I keep thinking about the $10 million supplemental appropriation the Council approved for Metro General Hospital on February 2. Keep in mind that this is a huge budget miss – more than 10% of the hospital’s annual budget.
One of the things I do for a living is to help companies in financial distress find solutions. Over the years, I have worked on lots financial restructurings and, regardless of industry and regardless of whether it is for-profit or not, there is a rhythm to how these things go. Here’s how I figure the hospital’s fiscal year has gone so far based on what I read into the numbers and what the Council got told last week.
From July through the end of the summer, they must have known that their revenue was underperforming. With as little cash as they have, they must be looking at the bank account and the pile of unpaid bills every single day. They must have known their revenue was off.
Then the fall came, and the Joint Commission accrediting people gave them $2.4mm of new problems. So, it was October-ish and they were tracking to miss the budget by $3.8mm (about 4%) for the fiscal year from these two issues alone.
Apart from these two items, they were choosing to spend money on new, completely unbudgeted strategic initiatives that will cost another $2.4mm for the fiscal year. All of these things had to be known by October…early November at the latest. By then, they must have been tracking to be at least $6mm short of their budget for the fiscal year.
At the Council meetings last week, we heard that the hospital approached Metro Finance just before the end-of-year holidays about the need for a special appropriation. That tells me that, for 4-8 weeks, there likely was handwringing at the hospital about what to do about not being able to make it through this fiscal year. When you are insolvent, time is precious and cash is king. When management delays sharing bad news until they are a matter of weeks from missing a payroll, stakeholders end up with no choices except to pay whatever it takes, or let it shut down.
In my law practice, when a delay like this happens, it causes the people around the company to wonder whether management is capable of accurate cash forecasting. If they are not, that is the first issue to be addressed. If they are capable of accurate cash forecasting, then the inquiry shifts to whether the reason for keeping quiet until the last minute was a good one, or a bad one. A typical “bad” reason might be something like spending money outside of approved budgets. A typical “good” reason might be something like management’s extreme optimism made them think that they were about to turn a corner for the better. Here, I’m not close enough to what happened to have a conclusion, but I suspect some of both.
I voted last week in favor of the special $10mm appropriation because having employees not get paid, or having an unplanned reduction in services, are not legitimate options.
That said, someone needs to figure out whether the hospital is capable of accurate budgeting and forecasting. If not, they need to fix that. If so, then someone needs to convey that it simply isn’t appropriate to run their operation this way. Having a noble mission does not give you permission to start unbudgeted projects that are nearly 3% of year budget, or to keep quiet about dramatic budget holes until the last minute.
Metro General Hospital is an important part of the fabric of Nashville’s healthcare system. At the Council meeting last week, many of my colleagues spoke passionately about giving Dr. Webb’s new management team a chance to succeed. I am absolutely in favor of giving them a chance to succeed – but that has to include operating within a budget, being able to predict what cash flow will look like more than a handful of weeks in advance, and not getting surprised by Joint Commission reports. I’m looking forward to having the management team report back to the Council a few meetings from now so we can learn more about the direction they are headed.