Lloyd Dean: The medicine man of Dignity Health by David A. Kaplan @FortuneMagazine January 9, 2013, 10:52 AM EST E-mail Tweet Facebook Google Plus Linkedin Share icons Lloyd Dean near his home in Half Moon Bay, Calif. FORTUNE — It’s pretty hard to upstage Ted Kennedy, who could hold forth over an audience like few others. But that’s the talent of Lloyd Dean, a top chief executive in health care. Some years before Kennedy died in 2009, he was supposed to introduce Dean at the Washington Hilton to a big group of executives, policy wonks, and congressional staffers. Dean was head of Catholic Healthcare West, one of the country’s largest nonprofit health care systems, with 43 hospitals in California, Arizona, and Nevada, and more than 50,000 employees. What Dean lacks in height — he’s maybe 5-foot-8 — he makes up in savoir-faire. Before Kennedy arrived, Dean did what he always does — shake hands, pepper questions, tell stories, smile, and engage. When the senator showed up, he admiringly took note. “This guy doesn’t need me,” Kennedy told Dean’s colleague. “He works a room better than me!” As CEO of San Francisco-based Dignity Health — as of early 2012, the new brand name for Catholic Healthcare West — the 62-year-old Dean has been working rooms at corporate and civic levels for more than a decade. In his manner and method, Dean has come to stand out as an unconventional leader in a staid, grave industry. Before a dinner crowd he can kid about his “brother-to-brother” relationship with Barack Obama over the past four years. Before a small audience of hospital employees, he’s all too happy to praise the colonoscopy he received just upstairs. To check up on “customer service” at his hospitals, he’s been known to put on a sweats-and-sunglasses disguise in the lobby — the better to hear what they’re complaining about. (The No. 1 beef: parking!) When Dean has heard enough, he’ll send around JUST THINKING memos to staff, which pretty much amount to JUST FIX it directives. “Lloyd cuts a wide swath,” says John Stumpf, the CEO of Wells Fargo WFC . And so Dean has become the most connected Bay Area CEO you’ve never heard of. Yes, there are high-achieving nontech CEOs in the Bay Area. He’s led the little-noticed fiscal turnaround of his company. His personal network includes not only the President of the United States but the president of the San Francisco Giants. He sits on the board of Wells Fargo. Unions get along with him. He has potential deals in the works with tech giants like Apple AAPL and Salesforce CRM . And he’s an investor in Prospect, the chic new SoMa restaurant that serves such goodies as Snake River Farms Kobe Bavette with Marrow Glazed Banana Fingerling Potatoes and Hen of the Woods Mushroom Jus. The locals say he could take a run at the mayoralty someday. MORE: 2013: The year we become the health care nation Dean is well regarded by these constituencies, as well as his own employees. “He commands respect,” says the Silicon Valley angel investor Ron Conway. “He’s a go-to community leader,” says Larry Baer, CEO of the Giants, for which Dignity was a main sponsor for the team’s 2012 World Series parade and which houses a Dignity clinic inside the ballpark. As the leader of a faith-based nonprofit — the majority of whose hospitals have a Catholic designation — Dean has proved particularly adept at balancing religiosity and secularity, quite a feat considering he’s not even Catholic. But he is: a champagne connoisseur; a fan of Howard Stern; the owner of 700 cuff links; and a neat freak. He once teasingly placed a MOVING? Post-it in an employee’s cubicle that had boxes stacked everywhere. That bellowing laugh by the elevators is Dean arriving early every morning at work. Now Dean has entered the national stage. He has been an ardent support of Obamacare, despite being a CEO of a hospitals corporation that in the short run stands to see its Medicaid and Medicare reimbursements go down as much as $700 million over the next decade. Because he’s close to the President — the two meet or talk every few months — Dean has been mentioned as a possible cabinet member in Obama’s second term. And Dignity Health these days is in an acquisitive mood. In late summer it closed on the $450 million purchase of nondenominational U.S. HealthWorks, the largest independent operator of occupational medicine and urgent-care centers in the country; the purchase extends Dignity’s reach into 16 new states, and Dignity plans to expand U.S. HealthWorks nationally. With an idea to spend $1 billion to $2 billion on buying up other health care providers — the better to compete in the era of Obamacare — Dean says he aims to be in a majority of states and to triple revenue by 2020, taking his regional nonprofit from the fifth-largest American health system in terms of net patient revenue to No. 3. Dean visits Dignity Health’s St. Francis Memorial Hospital in San Francisco. Dean arrived in San Francisco in 2000 and transformed Catholic Healthcare West, which at the time had been losing a million dollars a day for three years. Other companies might have gone under. Today, rechristened Dignity Health has made money every year since 2002. Even with a lousy overall fiscal year ending June 30 — which was due to weak investment earnings rather than fundamentals in its health care business — revenue was a record $10.5 billion, up about 2%. (It also had $3.4 billion in long-term debt as of that date.) But more than the cold numbers, it is Dean’s soft-power leadership style that’s made his reputation. “Because of his directness, his diplomacy, his advocacy, and his fairness, he has more credibility with elected officials here than almost any other corporate executive,” says Willie Brown, 78, former mayor of San Francisco, consummate California pol, and a Dean confidant and mentor. Dean still talks to Brown every week. One of the conditions of Dean’s investment in Prospect was that the no-tablecloths restaurant keep a tablecloth available for when he and the tablecloth-insistent Brown dine together. Kathleen Sebelius, the U.S. Secretary of Health and Human Services, says Dean is in “the constellation of the 10 health care leaders I rely on or bounce ideas off of.” But she cited something else about Dean. “Whenever we have a policy conversation about business, he never fails to ask, ‘So, how are you? Are you getting enough sleep? Is there anything I can do for you?’” she told Fortune. “A lot of people with whom I have this kind of conversation reply, ‘Fine, that’s good,’ and move on. Lloyd isn’t like that — there’s a personal side that isn’t phony or fake.” Be it sincerity or shrewdness (probably some of both), Dean’s means are a pretty good way to do business. The wonder about Lloyd Dean might be that he got anywhere at all. Dean’s was not an idyllic upbringing in western Michigan. He remains deeply conflicted over his childhood, the only subject that dims his resolutely luminous personality. On the one hand he discovered resilience and self-discipline and faith every Sunday at the Mount Calvary Baptist Church not far from home. On the other hand he saw the burdens of poverty and broken dreams. MORE: The supercomputer will see you now Raised in an African-American enclave in Muskegon, Dean was the second-oldest of nine children. His father was a foundry worker, and his mother was a homemaker. For years the family was on and off welfare. They had no health insurance. The first time Dean visited a doctor was when he was in junior high and needed a physical to play football. At the middle-class school to which he was bused, Dean says he was fascinated to hear classmates talk of such things as “I’m going to the dentist.” Though his parents hadn’t gone to college, they stressed to Dean and his siblings the importance of good grades. “I knew by 6 or 7 — maybe it was God’s gift,” Dean says, “there had to be a better life. I’m going to get out of this community.” With student loans, he wound up being the “first person in my entire community” to attend college. His late father, Floyd, never earning more than $9,000 a year, was a heartbreakingly difficult person. When Lloyd walked out the door at 18 to catch the Greyhound to go off to Western Michigan University in Kalamazoo, his mother gave him $50, which he said was “like her giving me $50,000.” “Good luck,” she told him. “I’m praying for you.” His father was lying on the couch. “Dad, I’m leaving to go to school,” Dean said. His father’s reply: “Oh. See you.” Dean still laments the scene. “That,” he recalls, “was it.” Dean dwells a lot on his father, who died in 2008. “It’s a whole thing to try to psychoanalyze your dad,” he says. “He was a very intellectually smart man. When people in the community would get legal papers, they would come to my dad to interpret them. I think he lived in frustration because he didn’t do more with his life.” Dean’s father made him pay rent during the summers, out of the money he earned working a paper route or picking blueberries. Dean says his father could be explosive, like the time he accepted a winter coat from his sixth-grade teacher. “I feared my dad,” he says. “You just never knew what would set him off. I would never want another human being to go through what I went through with him growing up.” And yet, even as he acknowledges that “I’ve blocked out part of my childhood,” Dean says his was a “good father,” with whom he ultimately reconciled. How could that be, knowing all that Dean has come to know in the field of health care, where many of his community hospitals serve families not so different than his was once upon a time? “My father gave me fortitude. There’s no business problem that comes close to the magnitude of the ingenuity and creativity that I had to use to survive my childhood. My dad helped me see a few things that I wanted to be, but candidly a lot of things I didn’t ever want to be. I’m a better executive and leader because of it.” MORE: The next entitlement crisis: Medicaid spending threatens education At Western Michigan University, where he received a bachelor’s degree in sociology and a master’s in education, Dean early on demonstrated a knack for leadership. He had many friends, was active in student government, and was clever enough to be on the committee that decided which concerts would be held on campus. More formative, though, was how he handled pressure from students in the school’s Black Action Movement. WMU was mostly white. Dean’s roommate was a high school football buddy — who was white. “About 45 days in,” Dean says, “I got a knock on the door from the president of BAM, who told me, ‘You’re from a hick town and don’t understand the times or the issues — we want you to come into the black dorm.’” Dean said no. “I’m all about the movement, but I’m not going to change,” he answered. “He’s my friend.” He found UNCLE TOM and WHITE LOVER signs on his door. He was threatened. But in time BAM left Dean alone. After graduating in 1972, Dean taught junior high and an occasional course in communications at WMU. For a couple of months he filled in as the sleep-deprived 5 a.m. news anchor for WOTV of Battle Creek, Mich. It was in 1978 at a WMU event that he got his break into corporate America. He met Larry Hoff, a top executive at a prominent company in the area, Upjohn; Hoff knew of Dean’s civic activities and invited him to visit the pharmaceutical giant’s sprawling glass-and-granite headquarters in Kalamazoo. Dean was bedazzled. “It was like in the movies — I was this little teacher from Muskegon asked up to the C-suite in Building 88,” he says. The Upjohn folks said he had natural leadership skills. “I see in you things that you don’t even see in yourself,” Hoff counseled him. But Dean turned down Hoff’s job offers multiple times. The way he saw it, he was already rich, making $13,000 — $4,000 more than his father ever made. And he loved teaching, hoping to be a superintendent of schools. But after friends told him, “Are you a fool, Lloyd?” Dean relented. At 28, he began a new career, as a $30,000-a-year assistant regional manager in Upjohn’s health care services division, soon switching places with the regional manager. Over the course of 14 years, he rose to be EVP of operations for the entire company. MORE: How Medtronic sells to doctors and patients When Upjohn got rid of his division in 1992 and his bid to buy it fell short, Dean left for the faith-based nonprofit Evangelical Health Systems (now known as Advocate Health Care) in suburban Chicago, to run its home health care division. He already knew firsthand the weight that health care could be, having recently watched his older brother die of AIDS. “When you deal with a family member like that,” he says, “you see nuances that nothing else can teach you.” In 2000, Dean was about to be named Advocate’s CEO when he got a call from a headhunter for Catholic Healthcare West. That system, because of its dire finances, was having trouble finding new leadership. Dean was curious. He met with CHW’s “sponsors” — industry lingo for the organization of Catholic sisters who in effect controlled the corporation. Though the Sisters of Mercy had been ministering to the poor and sick in the Bay Area since the days of the Gold Rush, CHW dated only to 1986, when two congregations linked their hospitals. The business plan was efficiency, and CHW thrived into the early 1990s. But complacency set in. Dean took the job and headed west. He would be staying in faith-based nonprofit health care — with a system four times the size of Advocate’s — but he would have the chance to save a company. Which he did, chiefly by eliminating overhead. Each of CHW’s hospitals functioned autonomously. Dean saved $100 million by getting rid of 300 middle managers. But integrating CHW’s different facilities was as much cultural as administrative. Even when goals were set, executives weren’t held accountable. “It took some serious brass to get everyone to change,” says Andy Pines, a managing director of Citi’s Healthcare Group in San Francisco, which has advised Dean’s company for years. What Dean did was mandate measurable goals for each hospital. They could be as simple as ensuring that patients with cardiac issues were given an aspirin in a certain amount of time. Or they could be strategic, like requiring 3% annual revenue growth in patient billing that’s covered by insurance, which meant a hospital would have to contract with more insurers — even as it nurtured its principal mission to care for the underserved. His company was a nonprofit, but that hardly meant it didn’t have to fight in what Dean calls “a competitive world.” In that competitive world — which includes for-profit health systems as well as nonprofits like Dignity — Dean is nicely paid. He lives in a house on the Pacific Coast with his wife of 38 years. His golf handicap is 17. His total compensation is roughly $3.8 million; in the fabulously successful fiscal year ending June 30, 2011, he made $5.1 million (almost half of it in bonuses and incentives). Even so, in the same job in a for-profit health system, he’d probably make three to five times more. MORE: The bloody patent battle over a healing machine Dignity’s current challenge, alongside national expansion, is maintaining equilibrium between its Catholic identity and its growing secular footprint. Its name change reflected an attempt to get away from a purely religious brand, given that so many of its facilities are independent of the church. But lingering institutional ambivalence abounds. In the boardroom there’s a wooden cross on the wall, while on an adjacent wall are large photographs of secular icons of social justice like Nelson Mandela and Cesar Chavez. The vice chair of the board is a Sister. One of Dignity’s top executives is a lesbian — and a former Sister. The internal politics of the company mean balancing the relatively liberal values of many in the Sisters of Mercy with the conservative views of bishops in many communities where it does business. The most dramatic instance of tension over religion happened a few years back at St. Joseph’s Hospital in Phoenix. After the hospital ethics committee determined that saving the life of a woman required termination of her 11-week pregnancy, the bishop of Phoenix ruled that the “direct abortion” violated Catholic law. As a result, he found that the Sister who sat on the ethics committee “automatically excommunicated” herself from the church. Later, when St. Joseph’s refused to acknowledge error, the bishop effectively excommunicated the hospital as well. (Symbolism aside, the bishop’s step meant only that Catholic Mass could no longer be celebrated there.) In the aftermath, Dean threaded the corporate and religious needles. Behind the scenes, he made sure the hospital stuck to its principles. At the same time he tried to assuage the bishop; in one private letter, Dean — referring to a “range of conclusions” from “many knowledgeable moral theologians” — suggested “one must at least acknowledge this is a very complex matter, on which the best minds disagree.” The bishop fired back that he alone had the “authority to interpret the moral law and to teach the Catholic faith as a Successor of the Apostles.” Dean didn’t react. Even now he’s reluctant to agitate the bishop. If pressed, he offers only, “I think the issue demonstrates the complexity of what I do compared to CEOs who don’t deal with church-related issues.” Dean’s been doing it impressively for a long time. What next? He professes no interest in another corporate post or a cabinet appointment or running for City Hall. He loves the promise that Dignity Health holds. It can be bigger, kinder, more innovative: Obamacare is an opportunity for health care systems that embrace it. Better marketing and brand management can boost the bottom line. Collaborations with Silicon Valley companies can lead to mobile apps that benefit both patient and Dignity. There seems to be no end to Dean’s aspirations at his company. Gazing out at San Francisco Bay from his office, he’s contemplative. “I love what I’ve been able to do in this job,” he says. “I hope I’ve provided an example.” His might even make his father proud. This story is from the January 14, 2013 issue of Fortune.