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A Prescription for Distressed Hospitals

05/20/2009

Chairman's Message

Quick, the hospital industry needs CPR! According to the American Hospital Association, more than 50 percent of hospitals are experiencing negative total margins and many more have closed or filed for bankruptcy.

It's not all doom and gloom, though. Really! Some hospitals do make an excellent recovery. Understanding today's fiscal and personnel challenges is critical. No one does this better than Ernie Enck, who has been a CFO for the last thirty years; he is on his fifth interim CFO stint, most recently working with Leaders For Today. We wanted to share his insights and prescription for success.

A Prescription for Distressed Hospitals

Ernie, how is the role of a hospital CFO changing?

Ernie: It's not number crunching anymore. It's looking at the big picture-the whole operation--and being able to view things at a 30,000 feet level, and then making decisions based on that. I've found management is risk, and many times CFO's are so conservative they don't want to risk making changes. What happens so often is that CFO's will lose focus of the changing environment and concentrate on the detail rather than the big picture.

What do you mean by "changing environment?"

Ernie: It's not all the hospital's fault. We have both federal and state regulations changing the way we reimburse and third parties like the Aetnas, CIGNA's and Anthems. Everyone is trying to ratchet down hospital operations, our reimbursement continues to shrink, we have more people uninsured, and more high deductibles so there's an increase in uncompensated care.

Then what can be controlled?

Ernie: Hospitals need to control their current service line and determine if they can afford them. We can't be all things to everybody. Many small hospitals, for instance, might decide it doesn't make sense to offer obstetrics. But at the head of the list, what I find with almost every distressed hospital is that it does not have a strategic plan (that includes financial goals as well as services and quality).

Are your first steps to take the temperature of the place the way a physician would a sick person?

Ernie: Even before I step aboard, I say, "let me see the budget, the strategic plan, the annual audit, and the management letter." Once I come, I'll need to assess the finance department's capabilities, revenue cycle, and materials management. I like to sit down immediately with the treasurer. That way I get a read of the finance committee's concerns and what they want to see in an interim CFO. I have the CEO make a list of areas of concern and focus for the incoming CFO and also ask senior managers to assess their expectations of the CFO and discuss their concerns. I meet with direct reports to the CFO as well. You need to establish a rapport with everyone, not just the senior group and department managers, but with the finance committee and the Board. The key is to assess what needs to be done and develop the team to get it done.
 

Management Quote

"The louder he talked of his honour the faster we counted our spoons"
~ Ralph Waldo Emerson, The Conduct of Life

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