Allina appoints first female CEO in its history

Dr. Penny Wheeler is set to become the first female chief executive at Minneapolis-based Allina Health System, after the retirement by year's end of current CEO Kenneth Paulus.

Wheeler, 56, has been chief clinical officer since 2006, and was named president at Allina in October 2013. She also will become the first physician CEO at Allina, which was formed in 1994.

Physician leadership at systems like Allina is important, Wheeler said, because hospitals and clinics are being asked to develop efficient and high-quality models for ­delivering care.

"There's a convergence between the administrative side of what we need to do, and the clinical side of what we need to do, to make care better and make it more affordable for those we serve," Wheeler said. "I think we're seeing an increasing number of clinical leaders, physicians primarily, in these leadership roles."

Paulus, 55, has been CEO for five years at Allina, which is one of the state's largest operators of hospitals and clinics. He said he was leaving to spend more time with his family.

The handoff is the latest in a series of CEO retirements announced this year, including Dr. Alan Goldbloom at Children's Hospitals & Clinics of Minnesota and Larry Taylor of Robbinsdale-based North Memorial Health Care. Chief executives also announced retirements at St. Cloud-based CentraCare, Essentia Health in Duluth and Regions Hospital in St. Paul.

Physicians are taking the top jobs at North Memorial and CentraCare, but not at Children's. In 2013, the turnover rate for hospital CEOs nationally hit 20 percent, which was the highest level tracked since 1981 by the American College of Healthcare Executives.

Allina has about 26,500 full- and part-time employees, and operates 12 hospitals including Abbott Northwestern Hospital in Minneapolis and United Hospital in St. Paul. The ­network also includes more than 90 clinics and 15 pharmacies.

In 2013, Allina posted operating income of $133.4 million on $3.4 billion in revenue — a profit margin that exceeded average earnings for most health systems based in the five-county metro.

After disappointing financial results during the first quarter of 2014, Allina announced plans to cut costs by $100 million. The moves have helped the system's financial performance rebound during the second half of the year, Paulus said, as patient volume has increased and charity care costs have diminished. He would not say how many jobs were eliminated.

"Every single measure of performance has improved over the last decade," said Paulus, who started working at Allina in 2005 as chief operating officer. "So, it's been a great, very rewarding time, and it's also a terrific time to hand [the job] to a woman, a physician and a great person who will then take it the next 10 years and do equally great things."

During Paulus' tenure, Allina expanded by absorbing a number of primary and specialty clinics across the Twin Cities. It also took over Regina Medical Center in Hastings and Courage Center, a prominent rehabilitation provider based in Golden Valley. Next year, Allina is scheduled to take over District One Hospital in Faribault, Minn.

"We believe the better model in the long run is to actually take accountability for … value, cost, quality, ­population health and the health of a community," Paulus said. "We're well-positioned for it."

In September, Moody's Investors Service affirmed its Aa3 bond rating for Allina — its fourth-highest rating category. A report from Moody's analysts, however, said Allina was challenged by turnover among key members of its finance team, including CFO Duncan Gallagher.

Paulus rejected any suggestion that there's been a shake-up in leadership at the health system, saying his retirement and that by the CFO have been in the works for a long time. Gallagher signaled his intent to retire in late 2013, and will remain on the job until year's end, Paulus said; he said he internally disclosed his intent to retire this summer.

"I want to spend a little bit more time with my family," Paulus said. "My second goal is: There's a time when I think good leaders have to allow the next generation of leaders to step forward."

Christopher Snowbeck • 612-673-4744