How a celebrated psychiatric hospital lived and struggled with hard times

By Ira Stamm, Ph.D.
November 1, 2002



The final chapter of the Menninger Clinic’s fabled history in Topeka, Kan. has not yet been written, although the ending appears to be in sight. Two years ago, Menninger was prepared to move to Houston, TX to join forces with the Baylor School of Medicine and Methodist Hospital. When that plan fell through, Menninger revisited its options. It has retrenched itself in Topeka as a much smaller entity and has stabilized itself financially.

Menninger is now reviewing partnership proposals from five potential medical schools and is expected to announce its future partner within a year.

At an earlier point in its history, such a turn of events was unthinkable. When I arrived at Menninger in 1972 to undertake two years of post-doctoral training in psychology, Menninger was thriving and flourishing. The adult and children’s hospitals housed about 220 patient beds. On any given day, there were no more than half a dozen empty beds. There was a waiting list to be admitted to the adult hospital.

Insurance coverage was quite generous. Although Menninger had the mystique of being rich and famous, this was not so. Most patients came from middle class and upper middle class families. They could be treated at Menninger because a typical insurance policy would pay up to $1 million for nervous and mental disorders. There was no oversight by insurance companies in the form of manager care.

A year’s stay in the adult hospital cost over $100,000. It was not uncommon for patients with severe psychiatric illness to remain in the hospital for one or two years.

Menninger charged a fair market rate for its services, no more or less than other comparable hospitals. There was no discounting of fees. A hospital bed with a $600 or $800 per diem fee was paid for by the insurance company and/or family at that rate.

Hospital as a profit center

Psychiatric hospital beds offered a very favorable financial return. The psychiatric hospital did not have to acquire expensive medical equipment such as a $1 million CAT scan. Nor did it require expensive surgical suites.

During this era several entrepreneurs took note of the favorable profit margins and created for-profit-chains of psychiatric hospitals. One could find a branch of these hospital chains in most large metropolitan areas.

The Menninger economy

The adult and children’s hospitals at Menninger generated significant profits for Menninger. Since Menninger was, and still is, a not-for-profit institution, these profits did not go to shareholders. Instead, profits from the two hospitals were used to offset deficits in other departments at Menninger.

In 1972, the federal government still contributed a significant amount to medical and psychiatric education and research at Menninger and at comparable teaching and research institutions. However, during the 1970s and 1980s, government funding for these programs decreased, forcing Menninger to pay for these programs from other sources. These sources were the income from the two hospitals and bequests and gifts from generous benefactors to Menninger.

Enter managed care

Managed care began to enter the health care arena in the late 1980s and early 1990s. The financial changes managed care brought about were draconian. A $1,000 a day hospital bed would now only be reimbursed at $400. Patients who might stay in a hospital for one to 12 months needed to be discharged in one to 12 days.

The math of managed care is not difficult to understand. Managed care was demanding steep discounts of 20 to 60% The question was, could Menninger and other psychiatric hospitals restructure the delivery of services to offer quality care at $400 to $600 a day?

The current bestseller, “Who Moved My Cheese?” by Spencer Johnson, MD is the metaphoric story about the struggle many of us have to embrace chance. Many great companies have been founded on the basis of one product or service. The mainframe computer was for many years the bread and butter of IBM. For Xerox it was photocopies, and for Kodak it was film and film processing. For Menninger, the main service and profit center was long-term hospital treatment. It is difficult for companies that are dependent primarily on one product or service to adjust to paradigm changes in the industry.

The succession dilemma

The 1970s and 1980s were one of several golden eras at Menninger. Roy Menninger M.D., was the president and CEO of Menninger during this era and, in my view, provided competent and inspirational leadership. Dr. Roy and his younger brother, Walter Menninger, M.D., were the sons of Will Menninger. M.D. Will Menninger, M.D. and Karl Menninger, M.D. were brothers, and both were the sons of C.F. Menninger, M.D., Drs. C.F., Will, and Karl Menninger were the co-founders of Menninger.

Dr. Roy stepped down in 1993 and was replaced by his brother, Walt, who anticipated that it was unlikely that another Menninger family member would take the helm of Menninger once he retired. Family businesses do not have a good track record of surviving beyond the third generation. Many go out of business with the third generation family member at the helm.

Mindful of the succession issues, Dr. Walt chose Efrain Bleiberg, M.D., to be the president of Menninger. The stated plan was for Dr. Bleiberg also to become CEO of Menninger when Dr. Walt retired and stepped aside, Dr. Bleiberg would be the first non-Menninger family to direct Menninger.

A new era at Menninger

Drs. Walt Menninger and Efrain Bleiberg took the helm at Menninger just as managed care was at the height of its influence in American health care.

Faced with looming deficits brought about by managed care, Drs. Walt and Bleiberg took the path common to many businesses facing financial hard times. They started to downsize Menninger.

In 1993, a sentinel event occurred at Menninger that shook the organization to its roots. Menninger gave 30 days notice to a senior member of the management group and to the director of the Clinical Network Program.

The senior manager was a well-respected and beloved man who had grown up through the ranks of Menninger and had been with Menninger for most of his career. The director of the Clinical Network Program was a highly respected child psychiatrist who had previously served as director of the Children’s Division.

Both men were highly ethical individuals who were devoted and loyal to Menninger. Menninger staff could understand that these positions might require persons with different sets of skills. However, most staff felt these men should have been offered other positions in the organization that would have let them remain at Menninger until the natural age of retirement.

The emotional contract with employees

At Menninger, and in many other companies throughout the world, employees form an emotional bond or connection with the company. This was even more so at Menninger. Many staff came from different parts of the country and overseas to study and to train at Menninger. They valued and enjoyed their learning experience at Menninger so much that they remained on staff afterwards.

The commitment many staff made to Menninger was akin to a religious or missionary calling. Menninger staff would settle in Topeka, raise their families here and devote their careers to the care of those with mental illness who sought treatment at Menninger.

For all that has been written about psychotherapy, psychoanalysis and medicare at Menninger, patients got well for one simple reason.. Menninger patients were treated in an environment of care, concern, respect and love. Menninger doctors, nurses, child care workers, activities therapists, etc., took loving care of patients the way a family takes loving care of its family members.

Menninger staff were able to be so devoted to the patients because, throughout most of its history, Menninger staff felt well care for and loved by the Menninger family and administration. The unconscious equation driving patient care at Menninger was, “Our family taking care of your family.”

While there was no written policy or guarantee about lifetime employment at Menninger, many staff expected to work at Menninger until retirement. The start of downsizing in the 1990s was a seismic event that heralded a shift in the fundamental values of Menninger. Its staff would now have to divide their emotional attention between caring for patients and being concerned for their future livelihood.

Much has been written over the last decade about the negative effects of downsizing on individuals and organizations. Downsized employees have several outcomes. Some do quite well; they simply find another job and continue their career path. Another group takes jobs elsewhere with lower pay and more sparse benefits. A third group of downsized employees is unable to find jobs at all. These are often employees in their 50s and 60s. These employees, mostly men, are often not counted in the unemployment statistics.

In my own clinical practice, I have seen competent and mature men in their 50s and 60s reduced to tears and thrown into major depression because they were let go from the company where they worked for 30 years or more. They felt discarded.

Menninger has gone from 1,250 employees in Topeka and Kansas City to fewer than 310 employees in Topeka. I know of at least two Menninger employees, each with serious pre-existing medical conditions, who died within six months of having their positions at Menninger eliminated.

Leadership issues

It seems abundantly clear that running a health care institution in today’s complex and ever-changing health care environment requires skills and training beyond what is offered in medical school. Menninger took a calculated gamble in 1993 of entrusting its leadership to two good physicians. Some within Menninger at that time argued that Menninger should recruit from outside the organization a business leader with a tried and proven track record in turning around a health care organization under siege.

Eight years later, in 2001, Menninger apparently saw the wisdom in bringing on board as CEO John McKelvey, a distinguished businessman and leader with a proven track record. Earlier, Menninger had appointed Ian Aitken, president and chief operational officer and he continues in that capacity.

Realistic and unrealistic self-regard

People familiar with the Menninger story wonder how such a once prominent and good institution could find itself almost at the edge of extinction. One answer lies in the problem Menninger had in maintaining realistic self-regard in the context of a changing world.

There is no question that Menninger deserves to be viewed and remembered as one of the pioneering and great psychiatric institutions of the last century. But Menninger tended to believe in its own greatness as an automatic and enduring phenomenon.

Businesses and institutions are like sports teams. Their greatness may ebb and flow. One may think of the New York Yankees as one of the great baseball franchises of all time. Yet, most baseball pundits would acknowledge that even the Yankees had back-to-back years when the performance was average or below average.

I believe one of Menninger’s core problems stemmed from its leaders’ inability to view the current and most recent editions of Menninger as it was seen by others.

Belief in its own enduring greatness led Menninger leaders to a view that health care would eventually change to accommodate Menninger, rather than that Menninger needed to change to adapt to the new health care reality.

The retirement plan

Organizations filled with anxiety and under financial pressure, as Menninger has ben over the past decade, struggle to do he right thing. This is not always easy. In Topeka and Kansas City, 900 employees have lost heir jobs during this decade due to the Menninger downsizing.

Longtime employees who were close to retirement age or eligible for early retirement may fare best with their job lost. A second group with over 20 years of employment at Menninger but who were ineligible for early retirement may struggle more.

These employees will be ineligible for guaranteed medical coverage beyond COBRA. Their retirement pension will be significantly less than had they been able to retire from Menninger at the natural age of retirement. The data suggests that employees who devote their prime earnings years to a retirement, are rarely able to make up the difference in retirement benefits in subsequent employment.

The Menninger retirement plan contains no cost of living provision. This affects all employees who will depend of the Menninger pension in old age.

The endowment

Mr. McKelvey will need much wisdom in deciding how to preserve, enhance, yet make judicious use of the $90 million Menninger endowment. My own view is that Menninger should transfer one-third of the endowment to its new partner, whoever that may be. The second-third of the endowment should be donated/distributed to those not-for-profit organizations in Topeka who provide mental health services to the Topeka community. The final third of the endowment should be used to upgrade the Menninger retirement plan in recognition of the many employees who have served Menninger well.

Into the future

To acknowledge and respect employees’ contributions to the organization, Menninger should take care of present, past and future employees, providing them with a financially sound and secure future.

As John McKelvey guides Menninger toward its next destination, he should seek out the Mayo Clinic as a potential partner for the future. The Menninger Clinic and the Mayo Clinic have similar historical backgrounds and medical cultures. Both clinics were founded by country physicians who shared similar visions and values about health care.

The Mayo Clinic has campuses in Rochester, MN, Scottsdale, AZ. and Jacksonville, FL. A partnership with Mayo would give Menninger entry into these three markets.

Ira Stamm, Ph.D. is a psychologist in independent practice in Overland Park, a suburb of Topeka, Kan., where Menninger Clinic is located. He wrote this article early this year for the Topeka Capital-Journal which granted permission to The National Psychologist to reprint. Stamm’s email address is istamm@aol.com

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