Susan Porth tendered her resignation as Kaiser Permanente's chief financial officer on Feb. 9. Four days later, Kaiser reported a $270 million loss for 1997 -- the first annual loss in the 50-year history of the Oakland, Calif.-based managed-care colossus.
Porth became the fifth CFO of a national managed-care company to resign during the past five months -- making that position perhaps the most precarious in all the healthcare industry.
That onerous title traditionally had been held by hospital chief executive officers -- at least until last year, when the hospital CEO turnover rate was 12.1%, the lowest in the past 17 years (Feb. 23, p. 2).
Now it's the managed-care industry's turn. With huge losses being reported by some of the industry's largest players, the managed-care CFO is this year's healthcare equivalent of a major league baseball manager.
The turnover rate for healthcare CFOs is about 15% to 20% annually, according to the estimates of several executive recruiting firms and the Healthcare Financial Management Association.
HFMA President Richard Clarke says that's not "overly rampant" and is probably similar to CFO turnover in other industries.
But Robin Singleton, senior vice president and partner at Tyler & Co., a healthcare executive search firm in Atlanta, says she disagrees.
"A 15% to 20% CFO turnover is fairly significant in our industry. We're used to seeing high turnover in hospital and HMO chief executive officers because of consolidation. They typically turn over every two to three years," she says. "CFOs have not had that high a turnover rate."
Healthcare CFOs have not suffered the same fate as CEOs in the past because companies have wanted to keep an executive with "a lot of historical knowledge" about the organization after the CEO departs, she says.
But hundreds of millions of dollars in losses apparently make historical knowledge expendable.
"In situations where an organization is in financial difficulty, the message bearer, who is oftentimes the person overseeing the finances, tends to be one of the people that would leave, along with the CEO," the HFMA's Clarke says.
The CFO is especially vulnerable if the loss came because information systems failed -- as was the case with several HMOs -- and the CFO oversaw those systems, he says.
None of the managed-care companies or their CFOs say the resignations of the companies' top financial expert was connected to huge financial losses. But never has it seemed so many managed-care CFOs wanted to spend more time with their families or pursue other career interests.
"Everybody expects the euphemism," says Michael Doody, senior vice president at Witt/Kieffer, a healthcare executive search firm in Oak Brook, Ill. In reality the CFO is "a driven person" and in time will seek out a similar position, he says.
Those positions are churned regularly in a game of healthcare musical chairs, Singleton says. "Typically, you take the same group of 50 sharp people and move them around."
Porth, 49, says she's leaving Kaiser for personal reasons and will take some time off but is "definitely not retiring."
"I have had 20 wonderful years here -- and the last 10 as CFO. I feel that I've accomplished a lot at Kaiser, and I'm looking forward to trying some other challenges, possibly at another healthcare company," she says.
Porth's husband, Brice Jones, was a founder of the prestigious Sonoma-Cutrer winery, and he runs the operation. She won't have a hand in that, she says, "but I'll enjoy the product."
Porth says she sees no pattern of CFOs leaving HMOs after the companies reported losses.
"When you see financial people leaving an organization over operating results, it isn't the finance function that runs the organization, so it's hard for me to make the leap that it's causal," she says.
Kaiser attributed its loss last year to mushrooming enrollment that taxed the company's delivery network and drove up operating costs.
An inability to track outgoing costs and incoming revenues was the major problem that led to the financial woes of Oxford Health Plans, based in Norwalk, Conn.
Last Nov. 4, Oxford reported a $78 million loss for its third quarter ended Sept. 30. It was the company's first-ever quarterly loss. The next day, Oxford's CFO, Andrew Cassidy, resigned "to pursue other interests," the HMO said.
Efforts to contact Cassidy for comment were unsuccessful.
Albert Koch, chief operating officer of Jay Alix & Associates, a New York-based company specializing in corporate restructuring, is serving as interim CFO while Oxford searches for Cassidy's replacement.
Then, on Dec. 17, Aetna U.S. Healthcare announced its CFO, James Dickerson Jr., 51, was "leaving the company."
Efforts to contact Dickerson were unsuccessful.
Dickerson had been Aetna U.S. Healthcare's CFO since 1994 and was U.S. Healthcare's CFO before its merger with Aetna.
About six weeks before Aetna announced Dickerson's departure, the company reported that third-quarter earnings plunged 96% to $3.7 million from $93.5 million. Aetna took a $103 million after-tax charge to increase reserves to cover a medical claims backlog that built up after experienced claims processors were laid off.
Dickerson's replacement is Daniel Messina, 42, who was vice president of business strategy and will continue in that job.
Also in December, Jeffrey Elder, 50, resigned as CFO of Foundation Health Systems. The Woodland Hills, Calif.-based company says Elder was satisfied that the integration of Foundation Health Corp. and Health Systems International was going well and he felt it was the right time to depart.
Foundation became a subsidiary of HSI in April 1997 in a merger of equals valued at $3 billion in combined market capitalization.
Elder tells MODERN HEALTHCARE he was Foundation's CFO for eight years before the merger "and I wanted to do something else."
The merger "presented an opportunity to leave," Elder says. "I might not have (left) otherwise. If I was going to leave, I thought I'd do it now or else stay because the company needed a long-term CFO. I wanted to take some time off and spend more time with my family, my kids. I was financially able to do so."
He says he gets "about a call a day" from provider groups and others looking for a CFO, and he is deciding whether to return to healthcare or "go elsewhere."
FHS has not named a replacement for Elder.
Foundation took a higher than expected merger-related charge of $405.9 million in the second quarter of 1997. Its third-quarter earnings gain of 24% represented the first increase for either predecessor company in two years.
And, on Feb. 5, PacifiCare Health Systems said Wayne Lowell, its CFO, had "announced his retirement." Last Nov. 25, PacifiCare said computer-related and contracting problems at its Utah plan would cut into earnings and result in a special charge for the fourth quarter of 1997.
Santa Ana, Calif.-based PacifiCare acquired the Utah plan through its acquisition of FHP International on Valentine's Day 1997 for $2.2 billion. Since then, PacifiCare has had to divest three of the poor-performing units of FHP.
Blaming inadequate pricing in its commercial business and failure to implement capitated contracts in some markets, on March 4 PacifiCare reported a loss of $22 million for 1997 and a loss of $114 million for the fourth quarter of 1997.
In announcing Lowell's resignation, Alan Hoops, PacifiCare's president and CEO, said Lowell "has played a significant role in our growth and success during his 12 years with the company. While I'm sorry to see him retire from PacifiCare, I can certainly appreciate his desire to focus on family and other interests."
Lowell tells MODERN HEALTHCARE he quit to spend time with his two young boys, but he "absolutely" will be back on the scene as a healthcare CFO.
Lowell, 42, says he didn't retire from PacifiCare because of troubles integrating FHP units. He wasn't forced out, he says. He planned his retirement a year and a half ago, he says.
One apparent survivor of the managed-care CFO massacre is Marc Preminger, CFO of Philadelphia-based Cigna Corp.
On Feb. 10, Cigna reported a fourth-quarter earnings drop of 22% because of $81 million in charges related to its June 1997 purchase of Healthsource. Specifically, Cigna earned $240 million on revenues of $5.5 billion for the 1997 quarter, compared with $306 million on revenues of $4.9 billion for the year-ago quarter.
When asked if he would be joining the horde of managed-care CFOs pursuing other interests, Preminger says he would still be at Cigna the next time MODERN HEALTHCARE called.
He says the costs of integrating Healthsource were a one-time charge, and the earnings decline "is not an underlying representation of what's going on."
He says he's noticed the departure of a series of HMO financial executives. "The business in and of itself is becoming more challenging in terms of the ability to predict medical costs and acquisition costs," he says.