Why healthcare leaders must stay close to the communities they serve

This article is co-written by Kreg Gruber, CEO, Beacon Health System, and Tim Shoger, a Director in Guidehouse's Health segment. 

In the early 1960s, psychologist Stanley Milgram conducted a widely studied experiment that revealed a startling truth: ordinary people, when directed by an authority figure, were willing to administer what they believed were painful electric shocks to another person—especially when they were unable to see or hear them. The experiment showed how accountability can erode when the consequences of our decisions feel abstract.  

While the experiment was extreme, the same principle can be applied to a healthcare system where provider organizations have grown in size and complexity. Many now span vast geographic regions, with centralized leadership teams making decisions that affect dozens of hospitals and hundreds of communities. Scale can drive efficiency, but it may also dilute local insight. As executives grow increasingly distant from the communities they serve, the impact of that separation is becoming clear—not just on brand identity and loyalty, but also financial and clinical outcomes.  

There is still a compelling case for strategic mergers, acquisitions, and partnerships that help health systems achieve the benefits of scale. But recent divestitures among national health systems suggest there may be a ceiling for responsible growth. While consolidation is likely to continue, leaders must consider how they can establish stronger local governance structures—with real authority, accountability, and the ability to influence decisions that directly affect their communities. Reintroducing community voices into governance shouldn’t just be a symbolic gesture or a marketing tactic. Rather, it’s a strategic imperative for restoring trust, enabling resiliency, and facilitating high-quality care.  

When scale reaches its limits 

Recent divestitures by national health systems underscore a growing recognition that scale, while valuable, has its limits. In the last year alone, several of the nation’s largest health systems have divested or announced plans to divest community hospitals in Alabama, Iowa, California, and Michigan, returning ownership and oversight to entities with deeper local roots—including Beacon Health System, which is led by CEO Kreg Gruber, a co-author of this article.  

Recognizing that size alone doesn’t drive loyalty and performance, the nation’s mega-systems are refocusing their resources on more profitable markets, with the realization that they may have been spread too thin to lead meaningfully in any one place.  

Scale still plays a role in healthcare—financial resources and geographic reach have allowed health systems to serve communities that would otherwise lack access to critical services.  

But leaders who leverage a centralized operating model to take advantage of this scale must still incorporate a community-based approach that enables them to fully meet local needs. That starts with creating an operating model that values local expertise, accountability, and governance.  

Rethinking the holding company model  

While some health systems have essentially become holding companies with ownership in multiple, independently operated hospitals, it is a model that hasn’t proven widely successful in healthcare. Given healthcare’s thin margins, leaders must deeply understand each community’s market dynamics, clinical needs, and social vulnerabilities.  

Though some systems may be able to successfully serve multiple regions, there is an inherent risk in sharing resources and services across more than one community. Leaders of wide-reaching health systems need to consider each service area’s unique needs, including local economics and demographics. For example, differences in literacy, language, and population health indicators may require distinct approaches to service line strategy and patient experience. If patients don’t feel their hospital understands their community’s needs, they may lose trust and opt for a competitor.  

This isn’t unique to healthcare—while the banking industry has undergone significant consolidation, community banks are alive and well because local stakeholders recognize their local expertise, stability, and significance to community development. When healthcare organizations lose touch with the communities they serve—both as care providers and major employers—decision making can become disconnected from local realities, with ripple effects on public health, quality of life, and ultimately an organization’s ability to achieve its financial, operational, and clinical goals. 

Why executive proximity matters 

Like any service industry, healthcare benefits from leaders who stay closely connected to the people they serve. But as systems grow and centralize, it becomes harder for executives to maintain in-person communication with hospital and community leaders.  

While there isn’t a magic number, system leaders should consider how far they must travel to visit their farthest facility. Beacon Health System’s system office is no more than an hour and a half away from its farthest facility, allowing Gruber, the CEO, to visit multiple facilities in a single day and still be productive at headquarters. Proximity supports faster incident response, stronger morale, and a meaningful, in-person connection to hospital leadership and boards. CEOs who are close to the facilities they oversee can be more responsive to concerns, involved in problem-solving, and better informed when it comes to making systemwide decisions—yet distance is only one factor.  

Even health systems with multi-regional or national footprints can still find ways to bridge the perceived distance gap. Leaders of these organizations must work harder and more conscientiously to maintain real connection with each market served, and they can do that by creating a framework for decision-making that takes community-specific factors into account. This requires them to foster trust with leaders across their broader network and give local leaders the authority and deference needed to communicate confidently and be seen as key decisionmakers within the larger organization.  

Building an effective local governance structure  

While many large health systems have retained community or hospital boards, these entities are often disconnected from the system-level board. Too frequently, their role is reduced to advisory input or legally required duties like clinical staff credentialing. Without visibility into strategic planning, local boards may struggle to build trust in system leadership or secure community buy-in for major decisions. 

That’s not to say it is easy to recruit qualified local board members. It can be time-consuming for system- and hospital-level leadership to identify a minimum number of individuals who understand governance and have the desire to serve. These leaders must carefully vet these individuals, confirming that they understand the significant time commitment and value the impact they will have on the board. Yet, with sustained relationship-building and intentional development, local boards can produce dedicated leaders who are not only deeply committed but indispensable to an organization’s mission. 

To build a local governance structure that drives real impact, leaders should take five key actions: 

1. Create an operating model that balances the advantages of scale with the benefits of local impact: Centralized systems can drive efficiency, but leaders must also equip local executives and board members with resources and decision-making power that allows them to meet their communities’ unique needs. 
2. Equip local boards with the insights and tools to lead effectively: Hospital and community boards are most effective when they have line of sight into strategic planning, capital planning, and growth initiatives. Subsidiary boards should be copied on all reporting and communications that are relevant to their facilities.  
3. Involve subsidiary boards in community health needs assessments: Local leaders best understand their communities are well-positioned to evaluate community health needs assessment results, propose actions, and identify partners. Support their efforts with financial grants and community health worker resources.    
4. Trust in local governance: System-level leaders can and should attend subsidiary/local board meetings to offer input and listen to community feedback—but these meetings should be facilitated by local leadership.  
5. Empower board members to be ambassadors for your brand: Local board leaders are trusted members of their communities. Make sure them feel seen, heard, and proud to be stewards of your brand. 

Proximity builds trust. As Milgram's experiment reminds us, system leaders must make a conscious effort to bridge the gaps created by expansive footprints. 

The most resilient organizations will stay grounded in improving the health of the communities they serve—avoiding the risks of disconnected leadership through thoughtful governance, decision-making, and operations. By empowering local leaders, elevating community voices, and developing operating models that prioritize connection over control, health systems can build lasting relationships, deliver better outcomes, and lead with both reach and relevance.