In November 2012, Mercy Health Chief Executive Lynn Britton issued a public statement heralding the strategic vision of his chief financial officer, Randy Combs.
Four weeks ago, Combs and his two senior financial deputies were abruptly replaced. No explanation was given. No gracious words were uttered about their achievements.
On Friday, in response to repeated questions from the Post-Dispatch, Mercy issued a written statement from Britton, who attributed the management shakeup to philosophical differences.
“The sole reason for the recent leadership changes in our finance and revenue departments was a difference in management philosophies, and any further speculation is without merit,†he said, adding that “the differences should not overshadow the many contributions†made by the Mercy executives “and our appreciation for their years of service.â€
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Britton did not elaborate, and it is unclear whether the strategic vision for Mercy’s future walked out the door with Combs. Mercy officials won’t say if the three execs resigned or were fired — or if there was any sort of farewell or severance package for them. Also leaving Mercy were Sheri Beekman, chief revenue cycle officer, and Donna Chandler, vice president for patient receivables.
“It’s kind of rare for these things to happen in the not-for-profit world,†said Jackson Nickerson, a professor of organizations and strategy at Washington University’s Olin School of Business. “If the not-for-profit did not provide an explanation for the departures (at the time of their occurrence) in order to protect their reputations, then it raises red flags on why they were let go. We just don’t know what that red flag means.â€
Thomas Getzen, a former health finance professor at Temple University and the executive director of the International Health Economics Association, has no firsthand knowledge of Mercy’s operations. But, as one of the nation’s leading authorities on health care finance and management, he, too, voiced concern.
Getzen, who now works as a health care consultant and has served on various boards of directors, said the fact that two of the departing executives oversaw Mercy’s billing and collections may point to potential financial issues, such as overly optimistic financial projections.
One thing is clear: The restructuring of Mercy’s finance and revenue operations is the latest rough patch in Britton’s leadership of the health system, which operates hospitals in Missouri, Kansas, Oklahoma and Arkansas.
During Britton’s five-year tenure as CEO and president, Mercy has grown to become the nation’s sixth-largest Catholic health system. The nonprofit, which enjoys an excellent bond rating, recorded nearly $4.4 billion in operating revenue in fiscal year 2013. It is also in the midst of a huge capital investment campaign.
But the Chesterfield-based health system remains a highly secretive and insular organization. And at times, Britton has seriously misjudged not only the views of Mercy’s benefactors in the Catholic Church but also the likely intentions of federal regulators.
‘A TREMENDOUS ASSET’
For decades, Combs was considered a bulwark of the health system’s financial success, positioning the organization for a strong future.
In announcing the promotion of Combs on Nov. 20, 2012, to the newly created position of executive vice president of strategic growth, Britton called his CFO “a tremendous asset to Mercy as we transition into the new health care world. He has always had a strategic vision for Mercy, leading many challenging projects through the years.â€
At that time, Britton praised him for guiding Mercy’s investment strategies, including efforts to establish a cancer center, heart facility and expanded emergency department at ºüÀêÊÓƵ Mercy Hospital. Britton credited Combs with assessing the financial loss and needs to rebuild Mercy’s hospital in Joplin, Mo., after it was destroyed by a tornado in May 2011.
In contrast, Mercy issued a terse news release on Feb. 26 to announce the sudden departures of Combs and his deputies. Barb Meyer, a Mercy spokeswoman, declined to discuss the high-level changes. Britton refused requests for an interview, and his colleagues received marching orders to say nothing. Words of praise for Combs were scrubbed from Mercy’s website.
“I have no comment. You’ll have to speak with the management,†Charles Thoele, chairman of Mercy Health’s board of directors, said.
Combs, Beekman and Chandler also declined to comment.
WEATHERING THE STORM
Mercy’s management philosophy shakeup hit the health system at a time when hospitals nationwide are being crimped by reduced government reimbursement rates for Medicare services and health systems are being forced to become more efficient. They are also being compelled to deliver higher quality care, or face financial penalties.
Mark Pascaris, the lead analyst on Mercy at Moody’s Investors Service, said the health system was “weathering that storm better than most.†He gave Mercy an excellent bond rating on Dec. 19.
“It’s not uncommon to have management turnover of the CFO or the CEO, even when the numbers look good,†Pascaris said. “There are times when the board indicates they want a fresh perspective. There can be personality conflicts. … These are boards that have prominent people. Like in the corporate world, they want fresh blood from time to time. It’s not that unusual in this sector.â€
Mercy has “a very high (bond) rating with a stable outlook,†he said, explaining that its more than $750 million in tax-exempt bond liabilities amounted to less debt on a percentage basis than most health systems.
But, he added, Mercy has a bit less cash on hand than other health systems with an “Aa3†rating, and it relies on the Springfield, Mo., and the ºüÀêÊÓƵ area markets for 61 percent of its revenue.
Mercy is pursuing a $4.6 billion campaign to build and upgrade various hospitals and clinics in its four-state operations, including construction of a state-of-the-art medical center in Joplin. The campaign includes a $2.4 billion investment in the ºüÀêÊÓƵ area over the next several years, with plans to build a new hospital in St. Charles County and a “virtual care†facility in Chesterfield with telemedicine capabilities.
PRESSURES MOUNT
But the health system has faced recent challenges.
In 2012, Britton miscalculated when he counted on the approval of Mercy’s proposed sale of its underperforming hospital in Hot Springs, Ark. The sale was subsequently opposed by a Little Rock bishop and resisted by Vatican power brokers.
The Federal Trade Commission staff concluded early last year that the Arkansas hospital sale would violate antitrust law. Once the FTC staff indicated its opposition, Mercy abandoned the deal.
Britton’s plan to sell the Arkansas hospital to a crosstown competitor had sparked the resignation in 2012 of Eric Jackson, who sat on Mercy’s national board. Mercy recently sold the hospital to a Little Rock affiliate of Colorado-based Catholic Health Initiatives.
The depth of support for Britton on Mercy’s board is unclear. He’s spending an increased amount of time in Dallas, where he and his wife, Vilaas Thriess, purchased last June a nearly 5,000-square-foot house. Britton had earned an accounting degree from Abilene Christian University before attending business school in Oklahoma City.
Britton also owns a 5,500-square-foot ranch house in Wildwood.
Complicating matters, the morale of Mercy’s workforce may need a shot of adrenaline. Employees have contacted the newspaper with complaints about frozen wages, new policies involving how the health system discourages sick days, and its planned pay cuts for weekend employees. Some employees say their wages are too low for the workers to afford coverage by Mercy’s health insurance plan.
“We’re the one health system that has not had a recent layoff,†Meyer, the Mercy spokeswoman, said.
Mercy employees also complain about the salaries, bonuses and benefits awarded to the nonprofit’s executives. For example, Britton’s total compensation in fiscal year 2012 totaled $2.2 million; Combs received $1.8 million; Beekman received $415,860; and Meyer received $296,339.
In recent years, Combs and Beekman each had two family members on Mercy’s payroll; the combined compensation of their family members from fiscal year 2009 through fiscal year 2012 totaled $845,422, according to Mercy’s Form 990 tax filings.
Like other health systems, Mercy has a history of clashes with the federal Centers for Medicare and Medicaid Services, including recent cases involving the billing status of patients.
Hospitals that submit bills to Medicare must meet federal criteria for classifying a patient as an “outpatient,†a “patient admitted for observation,†or an “in-patient hospital admission.†Only certain diagnoses qualify for each billing status or change in status.
According to industry experts, health systems at times fudge the diagnosis of certain patients and upgrade their status to an “in-patient hospital admission†as a way to maximize revenue quickly.
Britton and hospital executives elsewhere have voiced concerns about Medicare’s claims review process and new regulations on patients’ billing status. Still, Britton says the majority of its Medicare appeals are settled in its favor.
Adverse rulings in such cases are important: about 36 percent of Mercy’s revenue is from Medicare reimbursements.
“Those are things that are happening between Medicare and health care providers every day,†Meyer said. “All hospitals have audits. It’s routine.â€
Nonetheless, in 2012 Mercy agreed to pay $365,000 to settle Medicare fraud allegations that it improperly billed patients for kyphoplasty, a procedure for certain spinal fractures that can be done on an outpatient basis. Mercy allegedly submitted false claims and overcharged Medicare by unnecessarily keeping its kyphoplasty patients in the hospital overnight.
In 2010, Mercy agreed to pay $2.2 million to settle allegations of Medicare fraud at six Mercy hospitals and clinics in Missouri.
According to Mercy’s news release regarding the departures of Combs, Beekman and Chandler, executive vice president Shannon Sock will serve as CFO while continuing to lead Mercy’s strategic business development efforts. Jon Vitiello will assume the newly created role of senior vice president of finance, overseeing all aspects of finance and revenue management. Kim Day, formerly regional president for Mercy’s central region, will provide interim executive oversight for Mercy’s revenue management team.