Summary of Work:

The originally stated goal was to provide Finance area leadership as Controller on an interim basis to stabilize and manage all Accounting Department operations and reporting and return credibility to financial reporting for a three-hospital system.

  • After the departure of the CEO and CFO within 60 days of Warbird’s arrival, Warbird provided Finance Division leadership as Interim Chief Financial Officer, Accounting, Accounts Payable, Payroll, Reimbursement, Revenue Cycle Materials Management, Managed Care contracting, Treasury functions and vendor management.
  • The initial focus was developing credibility with Board of Trustees and Finance Committee interaction and reporting, assessing the routine accounting, and directing, supply chain, reimbursement, and revenue cycle.
  • Warbird led cash management and turnaround efforts, including co-leading with the Interim CEO the divestiture negotiations with two separate groups representing the County Governments in which each of the facilities were located.
  • Warbird provided Reimbursement and Managed Care Contracting leadership and direction on an interim basis, including selection of and engagement of a public accounting firm for the annual audit and management of several open Medicare and other audits.

Background:

Upon review of the accounting area and hospital operations, several other issues presented:

  • The organization had gone through $25 million in cash in the nine months preceding Warbird’s arrival, resulting in a cash crisis. A cash flow forecast was implemented and shared with Senior Management and the Board of Trustees, along with a recommendation to divest of the two recently acquired hospitals that were each losing $5 million per year.
  • An in-depth review of Accounts Receivable Valuation resulted in a determination that contractual allowance and bad debt reserves were understated by $6 million. Also, over $1 million of unrecorded third-party liabilities were discovered.
  • The Accounting Staff were siloed, i.e., there was no cross-training and all higher-level tasks (Reserve Calculations, Cost Reports, Financial Analyses, etc.), as well as back-up for all staff functions had been previously handled exclusively by the Controller, who had left three months before Warbird’s arrival.
  • Accounting was taking 3½ weeks to close the books each month resulting in late and inadequately reviewed financial statements. The credibility of the financials to all customers, including Senior Management and the Board, was extremely low.
  • Due to the late close, the accounting staff had less than a week between closes, which left no time for routine reconciliations and financial analyses.
  • Reconciliation of certain cash accounts, including the general account, was many months behind and the reconciliation processes themselves were flawed.
  • Actual Contract Labor expense had been adjusted to an estimate (rather than properly adjusting the estimate to actual). The correction resulted in a $1 million charge to Contract Labor.
  • Self-insurance claims were being posted incorrectly resulting in an overstatement of Contractual Allowances and an understatement of Benefit Expenses.
  • The Accounts Payable (A/P) process was severely flawed, resulting in invoices failing to be timely recorded and expenses failing to be recognized for months after they were incurred. A/P was also being closed at physical month end, resulting in the manual accrual of hundreds of invoices monthly.

Other issues included:

  • The hospital information system had been poorly installed and was underutilized, resulting in time-consuming manual calculations and allocations. Many of these processes should and could have been provided by the system.
  • Previous management had discontinued a contract with Humana, a sizable insurer in the area.
  • Billing and Collection had been outsourced six months before Warbird’s arrival. Warbird provided management of the outside firms and held them accountable for timely billing and insurance follow-up, with regular meetings, review, and analysis.

Outcomes:

The following highlights major accomplishments during Warbird’s financial leadership engagement at Delta Health System:

  • As the Warbird Interim Controller transitioned to Interim Chief Financial Officer, FORVIS was engaged to assist in the day-to-day operations and provide support in the Controller function.
  • Warbird initiated a cash flow forecast, which was presented to the Board of Trustees in support of the recommendation to divest of the two ancillary facilities. FORVIS updated this weekly, and projections were discussed prior to selection of invoices for payment.
  • The Accounts Payable processes were overhauled, centralizing receipt of invoices with A/P sending scanned documents for approval, rather than circulating original invoices. The A/P close was moved to the 5th working day of the month to allow time for invoices to be input and minimize accruals.
  • The closing process was revised, eliminating several manual processes resulting in the close of financials by the 10th of the month.
  • Cash reconciliations were prioritized, accounting processes were evaluated and revised. Erroneous journal entries were corrected. Contractual allowance and bad debt calculations were standardized, with reserve percentages validated against actual historic performance.
  • Due to the acute cash pinch, A/P was stretched from 30 to 90 days and, as cash permitted, eventually lowered to between 60 and 70 days. Warbird communicated and negotiated with vendors weekly to ensure delivery of critical supplies and staffing services as payments were slowed.
  • Accounting staff were cross trained to provide backup for each finance function. Tasks that were previously handled only by the Controller were distributed to staff. Resources were contacted to revise the hospital information system to enable the system to provide meaningful and accurate reports and eliminate the manual manipulation of post-production data.
  • Revenue Cycle: The outsourced Revenue Cycle was closely monitored, resulting in improved collections.
  • Warbird led contract analysis and negotiation to return to an in-network position with Humana. A contract was negotiated with True Care, a Managed Medicaid firm, to provide in-network services beginning in the coming year.
  • Turnaround plan: Partnered with FORVIS in the development and implementation of a turnaround plan. This metric and dashboard driven process with clearly delineated accountability provided clear action items for improving the financial performance. Results were reported by Warbird to the Board of Directors.
  • Divestment: Warbird provided financial and operational insights in the difficult negotiation with representatives of the two Counties that eventually acquired the ancillary facilities. After months of negotiations, agreements were reached for divestiture of both facilities within eight months of the date of the original plan presentation by Warbird.

Conclusion:

Although additional challenges still face Delta Health System, the divestment, implementation of cash management, improved vendor relations and operational and system improvements better positioned the now-solo main hospital, Delta Regional Medical Center, to move forward and focus on improving internal operations to achieve positive income from operations.

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