Sentara Healthcare CEO to retire at end of year

Less than a year after Sentara Healthcare and Cone Health scrapped their planned merger, both CEOs behind the failed deal are either gone or on the way out.

Norfolk, Virginia-based Sentara announced Friday that Howard Kern plans to step down by the end of the year, although he'll stay on as long as it takes to find his successor. An ad hoc committee of the system's board is launching a CEO search that it expects to wrap up before the end of 2022.

Cone's former CEO, Terry Akin, left the system in June 2021, about a week after after Sentara and Cone called off the merger that would have formed an $11 billion, 17-hospital system. Akin had announced his pending departure for "personal reasons" five months earlier, but pledged to stay on until the merger closed.

Kern has been Sentara's CEO since 2016. He started working for the not-for-profit health system in 1980 as an administrative fellow at its Norfolk General Hospital. After that, he served in several leadership roles, including chief operating officer. A Sentara spokesperson declined to share his age.

In a statement released Friday, Kern said Sentara is entering a new era in healthcare, and now is the time for new leadership.

"I will forever remain personally devoted to Sentara Healthcare and the people who make it great," he said. "I will support the board and new CEO in whatever way I can to ensure a smooth transition that assures continued success for that individual, the system and our communities."

Mergers like the one Sentara and Cone were planning consume an incredible amount of CEOs' time and attention for years because they involve combining medical records, billing, insurance contracts and other important parts of the business, said Benjamin Fenton, a partner with Fenton Law Group. For that reason, he said the deal falling through may have contributed to Kern's departure."It's an enormous amount of work," he said. "The direction of the company is basically going to have to be thrown out the window. This is speculation, but I can imagine how that could just impact morale in terms of the leadership and result in a CEO stepping down."

Download Modern Healthcare’s app to stay informed when industry news breaks.

To the contrary, Jordan Shields, a partner with the merger and acquisition consultancy Juniper Advisory, which has worked with Sentara, said he doesn't think Kern's departure is at all related to the Cone deal.

"I'd be shocked if Howard left for anything related to Cone," he said. "It might have impacted his timing, but it seems really unlikely to me that the failure of that is in any way associated with his departure. He has a storied career, taking Sentara from a relatively small entity to this very powerful Virginia system."

Sentara has performed well during Kern's time as CEO and it makes sense to leave on a high note, Shields said. The health system drew a sizable surplus in the first nine months of 2021, posting an 8.3% operating margin on $7.6 billion in revenue. That's up from a 5.5% margin in comparable 2020 period.

Sentara has 12 acute-care hospitals and generated almost $9 billion in revenue in calendar 2020, the latest full year for which results are available. Sentara said its 2021 revenue exceeded $10 billion, making it Virginia's largest health system and its second largest private employer.

Sentara's news release credits Kern with establishing the system's Center for Diversity, Inclusion and Cultural Competency and its Department of Health Equity. Before becoming CEO, he helped oversee the creation of Sentara Health Plans and its first line of business, Optima Health. He has also led the integration of eight of Sentara's 12 hospitals. In 2018, Modern Healthcare named Kern among its 100 Most Influential People in Healthcare.

Dian Calderone, Sentara's board chair, said in a statement that Kern has also helped navigate the health system through the COVID-19 pandemic. Sentara was the first health system in Virginia to offer drive-through COVID-19 testing and create an in-house test lab. Kern frequently advised Virginia's Governor on the state's pandemic response.

"Howard's contributions to Sentara Healthcare and our communities is immeasurable," Calderone said. "His focus on affordable quality care, improved patient outcomes, and staff satisfaction has enhanced Sentara's success."

Kern's total compensation was just shy of $8.1 million in 2019, the latest year for which data are available. That includes $1.7 million in base pay, $1.7 million in bonus and incentive pay and $3.8 million in retirement and other deferred compensation. Sentara declined to share his current salary.

Kern holds a supplemental executive retirement plan, which Sentara wrote in its tax form is limited to select individuals chosen by the board and is currently closed to new members. The disclosure didn't say how much Kern has in the plan.

SERPs are no longer common at health systems, but they allow companies to contribute to executives' retirement plans beyond the maximum federal limit. As such, they can accumulate a lot of money if executives stick around for a long time. Former Sanford Health CEO Kelby Krabbenhoft got a $30 million SERP payout in 2021 following his abrupt resignation after saying he wouldn't wear a mask during the pandemic.

Kern said in a statement that after retiring, he plans to travel and spend more time with family. But he said his devotion to Sentara's communities won't end.

"My commitment to serve will not diminish after I retire," he said. "I am looking forward to spending the next chapter of my life supporting Sentara and my community in other ways, be that through philanthropy, volunteering, or serving on various boards and committees."