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When the Wall Street crisis hit in 2008, Memorial Hospital of South Bend was just as vulnerable to the frozen credit markets and the plummeting stock market as any other organization. But vice president and CFO Jeff Costello did what he was trained to do. “In our view, every crisis creates opportunities,” he says.
As the financial catastrophe was unfolding on Oct. 2, 2008, Costello called Memorial’s financial advisors to find what opportunity might present itself. One of the advisors mentioned that floating rate notes (FRNs)—tax-exempt bonds with variable interest rates—were trading at deep discounts, and Costello saw his opening.
Memorial had $80 million outstanding in FRNs. In the next six days, Memorial used its cash on hand to buy $52 million of the bond issue from a panicked mutual fund at 57 percent of face value. That created a $22 million gain for the hospital’s balance sheet.
Several months later, the owner of the remaining FRNs needed to sell. Memorial repurchased those bonds at a 51 percent discount. The total win for Memorial’s balance sheet was $35.4 million—at a time when many hospitals were hunkered down waiting for the financial storm to pass.
“We knew this was going to have a very short-term negative implication to the balance sheet from a liquidity perspective because we were going to use cash to buy back our debt, but we knew it had huge upside potential from a long-term perspective,” Costello says.
Memorial Hospital—now part of the Beacon Health System—was positioned to act boldly in a time of crisis because its organizationwide culture supports and rewards innovation. Staff members throughout the organization are trained in the Innovation: WOW! Projects methodology developed by management consultant Tom Peters, author of In Search of Excellence.
Through that training, Costello and his colleagues have learned how to create and implement projects with the goal of always taking Memorial to the next level of performance excellence. The value of innovation is instilled in the hospital’s culture, spurring leaders to act rather than to be paralyzed during times of adversity.
“I knew that we didn’t have a lot of time to evaluate this opportunity,” Costello says. “So I literally dropped what we were doing and said, ‘Let’s focus on this and see if we can make this happen.’”
Although the project lasted only a few days, it included four distinct phases of the WOW! methodology:
Create the project. The “create” phase is when an idea coalesces to make an organization stronger in a new way, says Matthew Krathwohl, executive director of innovation for the Beacon Health System.
By analyzing how the financial crisis affected the world outside Memorial, Costello was able to see an opportunity that was mutually beneficial to the hospital and its bondholder.
Sell the project. To pursue the idea, Costello needed the support of his hospital colleagues; outside experts, including legal counsel, bond counsel, and investment bankers; and the hospital’s board of directors. An essential tool for the “sell” phase is an elevator speech that quickly communicates the idea. “In a concise way, he had to present this compelling vision that would be mutually beneficial to all parties involved,” Krathwohl says.
Execute the project. With the necessary support in place, the bond buyback program became a series of steps (e.g., negotiating the terms, preparing the contract) implemented on a fast track.
Move on. “The last phase of the Tom Peters’ methodology is to ‘celebrate and move on’—whether that means having a department pizza party or, as we have done here, making sure that certain projects receive recognition during a board meeting,” Krathwohl says. Part of the “move on” phase is to capture lessons learned from the successful project that could be used in future endeavors.
Indeed, Costello used those lessons six months later when the holder of the rest of Memorial’s FRNs wanted to sell. The project team was reassembled to replicate the process, leading to another $13.4 million improvement in Memorial’s balance sheet.
Costello believes the WOW! methodology is one of many approaches to project management that can be successful. But he credits staffwide training that fosters “out of the box” thinking with creating an organizational culture that encourages innovation.
“I think it is about being proactive, being creative, thinking opportunistically, and executing on whatever it is you’re working on,” he says. “Those are the keys to success.”
Lola Butcher is a freelance writer and editor based in Missouri.
Interviewed for this article:
Jeffrey Costello is CFO, Beacon Health System, South Bend, Ind.
Matthew Krathwohl is executive director of innovation, Beacon Health System, South Bend, Ind.
Publication Date: Tuesday, May 14, 2013
TriMedx helps health systems control costs and uncover savings opportunities by optimizing the clinical engineering function.
Patient financial engagement is more challenging than ever – and more critical. With patient responsibility as a percentage of revenue on the rise, providers have seen their billing-related costs and accounts receivable levels increase. If increasing collection yield and reducing costs are a priority for your organization, the metrics outlined in this presentation will provide the framework you need to understand what’s working and what’s not, in order to guide your overall patient financial engagement initiatives and optimize results.
A leader from McKesson discusses how healthcare reform is forcing hospitals and health systems to take a different approach to capacity management and patient flow.
No two patients are the same. Each has a very personal healthcare experience, and each has distinct financial needs and preferences that have an impact on how, when and if they chose to pay their healthcare bill. It’s no longer effective to apply static billing techniques to solve the complex challenge of collecting balances from patients. The need to tailor financial conversations and payment options to individual needs and preferences is critical. This presentation provides 10 recommendations that will not only help you improve payment performance through a more tailored approach, but take control of rising collection costs.
Emad Rizk, MD, president and CEO of Accretive Health, discusses the uncertainty facing hospitals and the transitions affecting revenue cycle management.
This white paper, written by Apex Vice President of Solutions and Services, Carrie Romandine, discusses the importance of patient segmentation and messaging specifically related to the patient revenue cycle. Applying strategic messaging that is tailored to each patient type will not only better educate consumers on payment options specific to their billing needs, but it will maximize the amount collected before sending to collections. Further, targeted messaging should be applied across all points of patient interaction (i.e. point of service, customer service, patient statements) and analyzed regularly for maximized results.
Jim Bohnsack, vice president, solution & corporate development for Conifer Health Solutions, explains how the company helps healthcare providers leverage data to deliver better outcomes while optimizing reimbursement for all payment arrangements.
This white paper, written by Apex President Patrick Maurer, discusses methods to increase patient adoption of online payments. Providers are now seeking ways to incrementally collect more payments due from patients as well as speeding up the rate of collections. This white paper shows why patient-centric approaches to online payment portals are important complements to traditional provider-centric approaches.
Steve Scibetta, senior director of channel sales for Ontario Systems' healthcare product line, shares insights into effectively managing receivables.
Increased electronic engagement between healthcare providers and patients provides significant opportunities for improving revenue cycle metrics and encouraging patients to access EHRs. This article, written by Apex Founder and CEO Brian Kueppers, explores a number of strategies to create synergy between patient billing, online payment portals and electronic health record (EHR) software to realize a high ROI in speed to payment, patient satisfaction and portal adoption for meaningful use.
Elena White, vice president of risk, quality, and network solutions for Optum, discusses how healthcare providers can leverage data and technology as they enable risk in their organization.
Faced with a rising tide of bad debt, a large Southeastern healthcare system was seeing a sharp decline in net patient revenues. The need to improve collections was dire. By integrating critical tools and processes, the health system was able to increase online payments and improve its financial position. Taking a holistic approach increased overall collection yield by 10% while costs came down because the number of statements sent to patients fell by 10%, which equated to a $1.3M annualized improvement in patient cash over a six-month period. This case study explains how.
Somnia President and CEO Marc Koch, MD, MBA, explains how hospitals can drive transformative change in the perioperative experience for outstanding clinical and financial outcomes.
With the ICD10 deadline quickly approaching and daily responsibilities not slowing down, final preparations for October 1 require strategic prioritization and laser focus.
PMMC President Roger L. Shaul discusses the effects of healthcare reform on revenue cycle management and how PMMC's products help clients adapt to a changing financial environment.
Read how Gwinnett Medical Center provides clear connections to financial information, offers multiple payment options for patients, and gives onsite staff the ability to collect payments at multiple points throughout the care process.
Greg Burgess, Founder and Chief Product Officer at Burgess Group shares insights and opportunities for payment integrity in the rapidly changing healthcare IT landscape.
Read how Orlando Health was able to perform deeper dives into claims data to help the health system see claim rejections more quickly–even on the front end–and reduce A/R days.
To maintain fiscal fitness and boost patient satisfaction and loyalty, healthcare providers need visibility into when and how much they will be paid–by whom–and the ability to better navigate obstacles to payment. They need payment clarity. This whitepaper illuminates this concept that is winning fans at forward-thinking hospitals.
Financial services staff are always looking for ways to improve the verification, billing and collections processes, and Munson Healthcare is no different. Read about how they streamlined the billing process to produce cleaner bills on the front end and helped financial services staff collect more than $1 million in additional upfront annual revenue in one year.
Effective revenue cycle management can be a challenge for any hospital, but for smaller providers it is even tougher. Read how Wallace Thomson identified unreimbursed procedures, streamlined claims management, and improved its ability to determine charity eligibility.
Before launching an energy-efficiency initiative, it’s important to build a solid business case and understand the funding options and potential incentives that are available. Healthcare leaders should consider taking the steps outlined in the whitepaper to ease the process of gaining approval, piloting, implementing, and supporting sustainability projects. You will find that investing in sustainability and energy efficiency helps hospitals add cash to their bottom line. Discover how hospitals and health systems have various options for funding energy-efficient and renewable-energy initiatives, depending on their current financial structure and strategy.
Health care is a dynamic mergers and acquisitions market with numerous hospitals and health systems contemplating or pursuing formal arrangements with other entities. These relationships often pose a strategic benefit, such as enhancing competencies across the continuum, facilitating economies of scale, or giving the participants a competitive advantage in a crowded market. Underpinning any profitable acquisition is a robust capital planning strategy that ensures an organization reserves sufficient funds and efficiently onboards partners that advance the enterprise mission and values.
The success of healthcare mergers, acquisitions, and other affiliations is predicated in part on available capital, and the need for and sources of funding are considerations present throughout the partnering process, from choosing a partner to evaluating an arrangement’s capital needs to selecting an integration model to finding the right money source to finance the deal. This whitepaper offers several strategies that health system leaders have used to assess and manage capital needs for their growing networks.
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