Memorial Hermann faces change at the top amid credit review

Executives at Memorial Hermann Health System are confident that the Houston-based health system’s credit rating won’t take a hit following the surprising and immediate departure of Dr. Benjamin Chu as president and CEO.

Chu resigned from his post last week to pursue a role in crafting health and public policy. Chuck Stokes, executive vice president and chief operating officer, has taken over as interim CEO. Memorial Hermann is in a credit review process with both Moody’s Investors Service and Standard & Poor’s. Health system executives don’t expect the transition to lead to any material credit action. Moody’s declined to comment.

Moody’s assigned an A1 rating to the system’s proposed $129 million issue of fixed-rate bonds last May, based on its leading market position in the greater Houston area, favorable demographics and a history of strong revenue growth and operating cash flow margins.

“We’ve received positive bond ratings in the past based on our financial strength and the market’s confidence in our strategic and operational performance. We have a deep and strong management team, and remain in good hands during the CEO transition,” Chief Financial Officer Dennis Laraway said in a statement. “Our greater (credit) concerns rest with changing economic conditions in Houston, a result of the prolonged energy recession.”

Chu landed the top job last June, replacing ex-CEO Dan Wolterman. He’s the first physician to have led the organization and was tasked with better integrating Memorial Hermann’s clinical operations. Chu previously served as Oakland, Calif.-based Kaiser Permanente’s group president for Southern California and Georgia and vice presi- dent of Kaiser Foundation Hospitals and Health Plan. At Kaiser, Chu implemented an integrated electronic health record system and population health management tools.

“I have admired Memorial Hermann from afar for many years, and I was incredibly honored to join this prestigious organization,” Chu said in a statement.

Memorial Hermann is neck-andneck with HCA as the market-share leader in the Houston area with more than $5 billion in annual revenue.