Michael Neidorff has held the reins as chief executive at Centene for 25 years — a considerably long reign and rarity for a corporate leader.
Soon Centene will begin searching for Neidorff's successor, kicking off an executive search for the first since he was installed in 1996, the same year the flip phone made its debut.
Neidorff — who transformed the company into a formidable corporation as one of the nation's largest insurers and organizations as a Fortune 24 company — is set to retire by the end of 2022 after striking a deal with an activist investor group keen on new leadership.
The new board — set to seat five new incoming leaders as part of the deal with Politan Capital Management — will be responsible for picking Neidorff's successor, who is likely to face continued uncertainties as the health sector heads into another pandemic year with a new variant bearing down on the U.S.
Replacing a longtime leader is an inflection point for any company, and it can prove tricky to replace someone who has been viewed as the face of the organization, experts told Healthcare Dive.
"I think succession in any organization is difficult. I think it becomes more difficult in organizations with especially long tenures," Peter Boumgarden, a business professor with a focus on organization structure at Washington University in St. Louis, said.
Pointing to a recent study, Boumgarden said there are benefits to avoid rushing a new CEO into office.
"There's going to be a lot of pressure to find the right person ... the key thing is to name the right person versus to name the right person quickly," Boumgarden said.
Instead of focusing so much on just one potential individual, boards looking to replace iconic leaders should broaden their thinking, Paul Washington, an executive with the Conference Board, a research group that provides insights for businesses, said.
The board needs "to think about the person actually joining an existing team and that's something that a lot of boards don't actually do," Washington said. A better approach is to think about overarching succession planning that involves the entire team, not just a laser focus on replacing one person, he said.
That's easier to accomplish when boards are united around the strategic direction of the company, he added.
Looking to the future, Centene executives said they're doubling down on the core business: Medicaid, marketplace and Medicare plans. Simultaneously, Centene is combing through the company to reevaluate whether non-core assets should remain in the portfolio, all part of a larger plan to achieve its long-term profit margin goal.
'Puzzling' succession planning
But with a new slate of board members set to arrive, previous strategic plans and potential successors may change.
Speculation over succession plans and who may be tapped to succeed Neidorff touched off this summer following the formation of a new three-person executive office.
In July, Centene unveiled the new "office of the president," and tapped Sarah London, a former Optum executive, and Brent Layton, a longtime Centene executive, to join alongside Neidorff.
For years, Neidorff has said he views Centene as a technology company that does healthcare, and it seems London, whose career has centered around data and analytics, was recruited to execute on that strategy in 2020. During her short tenure, London has quickly ascended to new roles.
In September, London was promoted to vice chairman as the office of the president was changed to the "office of the chairman and CEO." Layton was also promoted to chief operating officer.
With yet another name change, the "value creation office" was announced during investor day this month, with the newly appointed CFO Drew Asher joining the office with London and Layton. Prior to Centene, Asher was CFO at WellCare, which was acquired by Centene for $17 billion last year.
The handling of this office has faced some criticism. Jefferies analyst David Windley called it "anything but clean," in a recent note. Windley earlier called succession planning "puzzling."
"The shifting sands within [Centene's] C-suite remains a must-watch for investors," Windley said.
Gary Taylor, an analyst with Cowen, said the new board may "enhance market confidence regarding [Centene's] CEO succession plans."
Centene has said its board began to put a "succession planning initiative" in place in July, but did not elaborate further.
Next year will pose significant challenges for health insurers as uncertainties around utilization and enrollment persist.
Forecasting patient utilization remains complicated, especially as the even more contagious omicron variant begins to spread at a staggering rate and is now the dominant strain in the U.S. It's unclear whether patients will continue to delay care in droves, which has helped insurers by offsetting higher COVID-19 costs.
On the other hand, the U.S. is likely to roll back certain pandemic consumer protections that barred states from kicking Medicaid members off plans during the pandemic. Many insurers reported considerable membership gains as a result.
But as states gear up to start again determining whether members are still eligible to maintain coverage, it poses a risk to insurers like Centene, which may see declines in Medicaid enrollees. Insurers are expecting regulators to begin redeterminations sometime in 2022.
Another issue on the horizon is Centene's disputes with various states for alleged overcharges for prescriptions. Centene has recently reached numerous multi-million dollar settlements with various states for allegedly overcharging state Medicaid programs for prescription drugs, including Arkansas, Illinois, Ohio, Mississippi and Kansas. The company previously disclosed it has set aside $1.1 billion for future disputes.
Amid these headwinds, Centene is focused on improving its margin performance in the long term.
"CNC has produced uneven operating performance over the last several years and trails peers in terms of margin performance," Taylor, of Cowen, said in a recent note.
To improve margin, executives of the value creation office said they will double down on the core business and evaluate whether to keep non-core assets. Just recently, Centene sold the majority stake in U.S. Medical Management, a home care provider, for an undisclosed sum. Executives are also rethinking the international business.
"If it doesn't fit, it doesn't stay," London said during investor day.