How LifePoint's lawyer-CEO guides the company's rapid growth

Bill Carpenter wanted to slow down the deal.

The LifePoint Health CEO has been on an acquisition binge lately, but he began pumping the brakes during one recent hospital deal. He worried LifePoint was being rushed into the arrangement, because of the hospital's financial situation, before it had time to conduct its due diligence.

The CEO credits his experience as a lawyer—his first career—for his caution. “My legal background and my focus on risk management said, 'Go slow here, go slower here,'” he recalled.

Carpenter is part of a small but growing group of healthcare executives with legal backgrounds. This year, 630 of the American College of Healthcare Executives' 38,373 fellows and members had law degrees, up from 462 in 2010 and 266 in 2005.

Several factors are driving that growth, industry watchers say. Healthcare organizations are increasingly including their general counsel in strategic decision-making, which prepares them for future leadership roles.

Executives with legal backgrounds may also have an edge when it comes to navigating the complex regulatory environment facing hospital chains these days, whether it involves reimbursement, mergers and acquisitions, or quality and safety. Hospitals remain under constant and growing scrutiny from a host of federal and state government agencies.

“(A law degree) sets them apart, but also it gives them information that can help them be a better resource for the organization and lead in a way that will give them deeper insight,” said Mark Madden, senior vice president of senior executive search at B.E. Smith. Hiring those with legal expertise is part of a broader trend of executives with nontraditional degrees rising to top leadership positions, he said.

LifePoint, based in Brentwood, Tenn., has done well since Carpenter took the helm a decade ago. The $5.2 billion-a-year chain of 72 mostly non-urban hospitals in 22 states has grown to become the sixth-largest investor-owned hospital chain in the country, based on 2014 revenue.

And it's getting bigger. In the past year or so, it's scooped up eight hospitals and health systems in Georgia, Indiana, Kentucky, North Carolina, Pennsylvania, South Carolina and Wisconsin. Since the first of the year, the for-profit system has acquired St. Francis Hospital in Columbus, Ga., for $257.1 million; Providence Hospitals in Columbia, S.C., for $132.2 million; and, through Duke LifePoint Healthcare, Frye Regional Medical Center in Hickory, N.C., and Central Carolina Hospital in Sanford, N.C., for $190.9 million.

Its recent financial performance puts it in the top ranks of publicly traded hospital chains. It had adjusted earnings before interest, taxes, depreciation and amortization in 2015 of $705.7 million, up 11.3% from the previous year's $634.2 million. Its profit margin jumped to 3.5% in 2015 from 2.8% the year before—figures significantly higher than those of major hospital chains Tenet Healthcare Corp. and Community Health Systems, but still lower than HCA, which had a margin of 4.9% in 2015.

Unlike some hospital chains, LifePoint's investors have done well recently. The system's stock price has appreciated approximately 50% over the past three years, outperforming Tenet and Community Health Systems, but not HCA, which remains the industry leader.

Analyst Frank Morgan of RBC Capital Markets says LifePoint has more room to grow. “They've had the flexibility to go out and make some acquisitions,” he said.

Like many large hospital chains, LifePoint is the subject of investigations and lawsuits. LifePoint faces investigations and more than 100 individual lawsuits over potentially improper interventional cardiology procedures at several of its hospitals, according to SEC filings.

While Carpenter's legal background has come in handy for navigating LifePoint's many acquisitions, he never envisioned he would lead a healthcare organization when he began his career. The son of a lawyer, the now 61-year-old had always thought he would go into the family practice.

But less than a year after the newly married attorney joined his father's litigation firm, it disbanded. Carpenter got another job at a more corporate-focused practice in Nashville, Waller Lansden Dortch & Davis, and began working on finance issues for healthcare organizations.

That's where he first discovered his affinity for working on merger and acquisition transactions. “Everybody's working to get to that ultimate outcome whereas litigation, for me, is exactly the opposite,” Carpenter said. “I think my personality is much more that of a consensus builder.”

Carpenter excels at building relationships and forging agreement, said David Dill, LifePoint's president and chief operating officer. He's worked with Carpenter for more than 10 years in and outside of LifePoint. “His tendency will be to listen before he shares the direction he wants to go,” Dill said.

Carpenter, who has three children, is also a deeply caring person, the kind of boss who even attended the school muscial of Dill's child. “I think it is one of his biggest strengths as a leader. He listens first,” Dill said.

It's an attitude that's helped LifePoint enter into partnerships with not-for-profits in recent years, such as the one it shares with Duke University. Duke and LifePoint now have 14 hospitals as part of their Duke LifePoint Healthcare partnership.

“Bill sets a tone of collaboration and inclusiveness in an often very competitive environment,” said Caroline Young, executive director of NashvilleHealth. Young worked with Carpenter at the Nashville Health Care Council, where he serves on the board of directors and she is a past president.

It took years, however, for Carpenter to make the leap from lawyer to corporate leader. In 1998, he was asked to join a small group that formed the management team that eventually took about 20 rural hospitals that spun out of HCA to become LifePoint. At the time, HCA was the target of an investigation that led to the company paying the government $1.7 billion in the early 2000s to resolve Medicare fraud allegations.

Carpenter wasn't immediately vying for the company's top spot. But he broadened his experience by volunteering to take on a variety of leadership responsibilities.

It's becoming more common for general counsel to take on responsibilities that were traditionally considered outside their realm, said Werner Boel, legal services practice leader at executive search firm Witt/Kieffer. Boel said he is seeing more general counsel and chief legal officers take on operations departments, such as facilities, marketing and communications.

Executives with a legal background are also helping to make strategic decisions—a shift from past practices when a company's CEO and COO would determine organizational strategy and then bring in the lawyers after the fact to iron out the details.

Back-to-back tragedies also sped Carpenter's ascension to the company's top spot. He had joined the group that eventually took over LifePoint in part because his close friend, Scott Mercy, a charismatic and inspirational leader, was chosen as its first CEO. But a year into his tenure, Mercy died in a plane crash.

“That was devastating to me personally,” Carpenter said. “I really thought the company would fold up and go away at that point.”

Then, a year later, Mercy's successor, the company's former COO, Jim Fleetwood, died of a heart attack. “The lesson that I learned when Scott died and when Jim died, and the company survived and continued to grow and became what it has become today,” Carpenter said, “was that the CEO of the company is not the most important person.”

The most important people in the company are those in the field, he said. LifePoint's chief financial officer, Ken Donahey, followed Fleetwood as CEO for five years before retiring, months after the company revealed it was having problems integrating hospitals it had acquired from Province Healthcare. By the time Carpenter took over as chief executive, he had served as the company's executive vice president, senior vice president, general counsel, secretary and corporate governance officer.

Since becoming CEO in 2006 and chairman of the board in 2010, Carpenter has relied on his legal experience to analyze situations and make decisions. “I've learned so much from each of the disciplines that I've been able to lead,” he said. “If someone who has a legal background is willing to learn the (healthcare) business and deeply understand the business, then … the logical way that lawyers are trained to think will help them to think strategically about the business.”

Kevin Speer, president and CEO of Hendricks Regional Health, based in Danville, Ind., agreed that having a law degree can help healthcare leaders navigate some of the industry's biggest challenges, such as complying with complex regulations or structuring physician relationships and joint ventures without running afoul of the rules. Like Carpenter, Speer spent years as an attorney in a law firm, Hall Render Killian, Heath & Lyman, before making the jump to a provider organization. Speer joined Hendricks', which has a 127-bed hospital in Danville, as CEO in 2012 after serving as a system vice president and chief strategy officer for St. Vincent Health in Indiana.

“Law school teaches you to be a critical thinker,” Speer said. “I think it teaches you to analyze things in a broader perspective, to maybe have an appreciation for some of the nuances of an organization.”

Both Speer and Carpenter said there's no particular roadmap to follow for attorneys hoping to lead healthcare organizations. Legal training has been a “great background,” Carpenter said. But he also credits much of his success to the lessons he learned from LifePoint's three previous CEOs.

That legal training combined with those lessons helped him know when to back off of that recent hospital acquisition. Carpenter declined to name the hospital.

LifePoint lost the deal to another suitor. But LifePoint's leaders didn't have to wait long for a better outcome. When the troubled hospital's other deal fell through, LifePoint was able to acquire it—after it completed its due diligence.

“Over the years of my law practice in transactions and then my work on the company side, I believe I have a clear understanding of what's important to us,” Carpenter said. “To the extent I can help our company articulate that, we're going to be in a better position to deal.”