no other job lined up; he was simply walking away from his $321,000-a-year gig, the highest paid position within city government.

"Since April of this year my job has taken a very difficult turn," Schrader announced in an open letter addressed to friends. "I am in direct conflict with the actions and policies of the City Council. ... I cannot be part of those actions."

Schrader's resignation was about more than just disagreements on a couple of emotionally charged issues, however. In fighting City Hall over the same-sex benefits, he had realized that the new Council aimed to assert greater power over Memorial -- perhaps even by changing the governance structure for the hospital that had been put in place by a previous Council. The old order had largely allowed the hospital to mind its own business, under the governance of a separate board of trustees. Essentially, all the City Council did was appoint the board of trustees' members and approve the hospital's annual budget.

The new Council, however, had wasted no time telling Schrader who was boss. Indeed, peeved with the director of two-and-a-half years and his independent style, some now advocate a return to the past practice of appointing one of their own to the board of trustees. Advocates of such an approach say the hospital, despite being a public entity, had grown unaccountable under Schrader.

"The way I look at it, the City Council has all the responsibility for that hospital and none of the control, and I resent that," said City Councilwoman Margaret Radford.

Others, however, say interfering with Memorial's governance creates the risk of politicizing the hospital at a time when its long-term survival may be at stake. Though the hospital is currently profitable, most observers agree that Memorial faces huge financial challenges in continuing to fulfill its mission of accepting all who seek treatment, regardless of the patients' ability to pay, and without requiring any taxpayer subsidies.

To continue to provide such a safety net in an increasingly cutthroat health-care market, the hospital should be allowed to operate freely and not be turned into a "political football," say those who caution against Council interference.

"This council doesn't know a damn thing about running a hospital," said Dr. Ted Eastburn, a former city councilman and a cardiologist at Memorial. "They don't have a clue about health-care issues in this community."

Overextended muscles

Though Schrader himself fired the first public volley in the debate over Memorial's future governance, he has since simply walked off the court. Schrader refused repeated requests for an interview for this story, leaving it to others to answer the many questions raised by his resignation.

What seems clear, however, is that Schrader had gotten accustomed to running Memorial with a relatively great degree of independence.

Schrader took over the helm at Memorial in November 2000, just as debates over the hospital's governance appeared to be in the process of being settled. He came to Colorado Springs from Casper, Wyo. -- where he had earned accolades as the director of the Wyoming Medical Center -- to replace Bob Peters, who had headed up Memorial since 1975.

Though Peters was credited with building Memorial from a minor player in the local health-care market to a top-notch hospital treating roughly half of the area's patients, he had also been at the center of controversies that had sparked some City Council members to demand greater control over the hospital.

By the late 1990s, relations between the community's physicians and Peters' administration were poor, and City Council members were upset when they learned that top Memorial administrators had been receiving large bonuses while most staff workers received none. Some council members, including current Mayor Lionel Rivera, argued that the hospital should share some of its then-hefty profits with the city.

Rivera at one point also argued the Council should eliminate the board of trustees and govern the hospital directly, the way it oversees the city's other major enterprise, Colorado Springs Utilities. Though that idea never took off, Rivera in 1997 persuaded the rest of the City Council to appoint him as a member of the hospital's board of trustees, saying he wanted to make the board more accountable to the Council. He left the board in 2001, telling the Gazette daily newspaper that the accountability problems had been solved.

Meanwhile, the question of whether the city should sell Memorial surfaced as at least two private health-care corporations made offers to buy the hospital, then valued at as much as $500 million. The hospital's board of trustees rejected an offer from the nation's largest hospital chain, Columbia/HCA, in 1996. A 1999 offer from Pennsylvania-based Universal Health Services also went nowhere.

Most City Council members -- including Rivera -- opposed selling the hospital, citing its critical role in providing health-care for the indigent. A sale would also have required approval by city voters, who had ratified the city's purchase of Memorial in 1943, and polls showed lukewarm support for a sale. In 1998, the Council voted 5-3 against holding a referendum on selling the hospital.

In 1999, then-Mayor Mary Lou Makepeace sought to put the debates over governance and ownership to rest by appointing a "Blue Ribbon Commission" to study Memorial's future. The commission ended up recommending that the city keep the hospital but allow it to largely govern itself, without any council members or city employees on the board of trustees. The City Council would still have the final word on the hospital's annual budget.

The City Council adopted the commission's findings and worked out a Memorandum of Understanding (MOU) with Memorial, which the hospital's board of trustees approved in February 2001.

Taking her pulse

Ratified just three months after Schrader came on board, the MOU set the stage for Schrader and the hospital's board to run Memorial as they saw fit. Within this framework, Schrader and the board at some point decided it would make good business sense to extend health-care benefits to same-sex partners of hospital employees.

Schrader's plans were in motion long before the public learned that City Manager Lorne Kramer was also about to propose same-sex partner benefits for all city employees. Kramer says he was mulling the idea over when he learned that Schrader was already planning to offer the same benefits at Memorial.

"It was kind of a coincidental thing," Kramer said.

Councilwoman Radford says Schrader didn't consult the elected body about his plans; he merely informed them of his intent. In June of 2002, Schrader and David Palenchar, the chairman of the board of trustees, told Radford about their plans over lunch.

"That's when they dropped this turd in my punch bowl about domestic partners, at lunch," Radford recalls.

Radford told Schrader she thought it was a terrible idea -- not only because she personally opposed same-sex benefits, but also because she predicted a major political backlash from the city's conservative voters.

"I warned him ... that if he went forward with this domestic-partners thing, he would be gone within a year, because I knew what the political fallout would be," Radford said. "I knew it was a mistake, in the sense that I knew it could not, would not last. The debate would be divisive and ugly. ... I saw it as a waste of time and a waste of energy, and a waste of people's credibilities and their jobs and their careers and their futures."

Palenchar, however, maintains that he and fellow board members approached the benefits decision not as a political matter, but as a business decision. With the health-care industry continuing to suffer from a labor shortage, offering benefits could help in recruiting workers, they reasoned.

"We weren't doing this from the perspective of counting votes," Palenchar said.

Memorial's board of trustees voted unanimously in favor of Schrader's proposal to include the benefits in the hospital's 2003 budget. The Council went on to approve the hospital's budget, following its own contentious decision to extend same-sex partner benefits to all city employees, over the "no" votes of Council members Rivera, Radford, Charles Wingate and Sallie Clark.

Raising the blood pressure

Then came April's elections. Of the five council members who had supported same-sex benefits, two were leaving -- Mayor Makepeace and Judy Noyes. Of the other three, two vacated their council seats and ran unsuccessfully for mayor -- Ted Eastburn and Jim Null.

Incensed by the old Council's benefits decision, conservative Christian groups led by Focus on the Family backed a slate of conservative council candidates who promised to overturn the benefits -- including mayoral candidate Rivera. Most of them won, and the Council soon voted 8-1 to revoke the same-sex benefits, the lone dissenter being Councilman Richard Skorman, now the city's vice mayor.

Schrader asked the Council to make an exception for Memorial, since the hospital was supposed to be governed independently. Council members, however, said it would be illegal for them to treat certain city entities differently than others.

Shortly after the vote, Schrader sat down with Rivera to discuss concerns that the new Council was interfering with the running of the hospital, contrary to the MOU that had been reached two years earlier.

The meeting did not go well.

Rivera "reinforced the right of the Council to set policy for all city entities," Schrader recalled in his subsequent resignation announcement. "He also indicated that the Memorandum of Understanding had been approved by the previous Council, and that the new Council would establish its own approach to governance. That approach may well include returning to the practice of having a City Council member(s) sit on the Hospital Board of Trustees."

Rivera says he simply made it clear that Memorial Hospital was expected to comply with citywide policies. Other than that, "the board is free to run the hospital as they see fit. ... You just comply with city policies, and everyone is happy."

But Schrader wasn't. Soon after, he informed the board of trustees that he planned to resign rather than implement the City Council's decisions. As early as May 9, records show, the hospital was communicating with a headhunting firm about possibly launching a search for Schrader's replacement.

The community, however, would not learn of Schrader's decision until much later. In fact, Schrader and the board signed an agreement stating that no announcement regarding Schrader's resignation would be made until at least June 23, allowing a search for Schrader's replacement to get under way. The idea, says Palenchar, was to be able to announce the executive director's resignation and his replacement at the same time, to prevent any public uncertainty about the hospital's leadership.

Schrader also agreed to keep working at the hospital for three months following his resignation to help with the leadership transition, and the hospital agreed to provide him and his family with health-care benefits for six months thereafter.

Though the board initially envisioned a national search, it soon began talks with Dick Eitel, who had retired from Memorial at age 50 as a senior hospital administrator -- one of Schrader's two top lieutenants -- in April. A protg of former director Peters, Eitel had worked in the hospital's administration since 1975 and had been a finalist in the search for Peters' replacement in 2000. Last spring, he decided to call it quits and apply for law school. In fact, he had already paid his tuition at the University of Denver Law School for the fall semester, when he was approached about taking Schrader's job.

"The hospital has been part of my life for 28 years," Eitel said in explaining his decision to return to Memorial. "I've been committed to the mission of the hospital; there's a great management team in place; the employees are committed."

Just days before Schrader's resignation was announced, the board of trustees reached a final agreement with Eitel. He would receive a salary of $330,000 -- which is $9,000 more than Schrader earned -- plus a vehicle allowance of $600 per month. The board voted unanimously to hire Eitel; under Memorial's Memorandum of Understanding, the Council plays no role in hiring the hospital's director.

Palenchar says hiring Eitel as the permanent new director rather than, say, bringing him in as an acting executive, allowed the hospital to avoid a temporary leadership vacuum. A search would have taken months, and an outsider would need time to get up to speed, whereas Eitel already knew the hospital inside out.

Three years ago, Mayor Rivera was among the hospital board members who picked Schrader over Eitel. But at the time, Rivera says, Schrader had given him the impression he'd be able to work with the Council. Besides, Schrader had experience as the CEO of a hospital, and Eitel did not.

In the dark

Though Schrader's resignation announcement was in the works for months, it came as a surprise to many. Councilman Randy Purvis said he only learned of the resignation when he received a phone call from a reporter asking him to comment.

"I thought it was done in a very unprofessional manner by Mr. Schrader," Purvis complained.

Radford said she had heard rumors that Schrader was unhappy, but she didn't realize he was leaving for sure.

"We were so completely in the dark about this," she said. "I had a gut sense that he was pissed off, but I had no idea he was going to resign."

However, one council member did know. Palenchar had, in fact, consulted Mayor Rivera on picking Eitel as Schrader's replacement. Problem was, Rivera didn't bother to tell his fellow council members. He has since apologized for not informing them.

"That was a mistake," Rivera said in an interview. "I should have kept them better informed about what the hospital was telling me."

Still, several council members portray Schrader's surprise resignation as validation of their general sense that the hospital director didn't care much about keeping the Council informed.

Purvis, who served on the hospital's board during a previous stint on the City Council, says that since his return, there has been a "breakdown" in communication between the hospital and council members.

Rivera also said there had been a "lapse" in information from the hospital since the new Council was sworn in. "I don't remember getting the timely updates like we used to get," he said.

Radford, meanwhile, says communication from the hospital has been lackluster ever since she was elected to the City Council two years ago. "It's sucked the whole time," Radford asserted.

And while Schrader's supporters have lauded him for successfully carrying out strategic expansion projects at the hospital, Rivera doesn't credit Schrader for those accomplishments.

"All the things that the hospital has recently accomplished -- those are plans that were put into place prior to Mr. Schrader getting there," Rivera said. "All those things have been on the drawing board for years."

Rivera and Radford also said that when Schrader was interviewed for his position, he had told City Council members that he understood how politics sometimes come into play in running a public hospital. That, they said, turned out not to be true.

"When he was hired, he told all the people that interviewed him that he was savvy politically and knew about elected bodies and hospitals and how stuff happens," Radford said. "But I think he acted very surprised that when you have a community-owned hospital, you're governed by the policies of the governing body."

Second opinions

Schrader's defenders, meanwhile, say the council members criticizing Schrader are being unfair. Former Councilman Eastburn likens Schrader's detractors to "children whining in the schoolyard."

The hospital "has been much more accountable and accessible and approachable, and [better at] giving information, and engaged Council a lot more under Schrader, than they ever did before," Eastburn maintained.

It wasn't Schrader's responsibility to inform the City Council of his plans to resign, Eastburn says. "He doesn't answer to the Council; he answers to the board of trustees." If the Council wants information from the board, "all they've got to do is ask the chairman of the board."

Eastburn says he understands Schrader's reluctance to continue running the hospital if the Council was going to override his business decisions. "If he had to spend all his time second-guessing what the Council might say, what a dreadful environment in which to run a hospital."

Eastburn, whose physician group had feuded with the previous hospital administration, says Schrader did a "tremendous job" in improving relations with doctors. He also credited Schrader with establishing a good relationship with Memorial's main competitor, the private Penrose-St. Francis hospital, and working with Penrose and other health-care providers to establish communitywide health initiatives.

"Schrader made it a priority to look at community health-care needs as a whole, not just the operational needs of the hospital," Eastburn said.

Vice Mayor Skorman cites Schrader's ability to resolve disagreements with the hospital's neighbors over expansion plans, as well as his success in mending relations with hospital staff. "I think he did an excellent job," Skorman said.

Dr. Mark Duster, chief of Memorial's medical staff and a nonvoting member of the hospital's board of trustees, also says Schrader will be missed. "It certainly feels as a loss to us," Duster said. "He accomplished a tremendous amount of good things in a very, very short time."

And even Radford, though critical of Schrader's interactions with the Council, lauded his leadership on the business end.

"I think Mike probably did a whole lot of good things," she said. "[It's his] political cluelessness that absolutely escapes me."

Feeling great!

Hospital officials, meanwhile, are seeking to put a happy face on the whole situation. They now downplay any disagreements with the new City Council.

Chairman Palenchar says the board of trustees -- despite having had its unanimous decision on same-sex benefits overridden -- is OK with working under increased Council control.

"As far as the governance structure, the Council has the prerogative to change that," Palenchar said.

Eitel, the new executive director, also isn't eager to rock the boat. Asked his personal opinion on whether the hospital should have the right to provide same-sex benefits, he declined to answer.

"I don't think that's really relevant," Eitel said.

Radford says it appears hospital officials understand that expectations have changed.

"I think Dave Palenchar pretty much got the message," she said.

Nonetheless, some on the Council still feel it may be necessary to formally change the hospital's governance. Radford, for one, wants to place a council member on the board of trustees. And Purvis says he's open to the idea, which might require amending the Memorandum of Understanding.

"We should revisit it," Purvis said. "The new council should have a chance to say yes or no to the [Memorandum of Understanding]."

Rivera, meanwhile, downplays the notion that he or others want to change the MOU, as Schrader had charged in his resignation letter. "I'm not looking at revisiting it," Rivera said.

Rivera also says he doesn't think it's necessary to put a council member on the board of trustees, though he wouldn't oppose it if a council member were to seek such an appointment. "To me, it doesn't make any difference whether we have a council member on there or not."

Some, however, are downright opposed to the idea.

"My biggest fear is that the hospital becomes politicized, becomes a political football," Eastburn said. If that happens, it could lead to "everything from trying to raid the hospital treasury to fix potholes, to wanting to have certain policy direction on what particular health-care services should be [delivered] -- who will be served, who won't; who will be politically correct enough to serve on the board, and who won't."

Skorman concurred, noting that though Memorial officials say the hospital is projecting continued profits over the next several years, "the hospital business in general is very fragile." Reimbursement of patient-care expenses from the federal Medicare and Medicaid programs is declining, while patient-care costs are increasing. Meanwhile, the economic downturn means a growing number of patients lack private health insurance.

Although no political leaders have publicly advocated selling Memorial for some time, Skorman worries that such talk could re-emerge if the hospital were mismanaged to the point where it begins losing money.

"If it starts struggling, I wouldn't be surprised if it comes up again," Skorman said. p

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