After serving in Community Health Systems' top job for more than two decades, CEO Wayne Smith announced Tuesday he's stepping down at the end of 2020.
Smith, who has led the for-profit hospital giant since April 1997, will transition to executive chairman of CHS' board on Jan. 1, 2021. On the same day, CHS' Chief Operating Officer, Tim Hingtgen, will take over as CEO.
Smith, 74, catapulted Franklin, Tenn.-based CHS through years of expansion and, later, calculated contraction. Last year, his total compensation was $8 million.
"Basically, Wayne was Community Health," said Brian Tanquilut, a healthcare equity analyst with Jefferies. "His name was synonymous with the company."
A perennial member of Modern Healthcare's 100 Most Influential People in Healthcare, the transition comes as CHS continues to sell underperforming hospitals.
Under Smith's watch, CHS added more than 50 hospitals in 2007 with the acquisition of Triad Hospitals, Inc., which included the subsidiary Quorum Health Resources. In early 2014, Smith oversaw CHS' ill-fated purchase of fellow for-profit chain Health Management Associates, a deal that added about 70 hospitals to its ranks. The company had 93 hospitals as of Sept. 30.
The 2014 HMA deal plunged CHS into financial struggles, an aggressive campaign to sell off underperforming hospitals and a $262 million settlement with the federal government over false billing and kickbacks for alleged activities that before the purchase.
Since then, Smith has led an aggressive turnaround plan that some in the industry say is paying off. In 2016, CHS spun off 38 hospitals and a consulting firm that became Quorum Health Corp., a company that recently emerged from bankruptcy.
Many of CHS' hospitals are located in rural or mid-sized markets, which are in a particularly difficult financial position. Still, Tanquilut said Smith has shown the company's willingness to make strategic moves to adapt to the changing environment, such as with the Quorum spinoff.
"I think that's going to be his legacy: He was able to grow the business over the years and really establish himself as a key player in the broader U.S. healthcare industry," Tanquilut said.
CHS' finances have shown signs of improvement following the hospital sales. The company narrowed its net loss to shareholders to $675 million in calendar 2019 on $13.2 billion in net operating revenue, compared with a $788 million loss on $14.2 billion in operating revenue in 2018.
In the third quarter of 2020, which ended Sept. 30, CHS grew its income attributable to shareholders to $112 million, compared with a net loss of $17 million in the prior-year period.
Chip Kahn, CEO of the Federation of American Hospitals, a for-profit hospital trade group, said CHS is clearly on an upswing because of the divestiture program. Like the rest of the industry, the company has faced a "tremendous headwind" with the COVID-19 pandemic. CHS' volumes have taken a hit amid the ongoing pandemic. Same-store admissions, which account for divestitures, fell 6.2% in the third quarter of 2020 year-over-year.
As for the hospitals CHS has sold, nearly 80% were operating at a loss, bankrupt or closed as of February 2020, a Modern Healthcare analysis found.
Prior to joining CHS, Smith was chief operating officer at Humana. He worked in various management positions for the publicly-traded health insurer for 23 years.
Smith serves on the board of Auburn University and as its president pro tempore. He previously served on the board of Praxair from July 2001 until its merger with Linde AG in October 2018. He's also the past chair of the board of the Federation of American Hospitals. He earned bachelor's and master's degrees from Auburn University, and earned a master's degree in healthcare administration from Trinity University in San Antonio, Texas.
Kahn said he views Smith as a leader in the industry who understands the intersection of business and policy.
"I think his durability speaks for itself in terms of his accomplishments there," Kahn said.
CHS said Hingtgen's promotion is part of a longstanding succession plan. He has been CHS' COO since 2016. He joined the company in 2008.
While other for-profit hospital chains have either given back or reversed federal coronavirus relief grants due in part to changing rules on keeping the money, CHS said it does not plan to do so. CHS recognized $448 million in grants in the first half of 2020, and the federal government's newest guidance released last week lets providers keep funds up to the amount of their year-over-year revenue difference from 2019 to 2020.
CHS said it has another $271 million in grant funding it has not yet recognized as income. It's still unclear how much of that it will be able to recognize.
In a statement, Smith called serving as CEO of CHS "one of the greatest experiences of my life." "Over more than two decades, my confidence in this company has never wavered," he said. "Our commitment to caring for patients and providing value for our communities has always come first — no matter the challenges — and we are proud that we have made a positive difference in the lives of millions of people."
CHS' Wayne Smith to step down at end of year
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