Some Financial Distress Is Self-Inflicted

Sure, there are many sophisticated and technical processes that can be applied to deal with cost management. Toyota's Lean or Six Sigma can be utilized to reduce variances in processes. Benchmarking the right indicators can identify areas of opportunity. Technology can be simply tweaked, or major EMR initiatives pursued. Clinical protocols can be established. I could go on, but you get the idea. And these steps will need to be taken to overcome the fiscal crisis faced by many hospitals (and, I would add, other industries). A good discussion of these and other techniques can be found in an article entitled Taking On the Cost Drivers, on the Health leaders media website.

But I maintain, as financial distress mounts, organizations can become so absorbed in mounting such initiatives, or perhaps are so beaten down, they fail to see opportunities that can be easily addressed by looking carefully for simple, even silly, problems. Here are two examples from my own experience, where I was involved with turnaround situations.

Let's start with a silly example. In the first week I was engaged as a CFO at a large urban hospital with a 40% Medicaid payor population, I happened to be standing near the reception desk when a FedEx courier arrived with a package. I saw the courier speaking with the receptionist for a few minutes, whereupon he turned on his heels and left with the package. I asked the receptionist what happened. Turned out the hospital had not paid it's outstanding FedEx bill, so the package was delivered COD. The receptionist had no money, so the package was not handed over. When I researched the matter, I found FedEx was owed about $125. What was in the package? A Medicaid check for $1.8 million! If someone was paying attention, the FedEx bill would have been timely paid, and the hospital, which was suffering severe cash flow problems would have received it's Medicaid funds on time.

This one is not silly, but shows how some creativity can be applied to a situation. A hospital system, again with a severe cash shortfall, could not pay it's Workers Compensation insurance premiums. As a result, the State had declined to renew several large grants, as one of the eligibility requirements was to carry Workers Compensation insurance. I spoke to the State, and indicated if they would renew the grants, we could utilize a portion of the funds to participate in a State-sponsored self-insurance fund. They agreed. The hospital obtained its insurance and obtained the grants.

This is not rocket science. Sometimes, when you're under the gun, its easy to miss the obvious. Don't let the pressures of a distressed situation keep you from scrutinizing the basics and looking for the low-hanging fruit.

I would be interested in any similar anecdotes that support this thesis.

Cash is King

I am, as they say, "in transition". That means I'm networking, developing my "personal brand", combing job postings and going on job interviews. I state this not to generate empathy because I'm sure the right opportunity will come along. I mention it as a backdrop for this post. Cash is king. I have been on several job interviews, and regardless of the organization, it's size, it's revenue stream, it's mission, when I ask - "What keeps you up at night?", the answer is invariably cash flow issues.

These days, in healthcare and other non-profit organizations, earnings are less important than cash. The cash flow statement is what external lenders, investors and potential donees focus on. Perhaps, if you're creative and aggressive, revenues are rising. But if third party payments are slowing down, or you're not on top of contractual payors and grantors, or you're not maximizing the potential billing you can squeeze out of every contract, cash flow is not keeping up with revenue.

It's critical to measure and monitor cash, so it's essential to develop cash flow projections, preferably of the rolling, thirteen week variety. Refresh the projections weekly. Look for points in time when your liquidity could be in jeapordy, and plan for how you might deal with the situation.

Of course, your cash situation won't improve on it's own, so now is the time to seek opportunities to streamline operations, create new revenue streams and strategically plan for better times. Good luck, and if you need someone to bounce ideas off of on where to start, feel free to contact me.