Financial Resource Group

• Case Study One
• Case Study Two

Case Study One

In a recent engagement, a three-hospital, religious-sponsored system in the Midwest brought in FRG to assist the contract CEO in formulating a consolidation plan, improving cash flows and developing a long-term financial plan. The system had experienced losses in excess of $50 million over the last three fiscal years, and was in technical default of its loan covenants.

To address the problem of inadequate cash flow, FRG first reviewed the operations of Patient Financial Services. To expedite this process and avoid unnecessary costs, recent reports performed by other consultants for that department were reviewed and then supplemented as necessary. It was determined that the hospital’s staff was not adequately trained in the use of the Information Systems (billing, collecting, and other information systems) available to them. It was also determined that, although the Hospitals had purchased established, reliable information systems, the software systems had not been adequately installed resulting in the lack of timely, accurate data being available to staff and management. Critical differences were present between the three hospitals resulting in a lack of uniformity in the billing and collection processes of the three hospitals. Other automated systems, such as managed care software, were purchased but never installed or implemented. FRG brought in appropriate personnel from the client’s IS vendor to optimize the client’s systems and implement use of automated functions where feasible. FRG personnel acted as the project coordinator to ensure that all deliverables were met in a timely manner. Final outcome for this project was a reduction of net revenue days in accounts receivables from 96 to 70 (providing $12 million in cash), automated collector work stations, automated bad debt write-offs, standardized systems and data across the three hospitals, automated collection work lists and an appropriately trained staff.

Other initiatives to improve the client’s cash position included the implementation of aggressive policies and procedures for control of Accounts Payable, greater control of capital spending, a review of existing contracts, thorough analysis of cash and banking practices, analysis of the Charge Master, and third party settlement analysis.

Consolidation plans were crafted, with the input of both senior management and representatives of the Medical Staff, with the end result of the two facilities being combined at one physical location. The vacated facility was then offered to and eventually sold to local real estate developers. That hospital was then closed in an orderly fashion complying with all local, state and federal regulations.

In developing a long range financial plan and consolidation plan for two of the three hospitals, it was determined that access to capital would not be likely without the addition of a strong partner or possible sale. The Board of Directors opted to sell the remaining facility to another hospital system in the area. FRG, which was at this time providing an interim CFO, assisted in the negotiations, due diligence, and closing on the sale. The System’s remaining hospital was reorganized to be a self-supporting, freestanding community hospital. This required the development of most business functions that had previously been centralized including PFS, Finance, Materials, HR, Communications and IS. A large number of new positions were created for services that had previously been provided by the system. Of those new positions in PFS, Finance, Materials, HR, Communications and IS, over 80% were hired from the system personnel pool thus eliminating terminations by the parent system.

FRG worked closely with both the Bond Trustee and Bond Insurer, keeping them advised of the ongoing improvements at the hospitals. Many independent consultants had reviewed various operations over the previous 18 months. In many cases, reports had been issued and in some cases improvements had been made to operations. Due to in part to the presence of FRG, the Trustee and Insurer waived the covenant to bring in another consultant to review progress. The Insurer and Trustee were kept advised as to the progress of the negotiations for the sale of the two facilities and the likelihood that there would be sufficient funds to retire the bond indebtedness.

In all, FRG contributed to the client’s positive outcomes with the utilization of FRG resources in the positions of Interim CFO, Interim Controller, Interim PFS Manager, and Information Systems Consultant. FRG assisted with the management of additional consulting resources in Financial Planning, Information Systems and with other consulting companies.