Charting a new course
Dr. Edward Murphy plans to transform Carilion Health System

By Deborah Nason
for Virginia Business
August 2006

How does the 34th most powerful physician executive in the United States typically spend his day? Dr. Edward Murphy, whose recent ranking by Modern Physician magazine is something he’d rather ignore, is not one to bask in the spotlight. The quiet leader is too busy, presiding over the transformation of the Carilion Health System into a new entity called the Carilion Clinic.

Roanoke-based Carilion, the largest private employer west of Richmond, plans to become a multispecialty clinic, based on the health-care model followed by institutions such as the Mayo Clinic in Rochester, Minn. “We are changing the focus of the mission,” says Murphy. “Right now...our core business is hospital services. In the new model, the core business will be physician services; the hospital will become ancillary.”

During the next five years, Carilion will be recruiting physicians, adding buildings, and establishing a Clinical Research Institute in a 50-50 partnership with Virginia Tech. The focus of physician training will also be changed, from primary to specialty medicine.

Any major change at Carilion is important news in Southwest Virginia. With more than 10,000 workers in 75 locations across the region, Carilion is a major force in philanthropy and economic development as well as health care.

Murphy says he leads Carilion by assembling a good team and getting out of the way so people can do their jobs. “I’m a strong believer in ‘servant leadership’ — due to the consent of the governed,” he says “I’m the guy that calls the meeting and let’s everyone do their work. [A CEO] sets the tone, where the organization is going.”

The organization currently is an “integrated delivery system.” The term refers to a health organization with physicians, clinics and hospitals offering a full range of services to patients in a region. This health-care delivery model began to appear prominently by the late 1980s, along with the national growth of managed care. Other areas in Virginia with such a system are Sentara Healthcare, based in Norfolk, and Inova Health System in Northern Virginia. Carilion was recently rated by health-care information company Verispan as No. 40 among the “Top 100 Most Highly Integrated Healthcare Networks” in the United States.

Nevertheless, it’s time for a change, says Murphy. “We’ve pushed the [integrated delivery system model] to the limit. But the structure gets in the way.” Even though the hospitals and doctors are all under one umbrella now, they are all still independent businesses, which hampers coordination of care, he says. The new structure will allow everyone to be part of the same system, which will help patients navigate the service network more easily.

Murphy views the Carilion as “a community asset.” “If [for-profit] businesses offer value for their shareholders, we have to do the same thing for the community that owns us,” he says. That value is expressed in two ways. “First, we are the steward of over $1 billion in assets, therefore we can’t squander it. Second, we provide a lot of services that you can’t justify [financially], but if we did not provide them, they would not be here,” notes Murphy.

Despite its size, Carilion has major challenges. “...Being not-for-profit does not mean you’re off the hook. We have a lot of for-profit competitors. As a result, we have to be every bit a business to survive.”

Being a business means Carilion must watch its revenue and expenses. The disturbing trend in those areas, Murphy says, is that Carilion’s rate of growth in expenses is outpacing the growth rate of its revenue. The decision to reinvent Carilion came from the perspective of a “burning platform,” he says. “If we didn’t do something, the revenue growth we have been experiencing would have gone away.”

In searching for solutions, Murphy’s philosophy of CEO as team builder comes into play. He sees organizational culture as an important component for moving an organization in the right direction. “Culture changes constantly. And we want a culture that is service-oriented, value-oriented and hard work-oriented. [But even though] we’re very challenging of ourselves and each other, it’s common to hear people laugh out loud,” says Murphy. The book “Good to Great” is a source of valuable lessons, he adds, including the importance of fostering a culture of discipline along with an ethic of entrepreneurship.

Murphy describes his management team as “very results-oriented, very development-oriented. We’re always looking for the next problem to solve, and the next improvement to make. We’re careful about marrying accountability with authority to influence what’s going on.”