After a turbulent and challenging four years leading Memorial Health System, CEO Dr. Larry McEvoy will leave the job May 4.

Memorial was facing a financial abyss when McEvoy took over the top post in 2008, and although the hospital bounced back, those troubles led to two years of community soul searching to decide whether the city-owned hospital would be better off as an independent nonprofit or being sold outright.

McEvoy championed the nonprofit vision, but city leaders eventually endorsed leasing Memorial to University of Colorado Health instead.

A Memorial spokesman said McEvoy is not leaving for a new job and that his departure was a mutual decision not related to performance issues. McEvoy will receive 18 months pay in a severance package negotiated with Memorial’s board — $1 million based on his 2012 salary of $670,009.

City Council President Scott Hente said that Memorial’s board of trustees has the authority to negotiate severance packages and that council was kept informed but didn’t vote on the matter.

In a statement, McEvoy thanked the staff and doctors at Memorial and said leaving was the best way for him to smooth the transition to University of Colorado Health’s management.

“There are two main reasons for my departure and its timing,” McEvoy said in the statement.

“First and foremost, the job I was hired to do no longer exists. For now, we are not designing, creating and planning. Second, I leave to make space for our future as we go through the anticipated transition to UCH. I do not wish to become a distraction.”

Mike Scialdone, Memorial’s chief financial officer, was named interim CEO.

City Attorney Christopher Melcher said negotiations with University of Colorado Health are moving ahead. The decision to approve or reject the lease is expected to be put to voters in August.

“The negotiations between the city and the University of Colorado Health system regarding an operating lease for Memorial Health System are proceeding well, and both parties continue to be optimistic that a mutually beneficial agreement will be finalized soon for Council and voter approval,” Melcher said in an e-mail.

In a statement, University of Colorado Health said McEvoy’s departure would not affect the lease negotiations.

“The operations and personnel decisions regarding MHS obviously reside with the City Council and MHS itself,” University’s statement said. “We can report that lease negotiations on Memorial Health System are progressing well, and our commitment to Memorial remains strong. We look forward to forging a close relationship with the people of Colorado Springs, El Paso County and southern Colorado, and we believe this will bring stability to MHS.”

Since City Council unanimously endorsed the University of Colorado Health proposal, the future of McEvoy and other hospital leaders has been a hot topic. A plan to give Memorial senior executives retention bonuses generated a storm of controversy and Councilman Tim Leigh called for McEvoy to be put on leave and investigated. Memorial’s board voted in March to not award the retention bonuses.

On Wednesday, Leigh said McEvoy’s departure would smooth the waters for the University of Colorado Health transition.

“I think the sooner he can leave, the more the system can start to move on,” Leigh said.Leigh, who was highly critical of McEvoy when he received a $120,000 raise in January, said McEvoy would probably leave the health system with a “boatload of dough and benefits.”

“That he goes out the door with a significant exit package is just another insult, in my opinion, to the employees at the hospital,” Leigh said.

James P. Moore, chairman of Memorial’s board, defended McEvoy’s leadership in a statement.

“Dr. Larry McEvoy has masterfully led Memorial through what is unquestionably the most challenging time in its 108-year history,” Moore said. “Dr. McEvoy restored an ailing health system to profitability in just a year’s time, and he’s defined the mission, vision and values by which we work today. As a former ER doctor, he never wavered in his focus on patients.”

Several City Council members also praised McEvoy’s stewardship of Memorial. Councilman Merv Bennett called him a “personal friend” who took over Memorial at a difficult time and turned the organization around.

“Larry is the one that initiated that health care is changing, we need to do things different in the future,” Bennett said. “Because of that is why we went through the (bidding) process and all this process we’ve been through. I appreciate the fact that he initiated that, and I think it’s healthy for the long-term of the hospital.”

Councilwoman Jan Martin, who chaired the task force that recommended leasing Memorial to University of Colorado Health, said McEvoy had the leadership to get Memorial on the right track financially and on a better path for future growth.

“I remember the difficult financial place Memorial was in at the time Larry came in and within a year had really turned around the finances of the hospital,” Martin said. “The direction we’re moving will always be due to Larry’s vision that he brought with him to Colorado Springs.”

Bob Lally, who chaired the citizens commission on Memorial, credited McEvoy for beginning the conversation on the hospital’s future.

“I think Memorial’s on the right track and I give a lot of credit to where McEvoy and his executive team, what they did to get where we are,” Lally said.

The new interim CEO Scialdone, has served as Memorial’s chief financial officer since 2008, coming over from Penrose-St. Francis Health Services, where he was also CFO.

Scialdone, 46, said he hasn’t considered yet whether he would want the top job permanently.Bennett said Scialdone was the perfect fit to serve as interim CEO. Scialdone is “highly respected” by UCH, City Council and the medical community, he said.

“I think Mike is in an excellent position to continue to strengthen the operations in an interim until UCH takes it over. As far as that goes, that would only strengthen the negotiations,” Bennett said.

Scialdone said his role for the coming months is maintaining the financial and operational health of the hospital and to help explain what the University of Colorado Health deal could mean to the community.

“It’s our responsibility to get people engaged, to get people informed and to get people excited about this opportunity for our community,” Scialdone said.

He said that, although admissions continue to decline compared to 2011, Memorial’s financial performance through the first quarter of 2012 was strong and the hospital is in good shape, with a $19 million profit in the first three months.

“A lot of the actions we took in the second half of 2011 to strengthen our margins have paid off,” Scialdone said.—

Larry McEvoy’s tenure at Memorial Health System:

Larry McEvoy, 46, joined Memorial as chief medical officer in October, 2007, coming from the Billings Clinic in Billings, Montana. He was named interim CEO in January 2008 after the retirement of former CEO Dick Eitel and was given the permanent position in May 2008. McEvoy received his medical degree from Stanford in emergency medicine and worked as an emergency room doctor until he moved into management.

In 2008, the global financial crisis caused interest rates on Memorial’s debt to jump and the hospital lost $32 million. In 2009, Memorial returned to profitability, but city leaders were concerned that taxpayers could be on the hook if Memorial again posted large losses and kicked off what would become a year-long review of whether to spin off or sell Memorial.

At the end of 2010, a citizens commission endorsed McEvoy’s plan to spin off the hospital as an independent nonprofit. However, negotiations with City Council were put on hold in January 2011 when the state’s Public Employees’ Retirement Association estimated it would cost Memorial $246 million to buy its way out of the system and become a private nonprofit.

Dwindling admissions and poor returns in its investment portfolio combined to put Memorial’s finances in jeopardy again in mid-2011. McEvoy told City Council that it was in danger of defaulting on its bond obligations, which require the hospital to meet several financial performance criteria. He said the debate over the hospital’s future was contributing to the financial problems.

“I just note, however you want to take this, if you put a health care organization in play, the longer that goes on, the more it hurts the organization,” McEvoy told council in September.

A cost cutting plan and improved stock market performance stemmed the threat of a bond default by the end of 2011, but Memorial still finished the year $10.1 million in the red.

In August, the City Council decided to seek bids to lease the hospital and McEvoy and Memorial’s board again championed the idea of spinning off Memorial as an independent nonprofit. Instead, in December 2011, a city task force recommended a bid by University of Colorado Health (UCH), a new organization comprised of University of Colorado Hospital in Aurora and Poudre Valley Health System in Fort Collins. Those negotiations are ongoing.

McEvoy released this statement:

“I am grateful for all I have learned from the employees, physicians, and volunteers, who are Memorial. Through financial difficulties, organizational doubt and duress, and political distractions, they have stayed true to their work and rediscovered their purpose. They have carried the patients, each other, and the health care with steady grace.

There are two main reasons for my departure and its timing.

First and foremost, the job I was hired to do no longer exists. For now, we are not designing, creating and planning.

Second, I leave to make space for our future as we go through the anticipated transition to UCH. I do not wish to become a distraction. All our effort must rise from and toward the new day with University of Colorado Health.

Although these are sound reasons, a decision like this is always difficult. After all the conversations about leases and days-cash-on-hand and bond ratings and lawyers have faded away, I will remember the beep of monitors, the rounds in the dark of night, the shake of a patient’s hand, physicians working together to come to common ground, and morning gatherings for safety rounds. I will remember all of those who serve the food and clean the beds and put out the bills and keep the computers humming. I will remember their humility and commitment in stepping forward to create a new kind of organization.”

Memorial Health System CEO Dr. Larry McEvoy Photo by