In 2012, Community Health Systems (CHS) fired CFO Gregg Becker from his position as CFO of Rockwood Clinic in Spokane, Washington. Becker claimed he was fired because he would not understate losses. The Spokane Journal of Business reports (https://www.spokanejournal.com/…/former-rockwood-cfos-suit…/):
“Becker, who Rockwood Clinic hired in February 2011, says in his suit that CHS had acquired Rockwood with a business strategy to improve profitability. The suit alleges he was pressured late that year to project a $4 million operating loss for Rockwood Clinic for 2012, rather than the $12 million operating loss—later proven accurate—that he believed he legally was required to report.”
The article goes on to say that the Court allowed the suit to continue: “‘Accepting all factual allegations as true, the threat of constructive discharge would jeopardize the public policy of honesty in corporate reporting by discouraging a CFO like Mr. Becker from refusing to submit a false or misleading EBITDA projection.’ It said Becker’s refusal ‘was the only available adequate means for promoting public policy, given the uncertainty of other enforcement mechanisms and their dependence on his individual pro-compliance efforts.’”
Sajin Young, a NICHE follower we profiled earlier this week, posted the article above on his Facebook page in the context of bad earnings soon to be reported by CHS. The inference is not subtle, but neither is it a direct accusation. There are rumors from reliable local sources that LHN CFOs are under pressure. NICHE cannot confirm that any irregularities have occurred or will occur, but the above article from Spokane and our conversations with previous CHS managers comport with the notion that CEOs at CHS hospitals are expected to cut costs and produce profits. Judgments then depend on the degree of home office pressure and what measures may (or may not) be taken. Such rumors make for an awkward situation for all parties. As NICHE has said previously, it will require candor and transparency both to provide clarity and to erase nagging doubt. Accordingly, CHS’s upcoming earnings call will be a litmus test to see if the numbers add up.