The layman who pilots once high-flying Catholic Healthcare West has been grounded, the apparent victim of an aggressive expansion strategy that's now costing the San Francisco-based system hundreds of millions in operating losses.
Last week, the board of CHW, the nation's fifth-largest Roman Catholic hospital system, announced that longtime Chief Executive Officer Richard Kramer will step down effective Sept. 7.
Kramer and the board "have mutually agreed that Mr. Kramer will step aside," officials said in a July 28 written statement. The board believes the organization needs new leadership, officials said. "It was more (a matter of) looking forward than looking back," said Mary Jo Potter, CHW's vice chairman.
Kramer did not respond to interview requests or issue his own statement about his impending departure.
Kramer, 56, has served as CHW's president and CEO for 10 years, quadrupling its tally of acute-care hospitals to 48 facilities in Arizona, California and Nevada during that span. In 1997 and 1998 alone, it picked up 12, including eight Los Angeles-area hospitals acquired from Burbank-based UniHealth in December.
The system is now attempting to sell two of those facilities but has deals in the works to acquire two other hospitals: South Valley Hospital in Gilroy, Calif., and Chandler (Ariz.) Regional Hospital.
CHW has lost tens of millions of dollars per year on operations in the past three years, and it expects the operational loss for the fiscal year ended June 30 to reach $225 million, on revenues of $4.4 billion. Including investment income, net losses for the just-completed fiscal year are projected at $82 million.
Final audited results will not be released until December or early January.
Those figures compare with a $32 million operating loss on revenues of $3.5 billion the prior fiscal year. Investment income turned that loss into a net profit of $73 million.
CHW attributes the escalating losses to a variety of sources, including Medicare payment cuts, acquisition-related costs, difficulties aligning physician groups, rapidly rising pharmacy costs and the high costs connected with setting up its Shared Business Services subsidiary to handle back-office operations, said spokesman Keith Harmon.
Critics say the not-for-profit organization has lost its focus and has not effectively controlled its sprawling hospital empire.
According to Steve McDermott, executive director of the 2,500-doctor Hill Physicians Medical Group in San Ramon, Calif., a CHW affiliate, Kramer vision has been a critical factor in the system's growth for many years, but that vision has become "derailed" in recent years.
"For the board of directors to make this decision was very difficult, but it was a good decision given the issues they were facing," McDermott said.
The CHW Medical Foundation, which runs many of the system's medical groups (but not Hill Physicians), was responsible for nearly $40 million in losses in the fiscal year ended June 30, 1998. Comparable figures for the most recent fiscal year were not available.
The grim financial results led to the resignations of three top-level executives last month:
* Kevin Fickenscher, M.D., CHW's chief medical officer and senior vice president.
* Michael Wilson, M.D., president and CEO of the CHW Medical Foundation.
* Carla Carlson, the medical foundation's chief financial officer. Her position was eliminated.
All three have left the organization, according to Harmon.
Kramer will be replaced on an interim basis by Sister Phyllis Hughes, a former CHW executive and board member who is now a vice president at Mercy Housing, a Denver company that develops and manages affordable housing for the poor. A search for a permanent replacement is under way.
Hughes, who is also chairwoman-elect of the Catholic Health Association's board of directors, was pegged as interim CEO because of her experience with CHW and her understanding of its values and mission, according to board members.
