Thomas Edwards thought he was on the right track as chief executive officer at Chatuge Regional Hospital and Nursing Home in Hiawassee, Ga.
He had been at the helm since November 1995 and planned to use resources for outpatient services and other needs of the hospital's primarily elderly patient base and to recruit physicians aggressively to the tiny northern Georgia town next to the North Carolina border.
"I figured in five years, we'd have the hospital turned around," he recalls. "Unfortunately, my five-year plan wasn't good enough. It needed to be shorter than that."
Edwards says he resigned in June 1998 by mutual agreement with corporate managers at Nashville-based NetCare Health Systems, the hospital's private, for-profit parent. He is just one of many CEOs and chief financial officers who have left NetCare hospitals in recent months, casualties of what some of the former CEOs call an aggressive turnaround strategy aimed at impressing investors by increasing revenue streams from the company's rural hospitals.
Two CEOs left NetCare hospitals in Mississippi during just one week in April, and at least seven other CEOs and CFOs have uprooted themselves, either by choice or by persuasion, during the past year.
Earlier this year, NetCare Chief Operating Officer Steven Blaine left the company. From 1981 to 1994, he served as CEO of Davis Medical Center in Statesville, N.C., a Columbia hospital NetCare bought last year (Nov. 23, 1998, p. 14).
NetCare was formed as a private company in 1996 and now has 14 primarily rural hospitals.
Michael Koban Jr., CEO, president and a director of NetCare, declines to comment specifically on any of the recent management departures or any other personnel issues at the company, but he says the numerous departures are not unusual.
The company filed a request with the Securities and Exchange Commission to go public in June 1998 but never made its initial public offering, because healthcare company stocks headed south later that year.
The company's annualized revenues are between $275 million and $300 million, Koban says. He declines to say whether the company recorded a profit or loss last year.
"When we buy a hospital, what we are doing is trying to determine before the transaction is closed what we think that particular market will ultimately produce in terms of a hospital revenue stream," Koban says. "What you have in each of the acquisitions is a different situation."
Edwards says he believes his departure was intended to signal NetCare investors that the hospital would make revenue-enhancing changes. He also says his story is similar to the experiences of some colleagues who also resigned recently.
"It's just tough when you have an equity partner that's a bank," he says. "Once the equity partner invests the money, the actual operations of the units, the hospitals themselves, get blurred in black and red ink, which is unfortunate, but that's the business."
Koban says NetCare prefers to keep hospital CEOs in place if possible when a new hospital joins the fold, but it doesn't always work out that way.
"We've acquired hospitals in the past where the existing CEO said, 'I don't want to be here; I want to go somewhere else,' " he says. "We have had situations where the CEOs will stay for some time, and they might say, 'I can't operate in an environment of a for-profit kind of a company.' Or we might say sometimes, 'It might be better if we find a better fit.' "
NetCare's strategy has been to collect nonurban acute-care hospitals in communities where it can be the sole provider.
During its first year of operation, it bought six hospitals, mostly by acquiring Southern Health Corp., a Georgia-based rural hospital company that owned four hospitals and three associated nursing homes in Georgia, and one hospital and nursing home in northeastern Mississippi. NetCare added one more hospital in 1997, six more last year, and one more this year.
Koban was formerly finance director at HealthTrust and was treasurer of Hospital Corporation of America when HealthTrust was spun off from HCA.
"I believe it was the circumstances of paying top dollar for facilities that maybe couldn't produce like they were led to believe they could," says Mickey Rabuka, the current administrator of Murray Medical Center in Chatsworth, Ga., who since 1991 had been CEO at Ellijay-based North Georgia Medical Center, which NetCare bought in 1996. Rabuka stayed about a year after NetCare bought the facility and says he left when he didn't enjoy the job anymore.
"The pressures were monetary, absolutely," he says.
Rabuka says the company "really pushed the profitability budget to the limit and then would expect the administrators to obtain it."
Still, he says, NetCare has made good on its promises to invest in its hospitals and recruit physicians. "(NetCare corporate officers) were good managers," he says. "They just had a job to do."
Another former NetCare CEO, who asked for anonymity because of severance agreements, says he was asked to leave a NetCare hospital.
"Basically, I just thought we needed to do some of the more community-based services, such as (obstetrics) and the kinds of things a community needs," he says. "They wanted to wait."
The CEO says his hospital was profitable when he left.
"They have to do, in their minds, what makes financial sense," he says. "They have to be prudent, and it doesn't always mean spending money where you might need to."
Financial pressures are especially noticeable when companies prepare to go public, say some of the former CEOs.
Koban says the equities market for hospital companies, which was so dire last November when NetCare was first ready for an IPO, may finally be turning around. Last month some hospital company stocks began to recover somewhat.
"They're getting better," he says, "and we're waiting with great interest."