Few hospitals know more about operating on a narrow margin than The Brooklyn Hospital Center in New York. Seventy-five percent of the 464-bed public safety-net teaching hospital's revenue is derived from Medicare (40 percent) or Medicaid (35 percent).
Brooklyn Hospital Senior Vice President and CFO Joe Guarracino stretches every dime of the hospital's $390 million budget to serve its 300,000 annual patients, regardless of their insurance status. And he does it with a sleeves-rolled-up attitude that sparks pride and a strong work ethic among leadership and staff.
Earlier this year, Mr. Guarracino and his finance team helped to restructure $80 million of the hospital's debt to reduce its debt load by $25 million and cut $10 million from future payments. In a two-stage strategy, they first refinanced $45 million of the hospital's balloon debt due October of last year. That allowed the hospital to refinance a $35 million government-insured mortgage.
Navigating uncertain and changing revenue streams has been Mr. Guarracino's job since he began his current role in December 2007, making him an expert source for other healthcare financial leaders looking to do the same under the shifting payment systems of health reform.
Question: Can you explain the debt status at The Brooklyn Hospital Center when you came aboard in 2007, and what steps you took to relieve some of the pressure in January?
Joe Guarracino: We came out of debtor in possession status in 2007, and we set up a plan of reorganization that year to get our financial house in order. The debt refinancing was the last major hurdle in that plan. In the fourth quarter of 2012, we refinanced approximately $80 million dollars in debt from two loans. One was a $35 million mortgage issued from the state funding arm in 1999; the other was a balloon debt that had been due late 2012.
We paid down about half of one loan facility from hospital operations revenue, which allowed us to refinance the rest of our debt at a lower interest rate. We'd just switched banks from Chase to TD, and GE had lent us money in the past and liked how we worked. So TD and GE allowed us to refinance our debt at a lower interest rate.
That lighter debt burden is freeing up cash to fund much needed capital. The way the market is right now, it's allowing us to seek taxable bonds. Usually, there is a bigger spread between taxable and tax-free debt. The interest now is so low, it makes more sense to go with taxable debt because it's more flexible, cheaper and shorter than most tax-free debt options.
Q: The Brooklyn Hospital Center serves a largely indigent patient base, which I'm sure doesn't make things easy for you as you try to maintain and grow financial gains. Tell us about the population you serve and your strategy to stay in the black.
JG: We serve a high proportion of Medicaid patients with a disproportionate share being managed care patients, as we were the first demonstrated borough when the transition from traditional Medicaid to managed care occurred. This is a challenge because the Medicaid managed care providers don't pay as promptly as traditional Medicaid. The hospital is constantly challenged with managing expenses and doing more with less, while trying to find new revenue streams.
Q: What previous healthcare financial leadership experience do you have, and how does this role compare?
JG: I was CFO at a three-hospital system before this where I didn't have back-office responsibilities. Being at a mid-sized community hospital is a different situation. The C-suite does more than typical administrative duties, and we're given the freedom to do more. My boss [President and CEO Richard B. Becker, MD] has allowed me to do things that go beyond finance, such as working to resolve issues within the nursing department. The senior team is also encouraged to go out and be point people for physician recruitment.
When you're working in an institution that wants to provide high-quality care, while working on slim margins, you have to work smarter, not harder. If one of the senior team members has a source to bring on more physicians or gain more market share for the hospital, he or she gets to be point person for that project.
For example, we launched a service-excellence initiative to improve patient satisfaction. I co-chair the employee engagement committee, which is charged with facilitating communication between administration and employees. That's not normally a CFO's job, but it's something I wanted to do. The hospital initiated an employee opinion survey, and challenged the employees to put corrective actions in place based on the survey results. One of the findings of the survey was that employees felt they were not recognized for their contributions. Now, we celebrate service excellence on a quarterly basis, and employee response has been very favorable, leading to improved morale.
Q: Big changes are ahead for healthcare, and hospitals have a growing appetite for capital to prepare for those changes. Do you have advice for financial leaders across the hospital industry to acquire and manage debt responsibly?
JG: When you're going out there and trying to get debt for the hospital, a lot of times the numbers speak for themselves. Unfortunately, because of our limited cash flow, we can't just take big chunks off our debt load — you have to make sure they're timed correctly. A lot of times when you make investments in capital, you have to manage between financial return and hospital mission. Hospital leaders in a challenging environment have to be mindful that most capital has to have a return first. In addition, you've got to have a good relationship with lenders. One of the best ways to show them your hospital or system is creditworthy is by showcasing leadership's accomplishments. We also have constant dialogue with our lenders to make sure they are aware of our efforts and where things stand.
6 Value-Based Credit Rating Metrics Hospital CFOs Need to Know
CFO J. Britton Tabor: A Wide Reach at Erlanger Health System
Brooklyn Hospital Senior Vice President and CFO Joe Guarracino stretches every dime of the hospital's $390 million budget to serve its 300,000 annual patients, regardless of their insurance status. And he does it with a sleeves-rolled-up attitude that sparks pride and a strong work ethic among leadership and staff.Earlier this year, Mr. Guarracino and his finance team helped to restructure $80 million of the hospital's debt to reduce its debt load by $25 million and cut $10 million from future payments. In a two-stage strategy, they first refinanced $45 million of the hospital's balloon debt due October of last year. That allowed the hospital to refinance a $35 million government-insured mortgage.
Navigating uncertain and changing revenue streams has been Mr. Guarracino's job since he began his current role in December 2007, making him an expert source for other healthcare financial leaders looking to do the same under the shifting payment systems of health reform.
Question: Can you explain the debt status at The Brooklyn Hospital Center when you came aboard in 2007, and what steps you took to relieve some of the pressure in January?
Joe Guarracino: We came out of debtor in possession status in 2007, and we set up a plan of reorganization that year to get our financial house in order. The debt refinancing was the last major hurdle in that plan. In the fourth quarter of 2012, we refinanced approximately $80 million dollars in debt from two loans. One was a $35 million mortgage issued from the state funding arm in 1999; the other was a balloon debt that had been due late 2012.
We paid down about half of one loan facility from hospital operations revenue, which allowed us to refinance the rest of our debt at a lower interest rate. We'd just switched banks from Chase to TD, and GE had lent us money in the past and liked how we worked. So TD and GE allowed us to refinance our debt at a lower interest rate.
That lighter debt burden is freeing up cash to fund much needed capital. The way the market is right now, it's allowing us to seek taxable bonds. Usually, there is a bigger spread between taxable and tax-free debt. The interest now is so low, it makes more sense to go with taxable debt because it's more flexible, cheaper and shorter than most tax-free debt options.
Q: The Brooklyn Hospital Center serves a largely indigent patient base, which I'm sure doesn't make things easy for you as you try to maintain and grow financial gains. Tell us about the population you serve and your strategy to stay in the black.
JG: We serve a high proportion of Medicaid patients with a disproportionate share being managed care patients, as we were the first demonstrated borough when the transition from traditional Medicaid to managed care occurred. This is a challenge because the Medicaid managed care providers don't pay as promptly as traditional Medicaid. The hospital is constantly challenged with managing expenses and doing more with less, while trying to find new revenue streams.
Q: What previous healthcare financial leadership experience do you have, and how does this role compare?
JG: I was CFO at a three-hospital system before this where I didn't have back-office responsibilities. Being at a mid-sized community hospital is a different situation. The C-suite does more than typical administrative duties, and we're given the freedom to do more. My boss [President and CEO Richard B. Becker, MD] has allowed me to do things that go beyond finance, such as working to resolve issues within the nursing department. The senior team is also encouraged to go out and be point people for physician recruitment.
When you're working in an institution that wants to provide high-quality care, while working on slim margins, you have to work smarter, not harder. If one of the senior team members has a source to bring on more physicians or gain more market share for the hospital, he or she gets to be point person for that project.
For example, we launched a service-excellence initiative to improve patient satisfaction. I co-chair the employee engagement committee, which is charged with facilitating communication between administration and employees. That's not normally a CFO's job, but it's something I wanted to do. The hospital initiated an employee opinion survey, and challenged the employees to put corrective actions in place based on the survey results. One of the findings of the survey was that employees felt they were not recognized for their contributions. Now, we celebrate service excellence on a quarterly basis, and employee response has been very favorable, leading to improved morale.
Q: Big changes are ahead for healthcare, and hospitals have a growing appetite for capital to prepare for those changes. Do you have advice for financial leaders across the hospital industry to acquire and manage debt responsibly?
JG: When you're going out there and trying to get debt for the hospital, a lot of times the numbers speak for themselves. Unfortunately, because of our limited cash flow, we can't just take big chunks off our debt load — you have to make sure they're timed correctly. A lot of times when you make investments in capital, you have to manage between financial return and hospital mission. Hospital leaders in a challenging environment have to be mindful that most capital has to have a return first. In addition, you've got to have a good relationship with lenders. One of the best ways to show them your hospital or system is creditworthy is by showcasing leadership's accomplishments. We also have constant dialogue with our lenders to make sure they are aware of our efforts and where things stand.
More Articles on Hospital CFOs:
Pay for 18 Connecticut Hospital Execs Exceeds $1M in 20126 Value-Based Credit Rating Metrics Hospital CFOs Need to Know
CFO J. Britton Tabor: A Wide Reach at Erlanger Health System