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Update: Resigning CEO of Southwest Health highlights achievement

Sudduth took reigns of then-troubled system in 2018

Southwest Health System has announced that CEO Tony Sudduth has resigned.

According to a April 16 news release, Chief Financial Officer Rick Shrader will serve as interim CEO.

Community Hospital Consulting will conduct searches for an interim CEO and CEO replacement.

Sudduth
Shrader

“We continue to focus, as always, on providing excellent care to the communities we serve,” said Shrader, interim CEO and CFO, in a news release. “We are ever thankful for our loyal physicians and committed leaders and staff who make quality, compassionate care possible.”

The SHS Board of Directors expressed appreciation for Sudduth’s focus to help stabilize and strengthen SHS over the past few years, especially during the COVID-19 pandemic.

SHS is the private, nonprofit operating arm of Southwest Memorial Hospital. The campus is taxpayer-owned and overseen by the Montezuma County Hospital District.

SHS is managed by Community Hospital Consulting, the management arm of Community Hospital Corp. of Plano, Texas.

Sudduth took over as Interim CEO in April 2018 during a time of financial turmoil for SHS. He became the permanent CEO in 2019 and led a successful effort to stabilize hospital finances, which included staffing cuts, efficiency measures and forbearance negotiations. Sudduth helped to manage completion of the $32 million expansion project, which modernized and upgraded hospital services and facilities.

The completed project includes a new inpatient wing, a retail pharmacy, a new medical office building, a new lobby and a new EMS station.

Sudduth also led the hospital’s effort to combat the COVID-19 pandemic, including establishing regular testing clinics, vaccine distribution and community education.

Fred DeWitt, a member of the Montezuma County Hospital District Board, said the board learned of Sudduth’s resignation Friday afternoon. He did not know further details.

“The reason (Sudduth) was brought on was to help us get back on track financially, and he did that. He did a good job as far as I know,” DeWitt said.

The next step is for SHS to hire a CEO “who will continue to lead us onward and upward,” he said.

The Southwest Health System board has a few vacancies, DeWitt said, but no explanation was given.

According to the SHS website, board members include vice chairman Cody Burke, secretary treasurer Dan Valverde, director Shirley Jones, and director Susan Hodgdon. It was previously a seven-person board. Former SHS board chairman Tom Rice resigned in March.

Attempts to reach Sudduth and administration for comment were unsuccessful.

In an April 9 communique to staff a week before his resignation, he discussed his three years at the helm.

Sudduth said that while the financial crisis and the pandemic made the three years difficult, staff rose to the challenge.

“We had a mountain ahead to scale, but one thing I learned was that the people had the resilience, the desire and the will to do what it takes to get this organization turned around,” Sudduth wrote.

Layoffs and restructuring were also difficult decisions, but spurred a financial turnaround, he added.

In 2017, SHS ended the year with a $4.5 million loss. With the interventions in place in 2018, the loss was decreased to $2.3 million. In 2019, after operational changes, profits grew to $6.5 million, and SHS ended 2020 over $6.8 million in the black. This represents a $11.3 million improvement from 2017, Sudduth said. 

Adjusting operations because of the pandemic was also a big challenge.

“The last year totally changed the way we provide patient care, how we interact with our patients, our visitors and each other,” Sudduth stated. “Changing from an industry that is based on personal contact, to focusing on providing that same level of care through physical barriers that hampered our ability to provide the personal touch and to maintain our normal ways of communication. But we did it, very successfully to rave reviews from our community, another example of how SHS does not back down from a challenge, but meets it head on and excels during the process.” 

“Quite honestly none of the improvements surprise me, we have an unbelievably talented team at SHS, that took the challenge and very early on decided that failure was not an option,” Sudduth said.  “SHS staff have been remarkable in understanding that, for the good of the organization, change was required and you accepted this and moved us forward. I could not be prouder of what we have accomplished.”

A financial journey

Sudduth took over as interim CEO in April 2018 after the former CEO and two other top executives were fired by SHS.

After a financial audit, Sudduth and managers revealed that the hospital had a cash flow problem, was in danger of closing, was overstaffed for hospitals of comparable size and service area, and was out of compliance with a bonding obligation tied to the financing of the hospital expansion.

A forbearance agreement was negotiated between lenders and SHS to allow time for corrective actions to prevent default. The main bond violation in 2018 was insufficient cash on hand. The bond agreement requires that 81 days’ worth of cash be on hand, or $13.3 million. In April 2018, cash on hand had shrunk to 15 days, about $2.5 million. It takes $165,000 per day to operate the hospital.

Targets were set to recover the number within two years.

By October 2020, cash on hand had more than recovered, climbing to 103 days, or about $17 million, Sudduth reported.

Other highlights

In August 2018, SHS announced layoffs of 40 employees, 9.5% of staff, as part of a reorganization plan to bolster the hospital’s struggling financial position and improve efficiencies. Staff dropped from 420 employees to 380. Wage savings from the layoffs were estimated to be $5.4 million per year. A new purchasing plan saved $1 million per year and improved billing procedures helped revenues.

In September, 2018, a community meeting about the hospital attracted 130 citizens, and dozens made comments or had questions for the SHS and MCHD boards. At one point, SHS board members stood up and apologized to the crowd for their lack of oversight that led to the hospital’s decline. They said they put too much trust in previous managers.When a popular doctor’s contract was not renewed as part of the restructuring, it caused public outcry. SHS has since signed an new contract after negotiations with the doctor.

By March 2019, SHS was on track to reach 50 days cash on hand. Patient revenues and profits also were on the rise. February 2019 showed a $70,000 profit, compared with February 2018’s $160,000 loss. Year-to-date profits in March 2019 were $846,000, compared with the position at the same time in 2018 that showed $1.2 million loss.By Oct. 5, 2020, SHS financial health had stabilized, despite setbacks from the pandemic. SHS received $5.8 million in federal Cares Act funding, and $5 million from the Paycheck Protection Program, officials said. The federal aid allowed Southwest Health to weather the pandemic storm. As part of the agreement for keeping PPP funds, no employees were furloughed.Cash reserves, a measure of hospital fiscal health, have rebounded since a 2018 financial crisis that triggered restructuring and a forbearance agreement with investors.In October, SHS reported 103 days cash on hand, or about $17 million. That is up from 50 days in July 2019, and a low of 15 days in April 2018. It takes about $165,000 per day to operate the hospital.

As a private nonprofit, SHS leases operations of the hospital from the Montezuma County Hospital District, which owns the campus. SHS is required under the lease agreement to keep financial ratios at certain benchmark levels based on comparable hospitals.The third quarter 2020 financial ratio report showed the return on assets and acid test ratios were above the 37.5 percentile benchmark for comparable hospitals. The current ratio was below the 37.5 percentile benchmark, but above the 25th percentile for comparable hospitals.

According to the lease, if financial ratio do not hit established benchmarks, improve or drop below the 25th percentile the Montezuma County Hospital District can take corrective action, according to the lease.

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