In an age of specialization, Michael T. Healy embodies a broad range of talents. For his sure financial leadership at Sacred Heart Hospital in Yankton, S.D., Healy, 52, has been chosen for this year's Cain Brothers award.
During 27 years at Sacred Heart, 12 of them as vice president and chief financial officer, Healy has deftly guided the 257-bed hospital, designated as a rural referral center, through Medicare's conversion to DRGs and into the age of managed care.
The hospital's balance sheet reveals an organization with an impressive bottom line. In 1994 Sacred Heart posted net income of $5 million on $31.9 million in net patient revenues, according to HCIA, a Baltimore-based healthcare information company. Sacred Heart recorded an 8.7% profit margin on operations and a 19.6% total margin.
Healy also serves as financial consultant to Sacred Heart Monastery, a job that involves financial, investment and retirement planning for the 175-member Benedictine congregation of sisters in Yankton.
And, since 1986, he's worn the CFO hat at Benedictine Health System of Yankton. Through sales and transfers of ownership, the system now represents just two institutions, both of which have affiliated with Catholic Health Corp., Omaha, Neb.
As this year's winner of the Cain Brothers award, which honors outstanding finance executives in healthcare, Healy will attend Harvard Business School's 1995 summer program, "Finance for Senior Executives." The two-week program features a choice of courses for which Cain Brothers will pick up the tuition, room and board.
"Mike impressed everybody as kind of a Renaissance man of healthcare finance," said Daniel M. Cain, principal and founding partner of the New York-based financial advisory firm. He demonstrated "great balance" through his focus on investment management, cash control and debt reduction, Cain said.
Healy also tackled external issues affecting Sacred Heart, Cain added. For example, his treks to Washington helped to maintain the hospital's rural referral center status under Medicare.
The selection committee's choice of Healy is a vote of confidence in rural healthcare systems "and the talented people who sometimes go unrecognized and make it work," Cain said.
One of Healy's talents is his ability to manage debt.
In 1980, with the initiation of a $20 million replacement facility project, he created a special depreciation accounting system. It was designed to enable Sacred Heart to absorb higher amounts of depreciation in the earlier years of the project based on the theory that in future years third-party reimbursements would not be as favorable. It was a good bet because Medicare introduced DRGs in 1983.
Sacred Heart refinanced the debt in 1985 and expects to make its last principal and interest payments in December, leaving it free of debt.
The hospital now is completing $16 million in renovations and construction, funded entirely with cash.
In healthcare finance, the rule of thumb is to take advantage of low interest rates and borrow when you can. "Our philosophy has been a little different," Healy said. "We have probably chosen the other route (by going to the bond market as infrequently as possible), so we don't have to borrow (and incur interest and financing costs)."
His debt- and cash-management skills have enabled Sacred Heart to post a remarkably healthy and consistent return on operations of 7% to 8% over the past decade. Healy said the hospital achieves fiscal efficiencies by constantly monitoring department operations, anticipating change and having solid management.
For example, Sacred Heart reviews all requests for expenditures, including small pieces of medical and office equipment. Proposed purchases must result in greater efficiencies or improved patient care, he said.
Over the years, Healy has worked closely with South Dakota's congressional delegation in Washington. "We wanted to maintain a good relationship with Washington and keep them informed of what is happening in rural America," he said.
Those relationships aided Sacred Heart in gaining and maintaining Medicare status as a rural referral center, a sole community provider and a geographically reclassified hospital. Overall, the designation as a rural referral center has generated nearly $500,000 in aggregate for the hospital because Medicare provides a higher reimbursement rate that's closer to rates in urban Sioux Falls, S.D., Healy said.
Locally, Healy participated this past year in a successful effort to defeat a 4% gross receipts tax sought by South Dakota's governor. If the tax had gone into effect on July 1 as proposed, it would have cost Sacred Heart some $600,000 in the first year. The tax also would have forced Sacred Heart to raise rates by 5%.
To prepare for managed care, Healy is helping Sacred Heart to operate more efficiently, reduce variable costs, justify expenditures and work with employers in the community. Guided by productivity standards established for each department, staffing levels are being tweaked through attrition, contracting and replacing full-timers with part-time workers.
Healy, a Healthcare Financial Management Association fellow and past president of the HFMA's South Dakota chapter, has focused on self-improvement as well. In 1993 he received a master's degree in business administration from the University of South Dakota with an emphasis in finance and investment management.
Healy was "humbled" to receive the Cain Brothers award and credited his chief executive officer, Dennis Sokol, as well as the medical staff, board and auditor for Sacred Heart's success. "It's been a team effort," he said.