Tag: general hospital

Nashville General Hospital – 1/14/18 thoughts

Here are my Nov. 29, 2017 thoughts about NGH. My main thought then was that there were too many people with firm, preconceived ideas about the hospital’s future and not enough working together. I said:

There are too many chefs in the kitchen. I’ve been trying to stay relatively quiet about the hospital because there are already a whole lot of people who are actively pushing various  ideas about how to “save” the hospital. Unfortunately, most of the efforts are uncoordinated and there is not a basic agreement about what “save” means.


I don’t want to add to the “too many chefs” dynamic. That said, my number one wish this evening is that the Hospital Authority and the administration would find a way to be teammates. If they don’t, I’m concerned that we’re going to end up watching a fiery wreck.

A few weeks ago, in my year end wrap-up post, I added that I think it will take an outside expert to guide the parties to a great solution:

If I were allowed to choose a path forward I would want to re-boot whatever process is currently underway. My strong sense is that a whole lot of people have preconceived and conflicting notions about what the proper end-game should be for the hospital. What’s needed is an independent third-party subject matter expert (probably from outside of town). This person would need to have expertise in solving hospital financial problems AND also have the ability to act as a mediator. The person would need truly to have an open mind about where we will end up, and the person would need to be trusted enough to engage in shuttle diplomacy among the many groups. If the hospital is going to end up in a place where all or most of the constituent groups are going to be happy, I think it will need to be an outside person who guides us there.

Since then, the Mayor has sent a letter to the Metro Council saying that she wants to “reset” the process and find a solution by the end of 2018. This is a good first step…but doesn’t guaranty success. Here are some of the ingredients that I think it would take to find a good win-win for indigent medical care in Nashville, Meharry, NGH, and the broader community:

  • Everyone must keep an open mind about what a solution looks like. Everyone must keep an open mind. That’s not “everyone else”…it’s “everyone.”
  • I don’t believe a process led by the administration will succeed. I don’t believe a process led by an administration consultant will succeed. I don’t believe a process led by Meharry will succeed. I don’t believe a process led by NGH will succeed. At this point, I think the right person is an independent third-party subject matter expert (probably from outside of town) with expertise in solving hospital financial problems AND also have the ability to act as a mediator.
  • When both the administration and the majority of Council members voted last summer to keep the hospital’s annual operating budget at $35 million, Meharry prudently interpreted that as a shot over its bow that NGH was becoming even less stable. Remember, some Council members pushed to fund the full $55 million requested budget. That effort failed. As a backstop, I tried to get another $5 million added to the budget. That effort failed. In this context, Meharry is entitled to have self-interest as one of its many motivations. Also, expect Meharry to push hard for more control about what happens in the hospital (a building that Meharry owns with a lease to Metro that is ending in another 6 years). They can’t be faulted for this.
  • On the issue how public the process is, I think that there simply isn’t a way to get this to the finish line with a good result and have the entire process be public in real time. And there is no legal requirement for this. Certainly, the Hospital Authority and Council members are required to deliberate publicly. My sense is that parts of a successful process would have to include private conversations with the non-government parties that are involved. Obviously, this has to be balanced with having full transparency as required by law when government officials are involved.
  • I have mentioned to multiple parties involved that I think there is another possible ingredient to a long term solution. Significant development is knocking on the door of the Meharry/Fisk neighborhood. If there were ever a place for a traditional economic redevelopment district, it is in the immediate neighborhood of the hospital. I think there is a way to make sure the universities are the primary beneficiaries from the rise in real estate values that is coming soon to the area.
  • The final ingredient I will mention is about process. Whatever process evolves to find a solution will need to be one that is trusted so that not every single party feels like they have to personally participate. Just from the Council, there are at least 5 or 6 perspectives about how to approach hospital issues. The Hospital Authority has at least 2, maybe 3, distinct perspectives. This is why I think it will take an independent person or group with no preconceived strategy to guide us all to a true win-win. With the right person and process, this might get down to being an 8 to 10 party negotiation instead of a 50 party negotiation.

I feel somewhat more optimistic (or less pessimistic??) about the prospects for the hospital now that we are hitting the reset button. If we start to see some of these other ingredients, we’ll be on a good path.

As we head into 2018…

There are a lot of issues brewing for the Metro Council in the new year. We’ll hit the ground running with a meeting on January 2 that may last until midnight. Here’s my take on a bunch of the hot upcoming issues:

Ft. Negley: I wrote about this back in August. The only new fact since then is that, in early December, we all learned that the preliminary archaeology work showed a high likelihood of human remains on the site. Further results were supposed to be available by the end of December, but I’ve not heard anything further yet.

My prediction is that this project will keep moving in slow-motion with more digging and studying and considering until at least after the expected May 1, 2018, transit referendum. Remember, there is no legislation pending before the Council on this project — there isn’t anything for us to pass or not pass.

Transit Referendum: In the Council’s next several meetings, we will decide whether to put the proposed transit referendum on the May 1, 2018, ballot. The legislation with the referendum language is here. People should realize that the legislation also attaches the full 55 page Transit Improvement Program. This document was first released on December 13 and I do not believe many people have read it yet. Please read it. Unlike a lot of the information that has been available over the last six months, the full Transit Improvement Program is largely spin-free, especially in how it describes the proposed sources and uses of money for transit over the next 15 years.

In the coming weeks, I will put out a more in-depth set of thoughts about the full Transit Improvement Program. I think it is very likely that the Council will approve putting the referendum on the May 1 ballot so that the voters can decide this important issue themselves. Reading the full Transit Improvement Program will help voters make an informed decision.

New Federal Tax Law: I believe that the new federal tax law will impact Metro significantly. The affordable housing industry believes that federal Low-Income Housing Tax Credits (LITCH) will be worth less and, therefore, financing large affordable projects may get more difficult. Article here. Similar, according to the Brookings Institute, financing infrastructure will become more costly for cities under the new tax law. Article here.

I think we will want to reconsider how to approach tax increment financing too. A rough rule of thumb for TIF projects is that the TIF loan might cover anywhere from 4-8% of the total project cost. But, the effective tax rate for most every real estate venture in America is likely going to drop by more than this amount. If real estate projects are about to be roughly 10% more profitable because of tax cuts, it begs the question of whether Metro should offer any TIF at all going forward.

Also, corporate tax rates generally just dropped dramatically. Again, this begs the question of what our incentives are worth now to companies. And it begs the question of whether Metro should offer incentives if we are having to deal with higher financing costs for infrastructure.

I don’t know the answers, but there are two things I feel strongly about. First, this is a developing situation and we may not know the impact on Metro for a few years. Second, I think Metro should proactively figure out how we will be affected and try to stay ahead of the impact.

Nashville General Hospital: My most recent post about this was Nov. 29. That post links to others from the last two years. My thoughts today aren’t much different than they were on Nov. 29. There’s just one thing I would add…

If I were allowed to choose a path forward I would want to re-boot whatever process is currently underway. My strong sense is that a whole lot of people have preconceived and conflicting notions about what the proper end-game should be for the hospital. What’s needed is an independent third-party subject matter expert (probably from outside of town). This person would need to have expertise in solving hospital financial problems AND also have the ability to act as a mediator. The person would need truly to have an open mind about where we will end up, and the person would need to be trusted enough to engage in shuttle diplomacy among the many groups. If the hospital is going to end up in a place where all or most of the constituent groups are going to be happy, I think it will need to be an outside person who guides us there.

Soccer: We all know by now that Nashville was awarded a new franchise. It’s very exciting.

Several important details were left to be dealt with after the franchise was awarded. Most notably, the Council will need to approve (by 27 votes) the demolition of some existing fairgrounds buildings before stadium construction can begin. Like with the administration’s Ft. Negley development plans, I’m going to guess that the 27 vote fairgrounds demolition legislation won’t make it to the Council until after the May 1 transit referendum.

Community Oversight Board: I wrote about this in early November. So far, not enough community-wide consensus-building has been done. I think that needs to happen before moving the legislation forward. I had hoped that Metro would hire Barry Friedman from the Policing Project to moderate a consensus-building process…but that doesn’t seem to have happened. I’m looking to learn more about the status in the new year.

Short-term rentals: In spring and early summer 2017, the Metro Planning Commission unanimously recommended Bill -608 and the Council was about to pass it in June.

Bill -608 got through the Planning Commission unanimously because it was a compromise. It allowed short term rentals in every building in Nashville with more than two units. It allowed short term rentals through all of downtown and the Gulch. It allowed every homeowner in Nashville to host short term guests in their primary residence. The only material trade-off was that we would phase out short term rentals in our traditional interior family neighborhoods with 1 or 2 homes on a lot.

In the second half of 2017, -608 has been re-positioned by the short term rental industry as extreme. I’ve stayed quiet on short term rentals in 2017 (except for a few discrete measures designed to stop cheating cheaters from cheating) and let the debate play out. When it comes time to vote, I plan to hear out my colleagues — especially the district Council members with large numbers of short term rentals — to see if they reach a consensus to move away from Bill -608. I think the majority of district Council members still believe that -608 has a good balance of allowing unlimited Type 1 (owner-occupied) and unlimited Type 3 (investor-owned in multi-unit buildings) short term rentals, allowing all short term rentals downtown and in the Gulch, while phasing them out of our traditional family interior neighborhoods.

Wrap-up: If I have forgotten an important issue, let me know at bob.mendes@nashville.gov. I’ll let you know what I think.

Nashville General Hospital – Nov. 29 thoughts

Here are some things I think about Nashville General Hospital:

  • I don’t have any idea what is going to happen. It feels like options are narrowing, which is never good.
  • There are too many chefs in the kitchen. I’ve been trying to stay relatively quiet about the hospital because there are already a whole lot of people who are actively pushing various  ideas about how to “save” the hospital. Unfortunately, most of the efforts are uncoordinated and there is not a basic agreement about what “save” means.
  • I am not sure the right chef is in the kitchen, but I can’t tell. Information is too opaque to really tell who is leading, or moderating, or dictating how circumstances are unfolding. It feels like the Hospital Authority and the administration are headed toward a bad place. For you NASCAR folks, think Kyle Busch and Martin Truex at Indy this year.  See time marker 0:25 to 0:35 here.
  • Meharry has lots of leverage in whatever is going to play out here. There’s only 6 years left on the hospital building lease. Do they want to continue in the relationship after that? If so, on what terms? Metro also has lots of leverage because it has money.
  • The Hospital Authority’s request this week for $20mm is not a surprise. Ironically, this is first fiscal year in quite a while where the Hospital Authority accurately predicted its cash needs. They told us all back in May 2017 that they’d need an additional $20mm.
  • It is not just about numbers when we talk about this hospital. As Rep. Brenda Gilmore wrote in the Tennessean a few weeks ago: “For more than 125 years, Nashville General Hospital has provided care to Nashvillians, many of whom would have no other way to get medical attention.” I don’t have the voice or experiences to try to fully describe the implications of her statement. But I know she’s voicing an authentic concern that is as real as the money is.

I could add another dozen bullet points with my thoughts about things that have been announced publicly. But I don’t want to add to the “too many chefs” dynamic. That said, my number one wish this evening is that the Hospital Authority and the administration would find a way to be teammates. If they don’t, I’m concerned that we’re going to end up watching a fiery wreck.

Here, here, here, and here are my previous posts about the hospital over the last few years.

“City Heights”

There was an article today in the Tennessean about gentrification inside of 440 and north of Charlotte.  The addresses in the article are a few minutes walk from Swett’s and barely a mile from Meharry and Nashville General Hospital.

I have written before about the hospital. From the perspective of my day job as a lawyer where I often help companies and non-profits work their way through financial distress, I have long-thought there are three basic possible solutions for the hospital’s financial problems — go big, go home, or kick the can down the road.  For at least a decade, Nashville has chosen to “kick the can down the road” by chronically under-capitalizing the hospital both for day-to-day operations and long-term improvements. The “go home” solution would be to close the hospital. I’m definitely not arguing for that; I’m just saying that’s what the “go home” solution would be.

The “go big” solution, in my mind, would be to team up with Meharry and leverage the inevitable development coming out along Charlotte from one direction and out Jefferson from Germantown from another direction.

The collective needs (NOT in order of importance) as I see them include: helping to preserve the cultural importance of Meharry and it medical school for Nashville, the practical need for Meharry to have a teaching hospital, honoring and respecting the unique historical importance of North Nashville as an African American community, the need to act now to make sure that current residents can afford to stay in the neighborhood as the inevitable development gets closer, and help find a way to put a cap on Metro’s annual investment in the hospital.

If Nashville goes forward with no meaningful plan in place for the area, the neighborhoods surrounding Meharry and Fisk will gentrify. And I mean “gentrify” in the worst sense of the word. A grievous sin was committed against North Nashville when the interstate cut the Jefferson Street corridor in half. I think there is a moral obligation for Nashville to preserve this historically African American neighborhood.

So what would the “go big” solution actually look like? First, I think Meharry (and Fisk) need to be put in a position to get as much benefit as possible from the coming increase in real estate values. Maybe this means a redevelopment district and tax increment financing around the universities. If done right, the hospital would become better and more competitive. That would shore up Meharry’s long term need for a teaching hospital. The objective would be to help Meharry capture some of the economic value of its neighborhood the way Vanderbilt does the same in its neighborhood.

The “go big” solution also would certainly mean comprehensively canvasing the area and having a rock solid commitment to making sure that every version of the future has as much or more “workforce” and “affordable” housing as there is now. The area is already getting more diverse (i.e., less African American). There has to be a firm commitment to maintaining or better yet growing the African American population in the area. Neighbors who live there now deserve the opportunity to stay, and have their families stay, there for the very long term.

Some will say that I am dreaming an impossible dream. But here’s the deal — right now, the market is transforming the Charlotte corridor out to 440. It is happening before our eyes. The time to help Meharry, help the hospital, preserve North Nashville’s African American heritage, and protect the ability of long-time to residents stay in their neighborhood is now.

Context for the Upcoming Supplemental Hospital Appropriation

On December 29, 2016, the Hospital Authority voted to request a supplemental appropriation from Metro for Nashville General Hospital. I expect this request to come before the Council on February 7, 2016.

Before the request for a supplemental appropriation gets discussed broadly in the community, I would like to spend a few minutes providing context for the hospital’s finances. My main point is that the hospital’s finances have been challenging for a long time and we should NOT be surprised that they need a supplemental appropriation to get through the year.

I’ll write more about this after the appropriation request is formally made to the Council. For now, I just want to compare a few key financial statistics for NES (which is in good shape financially) and the hospital. By putting these numbers side-by-side, I am not trying to embarrass the hospital. In fact, I think it is amazing that they can keep plugging away with these finances. It is a testament to how much they believe in their important mission that they can make these numbers work.

First, by comparing the amount of bills you owe at any time to your total expenses for the year, you can get a quick snapshot of how you’re doing financially. For example, if you are 6 months behind on the mortgage and a year behind on your credit cards, you are in worse shape than if you are current on your bills.  Businesses often try to stay around 60 days outstanding on their bills.  In the chart below, you will see that as of June 30, 2016, NES’s current bills were just under 60 days of expenses for the full year.  At the same date, the hospital’s current bills were almost a 100 days of expenses.

For the hospital to have gotten down to 60 days outstanding on its current bills as of June 30, 2016, it would have needed an additional $10 million appropriated to it for the current fiscal year.

Second, we have all heard the rule of thumb that families should maintain an “emergency fund” of 3 or 4 months of expenses. And, without that, your family is at financial risk due to the unpredictable circumstances of life.

Let’s look at how NES and the hospital do with this. As of June 30, 2016, NES had enough cash on hand to pay approximately 100 days of expenses — that’s a healthy, appropriate reserve. The hospital had under 4 days of cash available on June 30, 2016.

For the hospital to have had even a modest 1 month of cash in the bank as of June 30, 2016, it would have needed an additional $7 million appropriated to it for the current fiscal year (in addition to the $10 million I mentioned above to bring the days of bills due down to 60 days).

My last financial point is there is absolutely nothing new about this situation.  I took a quick look at Metro’s audited financials for 2005 and 2010. By my math, as of June 30 of each of those years, the hospital had less than 1 day of cash available to it. In fact, in 2010, the hospital had $97 million of expenses and ended the fiscal year with $11,094 in cash.  (I didn’t forget zeros — it was 11 grand!)

In the coming weeks as we discuss a supplemental appropriation for the hospital, there may be some of the usual voices saying “shut it down.” That’s the wrong answer. I think the right answer is to look at what it will take to properly pay down the bills, and properly fund its bank account to help the hospital weather the inherent unpredictability of the healthcare industry.

You can read my previous posts about Nashville General Hospital here and here.

NOTE: All of the dollar amounts in the charts are from pages B-27, 31 and 34 of Metro’s FY2016 audited financials. The percentages and “approx days” calculations are mine.

That next $10 million…

It costs Metro more than $35 million for Nashville General Hospital to operate. The average annual cost to Metro to operate NGH has been more than $35 million per year for more than a decade.

I understand that the Hospital Authority was created in March 1999 and had a $15 million cash deficit that year. I believe that, through fiscal year 2007 (so, before the Dean administration even), that cash deficit grew to $62 million. Even though the formally budgeted contribution from Metro was in the mid-$30 million per year range at that point, there was average additional cost of at least $5 million per year through those years due to the deficits. If you dig through the Metro audits for these years, you can find all of this.

For me, it is important to note that the public’s perception about cost focuses on the idea that “it costs Metro $35 million per year to run NGH.” I would guess that political pressures on all involved going back to the early days of the Hospital Authority contributed to a popular impression that it costs Metro $30-35 million per year to operate NGH, when really – all-in – it was more.

The fact is that, for whatever reasons, more than a decade ago, the seeds were planted that created the impression that it costs Metro about $30-35 million to operate NGH. The more precise perception would have been that the formal operating subsidy was $30-35 million per year and that Metro spent more than that on average over the years once you took deficits and unpaid payables into account.

I am more interested in having the “all-in” number be the one that gets discussed publicly. I believe the Barry administration feels the same way. I think the Hospital Authority and Dr. Webb agree too. But the long-standing political ground rule that “it costs $30-35 million” is persistent.

With that as background, let me give my answer to each of the questions raised in David Plazas’ editorial yesterday.

Question: Why do we need another bailout?

My perspective is that the use of the word “bailout” is an unfortunate downside to the perception that was created more than a decade ago about the supposed cost to Metro to operate NGH. The average cost over many years has been higher than $35 million. And much of that time was before the most recent, well-documented challenges in medical reimbursement nationally.

NGH needs more than $35 million this year because it historically costs more than $35 million from Metro to operate the hospital, and because medical reimbursements are as challenging now as they have ever been.

That doesn’t mean NGH gets (or wants) a blank check. Obviously, we have to look at how the money is being spent. But I don’t think the traditional notion of “bailout” applies.

Question: Why did Dr. Webb say early this year that the last $10 million was a one-time event?

I can’t speak for Dr. Webb. But my sense is that there were at least two things he had in mind. First, I believe that it was his goal to make it a one-time event. Second, since long before Dr. Webb took over at NGH, one of our local political ground ground rules has been that “it costs Metro $35 million to operate NGH.”

I have shared with Dr. Webb that I am more interested in knowing a realistic all-in number for what it costs Metro to operate NGH – even if the number violates a long-standing ground rule by being higher than $35 million.

Question: Why did Dr. Webb say during the budget process that $35 million would be enough for this fiscal year?

I have the same response to this one. Dr. Webb will need to answer this, but I suspect that the NGH budget for this year was what I would call aspirational.  I think it was likely built to reflect what the results would be if everything broke just the right way – especially with reimbursements for medical services provided. I suspect that Dr. Webb and his team, in an effort to meet the long-standing political expectations that it is supposed to cost $35 million for Metro to operate the hospital, set budget goals that were aggressive.

Question: Why was Metro was surprised by the request? Why were Metro officials caught unawares? Why were hospital administrators not forthcoming?

On this one, I think the Finance Director can best answer the question for Metro.  For me, there was no surprise. It cost Metro $45 million to operate the hospital last year.  And the running average over more than a decade is higher than $35 million.  And lots of hospitals are having reimbursement issues. I was sure there would be a supplemental appropriation request at some point.

I understand that Metro and NGH have had regular, frequent meetings or calls to discuss budget and cash forecasting throughout this fiscal year. I think both Metro and NGH have seen the possibility of the supplemental request coming.

I suspect that NGH, through the first quarter of the fiscal year, was fully committed to the budget I am calling aspirational. I think that, after NGH closed its books for the first quarter (which would have been late October or early November), they saw the handwriting on the wall, and let Metro and the Hospital Authority know that they would need a supplemental appropriation.

Question: Why did NGH brief the Hospital Authority before the Mayor or the Council?

Two things here.  I understand that NGH did talk to Metro Finance in the days before talking to the Hospital Authority. But also, that’s the way the governance structure works.  Dr. Webb and his team report to the Hospital Authority.  As for the Council, Metro Finance let the Council know within a week or ten days about the situation.

Put all together, the NGH management team worked their budget for the first quarter. Those results show trending that will require a supplemental appropriation.  They let Metro Finance and the Hospital Authority know.  Metro Finance let the Council know.  All of that seems to have happened in a matter of several weeks.

Let me wrap up with two final points.

First, don’t lose track of some positives.  I understand that NGH has successfully dealt with all of the Joint Commission issues raised last year. I am told that, over the last two years, NGH has dramatically decreased infection rates, and the rates are now better than national averages. I believe that the medical staff morale is in a good place. These positives matter, and I think the newly re-formulated Hospital Authority will help continue the push in a good direction.

Second, and I’ll be trying to write more about this in the coming weeks, NGH needing more money isn’t the story.  That’s consistent with historic costs. The more important issue is for us (NGH, the Hospital Authority, the Mayor, the Council) to get rid of the long-standing political ground rule that it costs $35 million for Metro to operate the hospital. It’s arbitrary…it gets in the way of proper management and governance. We all need to know the actual all-in cost to Metro, and we need to be able to know that NGH has a realistic budget and can meet that budget.

(You can see what I wrote about NGH earlier in 2016 here.)

More about Nashville General Hospital

On May 27, 2016, the Mayor, Dr. Joseph Webb, Dr. James Hildreth, and Councilmember Erica Gilmore announced a plan for an independent third party assessment of the financial and governance structure of Nashville General Hospital. The goal is to strengthen the long-term viability of this important Nashville institution.

I am glad that this project is going to happen. I want to share some of my thoughts about what I think will happen.

To start, though, I think it is important to acknowledge some of the difficulties in talking about the hospital. This is a topic where the words we use matter. For example, while Nashville General Hospital does serve a significant number of indigent patients, calling it a “hospital of last resort” suggests an inherently poor quality of service. And, while Metro has been budgeting $35 million for the hospital’s operating budget, calling it a “subsidy” suggests the money is a handout. Unfortunately, in the context of historical racial segregation in our nation and state and city, these word choices can sometimes send a conversation in a bad direction almost immediately.

I believe that Nashville General Hospital is an important institution in Nashville. I believe we can take care of all Nashvillians with high quality health care. I believe that the money Metro pays is an investment in all of us, not a handout.

With all of that said, here’s what I think I know:

  • There is at least one media outlet that has called this an “independent audit.” It is not an audit. The term used has been “financial assessment.” I have said previously that I would like to see the hospital have more resources to help with its budgeting and cash forecasting.
  • I have worked with KraftCPAs and Kevin Crumbo on projects before. They are good at what they do. They won’t come in with preconceived notions. They will have their hearts in the right place. Kevin never sought attention for it, but he was instrumental in re-working the Contributor’s business plan a few years ago (when they increased price and publication frequency). He donated his time and expertise then to help the Contributor survive and thrive. His work with the Nashville Symphony is also well-documented.
  • This financial assessment is consistent with Dr. Webb’s goals. To accomplish major change, you have to be very good at the fundamentals. The hospital just hired a new CFO, and Dr. Webb is still pretty new himself – now is the perfect time for this project. If there is a strong finance function to provide strong financial reporting, then the hospital will be able to make strong decisions.
  • I have one Council colleague who tweeted yesterday that, with “an entity that is subsidized $35 million a year,” it is important to know more. I have another Council colleague who replied, “what will this…tell us that we already don’t know?” These are both legitimate sentiments – but I think the limited phrasing available in 140 characters on Twitter creates the risk of possibly stumbling over the language problems I mentioned. We have to see the money as an investment in critical health care infrastructure. That re-frames everything. And we have to acknowledge that facts are our friends – more facts lead to better decision-making.
  • It is important to avoid the blame game as more facts are learned. If the facts show that there are improvements that might be made, that doesn’t mean someone has done a bad job. Seriously, look around your own workplace – most of us work in a place where most everyone is hard working and good at what they do. But there is always room to grow, to get more competitive, to turbocharge your organization. Nashville General Hospital is no different – having ideas for improvements does NOT necessarily mean anything about how good a job any single individual is doing. Embracing and empowering ideas for improvement is how the best change happens. I believe Dr. Webb shares this view and that’s why he is a partner in this new financial and governance assessment.

Finally, I want to thank Mayor Barry, Dr. Webb, Dr. Heldreth, and Councilmember Gilmore for collaborating on this project. This is the right time for everyone involved to have a fresh assessment of the hospital’s finances.

Last Week’s $10 Million For Metro General

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.