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Southwest Health System CEO Tony Sudduth resigns

Executive took reins of then-troubled health system in 2018

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

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

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

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

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 details of the resignation.

“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 Friday.

The next step is for SHS to hire a new 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.

Attempts to reach Sudduth and hospital administration for comment were not successful as of Friday evening.

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 to the public 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, or about $2.5 million. It takes about $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 residents, 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. 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.

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 the financial ratio does 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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