Description
Financial And Operational Challenges Opportunities For Rural Hospitals And The Communities
Financial and Operational
Challenges/Opportunities for Rural
Hospitals and The Communities
They Serve
Rural Hospital Group, 1100 Main Street, PO Box 26004, Kansas City, MO 64196
Rural Hospital Group, 1100 Main Street, PO Box 26004, Kansas City, MO 64196
DOES YOUR HOSPITAL NEED A TURNAROUND
PLAN?
First Step – Financial & Operational Assessment
Strong Credit (No)
•Good liquidity and ready access to capital markets on favorable terms
•Expanding volumes and market share
•Strong governance/management and clinical/operational best practices in
use
•Acts in strategic manner to achieve long?term, enterprise?wide goals and
market share
•Effective incentive alignments with physicians
Rural Hospital Group, 1100 Main Street, PO Box 26004, Kansas City, MO 64196
Average Credit (Maybe)
•Average and limited access to capital
•Modest-to-static volume and market growth
•Static-to-declining liquidity and operating cash flow
•Infrequent reassessment of service lines
•Lack of focus on cash and cost reductions
•Deferral of strategic projects
•Lack of Strategic Planning
•Lack of on-going Board training
Rural Hospital Group, 1100 Main Street, PO Box 26004, Kansas City, MO 64196
Low Credit (Yes)
•Minimal liquidity and extremely limited access to capital
•Substandard or declining operating performance metrics
•Close to bond/loan covenant breaches
•Unstable management or governance
•No Strategic Planning
•Losing or lost market share
•Lack of service line evaluation & analysis
•Need to dispose of non-core service lines or assets
•Need for turnaround advisor
Rural Hospital Group, 1100 Main Street, PO Box 26004, Kansas City, MO 64196
“Defaulted” Credit (Yes, but maybe too late)
•No liquidity and no access to capital
•No possibility for out-of-bankruptcy M&A alternatives
•Evaluating out-of-bankruptcy debt modifications
•Evaluating of bankruptcy options
•Need for crisis management
•Bond Trustee required turnaround services plan
The Rural Marketplace
Challenges/Opportunities
• 2200 Rural hospitals (62% of which loss money in
2014)
• Great Recession of 2007-14 have disrupted
hospitals
• Governance generally unsophisticated
• Management generally overcomed by lack of
adequate capital
• Boards & managers overwhelmed by regulatory
complexity and market challenges
• All of the above have created a lethal combination
leading to death spiral (283 at risk of closure*)
• Can the trends be reversed
• How to position survivors for the future
• *(Source: NRHA March 2015)
Rural Hospital Group, 1100 Main Street, PO Box 26004, Kansas City, MO 64196
Two Common Case Studies of
Hospital Turnarounds
Exhibit Hospital “A”
Rural Hospital Group, 1100 Main Street, PO Box 26004, Kansas City, MO 64196
Exhibit Hospital “A”
Starting point (Bond Trustee required):
•Bond Indebtedness Used for replacement hospital - $27.5M
•13 week cash flow analysis forecasting hospital’s ability to
meet short-term obligations.
•Operational analysis identify drivers of hospital’s decreased
financial position.
•Turnaround recommendations for short-term action to
strengthen cash position
•Long-term recommendations for on-going financial and
operational improvements
•Monthly and five-year pro-forma modeling impact of
turnaround actions and strategies
Rural Hospital Group, 1100 Main Street, PO Box 26004, Kansas City, MO 64196
Exhibit Hospital “A”
Labor Productivity (Staffing, Wage Levels, Benefits)
•Staffing analysis (resulted in recommendation for a Reduction in Force of
32 FTE’s – saving $1.8MM annually)
•Reduce four manager positions (saving another $300K)
•Conversion of some RN positions to LPN positions (savings $200K)
•Analysis and recommendation for sale of Home Health Agency (generates
cash pick up of $800K -- 5 times EBIDTA)
•Physician & Third-Party Contracting:
• Recommend economic viability assessment for each specialty service
initially and on an on-going basis
• Recommend all specialty physician contracts structured on RVU or similar
model basis
Rural Hospital Group, 1100 Main Street, PO Box 26004, Kansas City, MO 64196
Exhibit Hospital “A”
•Licensing & Surveying
• Three year certification March 28, 2013 (no licensing
issues)
•Cost Reporting & Reimbursement
• FI/CMS disallowed costs on facility (amounting to
$800K) – pursued legal action along with parallel political
solution to overcome disallowed costs
• Found Part A service in disallowed area to avoid
problem in the future
• Additional disallowable charges related to ER
standby time (200K annually)
Rural Hospital Group, 1100 Main Street, PO Box 26004, Kansas City, MO 64196
Exhibit Hospital “A”
Inpatient & Outpatient & Clinic Service Lines
•Home Health Services
•Swing Bed Services
•ER Standby Services
•Nursing Services
•Ancillary Service Lines
•Laboratory and Radiology Service Lines
Rural Hospital Group, 1100 Main Street, PO Box 26004, Kansas City, MO 64196
Exhibit Hospital “A”
Rates, Charges & Revenue Cycle
• Gross Days in Accounts Receivable metric
• Gross Days in Discharged not Final Billed metric
• Point of Service Collections metric
Supply Chain Management & Vendor
Relations
• Recommend non-discretionary purchasing policy
to include equipment maintenance contracts
Sales Tax Revenue
Conclusions
Rural Hospital Group, 1100 Main Street, PO Box 26004, Kansas City, MO 64196
Exhibit Hospital “A”
Financial Summary
• Prior to turnaround FY2014 loss of $1.01m
• Status Quo Scenario result showed net assets
dropped from $4.6m to -$2.0m over 5 yrs
• 2012-13 Net Position decreased $1.27M or 54.3%
• Five Year Pro Forma Financials with turnaround
• Net income projected to become positive in 2015
(3.3% Margin) and in 2016 ($4.7% Margin).
• Projected to meet all bond covenants
Rural Hospital Group, 1100 Main Street, PO Box 26004, Kansas City, MO 64196
Recent Hospital Engagement
Exhibit Hospital “B”
Rural Hospital Group, 1100 Main Street, PO Box 26004, Kansas City, MO 64196
Exhibit Hospital “B”
Starting point (Board requested):
•Operational analysis of drivers for hospitals decreased
financial performance
•Short-term recommendations to strengthen cash position
•Long-term recommendations for on-going financial and
operational improvements
•Financial pro-forma modeling impact of turnaround actions
and strategies
Rural Hospital Group, 1100 Main Street, PO Box 26004, Kansas City, MO 64196
Exhibit Hospital “B”
Labor, Productivity, Staffing
• Recommend Reduction In Force of 39 positions ($1.6MM annual savings)
Cost Reporting & Reimbursement
• Physician Contracts (including Specialty Providers)
• Purchased Services (Pharmacy --$200K annual savings)
• Inpatient & Outpatient Service Lines & Clinics
• Swing Bed Analysis
• Outpatient Services
• Clinics
• Inpatient Services
• Revenue Cycle Analysis
• Accounts Receivable
• Unbilled Charges
• Point of Service Collections
• Business Office (Consolidate Physician and Hospital)
Rural Hospital Group, 1100 Main Street, PO Box 26004, Kansas City, MO 64196
Exhibit Hospital “B”
Licensing & Surveying (Mock Survey)
•Surveyed by the State on April 2, 2012 (new survey coming)
Recommendations
Cost Reporting & Reimbursement
•Audit adjustments
•Reevaluate estimation process
•Analyze Medicaid bad debt reimbursement
•Annual review of Medicare and Medicaid by cost reporting expert
•Labor productivity (Wages, Benefits & Staffing Levels) Analyze staffing
levels using state and regional averages.
•Reduction in Force
•CAH Financial indicators Report from Flex Monitoring Team
•Salaries to Net Patient Revenue metric
Rural Hospital Group, 1100 Main Street, PO Box 26004, Kansas City, MO 64196
Exhibit Hospital “B”
•Financial Summary
• FY2014 loss of $1.8m which was almost double the
internally reported loss
• Status Quo Scenario shows net asset drop from
$4.6m to -$2.0m
• Additional Property Tax Levy produces additional
$745k
• Five Year Pro Forma Financials
• Hospital cash grows from $1.6m to $9.8m by 2019
• Meets all bond covenants
Rural Hospital Group, 1100 Main Street, PO Box 26004, Kansas City, MO 64196
Areas for Review (many times technical in nature)
• Regulatory issues related to licensing, surveying and cost
reporting
• Physician and other third party contracts
• Inpatient and outpatient service lines
• Payor relationships and open items related to reimbursement
• Staffing Issues
• Cost required to make adjustments
• The income statement appoarch
Rural Hospital Group, 1100 Main Street, PO Box 26004, Kansas City, MO 64196
Organized Turnaround Plan Services
Questions or Comments?
Rural Hospital Group, 1100 Main Street, PO Box 26004, Kansas City, MO 64196
RHG Mission
• Provide management advisory and turnaround services to rural
hospitals experiencing serious financial & operational difficulties
• Work with local managers to develop practical working solutions
• Goals are immediate and direct
• Increase revenue
• Reduce costs
• Improve operations
• Reestablish credibility with stakeholders
• Viability
Rural Hospital Group, 1100 Main Street, PO Box 26004, Kansas City, MO 64196
Summary of RHG Services
• Management Advisory & Turnaround Services
• Preparation of unaudited monthly and end of year
financial statements
• Preparation of strategic and financial plans
• Planning & implementation of long term and short
term goals and objectives
• Management oversight and direction
• Supply chain management & vendor support analysis
• Quality Assurance; regulatory compliance & risk
management
• Human resources management including medical
staff employment
• Licensing and regulatory compliance staffing
Rural Hospital Group, 1100 Main Street, PO Box 26004, Kansas City, MO 64196
RHG TEAM
Larry Arthur
Jim Shaffer
Dennis Davis
Val Schott
Bill May
John Ross
Rural Hospital Group, 1100 Main Street, PO Box 26004, Kansas City, MO 64196
doc_397531356.pdf
Financial And Operational Challenges Opportunities For Rural Hospitals And The Communities
Financial and Operational
Challenges/Opportunities for Rural
Hospitals and The Communities
They Serve
Rural Hospital Group, 1100 Main Street, PO Box 26004, Kansas City, MO 64196
Rural Hospital Group, 1100 Main Street, PO Box 26004, Kansas City, MO 64196
DOES YOUR HOSPITAL NEED A TURNAROUND
PLAN?
First Step – Financial & Operational Assessment
Strong Credit (No)
•Good liquidity and ready access to capital markets on favorable terms
•Expanding volumes and market share
•Strong governance/management and clinical/operational best practices in
use
•Acts in strategic manner to achieve long?term, enterprise?wide goals and
market share
•Effective incentive alignments with physicians
Rural Hospital Group, 1100 Main Street, PO Box 26004, Kansas City, MO 64196
Average Credit (Maybe)
•Average and limited access to capital
•Modest-to-static volume and market growth
•Static-to-declining liquidity and operating cash flow
•Infrequent reassessment of service lines
•Lack of focus on cash and cost reductions
•Deferral of strategic projects
•Lack of Strategic Planning
•Lack of on-going Board training
Rural Hospital Group, 1100 Main Street, PO Box 26004, Kansas City, MO 64196
Low Credit (Yes)
•Minimal liquidity and extremely limited access to capital
•Substandard or declining operating performance metrics
•Close to bond/loan covenant breaches
•Unstable management or governance
•No Strategic Planning
•Losing or lost market share
•Lack of service line evaluation & analysis
•Need to dispose of non-core service lines or assets
•Need for turnaround advisor
Rural Hospital Group, 1100 Main Street, PO Box 26004, Kansas City, MO 64196
“Defaulted” Credit (Yes, but maybe too late)
•No liquidity and no access to capital
•No possibility for out-of-bankruptcy M&A alternatives
•Evaluating out-of-bankruptcy debt modifications
•Evaluating of bankruptcy options
•Need for crisis management
•Bond Trustee required turnaround services plan
The Rural Marketplace
Challenges/Opportunities
• 2200 Rural hospitals (62% of which loss money in
2014)
• Great Recession of 2007-14 have disrupted
hospitals
• Governance generally unsophisticated
• Management generally overcomed by lack of
adequate capital
• Boards & managers overwhelmed by regulatory
complexity and market challenges
• All of the above have created a lethal combination
leading to death spiral (283 at risk of closure*)
• Can the trends be reversed
• How to position survivors for the future
• *(Source: NRHA March 2015)
Rural Hospital Group, 1100 Main Street, PO Box 26004, Kansas City, MO 64196
Two Common Case Studies of
Hospital Turnarounds
Exhibit Hospital “A”
Rural Hospital Group, 1100 Main Street, PO Box 26004, Kansas City, MO 64196
Exhibit Hospital “A”
Starting point (Bond Trustee required):
•Bond Indebtedness Used for replacement hospital - $27.5M
•13 week cash flow analysis forecasting hospital’s ability to
meet short-term obligations.
•Operational analysis identify drivers of hospital’s decreased
financial position.
•Turnaround recommendations for short-term action to
strengthen cash position
•Long-term recommendations for on-going financial and
operational improvements
•Monthly and five-year pro-forma modeling impact of
turnaround actions and strategies
Rural Hospital Group, 1100 Main Street, PO Box 26004, Kansas City, MO 64196
Exhibit Hospital “A”
Labor Productivity (Staffing, Wage Levels, Benefits)
•Staffing analysis (resulted in recommendation for a Reduction in Force of
32 FTE’s – saving $1.8MM annually)
•Reduce four manager positions (saving another $300K)
•Conversion of some RN positions to LPN positions (savings $200K)
•Analysis and recommendation for sale of Home Health Agency (generates
cash pick up of $800K -- 5 times EBIDTA)
•Physician & Third-Party Contracting:
• Recommend economic viability assessment for each specialty service
initially and on an on-going basis
• Recommend all specialty physician contracts structured on RVU or similar
model basis
Rural Hospital Group, 1100 Main Street, PO Box 26004, Kansas City, MO 64196
Exhibit Hospital “A”
•Licensing & Surveying
• Three year certification March 28, 2013 (no licensing
issues)
•Cost Reporting & Reimbursement
• FI/CMS disallowed costs on facility (amounting to
$800K) – pursued legal action along with parallel political
solution to overcome disallowed costs
• Found Part A service in disallowed area to avoid
problem in the future
• Additional disallowable charges related to ER
standby time (200K annually)
Rural Hospital Group, 1100 Main Street, PO Box 26004, Kansas City, MO 64196
Exhibit Hospital “A”
Inpatient & Outpatient & Clinic Service Lines
•Home Health Services
•Swing Bed Services
•ER Standby Services
•Nursing Services
•Ancillary Service Lines
•Laboratory and Radiology Service Lines
Rural Hospital Group, 1100 Main Street, PO Box 26004, Kansas City, MO 64196
Exhibit Hospital “A”
Rates, Charges & Revenue Cycle
• Gross Days in Accounts Receivable metric
• Gross Days in Discharged not Final Billed metric
• Point of Service Collections metric
Supply Chain Management & Vendor
Relations
• Recommend non-discretionary purchasing policy
to include equipment maintenance contracts
Sales Tax Revenue
Conclusions
Rural Hospital Group, 1100 Main Street, PO Box 26004, Kansas City, MO 64196
Exhibit Hospital “A”
Financial Summary
• Prior to turnaround FY2014 loss of $1.01m
• Status Quo Scenario result showed net assets
dropped from $4.6m to -$2.0m over 5 yrs
• 2012-13 Net Position decreased $1.27M or 54.3%
• Five Year Pro Forma Financials with turnaround
• Net income projected to become positive in 2015
(3.3% Margin) and in 2016 ($4.7% Margin).
• Projected to meet all bond covenants
Rural Hospital Group, 1100 Main Street, PO Box 26004, Kansas City, MO 64196
Recent Hospital Engagement
Exhibit Hospital “B”
Rural Hospital Group, 1100 Main Street, PO Box 26004, Kansas City, MO 64196
Exhibit Hospital “B”
Starting point (Board requested):
•Operational analysis of drivers for hospitals decreased
financial performance
•Short-term recommendations to strengthen cash position
•Long-term recommendations for on-going financial and
operational improvements
•Financial pro-forma modeling impact of turnaround actions
and strategies
Rural Hospital Group, 1100 Main Street, PO Box 26004, Kansas City, MO 64196
Exhibit Hospital “B”
Labor, Productivity, Staffing
• Recommend Reduction In Force of 39 positions ($1.6MM annual savings)
Cost Reporting & Reimbursement
• Physician Contracts (including Specialty Providers)
• Purchased Services (Pharmacy --$200K annual savings)
• Inpatient & Outpatient Service Lines & Clinics
• Swing Bed Analysis
• Outpatient Services
• Clinics
• Inpatient Services
• Revenue Cycle Analysis
• Accounts Receivable
• Unbilled Charges
• Point of Service Collections
• Business Office (Consolidate Physician and Hospital)
Rural Hospital Group, 1100 Main Street, PO Box 26004, Kansas City, MO 64196
Exhibit Hospital “B”
Licensing & Surveying (Mock Survey)
•Surveyed by the State on April 2, 2012 (new survey coming)
Recommendations
Cost Reporting & Reimbursement
•Audit adjustments
•Reevaluate estimation process
•Analyze Medicaid bad debt reimbursement
•Annual review of Medicare and Medicaid by cost reporting expert
•Labor productivity (Wages, Benefits & Staffing Levels) Analyze staffing
levels using state and regional averages.
•Reduction in Force
•CAH Financial indicators Report from Flex Monitoring Team
•Salaries to Net Patient Revenue metric
Rural Hospital Group, 1100 Main Street, PO Box 26004, Kansas City, MO 64196
Exhibit Hospital “B”
•Financial Summary
• FY2014 loss of $1.8m which was almost double the
internally reported loss
• Status Quo Scenario shows net asset drop from
$4.6m to -$2.0m
• Additional Property Tax Levy produces additional
$745k
• Five Year Pro Forma Financials
• Hospital cash grows from $1.6m to $9.8m by 2019
• Meets all bond covenants
Rural Hospital Group, 1100 Main Street, PO Box 26004, Kansas City, MO 64196
Areas for Review (many times technical in nature)
• Regulatory issues related to licensing, surveying and cost
reporting
• Physician and other third party contracts
• Inpatient and outpatient service lines
• Payor relationships and open items related to reimbursement
• Staffing Issues
• Cost required to make adjustments
• The income statement appoarch
Rural Hospital Group, 1100 Main Street, PO Box 26004, Kansas City, MO 64196
Organized Turnaround Plan Services
Questions or Comments?
Rural Hospital Group, 1100 Main Street, PO Box 26004, Kansas City, MO 64196
RHG Mission
• Provide management advisory and turnaround services to rural
hospitals experiencing serious financial & operational difficulties
• Work with local managers to develop practical working solutions
• Goals are immediate and direct
• Increase revenue
• Reduce costs
• Improve operations
• Reestablish credibility with stakeholders
• Viability
Rural Hospital Group, 1100 Main Street, PO Box 26004, Kansas City, MO 64196
Summary of RHG Services
• Management Advisory & Turnaround Services
• Preparation of unaudited monthly and end of year
financial statements
• Preparation of strategic and financial plans
• Planning & implementation of long term and short
term goals and objectives
• Management oversight and direction
• Supply chain management & vendor support analysis
• Quality Assurance; regulatory compliance & risk
management
• Human resources management including medical
staff employment
• Licensing and regulatory compliance staffing
Rural Hospital Group, 1100 Main Street, PO Box 26004, Kansas City, MO 64196
RHG TEAM
Larry Arthur
Jim Shaffer
Dennis Davis
Val Schott
Bill May
John Ross
Rural Hospital Group, 1100 Main Street, PO Box 26004, Kansas City, MO 64196
doc_397531356.pdf