Description
This paper explain nonprofit survival strategies.
H
ospital boards are charged
with protecting the viability
of one of the community’s
most important assets. During times
of unprecedented financial turbu-
lence, the best boards will assess the
organization’s financial situation
and, if necessary, restructure opera-
tions to remain independent or posi-
tion it to form a mutually benefcial
partnership with another organiza-
tion. At the same time, boards must
be careful to minimize their expo-
sure to individual liability.
Eight tactics can help nonprofit
boards to shepherd their organiza-
tions through these challenges, take
control of their future and protect
trustees from individual liability.
1
Take a close look at services
and revenue. Det ermi ne
whether your organization’s
new reimbursement reality
supports the service lines and an-
cillary services it provides. If they
are not profitable, closing certain
service lines and ancillary services
may generate significant savings.
Conversely, ancillary services also
represent an opportunity to gener-
ate additional revenue. For example,
can additional revenue be generated
by offering home health, hospice,
skilled nursing or rehabilitation care,
and behavioral health care? Can you
transition otherwise empty beds and
dedicate resources to diversify? Pro-
active boards may change the hospi-
tal’s proftability by adding ancillary
services.
To facilitate this review, consider
supplementing the existing fnance
department’s abilities with an out-
side turnaround professional or a
fnancial expert who has specialized
experience in projecting a hospital’s
financial performance. He or she
can provide an unbiased opinion on
what services the hospital revenue
can support, and can project how
changes in the service model will
impact expenses and revenues. An
outside professional also can help
the board and management in work-
ing with the community’s physicians
to structure a fnancially viable ser-
vice model. Many in-house hospital
financial professionals have never
had to face such difficult financial
projections or such rapid change in
reimbursement. An assessment by
an experienced turnaround expert
in concert with the board will give
trustees the information they need
to make strategic decisions.
2
Assess the strength of the hos-
pital’s management team. Te
American College of Healthcare
Executives in March reported
an 18 percent turnover rate in hospi-
tal CEOs in 2014. High turnover is a
sign of difcult times in the industry.
Determine whether your manage-
ment team has the right skills for
today’s environment — skills that go
beyond operational acumen. Does
your management team have the
skills and capacity to manage and
address:
• changes wrought by shrinking re-
imbursement, particularly in states
that refused Medicaid expansion
dollars?
• the growing use of electronic
health records, its impact on physi-
cians and staf, and the accompany-
ing expenses?
• the likelihood that the more so-
phisticated — and better reimbursed
procedures — are going to regional
hospitals?
• the loss of tax subsidies or declin-
ing population?
Board members should be ask-
ing hard questions about these
and other changes and the current
management team’s strategies for
responding to them. At the same
time, the management team needs
resources to address these strategic
concerns. Insist that funds be spent
on hiring people with these strategic
skills as opposed to giving raises or
buying new equipment. Investing in
human resources may serve the hos-
Nonproft Survival Strategies
Eight tactics can
help hospital
boards manage
fnances, liability
By John C. Tishler and
Ryan K. Cochran
feature fnance
SNAPSHOT
Stand-alone, nonproft hospitals
seem to bear the brunt of an un-
favorable fnancial climate. These
tactics, which include assessing
services, sizing up leaders and im-
proving documentation, can pro-
tect hospitals and shield trustees
from individual liability.
Reprinted with permission from the May 2015 issue of Trustee magazine, vol. 68, no. 5.
© 2015 by Health Forum Inc. Permission granted for digital use only.
fnance
pital and the community more efec-
tively than investing in the plant or
equipment.
3
Make sure the board is trained
on legal and business issues.
Assess whether your board is
up-to-speed on what the law
requires to avoid personal liability.
As the competencies and expertise
needed for board leadership ex-
pand, boards need training on the
legal and business issues facing the
hospital. In addition, they need to
be current on the corporate gover-
nance responsibilities that state and
federal laws place on them. If the
hospital is in fnancial distress, state
and federal laws may charge board
members with a heightened duty to
consider the impact of its actions on
hospital creditors. Without this train-
ing, board members may be unaware
of what is required of them to avoid
personal liability. Serving on a hos-
pital board is an important role, but
trustees shouldn’t put their personal
assets at risk. On Jan. 26, the U.S.
Court of Appeals for the Tird Cir-
cuit sitting in Philadelphia issued a
ruling recognizing the individual li-
ability of ofcers and directors of the
nonproft nursing home Lemington
Home for the Aged. The court was
critical of and held the directors in-
dividually liable for their failure to
oversee management whose con-
duct the court determined had hurt
the value and financial viability of
the nursing home. If this decision
is followed widely, it could result in
personal monetary damage awards
against board members for the tort
of “deepening insolvency.” In some
instances, directors’ and officers’
insurance may cover these acts, sub-
ject to the terms and exclusions of
each policy.
To avoid this personal liability,
trustees must be prepared to press
the management team on its plans
to confront financial challenges
and develop plans to address them.
If trustees don’t feel prepared, the
board should consider obtaining
the needed expertise. Boards also
should be able to assess the hospi-
tal’s 13-week cash fow, days of cash
on hand, days in accounts receiv-
able, adjusted cost per case and capi-
tal cost per adjusted patient day. If a
lawsuit is brought against the board
or individual board members, this f-
nancial knowledge will be helpful to
trustees in their depositions and in
establishing compliance with their
fduciary duties.
Boards also should know if appro-
priate levels of director and ofcer
insurance are in place in the event
the board’s decisions are ever called
into question. Request a meeting
with the hospital’s insurance broker
to discuss the level of coverage and
the actions covered by the policy. If
trustees don’t know the extent of the
immunity or if the immunity has lim-
its, they might consider obtaining in-
surance to cover any acts that poten-
tially may fall outside the immunity
coverage provided by state law. If the
hospital is in distress and facing clo-
sure, a sale or bankruptcy, consider
the policy provisions that allow for
negotiating the later purchase of a
so-called tail policy that extends the
existing coverage for a year or more
after the hospital is closed or is in
other hands.
4
Review key metrics on a regu-
lar basis. Is the board receiving
the right financial and qual-
ity analytics? Financial essen-
tials include: performance, projec-
tions and historical performance,
including year-over-year revenues,
expenses, litigation expenses and
operational expenses. Ask the hos-
pital’s ofcers to provide the board
with a review of the hospital’s com-
pliance under its loan agreements.
Ask them to test and present the hos-
pital’s compliance regularly, even if
the actual testing the lenders require
is months away. It is always wise to
insist that outside auditors review
the accounting practices and make
periodic recommendations directly
to the board. Te board should pay
particular attention to the hospi-
tal’s billing practices. Hospitals fre-
quently are accused of overbilling by
Medicare or Medicaid and, in some
instances, board members have been
sued when the hospital was found to
have overbilled or otherwise violated
the rules that govern reimbursement
under governmental programs. Even
in states with statutory protections
for members of nonprofit boards,
the community, the employees and
the hospital’s creditors will hold the
board to the same level of scrutiny
as that of a commercial enterprise. If
expenses are going up and revenues
More on Financial Strategies
“How Hospitals Should Approach Financial Planning in Chang-
ing Times” by Cynthia Hedges Greising, October 2014.http://bit.
ly/1Oca1FV
“The Five Essential Elements of a Hospital Turnaround” by Todd C.
Brower, August 2013.http://bit.ly/1DekmGR
To avoid personal liability, trustees must be prepared to press the
management team on its plans to confront fnancial challenges
and develop plans to address them.
2 MAY 2015 Trustee
fnance
continue to trend down, the call for
change may have to come from the
boardroom.
5
Consider independent legal
counsel. Many hospitals have
a general counsel, or someone
from a local law frm to advise
both the hospital and the board,
but the board may need separate
counsel in turbulent times. One of
the benefts is that the counsel can
be the one to ask tough questions
of management because of his or
her experience on previous, simi-
lar matters. In addition, the advice
of independent counsel may serve
as a defense to lawsuits that may be
brought against the board down the
road. To minimize expenses, outside
counsel can be limited to attending
board meetings and giving the board
advice on discrete matters.
6
Spend wisely. Determine what
the organization can afford
and what it needs to operate
well. It likely will lead to the
conclusion that costs must be cut or
capital-intensive projects must be
postponed. However, don’t skimp
on investing in good management
with superior strategic and fnancial
skills. In this time of unprecedented
change, paying for innovative, vi-
sionary leadership trumps new
buildings and equipment.
7
Write it down. Determine
whether the board’s minutes
and resolutions would dem-
onstrate to an outsider — or
perhaps a juror — the prudence and
thoughtful decision-making process
the board has undertaken. Many
boards keep more generalized, less-
detailed minutes. However, keep-
ing accurate minutes that record
the facts and due consideration that
trustees give to issues is a best prac-
tice — indeed, they are a board’s best
defense should claims be asserted
against it. Lax record-keeping can be
a board’s undoing in litigation.
8
Keep an eye on the clock.
Determine the window of
time your organization has
to voluntarily make changes,
such as closing a service or forming
an affiliation with another organi-
zation. Change is a slow process: It
requires buy-in from other board
members, management, physicians
and especially the community. Fi-
nancial transparency is important to
building community consensus for
change.
Involve fnancial, public relations
and legal consultants early in the
process. Tey can provide advice and
transparency. Further, sometimes an
outside party is the better choice to
communicate the struggles and chal-
lenges facing a hospital to both the
community and its referring physi-
cians.
Common Themes
Trustees are responsible for steer-
ing their hospital through a complex
and ever-changing landscape. While
some scenarios may warrant bring-
ing in external legal, public relations
or turnaround experts to provide
guidance, all boards must be proac-
tive, detail-oriented and transparent
to protect themselves, their institu-
tions and their communities. T
John C. Tishler (john.tishler@
wallerlaw.com) and Ryan K.
Cochran (ryan.cochran@waller
law.com) are partners in the
fnance and restructuring prac-
tice group at Waller Lansden
Dortch & Davis LLP, Nashville,
Tenn.
3 MAY 2015 Trustee
doc_924708981.pdf
This paper explain nonprofit survival strategies.
H
ospital boards are charged
with protecting the viability
of one of the community’s
most important assets. During times
of unprecedented financial turbu-
lence, the best boards will assess the
organization’s financial situation
and, if necessary, restructure opera-
tions to remain independent or posi-
tion it to form a mutually benefcial
partnership with another organiza-
tion. At the same time, boards must
be careful to minimize their expo-
sure to individual liability.
Eight tactics can help nonprofit
boards to shepherd their organiza-
tions through these challenges, take
control of their future and protect
trustees from individual liability.
1
Take a close look at services
and revenue. Det ermi ne
whether your organization’s
new reimbursement reality
supports the service lines and an-
cillary services it provides. If they
are not profitable, closing certain
service lines and ancillary services
may generate significant savings.
Conversely, ancillary services also
represent an opportunity to gener-
ate additional revenue. For example,
can additional revenue be generated
by offering home health, hospice,
skilled nursing or rehabilitation care,
and behavioral health care? Can you
transition otherwise empty beds and
dedicate resources to diversify? Pro-
active boards may change the hospi-
tal’s proftability by adding ancillary
services.
To facilitate this review, consider
supplementing the existing fnance
department’s abilities with an out-
side turnaround professional or a
fnancial expert who has specialized
experience in projecting a hospital’s
financial performance. He or she
can provide an unbiased opinion on
what services the hospital revenue
can support, and can project how
changes in the service model will
impact expenses and revenues. An
outside professional also can help
the board and management in work-
ing with the community’s physicians
to structure a fnancially viable ser-
vice model. Many in-house hospital
financial professionals have never
had to face such difficult financial
projections or such rapid change in
reimbursement. An assessment by
an experienced turnaround expert
in concert with the board will give
trustees the information they need
to make strategic decisions.
2
Assess the strength of the hos-
pital’s management team. Te
American College of Healthcare
Executives in March reported
an 18 percent turnover rate in hospi-
tal CEOs in 2014. High turnover is a
sign of difcult times in the industry.
Determine whether your manage-
ment team has the right skills for
today’s environment — skills that go
beyond operational acumen. Does
your management team have the
skills and capacity to manage and
address:
• changes wrought by shrinking re-
imbursement, particularly in states
that refused Medicaid expansion
dollars?
• the growing use of electronic
health records, its impact on physi-
cians and staf, and the accompany-
ing expenses?
• the likelihood that the more so-
phisticated — and better reimbursed
procedures — are going to regional
hospitals?
• the loss of tax subsidies or declin-
ing population?
Board members should be ask-
ing hard questions about these
and other changes and the current
management team’s strategies for
responding to them. At the same
time, the management team needs
resources to address these strategic
concerns. Insist that funds be spent
on hiring people with these strategic
skills as opposed to giving raises or
buying new equipment. Investing in
human resources may serve the hos-
Nonproft Survival Strategies
Eight tactics can
help hospital
boards manage
fnances, liability
By John C. Tishler and
Ryan K. Cochran
feature fnance
SNAPSHOT
Stand-alone, nonproft hospitals
seem to bear the brunt of an un-
favorable fnancial climate. These
tactics, which include assessing
services, sizing up leaders and im-
proving documentation, can pro-
tect hospitals and shield trustees
from individual liability.
Reprinted with permission from the May 2015 issue of Trustee magazine, vol. 68, no. 5.
© 2015 by Health Forum Inc. Permission granted for digital use only.
fnance
pital and the community more efec-
tively than investing in the plant or
equipment.
3
Make sure the board is trained
on legal and business issues.
Assess whether your board is
up-to-speed on what the law
requires to avoid personal liability.
As the competencies and expertise
needed for board leadership ex-
pand, boards need training on the
legal and business issues facing the
hospital. In addition, they need to
be current on the corporate gover-
nance responsibilities that state and
federal laws place on them. If the
hospital is in fnancial distress, state
and federal laws may charge board
members with a heightened duty to
consider the impact of its actions on
hospital creditors. Without this train-
ing, board members may be unaware
of what is required of them to avoid
personal liability. Serving on a hos-
pital board is an important role, but
trustees shouldn’t put their personal
assets at risk. On Jan. 26, the U.S.
Court of Appeals for the Tird Cir-
cuit sitting in Philadelphia issued a
ruling recognizing the individual li-
ability of ofcers and directors of the
nonproft nursing home Lemington
Home for the Aged. The court was
critical of and held the directors in-
dividually liable for their failure to
oversee management whose con-
duct the court determined had hurt
the value and financial viability of
the nursing home. If this decision
is followed widely, it could result in
personal monetary damage awards
against board members for the tort
of “deepening insolvency.” In some
instances, directors’ and officers’
insurance may cover these acts, sub-
ject to the terms and exclusions of
each policy.
To avoid this personal liability,
trustees must be prepared to press
the management team on its plans
to confront financial challenges
and develop plans to address them.
If trustees don’t feel prepared, the
board should consider obtaining
the needed expertise. Boards also
should be able to assess the hospi-
tal’s 13-week cash fow, days of cash
on hand, days in accounts receiv-
able, adjusted cost per case and capi-
tal cost per adjusted patient day. If a
lawsuit is brought against the board
or individual board members, this f-
nancial knowledge will be helpful to
trustees in their depositions and in
establishing compliance with their
fduciary duties.
Boards also should know if appro-
priate levels of director and ofcer
insurance are in place in the event
the board’s decisions are ever called
into question. Request a meeting
with the hospital’s insurance broker
to discuss the level of coverage and
the actions covered by the policy. If
trustees don’t know the extent of the
immunity or if the immunity has lim-
its, they might consider obtaining in-
surance to cover any acts that poten-
tially may fall outside the immunity
coverage provided by state law. If the
hospital is in distress and facing clo-
sure, a sale or bankruptcy, consider
the policy provisions that allow for
negotiating the later purchase of a
so-called tail policy that extends the
existing coverage for a year or more
after the hospital is closed or is in
other hands.
4
Review key metrics on a regu-
lar basis. Is the board receiving
the right financial and qual-
ity analytics? Financial essen-
tials include: performance, projec-
tions and historical performance,
including year-over-year revenues,
expenses, litigation expenses and
operational expenses. Ask the hos-
pital’s ofcers to provide the board
with a review of the hospital’s com-
pliance under its loan agreements.
Ask them to test and present the hos-
pital’s compliance regularly, even if
the actual testing the lenders require
is months away. It is always wise to
insist that outside auditors review
the accounting practices and make
periodic recommendations directly
to the board. Te board should pay
particular attention to the hospi-
tal’s billing practices. Hospitals fre-
quently are accused of overbilling by
Medicare or Medicaid and, in some
instances, board members have been
sued when the hospital was found to
have overbilled or otherwise violated
the rules that govern reimbursement
under governmental programs. Even
in states with statutory protections
for members of nonprofit boards,
the community, the employees and
the hospital’s creditors will hold the
board to the same level of scrutiny
as that of a commercial enterprise. If
expenses are going up and revenues
More on Financial Strategies
“How Hospitals Should Approach Financial Planning in Chang-
ing Times” by Cynthia Hedges Greising, October 2014.http://bit.
ly/1Oca1FV
“The Five Essential Elements of a Hospital Turnaround” by Todd C.
Brower, August 2013.http://bit.ly/1DekmGR
To avoid personal liability, trustees must be prepared to press the
management team on its plans to confront fnancial challenges
and develop plans to address them.
2 MAY 2015 Trustee
fnance
continue to trend down, the call for
change may have to come from the
boardroom.
5
Consider independent legal
counsel. Many hospitals have
a general counsel, or someone
from a local law frm to advise
both the hospital and the board,
but the board may need separate
counsel in turbulent times. One of
the benefts is that the counsel can
be the one to ask tough questions
of management because of his or
her experience on previous, simi-
lar matters. In addition, the advice
of independent counsel may serve
as a defense to lawsuits that may be
brought against the board down the
road. To minimize expenses, outside
counsel can be limited to attending
board meetings and giving the board
advice on discrete matters.
6
Spend wisely. Determine what
the organization can afford
and what it needs to operate
well. It likely will lead to the
conclusion that costs must be cut or
capital-intensive projects must be
postponed. However, don’t skimp
on investing in good management
with superior strategic and fnancial
skills. In this time of unprecedented
change, paying for innovative, vi-
sionary leadership trumps new
buildings and equipment.
7
Write it down. Determine
whether the board’s minutes
and resolutions would dem-
onstrate to an outsider — or
perhaps a juror — the prudence and
thoughtful decision-making process
the board has undertaken. Many
boards keep more generalized, less-
detailed minutes. However, keep-
ing accurate minutes that record
the facts and due consideration that
trustees give to issues is a best prac-
tice — indeed, they are a board’s best
defense should claims be asserted
against it. Lax record-keeping can be
a board’s undoing in litigation.
8
Keep an eye on the clock.
Determine the window of
time your organization has
to voluntarily make changes,
such as closing a service or forming
an affiliation with another organi-
zation. Change is a slow process: It
requires buy-in from other board
members, management, physicians
and especially the community. Fi-
nancial transparency is important to
building community consensus for
change.
Involve fnancial, public relations
and legal consultants early in the
process. Tey can provide advice and
transparency. Further, sometimes an
outside party is the better choice to
communicate the struggles and chal-
lenges facing a hospital to both the
community and its referring physi-
cians.
Common Themes
Trustees are responsible for steer-
ing their hospital through a complex
and ever-changing landscape. While
some scenarios may warrant bring-
ing in external legal, public relations
or turnaround experts to provide
guidance, all boards must be proac-
tive, detail-oriented and transparent
to protect themselves, their institu-
tions and their communities. T
John C. Tishler (john.tishler@
wallerlaw.com) and Ryan K.
Cochran (ryan.cochran@waller
law.com) are partners in the
fnance and restructuring prac-
tice group at Waller Lansden
Dortch & Davis LLP, Nashville,
Tenn.
3 MAY 2015 Trustee
doc_924708981.pdf