The past year saw a sizeable increase in leaders exiting the role.
CEO turnover continues to hit industries across the board and the story is no different in healthcare.
After 103 CEOs departed hospitals and health systems in 2022, this past year experienced a 42% rise in changes with 146, according to a report by Challenger, Gray & Christmas. The increase could be indicative of how the position is evolving, in addition to being a sign of a wider economic shift.
Of the 29 industries and sectors measured by the executive coaching firm, hospitals had the fourth highest number of CEO exits, behind only government/nonprofit (486), healthcare/products (189), and technology (173).
Several factors are likely causing the turnover growth at hospitals, with the current financial climate chief among them. Organizations are feeling the heat from thin margins and that in turn is putting significant stress on those at the helm.
In many instances, hospitals are choosing to install new leaders as they head in a different strategic direction, but some CEOs are voluntarily leaving to escape a pressure-packed environment.
"With all the pressures that the CEO faces, if there's an opportunity to transition out because we've had a very successful career over a long period of time and you feel that somebody is in a better position to serve the organization, that's a lot of it,” AtlantiCare Health System CEO Michael Charlton recently toldHealthLeaders.
“The pressures have just gotten overwhelming."
The bigger impact
CEO turnover for all industries in 2023 hit a record high with 1,914, which represented a 55% increase from 2022 (1,235) and easily cleared the previous record of 1,640 in 2019. The figure was also the highest on record since Challenger, Gray & Christmas began tracking CEO exits in 2002.
“Historically, we’ve seen large economic shifts preceded by a surge in CEO exits,” said Andrew Challenger, senior vice president of Challenger, Gray & Christmas.
The previous record in 2019 was followed by economic instability, but that was largely spurred by the unpredictable COVID-19 pandemic and its far-reaching impact on every industry.
While healthcare has since stabilized in many ways, financial distress continues to plague hospitals, leading to closures and M&A.
The primary care chain has been searching for ways to climb out of financial turmoil.
Cano Health has filed for Chapter 11 bankruptcy, reaching a decision that appeared inevitable after months of financial struggle.
The Miami-based provider, which offers value-based primary care to over 300,000 members, announced the filing is part of a restructuring support agreement with lenders holding approximately 86% of its secured revolving and term loan debt and 92% of its senior unsecured notes, allowing Cano to reduce its debt and potentially find an M&A partner.
To stay afloat during the restructuring, which the company expects to emerge from in the second quarter of this year, Cano has also received a commitment for $150 million in debtor-in-possession financing from some of its existing secured lenders. The liquidity funds are subject to court approval.
Through its recent moves, Cano said it expects to save approximately $290 million in costs by the end of 2024.
“By entering this court-supervised restructuring process, we are positioning the Company to achieve those goals on an accelerated basis and focus on what we do best – improving health outcomes for patients at a lower cost,” Cano CEO Mark Kent said in the news release. “I am confident we will emerge from this process a stronger organization with the necessary resources in place to continue delivering the quality of care our patients expect and deserve.”
Part of an industry trend
Cano is part of a recent bankruptcy surgein healthcare. According to a report by Gibbins Advisors, 2023 had the highest number of bankruptcy filings in the past five years with 79, which was more than three times the level recorded in 2021.
The past year featured 28 filings with liabilities over $100 million, compared to just seven in 2022 and eight in 2021.
Although the rise in bankruptcies in 2023 mainly affected the senior care and pharmaceutical subsectors, the factors that caused financial distress—capital market constraints, labor and supply cost pressures, and revenue—are also impacting the entire healthcare industry.
In the case of Cano, the company could not claw its way out of sizeable debt despite attempts to evolve. After being appointed CEO this past August, Kent narrowed the company's focus to its Medicare Advantage (MA) and ACO REACH business lines. However, Cano found MA to be less profitable than expected with adjustments made to the payment model and bonus program.
This problem isn't limited to Cano as all companies involved in MA are having tough sledding compared to previous years when MA was a cash cow ripe with overpayments.
In its filing with the Bankruptcy Court for the District of Delaware, Cano listed estimated assets and liabilities in the range of $1 billion to $10 billion.
It’s likely that the company will now look for strategic partners or buyers of all or some of its assets. That pursuit will be helped by Cano converting nearly $1 billion in secured debt to a combination of new debt and full equity ownership in the reorganized company through the restructuring agreement.
Cano has already been an active seller, divesting its Texas and Nevada primary care centers to Humana’s CenterWell Senior Primary Care business for nearly $67 million.
That sale was sandwiched between second and third-quarter earnings reports which saw the company experience net losses of $270.7 million and $491.7 million, respectively. Cano also cut 21% of its workforce in the third quarter of last year to create nearly $65 million in annualized cost reductions.
Editor’s note: This story has been updated on 2/6/2024.
Bain & Company's report reveals where healthcare transactions are trending in 2024.
Healthcare dealmaking is showing little sign of slowing down in the face of economic and regulatory headwinds, but those challenges are forcing organizations to make moves with greater purpose.
There is less margin for error in M&A deals, creating more pressure on transactions to show value, according to Bain & Company’s M&A 2024 report. As such, leaders must improve their dealmaking strategy in 2024 by reevaluating their portfolio and target lists, while being willing to invest in new technology.
In the year ahead, four out of five executives surveyed (80%) said they expect they will do as many or more deals than they did in 2023. Divestitures will be the focus for many, with three out of five M&A practitioners in healthcare and life sciences (60%) saying that they are evaluating assets to divest.
The report notes that as more effort is put into reducing government spending, healthcare needs to be wary about future revenue. Regulatory scrutiny is also widening, potentially leading to delays in deals in closing.
“We have seen more companies spend the year focusing on ways to improve their M&A capabilities,” Bain & Co. wrote. “The margin for error has shrunk for getting the anticipated return for any M&A in healthcare and life sciences.”
Healthcare, unlike many other industries, experienced an increase in 2023 deal value. However, much of that was driven by pharma and biotech’s deal value, which experienced a 73% jump. Medtech, meanwhile, saw an uptick of 36%.
M&A volume in payer, provider, and healthcare services remained relatively low and that is expected to continue in 2024. Bain & Co. anticipate payers pursuing moves for scale or to deliver care at a lower cost, with regional providers seeking out deals for scale in primary care, home health, and facility care.
The report stated it also expects the pharma industry to utilize its $171 billion cash on hand by searching for innovative assets in traditional areas like oncology and rare diseases, as well as in new areas like weight loss.
For medtech, growth in technology, innovation, and category leadership is expected to be at the forefront in coming transactions.
The leaders of the venture share their plan for transformation in an exclusive interview with HealthLeaders.
Summa Health CEO Cliff Deveny and HATCo CEO Marc Harrison hear the critics and the skepticism directed their way.
After General Catalyst announced its plan to buy the Ohio-based nonprofit integrated delivery system earlier this month, industry reaction to the venture capital firm diving into the deep end with its own health system has been mixed. Deveny and Harrison understand the noise yet are unwavering in their vision's ability to be transformative, the duo tells HealthLeaders.
Firstly, Harrison rejects the premise that the acquisition is a private equity or venture capital (VC) deal. General Catalyst is behind the transaction, but it's through its business spinoff HATCo, which Harrison characterizes as an independent company. That means the commitment timeline won't be akin to typical VC involvement.
"This is a long-term investment done outside of fund structures without the same expectations," Harrison says.
Whether that holds true is yet to be seen. In the meantime, Deveny and Harrison want the skeptics to answer their question: What's your answer to the challenges plaguing healthcare?
"We can't keep merging inefficient health systems into other health systems because then the problems just get compounded," Deveny says.
Why Summa?
General Catalyst and HATCo were fairly quick in making good on their promise of buying a health system, landing on Summa merely three months after revealing their plan.
To Harrison, it was the right fit at the right time. Summa checked the boxes with its size at 1,300 beds and 1,000 physicians, as well as with its status as an integrated delivery system and the largest provider in its market. Perhaps most importantly, Summa is "ready for transformation," Harrison says.
That readiness partly stems from necessity. Summa has been looking for ways to steady its recent financial instability, which has seen it record an operating loss of $37 million for the first nine months of 2023, following an operating loss of $39 million in 2022. Merging with another system was explored as an option, but Deveny states that it would have, in most cases, led to prices for care going up.
"We felt like we really couldn't just keep doing the same thing of trying to look for ways to cut costs and we weren't generating enough capital to really build the ability to grow at a point that we wanted to," Deveny says. "So this gave us the opportunity to, in some sense, leap forward with a lot of technological opportunities that we had put off."
Summa has been implementing incremental changes and updates to its technology, but still felt like it wanted to go further to meet the needs of people who wanted access to the system. Partnering with HATCo solved the issue of lack of capital and resources.
"It's just getting that extra Miracle-Gro on top of all these great ideas," Deveny says.
'Not a laboratory, but a proof of concept'
How those ideas are executed could ultimately determine whether the partnership is successful.
Conceptually, Summa will allow HATCo to test new technology without the usual restrictions and roadblocks that traditional providers face. However, Harrison is clear that this doesn't make Summa a sandbox where constant trial and error will take place.
"This is not a test bed for extremely immature technologies," he says. "Cliff wouldn't allow us to put a brand new company in here that could potentially have a negative impact on patient care. So we have a real bias towards companies with proven solutions. This is not a laboratory, it's a proof of concept for what we think is the model for the future.
"This is thoughtful. It's intentional. It is open-minded, but I'd say this is bold, it's not risky because Summa is such a good system."
While the function of the technology will be to improve quality and access to care, both Deveny and Harrison recognize that success will still be measured by improved financial outcomes. "Obviously we'd like to see financially that we're doing better than we have been in the last few years and get back to where we were at pre-COVID," says Deveny, who also points to employee retention, growth in Summa's health insurance plan, and education expansion as objectives.
Of course, everything hinges on the deal passing regulatory review, which is no small matter in this case, considering Summa will transition from a nonprofit to a for-profit operator. Deveny and Harrison say they've been working with the Ohio Attorney General's office and the Ohio Department of Insurance, with their commitment to charity care and participation in federal programs like Medicaid and Medicare well received by many government officials. As such, the leaders are not seeing regulatory scrutiny as a "huge issue."
If the acquisition passes, HATCo and Summa have a long road ahead of them to prove the naysayers wrong. History is not on their side and while this undertaking may not have a true precedent, the road to transformative healthcare is paved with new, but failed, ideas.
Harrison and Deveny are ready to change that.
"I really believe that the iterative, thoughtful approach is going to result in a different way of delivering care and because the other people who are running other systems are good folks, they will both by necessity and out of choice adopt some of the lessons learned from us," Harrison says.
The New Jersey-based operators are working towards fully integrating in the coming months.
Atlantic Health System and Saint Peter’s Healthcare System have signed a letter of intent to partner with the ultimate aim of merging, the organizations announced.
A merger would bring New Brunswick, New Jersey-based Saint Peter’s into Morristown, New Jersey-based Atlantic Health’s network of care. Under the agreement, Atlantic Health would also make “significant investments” in Saint Peter’s, including the transition of the latter’s electronic medical record system onto the acquiring party. Saint Peter’s would continue as a Catholic hospital and still abide by the ethical and religious directives for Catholic healthcare services.
The systems said they hope to reach an agreement in the coming months, which will require approval from regulators and the Catholic Church.
“Although Saint Peter’s is stronger today than ever, throughout this journey it has become clear that to assure our future success, we need a strategic partner whose resources, capabilities and values are aligned with our mission,” said Leslie D. Hirsch, president and CEO of Saint Peter’s Healthcare System, in the news release. “We are very excited about the prospect of becoming a part of Atlantic Health as it has an excellent reputation for being a high-quality healthcare provider and our respective cultures are very well aligned.”
Saint Peter’s, the last independent operated health system in Middlesex County, is partly made up of a 478-bed acute-care teaching hospital in Saint Peter’s University Hospital and a state-designated children’s hospital and regional perinatal center.
The system had been on the lookout for strategic partners and in 2019 signed a letter of intent to merge with West Orange, New Jersey-based RWJBarnabas Health. A definitive agreement between the two organizations was signed in 2020 but terminated in June 2022 after the Federal Trade Commission filed a lawsuit to block the transaction for harming competition.
The agency said the combined health system would have had a market share of approximately 50% for general acute care services in Middlesex County, potentially leading to price increases and reduced quality of care.
If the FTC doesn’t step in this time, Saint Peter’s would get a partner in Atlantic Health with more than 550 sites of care, including seven hospitals, and Atlantic Medical Group, comprised of more than 1,600 physicians and advance practice providers.
The leader of Katherine Shaw Bethea Hospital shares how some implemented ideas have fared.
Many rural hospital CEOs are searching for answers in their mission to keep the doors open in the face of financial turmoil.
For David Schreiner, CEO of Katherine Shaw Bethea Hospital, not every strategy his facility has applied has been a home run, but the ideas that didn’t pan out served as lessons learned.
Understanding what has and hasn’t worked has allowed the Dixon, Illinois-based hospital to remain independent and stave off some of the crippling perils that have plagued so many rural operators across the country.
Watch Schreiner describe what’s been successful and not-so-successful during his time at the helm in the video below.
The agency alleges the transaction could lead to higher prices and worse quality of care.
The Federal Trade Commission (FTC) is stepping in to halt another deal between health systems.
This time, the agency is taking aim at the Novant Health’s purchase of two North Carolina hospitals from Franklin, Tennessee-based Community Health Systems (CHS) for $320 million due to the deal threatening costs and quality of care, regulators said.
The acquisition, which gives Winston-Salem, North Carolina-based Novant control of Mooresville, North Carolina-based Lake Norman Regional Medical Center and Statesville, North Carolina-based Davis Regional Medical Center, was announced in February of last year.
Novant already operates Huntersville Medical Center and serves more patients that any other hospital in the Eastern Lake Norman Area, the FTC stated. Through the transaction, the agency alleges Novant would seize 65% of the market for inpatient general acute care services in the area, allowing the nonprofit system to raise its rates for services while reducing its incentive to attract patients.
“Hospital consolidations often lead to worse outcomes for nurses and doctors, result in higher prices, and can have life and death consequences for patients,” Henry Liu, director of the FTC’s Bureau of Competition, said in the news release. “There is overwhelming evidence that Novant’s deal with Community Health Systems will be detrimental to patients in the Eastern Lake Norman Area, including leading to higher out-of-pocket costs for critical health care services.”
In response to the FTC’s decision, a spokesperson for Novant said the organization will pursue legal action.
"As a nationally recognized leader in quality and patient safety, Novant Health is committed to delivering the highest-quality, patient-centered, physician-directed care to the communities served by Lake Norman and Davis Regional Medical Centers," the system said. "As we keep that commitment across North Carolina, including throughout the Greater Charlotte area, we will pursue available legal responses to the FTC's flawed position announced today. We remain confident that Novant Health can bring exceptional care, leading-edge innovation, and long-term stability to Lake Norman and Davis Regional Medical Centers."
For CHS, the deal was part of a string of sales by the system last year to alleviate its finances. Even if the FTC is successful in thwarting the transaction with Novant, CHS could still seek out buyers.
Financial pressure has been a significant motivator in health system dealmaking, with a recent report by Kaufman Hall revealing that 28% of the 65 transactions in 2023 involved a financially-distressed partner.
When it comes to patient care, the choice is clear, says David Schreiner.
Private equity’s influence in healthcare has grown over time for a reason, but the question of how much it’s helping some of hospitals’ biggest problems remains up for debate.
As more rural hospitals collapse under the weight of financial struggles, private equity firms are stepping in with the aim of turning around these floundering facilities. While investment in rural healthcare is much needed, David Schreiner, CEO of Katherine Shaw Bethea Hospital in Dixon, Illinois, believes locally-owned hospitals have the advantage over private equity in the type and quality of care they provide patients.
“The thing that I look at when we look at private equity is the decisions that are made that impact patient care and impact staff,” Schreiner told HealthLeaders. “It’s the financial prioritization versus community health needs.”
A recent study published in JAMA examined that dynamic by investigating how quality of care and patient outcomes change after private equity acquisition of hospitals. Researchers used Medicare claims for more than 4 million hospitalizations between 2009 and 2019 to compare hospital stays at 51 private equity-acquired hospitals against those at 249 non-acquired hospitals.
The findings revealed that private equity acquisition was associated with a 25.4% increase in hospital-acquired conditions, driven by falls and central line-associated bloodstream infections. These results were observed despite the private equity hospitals having a likely lower-risk pool of admitted Medicare beneficiaries, implying worse quality of inpatient care.
According to thePrivate Equity Stakeholder Project, at least 386 hospitals in the country are owned by private equity firms, which represents 9% of all private hospitals. More than a third (34%) of all private equity-owned hospitals serve rural populations and there’s little reason to believe that won’t continue to grow.
While Schreiner acknowledges the financial hardships rural healthcare is facing, he feels locally-owned hospitals can operate differently when they’re not bound by maximizing profits at every turn.
“We're an independent rural hospital. We have no ownership, no one is receiving dividends or investment returns from our organization,” he said. “So we're motivated to meet the needs of the community and we often perform services and have service lines that are intentionally not profitable.”
Schreiner pointed to obstetrical services being abandoned by many rural facilities due to lack of available personnel or diminishing financial returns. Yet there are still those rural hospitals that provide it, even at little to no financial gain.
“PE firms are going to make those decisions very quickly because that's what they do and that presents a more positive bottom line,” Schreiner said. “Many community hospitals are willing to have a lower compromised bottom line and continue providing services.”
So long as the “financial prioritization” outweighs everything else, patient care will be at risk in rural settings where private equity strengthens its grip.
Still, most industries are ahead of healthcare in willingness to implement the technology.
As workforce challenges continue to confound healthcare organizations, nearly one in five CEOs anticipate utilizing generative AI this year to cut down on staff, according to a survey by PricewaterhouseCoopers (PwC).
However, PwC’s annual global survey, which interviewed 4,702 CEOs across the world, found that healthcare leaders are less likely to turn to generative AI than those in most other industries. The findings underscore AI’s growing presence in businesses, but also healthcare’s tepid willingness to fully invest in the technology right now.
When asked to what extent generative AI will impact headcount in your company in the next 12 months, 18% of healthcare CEOs said they expect to reduce headcount by 5% or more. Healthcare was tied with two other industries (hospitality and leisure, real estate) for the third-lowest among 23 industries. The only industries that finished lower were engineering and construction (12%), technology (14%), and metals and mining (14%).
The global average among all CEOs who were asked that question was 25%, with media and entertainment at the top with 32%, followed by banking and capital markets (28%) and insurance (28%).
“As business leaders are becoming less concerned about macroeconomic challenges, they are becoming more focused on disruptive forces within their industries,” Bob Moritz, global chair at PwC, said in a news release. “Despite rising optimism about the global economy, they are actually less optimistic than last year about their own revenue prospects, and more acutely aware of the need for fundamental reinvention of their business. Whether it is accelerating the roll-out of generative AI or building their business to address the challenges and opportunities of the climate transition, this is a year of transformation.”
While AI has untapped potential, many healthcare leaders are being careful before investing and implantation because the technology requires more than a surface-level understanding to employ it safely and effectively.
Arien Meyers, president and CEO of the Society of Physician Entrepreneurs, a professor emeritus at the University of Colorado School of Medicine and Colorado School of Public Health, and a strategy advisor to MI10, recently told HealthLeaders that many hospitals haven’t met AI readiness standards yet.
“Our understanding and intelligence is that most hospitals don’t even know how to start,” Meyers said. “And many don’t know where they are now” on AI maturity.
One new hospital CEO offers his advice to other leaders taking the reins.
Whether you’re stepping into the role of CEO at a new organization or stepping up at the same place, gauging how to make an immediate impact can often be challenging.
That’s a situation Phil Wright knows all too well after logging his first few months on the job at Memorial Regional Hospital South, which he joined this past October.
With the CEO position churning over across the country, new leaders every day are being tasked with coming in and leaving their imprint on their hospital or health system.
On a recent episode of the HealthLeaders Podcast, Wright shared what approach he recommends other incoming CEOs take in the early stages of assuming the role to ensure both immediate and long-term success.