Covid further impacts tough financial picture for NIH
While no one (with the exception of the Northern Inyo Hospital District Board) knows exactly why Northern Inyo Hospital parted ways with former CEO Dr. Kevin Flanigan earlier this month, Wednesday’s meeting of the Northern Inyo Hospital Board of Directors certainly offered a few pointed clues.
Most notably, District finances are in terrible shape.
Exhibit A. Standard and Poors recently downgraded NIHD’s bond rating from BB to B. Which may be an acceptable grade in school, but is deemed “sub-investment grade” in the real world.
Financial Consultant Vinay Behl walked the NIHD Board through the wreckage of its balance sheet during the Board’s regular meeting.
On the bright side, he believes there are several measures the District can adopt over the course of the next 90 days to right the ship.
While former CEO Flanigan may have boasted the initials MBA after his name, he apparently forgot the first rule of business during his tenure at NIH, which is to stay in business.
And you can’t stay in business if you don’t collect for services rendered.
Unfortunately, the Hospital’s choice of Athena Healthcare as its EHR (Electronic Health Record) provider a few years back has proven disastrous.
“The Athena system has choked out accounts receivable process,” revealed Behl in his presentation. NIH has $21 million outstanding in unpaid invoices. Some of the bills due are over a year old.
Some other financial stats which showed NIH is in a comparatively weak position versus other California Critical Access Hospitals (CAH).
NIH net margin 0.75%
CAH average 3.77%
NIH cash flow 4.88%
CAH average 8.88%
NIH return on equity 1.18%
CAH average 8.46%
NIH operating margin 0.62%
CAH average 3.74%
NIH days cash on hand 62.3
CAH average 72.5
NIH Days in net accts. receivable 123
CAH average 50
*NIH’s number has ballooned from 71 days to 123 days in just a year’s time.
NIH ratio of assets to liability 2.37
CAH average 2.87
NIH long-term debt to total assets 59%
CAH average 39%
NIH debt service coverage ratio 1.27
CAH average 7.05
NIH’s salaries to net patient revenue ratio 54.7%
CAH average 40.3%
As Andrew Stevens noted in a letter he sent to the NIHD Board on April 4, “I started here in 2003 and we had approximately 260 employees, and we now have over 500, with little population growth in those 16 years … Since I left management in 2016, nursing management has swelled to over 14 positions from the 7 positions when I was there.”
Stevens letter was one of several which was sent to the Board in the wake of Flanigan being placed on administrative leave in February (see related story beginning on page 2). The letters tell a tale of who was in Flanigan’s corner, who wasn’t, and provide some illumination regarding the CEO’s divisive tenure.
Athena = no goddess
As NIHD Board member Mary Mae Kilpatrick told The Sheet on Wednesday, “Finances and operations are why he’s [Flanigan] no longer with us.”
Though she did ultimately vote for Flanigan’s removal, Kilpatrick added, “I’m still in his corner. He did marvelous things … to me, the pluses outweighed the minuses.”
But while Flanigan seemed to have a deft touch in some areas, and was beloved by certain physicians, he was not as deft in other areas.
And the Athena debacle was his Waterloo.
“I am surprised he still has a position,” wrote Dr. Stuart Souders, “after promoting the EMR system the hospital has been struggling with for over two years in spite of multiple, very bright people telling him it was not going to work. Some of them were fired or encouraged to resign. Thousands of dollars and wasted man hours were spent in trying to engineer this system to work … “
From Bryan Harper: “During the time of the Athena selection, I, along with Ben Mitchell … began to question the shortfalls of cloud-based systems that Athena had no answers for. It was at this time that Dr. Kevin S. Flanigan became visibly upset with the questions and concerns. Afterward, Ben and I were told in no certain terms to ‘get on board, sit down and shut up or get out.’ After that, Ben and I were removed from most of the Athena meetings.
From Dee Booth: “Dr. Flanigan prefers to make decisions in small exclusive groups of like-minded individuals. This resulted in NIHD purchasing possibly the worst suite of software available … I questioned his integrity and honesty when he denied any responsibility for the failed Athena project, and protected others who were not competent to advise him in the selection of the vendor.”
The worst part? NIH paid Athena well over $1.5 million annually for a system which happened to double-book some revenues (nice glitch) and never quite made its numbers match.
“What [the system] shows as cash,” observed Behl, “is materially different than what might show at the bank.”
“We are highly leveraged”
The impact of coronavirus has exacerbated NIH’s burgeoning financial crisis.
As Controller Genifer Owens stated Wednesday, hospital revenue was down 24% in March and 53% in April. In May, revenue is down 34% to date. And according to Behl’s presentation, the hospital absorbed a $650,000 loss in March.
Meanwhile, total cash and investments, which stood at nearly $26 million at the end of June, 2019, plummeted to $14 million as of March 31, 2020.
One of the factors in this decline is due to much lower year-over-year in-patient numbers. This is where the money is, as Behl said in-patient reimbursement brings in about $8,500/day.
At different times, Behl stated, “We are barely making ends meet,” and “We are highly leveraged.”
NIHD’s total long-term debt stands at $41-42 million. Servicing that debt costs about 3% of the Hospital’s annual $97 million in revenue.
Getting a handle on it
In the short-term, to arrest the District’s weakening balance sheet, the NIHD Board is bringing in a firm to help with accounts receivables, firing Athena in favor of a new provider (Cerner), taking out a multimillion dollar line of credit at Eastern Sierra Community Bank, and delaying funding its pension plan for up to 18 months.
Behl said funding the plan (which costs about $500,000/month) during the Covid crisis could literally wipe out the District’s cash balances completely.
While the situation looks dire, Behl was fairly confident that emergency measures taken in the next three months could bring the District’s bond rating back up to BB.
As for former CEO Kevin Flanigan, he received $325,000 upon his departure in a lump sum payment according to his separation agreement.