Successful Hospital Restructuring Requires Early Intervention
By: Juanita Schwartzkopf, Managing Director and Daniel McMurray, Sr. Managing Director
Hospitals enter the financial danger zone as a result of various forces – some internal and some external. A reduction in their endowment or the value of their investments, higher levels of bad debt, outdated insurance contracts, or local economic woes. After crossing a certain financial line, access to additional working capital becomes nearly impossible, and problems multiply. An alert, proactive hospital board and senior management can help by recognizing the early warning signs of financial distress, and working with restructuring experts to head off a worst-case scenario. Below are some of the early interventions that a restructuring team could bring to a distressed hospital:
Assist with board training and leadership
Restructuring experts can help the hospital board review its goals in light of current setbacks, and name an interim leader who is an expert in leading hospitals through financial and operating challenges. The restructuring team can assist board members in developing a cash management strategy, which would involve a combination of fundraising, revenue management, and expense management. The restructuring experts could assist the board in developing a plan to raise capital from the investment community, evaluating possible new revenue sources, or creating programs focused on offering fresh consumer value and higher quality services. As examples, evaluation of a new outpatient cardio center or establishing hospital based physicians are just two ways restructuring experts could help the board and management explore alternatives and determine financial impacts of changes.
Review financial and operations trends
Boards are often tempted to start cost-cutting in the area of staffing; however, it is always a good idea to look at this option in conjunction with multiple other options. For example, could the staffing hours be redesigned to improve work flow as well as reduce costs?. Every cost should be evaluated, including reviewing all existing purchasing contracts for compliance and enforcement, as well as exploring other vendor options that may provide significant savings with no loss in quality.
Find new revenue
It may be possible to identify a local need that can be filled; for example, a neighborhood hospital might expand a cardiology service line and increase volume through new patients who are happy to avoid driving to a downtown city hospital.
Innovate care management solutions
If there is a flow of indigent patients who strain the emergency room facilities, a hospital can benefit from establishing a relationship with a community clinic, so that these types of needs can be met in a lower-cost environment.
Improve revenue, expense and cash management
A restructuring team can combine the roles of auditor, trainer and cheerleader for the financial management staff. Areas to consider would be a chargemaster review and update, review of current patient files for coding accuracy resulting in targeted additional coding training, review of all service contracts, especially in the hardware and software solutions.
The restructuring team will be able to develop a weekly cash management structure using the hospital’s internal staff to support the development of a cash management tool that will provide senior management and the Board with a view into the future cash needs of the hospital – short term. In addition, a long term strategic plan will allow cash planning and investment strategies to be developed for the intermediate and long term
Provide training and support to staff
Specialized hospital restructuring teams are expert in evaluating and improving operational processes, including in the patient care arena. Staffing of nurses and physicians, and the related morale implications, are often better reviewed by outsiders. An experienced restructuring team is able to assist management in reducing costs, while also improving care and patient satisfaction.
The team of experts
While of course restructuring specialists can support a hospital in situations of bond covenant default, losing accreditation, or bankruptcy and sale, it is clearly preferable to turn things around before a crisis. If hospital board members or senior management request assistance during the early stages of distress, it is often possible to right the ship and allow the hospital to continue providing service to its community.
Focus Management Group is adept in providing a variety of restructuring services for healthcare providers and servicers while also addressing their strategic, operational, and financial needs. Our team of specialists is skilled in working closely with lenders, equity sponsors, hospitals, nursing homes, home healthcare providers, diagnostic imaging services, physicians, senior living and assisted care organizations, and several other healthcare instititutions.
Our consulting team includes experts in hospital management and administration, board responsibilities, operational management, and financial management. Our people have served in these roles in hospitals, and have led troubled hospitals through a re-invigoration or restructuring.
We have a range of specializations in the healthcare field including, Restructuring, Operational Turnaround, Interim Management, Business Plan Development, Recovery Plan & Execution, Bank & Creditor Renegotiation, Strategy Development, Physician Marketing Strategies, Revenue Cycle Improvement, Facility Sale or Liquidation, Advisory Services, Mergers and Acquisitions, Physician Relations, and Labor Utilization.
For more information on our experience with successful turnarounds or restructuring in the healthcare industry please contact our corporate headquarters in Tampa at (813) 281-0062.
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