Why Cash is King: Q&A With Dawn Javersack, CFO of Boca Raton Regional Hospital

In 2008, Boca Raton (Fla.) Regional Hospital was faced with significant financial challenges. The hospital lost $120 million, $60 million of which was from operations, and its credit rating was heading in the wrong direction. The hospital had an "A" rating on its original issued debt, but it had fallen to "BBB-", which is at the lower end of investment-grade.

Dawn Javersack joined BRRH in 2010 with one major goal in mind: to help improve the hospital's financial position. She had worked closely with Jerry Fedele, BRRH's president and CEO, when they both worked at West Penn Allegheny Health System in Pittsburgh.

Since she started, Ms. Javersack and others have helped improve the hospital's credit outlook from negative to stable and have kept BRRH's credit rating at an investment-grade level. Ms. Javersack says BRRH has a healthy balance sheet, attributing much of the success to a renewed focus on obtaining cash and preserving liquidity.

Here, she explains why cash flow and liquidity are vitally important to a hospital's financial standing, ways other hospital CFOs can improve their liquidity metrics and why the revenue cycle can make or break a hospital's profitability.

Question: How would you describe your hospital's cash flow currently (days cash on hand, cash reserves, etc.), and how important is it to your balance sheet? What are the most important liquidity metrics?

Dawn Javersack: As of the end of our fiscal year at June 30, 2012, Boca Raton Regional Hospital had 106.1 days cash on hand, which reflects an improvement of almost 6 percent as compared to the end of our previous fiscal year.

Maintaining our levels of cash reserves and days cash on hand is extremely important to Boca Raton Regional Hospital and, in my opinion, represents the most critical component of the organization's balance sheet. I believe the most important liquidity metrics include 1) days cash on hand, 2) cash-to-debt ratio and 3) cushion ratio. We establish targets for these metrics and closely monitor and report on them as part of our financial reporting process. These measures are typically analyzed very carefully by the rating agencies. During the past year, our investment-grade credit rating was affirmed by both Standard & Poor's and Fitch Ratings, inclusive of a stable outlook.

Q: You mentioned credit rating agencies. How much do you emphasize your liquidity metrics in those meetings?

DJ: You get in front of rating agencies, and they want to know how much cash you have and if you can service your debt — cash-to-debt ratio, cushion ratio, maximum annual debt service. My focus as CFO is to make sure the organization is positioned for the long term in addition to the short term. The maintenance of a credit rating is important not only in terms of accessing the capital markets but also in maintaining community confidence in the organization as well.

Q: What is the best way hospitals can maintain strong liquidity in today's economic environment?

DJ: Boca Raton Regional Hospital has accomplished much over the past few years, including a turnaround in financial performance since 2008 in a very challenging healthcare environment. Throughout that time, the hospital focused on achieving specific goals in growth, quality, satisfaction and financial performance.

Maintaining strong liquidity has been a major factor in establishing our financial goals. The hospital has a very long history of strong community support from a philanthropic and volunteerism perspective, thus maintaining community confidence in the hospital is of utmost importance. For example, during the past two years, the hospital has been the recipient of over $65 million in philanthropy, which facilitates continued growth of clinical programs.

Hospitals need to be relentless in terms of setting goals and measuring actual performance against those goals. Boca Raton Regional Hospital continues to focus on methods to improve the overall revenue cycle performance, which is critical to maintaining strong liquidity. We produce and monitor daily cash reports, daily point-of-service collections and a myriad of various reporting tools. The hospital provides economic incentives to the continuum of revenue cycle staff based upon achievement of targets on a quarterly basis. Usage of IT allows online access to information critical to managing the entire process. We recently implemented online bill pay for our patients and customers, which has proven to be a very effective tool.

We continue to seek other creative ways to improve cash flow, including the implementation of an automated purchasing card program for which we receive revenue share payments and negotiation of vendor payment terms which are better aligned with third-party payor payment cycles. Our approach is simply summarized as setting goals, measuring actual performance, establishing accountability and embracing creative thought.

Q: How does hospital liquidity factor into refinancing and debt management?

DJ: Hospital liquidity greatly influences a hospital's credit rating, which plays an important factor in terms of access to the capital markets, the ultimate cost of debt and any required covenants. The ability to plan for future capital investment and strategic initiatives is greatly dependent on maintaining an acceptable level of liquidity even prior to accessing the capital market.

Q: What advice would you give to other hospital CFOs who may be struggling to keep the hospital's cash at ideal levels?

DJ: As I mentioned, the keys are setting targets and goals, measuring actual performance against the goals, establishing accountability and fostering a culture of creative thought, innovation and processes that lead to continuous performance improvement.

More Articles on Hospital Liquidity:

5 Key Points on What Hospital CFOs Can Learn From Corporate CFOs

CFO Mike Tretina: Building Strong Liquidity at Mary Greeley Medical Center

58 Statistics on FY 2011 Median Hospital Financial Metrics

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