Hospital CFOs face local, as well as global, financial emergencies.
As hospitals try to survive amid dropping patient volumes, higher bad debt expenses, and shrunken investment portfolios, many CFOs are faced with the tough task of turning around their facilities from struggling hospitals to profitable, lean institutions. Mike Johns, vice president finance practice at Quorum Health Resources, a hospital management and consulting company based in Brentwood, TN, says the economic downturn caught most hospitals by surprise.
"If you look back at their budgets, which were prepared before the economic downturn, they certainly didn't predict these events," Johns says.
But how can a CFO become a turnaround expert? Here are stories of two hospitals that needed a turnaround—and not only because of the global recession.
A flood of challenges
John Hester, CFO at Coffeyville (KS) Regional Medical Center, a 148-licensed bed nonprofit hospital, would have more to tackle than an economic crisis. The Coffeyville community was also the scene of a flood in July 2007 that wiped out more than 300 homes and caused many residents to leave the area.
"I think it delayed our growth in the last six months of the year ," says Hester. "[The hospital's finances] kind of flattened out; we didn't realize that we had lost so many people."
Coffeyville didn't expect the flood would drive so many of its patients out of the area. In fact, Hester says the medical center expected to rebound in the first quarter of 2008, but two primary care doctors who left have not been replaced, and the medical center began seeing lower patient volumes in the second quarter. Coffeyville faced a sizable loss in fall 2008 and implemented a hiring freeze and froze salaries to try to stop the problem.
However, after losing $700,000 in the first quarter of 2009, the southeastern Kansas hospital found the cuts were not enough. Coffeyville reviewed all service lines to see which were profitable and which were losing money. The medical center narrowed the focus to a handful of departments and dug deeper to figure out the impact—both to the medical center and community—if Coffeyville eliminated specific departments.
After much review, hospital officials decided to close a 20-licensed bed behavioral health center at the medical center, in additional to reworking contracts, bringing some services in-house, and working with care managers to reduce contractual write-offs.
All told, Coffeyville eliminated 57 positions, which included 16 terms or early retirements that were not replaced, 22 from the closed behavioral health center, and 19 other jobs across the facility.
The result of the cuts and refocusing has been a financial turnaround. Coffeyville is now ahead by $789,000 compared to where it expected to be at this time, and the system has a goal of recovering $2 million by the end of FY09. Other good news is that the facility's investment value is back to where it was before the flood after gaining $1 million in investment value in 2009.
Though there have been glimmers of economic hope recently, the community has not recovered from the flood. But in order to bounce back, Hester says Coffeyville needs to continue its process of analyzing its business, talking with managers and getting buy-in, making tough cuts, and talking to the community about the changes.
Reinvesting in the community
Though it didn't face a flood, Hoopeston (IL) Regional Health Center, a 25-licensed bed critical access care hospital dealt with its own regional crisis—the loss of manufacturing jobs. The result was fewer people using the hospital.
Harry Brockus, CEO of Hoopeston, who also serves as the CFO, arrived at the facility in November 2008. He has improved the facility's bottom line from $748,000 in 2008 to $1.9 million (unaudited) this year.
Brockus says a year after taking over, the health center, which is near the Indiana line in rural Illinois, has seen its ED volume increase by 8%, and its clinic and lab are up between 15 and 20 percent. What are the reasons? He points to Hoopeston reinvesting in the community and giving the region a quality alternative to getting care outside of town.
Brockus says it's important for hospital officials to get out of the facility and meet folks in the community. He became active in local civic organizations, attended city council meetings, and spoke to community members about the hospital and let them voice their concerns. He brought in quality specialists to help Hoopeston improve. "I'm a believer that quality will lead to financial strength," Brockus says.