Leading a Hospital Turnaround A Practical Guide
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About this ebook
No healthcare organization is immune to financial decline. Healthcare leaders must be able to recognize the warning signs of financial distress and take action to maintain or restore their organization's financial health.
The author of this step-by-step guide shares what he learned while leading several successful financial turnarounds. Along with concrete tools and action plans, he provides candid advice about minimizing the fears of employees, physicians, and board members. In this book, you will learn how to preserve crucial relationships while directly addressing difficult questions.
Topics covered include:
Using performance analytics to predict a financial crisis Acknowledging a negative financial trend and accepting responsibility Improving cash flow and reducing costs Initiating pivotal discussions with key stakeholders Creating an effective communications and public relations strategy Developing a dashboard for the turnaround process Fielding the right turnaround team and determining responsibilities Maintaining strong relationships with your medical staff Avoiding common leadership missteps Considering the use of outside consultants Creating closure after a turnaroundAnthony Jones
Anthony Jones was born in Valdosta, Georgia in 1972. Between his 10 years in the US Army and 5 years as a government contractor, he has spent almost 8 total years in countries either for wartime interventions or humanitarian aid.Through his man travels, Anthony Jones, has forged lifelong friendship with unique individuals from different ethnic and religious backgrounds from around the world. Whether celebrating, Eid, Christmas, Diwali, Songkran, Lent or countless other holidays, he has found great appreciation in the similarities of our history rather than focussing on the differences.
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Leading a Hospital Turnaround A Practical Guide - Anthony Jones
ACHE Management Series Editorial Board
Natalie D. Lamberton, Chairman
The Medical Center of Aurora
Christina R. Campos
Guadalupe County Hospital
Jaquetta B. Clemons, DrPH
Christus Spohn Health System
David A. Disbrow, FACHE
University of Cincinnati
Scott A. Haraty, FACHE
North Chicago VA Medical Center
Virginia Larson, FACHE
Albert Lea Medical Center–Mayo Health System
Paul A. Milton, FACHE
Ellis Hospital
Greg Napps, FACHE
Culpeper Regional Hospital
CPT Joseph L. Sanchez Jr.
US Air Force
Megan Schmidt, FACHE
Select Specialty Hospital
Arthur S. Shorr, FACHE
Arthur S. Shorr & Associates Inc.
Janet C. Sternberg, FACHE
Huron Medical Center
LEADING A HOSPITAL TURNAROUND
A PRACTICAL GUIDE
Anthony K. Jones
ACHE Management Series
Your board, staff, or clients may also benefit from this book's insight. For more information on quantity discounts, contact the Health Administration Press Marketing Manager at (312) 424–9470.
This publication is intended to provide accurate and authoritative information in regard to the subject matter covered. It is sold, or otherwise provided, with the understanding that the publisher is not engaged in rendering professional services. If professional advice or other expert assistance is required, the services of a competent professional should be sought.
The statements and opinions contained in this book are strictly those of the author and do not represent the official positions of the American College of Healthcare Executives or the Foundation of the American College of Healthcare Executives.
Copyright © 2013 by the Foundation of the American College of Healthcare Executives. Printed in the United States of America. All rights reserved. This book or parts thereof may not be reproduced in any form without written permission of the publisher.
17 16 15 14 13 5 4 3 2 1
Library of Congress Cataloging-in-Publication Data
Jones, Anthony K.
Leading a hospital turnaround : a practical guide / authored by Anthony K. Jones.
pages cm
ISBN 978-1-56793-591-2 (alk. paper)
1. Hospitals--Business management. 2. Health facilities--Finance. 3. Strategic planning. 4. Organizational change. 5. Leadership. I. Title.
RA971.3.J66 2014
362.11068--dc23
2013006348
Acquisitions editor: Carrie McDonald; Project manager: Amy Carlton; Cover designer: Marisa Jackson; Layout: Virginia Byrne
Found an error or a typo? We want to know! Please e-mail it to hap1@ache.org, and put Book Error
in the subject line.
For photocopying and copyright information, please contact Copyright Clearance Center at www.copyright.com or at (978) 750–8400.
Health Administration Press
A division of the Foundation of the American
College of Healthcare Executives
One North Franklin Street, Suite 1700
Chicago, IL 60606–3529
(312) 424–2800
To my family,
Sheila T. Gregory, Courtney G. Jones, and Anthony K. Jones II.
Your patience, understanding, and encouragement in the writing of
this book will be forever appreciated.
and
to my former colleagues,
Loren Chandler, Michael Davenport, Denise Dillard,
Lynda Goldman, Ian McFadden, Shelly Major, and Beth Sullivan.
Thank you for providing me with the inspiration to write this book.
Contents
Preface
Chapter 1: Predicting a Crisis: Early Warning Signs
Chapter 2: Facing the Facts: Leadership Front and Center
Chapter 3: Structuring the Communications Process
Chapter 4: Pivotal Discussions with Key Stakeholders
Chapter 5: Framework of a Successful Turnaround
Chapter 6: Tools and Techniques of a Successful Turnaround
Chapter 7: Roles and Responsibilities of Key Players
Chapter 8: Derailers: Why Some Organizations Fail
Chapter 9: Internal Teams or Outside Consultants?
Chapter 10: Special Considerations
Chapter 11: Operating in the Post-Turnaround Era
Financial Turnaround Cases
References
Index
About the Author
Preface
I GOT THE IDEA for writing this book after coleading the financial turnaround of a multihospital system. Though I have been involved in numerous difficult turnarounds, I found this one by far the most difficult. It was also the most successful. Being able to lift an organization's performance well beyond your expectations, as well as those of others, can have a lasting effect on what you think is possible.
Having served as CEO and COO in multiple hospitals and hospital systems, I wrote this book from a CEO's perspective. Leading a Hospital Turnaround: A Practical Guide is intended to be an honest conversation about the challenges CEOs may face when they find themselves in a financial turnaround. That means that sometimes the advice in this book will not be flattering, but it will be on point. Several good books have been written on turnarounds. However, none has reached the technical specificity and emotional depth this book offers.
If you do not know where to start in a turnaround, this book is a great place to begin. It walks through the entire turnaround process from beginning to end with practical advice based on my years of experience. It equips you with the methods and tools necessary to perform the initial diagnostic process on your organization. Detailed recommendations help you structure your communications process. Engagement strategies are suggested for working with your key stakeholders. Turnaround team member roles and responsibilities are defined in a way that leaves little doubt about who should be doing what.
In turnarounds, the things not said can have just as chilling an effect on relationships as those that are said. This book goes into great detail about how to handle these situations. Unlike other books on the subject, this book asks the reader to go through a personal self-examination process as she prepares to lead a turnaround. It advises the reader to set aside his ego for a short time and recognize the pivotal leadership tipping points that could await him.
This book is not about long-term strategies—it is about boots-on-the-ground tactics that can be accomplished immediately. At the end of each chapter you will find a checklist of critical success factors (CSFs), concrete steps that illustrate the concepts discussed in the chapter. The CSFs provide a to-do list for executives and turnaround teams to implement during a turnaround. Each chapter's CSFs build on those of the previous chapters. The CSFs can be combined and used as quick reference guide. They can be structured into a discussion document for your team and key stakeholders. The CSFs eliminate some of the complexity that all too frequently surrounds a turnaround process.
This book is intended to be a how-to book, companion, and survival guide all in one, and its step-by-step format should make for an easy read. There is no cookie-cutter approach to financial turnarounds. But these proven methods can have a lasting positive effect on your career.
—Anthony K. Jones
CHAPTER 1
Predicting a Crisis: Early Warning Signs
THE LEAD-UP
Hospital turnarounds traditionally have been viewed as institutions gradually lapsing into financial decline. Eventually, the decline takes an aggregate financial toll on the organization and reaches a trigger point. This situation still happens regularly.
But today, environments can change rapidly. Even historically well-run institutions’ financial fortunes can go sour because of changes and shifts in the market. Any institution can be subject to financial decline if its leadership is not vigilant. However, few healthcare institutions drift into financial distress without having telegraphed some early warning signs.
Other than in hospitals struggling visibly with their bottom lines, identifying circumstances where a hospital is trending toward serious financial distress is not easy, but it is possible. Sometimes the signs are unmistakable. An example of distress could be the leadership's concern about the organization's ability to pay its bills. Another sign might be a decision to cut back on the level and type of services offered to the community. More common are the institutions in the middle of the road experiencing fluctuating cash flow streams simply from earning less money than they are spending.
For the vast majority of hospitals, discovering signs of distress requires a thorough vetting of many factors both financial and nonfinancial. A primary objective of the CEO and senior leadership should be to make a distinction between what is a short-term hiccup—one or two quarters of losses in a fiscal year, but a positive financial outlook beyond that point—and what is a more deep-seated downturn—such as losses for more than two quarters with a continued negative financial outlook. Another example is the organization that moves back and forth between being profitable and losing money over a 12-month period. This yo-yo effect signals instability in the management system and should be treated as one potentially requiring a turnaround.
Leaders should make every effort to get a handle on the situation quickly. With each passing day, the situation is less likely to get better on its own.
Performance Analytics
When answers are needed right away, hospital leadership should gather and use performance analytics. Three basic methods exist for gathering performance analytics and getting a quick read on the organization's financial performance: the acid test, the quick test, and the comprehensive test, as shown in Exhibit 1.1. All three tests help you gather and analyze information rapidly. However, each test has a specific formula and purpose. Selecting which test to use depends on how much detail the leadership wants to delve into and how fast the information is needed.
All three tests can be developed by the chief financial officer (CFO) without spending much time or energy. Each test combines a section of key performance indicators into a snapshot of how the organization is doing. Most of information and data should already be available internally. In addition, other benchmarking data can be obtained free of charge from public agencies. Benchmarking information can also be purchased from proprietary companies. The number of vendors selling health and hospital benchmarking data has exploded in the past decade.
The Acid Test
The acid test is the quickest to perform. It zooms in on the profitability and answers the question, Do we have enough money coming in to pay our short-term bills, including meeting payroll?
The formula for the acid test contains indicators for operating margin, days cash on hand, and debt service coverage. Each of these indicators is a standalone performance indicator that can have a significant