Life after bankruptcy: a CFO's role in a hospital's renewal: dark clouds were on the horizon for Henry Mayo Newhall Memorial Hospital in Valencia, Calif., after it filed for Chapter 11 bankruptcy protection in late 2001. The hospital was $10 million in debt and had no cash on hand - Executive Insights

Healthcare Financial Management, Sept, 2003 by C.R. Hudson

I manage cash daily. That's the heartbeat of the organization. Of course, I have staff that update the reports and make a lot of the decisions. But I look at those reports every day. I'm responsible for those numbers.

I don't think of myself as an accountant. I'm a financial manager, and over the years I've come to really understand operations. It's critical for financial managers to be in touch with what's happening in operations and to understand how the underlying detail, the day to day stuff, affects operations. Nothing happens in operations that doesn't affect finance, and nothing happens in finance that doesn't affect operations. If you can't: pull those two together, you won't be able to meet the goals of the organization. Being able to say no is important, but my job is to find a way to say yes.

During my first six months here, I didn't produce any financial statements. The systems were so bad, and the data so corrupt, that I didn't have any faith in the statements. It was really tough to meet with the board of directors and the finance committee and tell them I wasn't going to give them financial statements.

Eventually I got the systems in place and had confidence in the numbers, and I showed a financial statement to the board and the committee. To put it bluntly, they didn't believe me. All of a sudden, we had started turning the hospital around.

A local businessman who had followed the historical financial problems asked a member of our finance committee, "Can these numbers possibly be right?" The finance committee member said, "It's easy for hospitals to manufacture numbers. But the reality is, the cash is sitting in the bank." You can talk about numbers whenever you want, but the real story is whether the cash is there. That's the way to tell if you're making progress.

When I first looked at the hospital's financial records, I saw that there had been a lot of money spent on consultants. There seemed to be a history of calling in a consultant to fix any problem. Of course, the consultant would leave and everything would go back to the way it was.

I'm not a big fan of bringing consultants in to fix a hospital's internal problems. Our board and the bond insurers believed new management would be more effective than consultants in turning around the hospital's financial situation. They wanted management to be committed to maintaining a local hospital. Our CEO and the rest of our management team have that commitment. We intend to not just fix the problems, but to move the hospital forward and build a great community hospital for a community that we all love.

Management's evident commitment to the community is helping us improve the hospital's image. The administrative team are all active in the community. We attend community functions and support local events. I like to say that for many years, the community supported the hospital. But now we want people to understand that the hospital also supports the community.

My advice for other hospitals that may be facing bankruptcy? Do everything possible to avoid filing. If you need to file, be sure to retain both counsel and consultants who agree with your philosophy regarding the future of the hospital. Once you file, the battle to control legal and consulting fees while continuing to move the hospital forward becomes one of the biggest issues you must deal with. We had a very good working relationship with our team of lawyers and consultants, but the creditors have their own consultants and lawyers, and you pay all the bills. We were able to put on the table a plan for paying creditors 100 percent, and it still cost us over $6 million in legal and consulting fees. Remember, the lawyers and consultants get paid before any creditors.