There's not a sordid, beach-blanket potboiler in all of Amazon.com as riveting in its frankness as the tale Calvin MacKay told last month.
With surprising humility, MacKay, executive vice president of corporate finance at Nashville's 556-bed Baptist Hospital, aired the hospital system's dirty laundry during a captivating session at the Healthcare Financial Management Association's annual national institute in Anaheim, Calif.
"What I want to talk about is, while we were sleeping, what happened to us," MacKay said. He proceeded to describe a healthcare system run amok.
Baptist's tenuous financial health, the breakup of a proposed merger and the firing of longtime President and Chief Executive Officer David Stringfield are well-known. Baptist's 27-member board voted last November to remove Stringfield, who had been reassigned to a senior vice president post earlier in the year (Nov. 30, 1998, p. 14).
The shake-up followed the demise of the proposed merger with Nashville-based Saint Thomas Health Services. Later, the major credit-rating agencies thumped Baptist for a $73 million loss on operations in fiscal 1998.
Less visible, though, were the multiple missteps setting the stage for the system's near collapse, and that is why MacKay's story is instructive. In highlighting the hospital's mistakes, the eight-year Baptist veteran provided a case study in how not to run a multimillion-dollar healthcare enterprise.
At his HFMA session, titled "Unwieldy Structures Diminish Accountability," MacKay described the system's underlying problem: a confoundingly complex legal structure. To his credit, he didn't sugarcoat the news. "Clearly, we were snoozing on the job here," MacKay said.
It began in the late 1980s and early 1990s, the heydays of Baptist's expansion. Every time the system acquired something or created a new line of business, a new legal organization was formed, he said.
Over time, the sprawling corporation's organizational chart resembled a honeycomb with 58 compartments. The structure, which included full or partial ownership in six hospitals and a majority stake in a troubled HMO, permitted an embarrassing amount of duplication and a frightening lack of fiscal accountability.
To show the absurdity of the structure, MacKay shared this true story: Five Baptist departments-corporate health, health and wellness, medical director programs, occupational medicine and walk-in clinics-called on the same client on the same day.
No one was standing back and developing a plan for the organization, he acknowledged. The system had no common financial reporting system and no shared formats for the types of information or amount of detail reported by each unit.
Chief financial officers must be adamant about preventing such problems, even if it means telling the board or the CEO that the CFO doesn't know what he or she is doing, MacKay said.
While never mentioning former CEO Stringfield by name, MacKay described the internal dynamics that enabled Baptist to grow fat and happy. A key factor was the CEO's relationship with the board of trustees.
"The CEO dominated the board," MacKay said. "Basically he got his way in whatever he wanted to do."
As the organization ballooned, so did its complex financial reporting system. Yet MacKay's presentations to the board were often relegated to the last two or three minutes of board meetings, if he was allowed to present anything at all.
"The board was provided only the picture the CEO wanted it to see," he charged.
The fact that Baptist operates in Nashville, the de facto capital of U.S. healthcare, also stoked the organization's arrogant bigger-is-better mentality. "Most of our decisions were being made on emotions and competition," MacKay said.
"But we did wake up," he continued. "That's the good news."
Triggering Baptist's wake-up call were several events: a drop in revenues, a shift of employers to lower-paying health insurance products and losses on numerous investments.
MacKay, along with Chief Operating Officer Paul Moore, convinced the board that Baptist's position was dire. In April 1998 the system retained the Hunter Group, a St. Petersburg, Fla.-based turnaround firm, to orchestrate the rescue.
First, Baptist streamlined its legal structure and created a financial reporting system that better reflected the performance of various lines of business. A reinvigorated finance committee of the board has been meeting monthly for two to three hours at a stretch.
Baptist also reduced the number of physician practices it owns. At its peak, the system owned 110 to 115 practices, MacKay said. It has pared back to a single group of 23 doctors. That practice is costing Baptist about $200,000 a month, a loss that system executives have agreed to bear.
A new CEO and president, Erie Chapman, took the helm Oct. 1, 1998. Baptist also has begun filling vacancies on the board with fresh blood.
Today's Baptist is slimmer, down from 4,300 to 3,400 full-time-equivalent employees, including physicians, before the turnaround began. It also has begun to see a glimmer of profitability in the last three months, with monthly gains of several hundred thousand dollars, after nearly two years of negative numbers.
In an interview last week, MacKay and CEO Chapman disclosed plans to divest two or three hospitals, but declined to reveal other details. Shedding those assets is part of Baptist's continuing turnaround.
"I think the organization's mission and vision are much clearer now," Chapman said.
MacKay, having survived every CFO's worst nightmare, sounds every bit the reformed soul he must be to keep Baptist in the black. He urges his compatriots to serve as the watchdogs of their organizations. "We've got to be the ones who raise the objections," he said. You may not be liked, but you must be respected, he added.
In other words, today's CFO must be a leader, not merely an accounting genius. "If you think like a bean counter, you're in trouble," he said.