CFO Magazine – May 2012
Strategic visions are great, but they can turn into nightmares at the project level. Here’s how to keep a project from becoming a Project Runaway.
Bob Herman
Becker’s Hospital Review – June 14, 2012
The aging of hospital executives has been well-documented, as a recent Witt/Kieffer survey found 41 percent of recent healthcare CEOs have never been a CEO before. While there has been a rise of first-time hospital CEOs, the same holds true for hospital CFOs.
As new C-suite level executives take office, what kind of training and guidance do they have? Where can CFOs turn when a budget starts to look sour or if a transaction gets complicated and time-consuming? Who is Mr. Miyagi to their Karate Kid?
The Healthcare Financial Management Association has always been a bastion as a membership organization for healthcare CFOs and other healthcare financial executives, but a newer group, Warbird Consulting Partners, is trying to enhance the one-on-one guidance younger hospital CFOs may need through its CFO Consulting Network.
The dawn of new CFO networking
Almost three years ago, Doug Fenstermaker approached Mike Draa with an idea: Let’s provide an out let for young and incumbent 
hospital and health system CFOs to manage the difficult times ahead.
Mr. Fenstermaker, former CFO of HealthEast Care System in St. Paul, Minn., says there were a slew of people who have spent 20 to 30 years in healthcare finance as CFOs and other titles who were no longer in healthcare but could be utilized as a resource. “I told Mike it’s a shame there are all these years of experience; they’ve been there, done that in healthcare finance,” he says. “They’ve been through many difficult times, and they really known how to do this.”
Mr. Draa, CEO and managing director of Warbird, which also provides other accounting and financial solutions services, listened and realized there was potential for CFOs to connect on a new level, almost like a Big Brothers Big Sisters program. Although they admit hospital CFOs are very well networked around the country and can easily communicate with each other for the most part, Mr. Draa says a collaborative networking service would be able to prop up CFOs in times of greatest need. “There are hospitals going through bond issues and acquisitions,” he says. “Healthcare groups are merging. Medicare reimbursement is getting to be less and less. We wanted to build this framework and partnered.”
Mr. Fenstermaker and Mr. Draa then created the CFO Consulting Network within Warbird with the intention to help younger and newer hospitals CFOs face the daunting challenges of healthcare reform.
“There’s so much work that needs to be done, and some hospitals need some real help and talent with folks that have been around the block,” Mr. Fenstermaker says. “That’s the fundamental idea behind it.”
So, what are the issues?
Mr. Fenstermaker has more than 30 years of healthcare financial experience. Before HealthEast, he worked within the managed care and revenue management sector at Legacy Health System in Portland, Ore., and he also was CFO of Good Samaritan Hospital, also in Portland, as it merged into Legacy Health. He has witnessed a lot of dramatic shifts in healthcare reimbursements and the structure of hospital finances, but the Patient Protection and Affordable Care Act — regardless of the Supreme Court’s decision — is something hospital CFOs have toward the top of their issues to tackle.
“I grew up through the DRG era that [former President Ronald] Reagan put in place in the 1980s, and that was difficult,” Mr. Fenstermaker says. “There was a transitional period of five to 10 years. You’re not going to see that this with healthcare reform. There will be two to three years of transition because the federal government wants its money back faster than that. There is a great deal of unknowns, but the process is already well under way.”
The Medicare and Medicaid reimbursement pressures have directly impacted other tangential issues, such as debt service and access to capital, and consequently, hospital CFOs are engaged in more frequent
transaction and acquisition conversations. Hospitals — especially smaller community hospitals and critical access hospitals — have to seriously consider the merger and acquisition market as their ability to obtain high-rated loans and fund large-scale projects becomes harder to accomplish.
“Systems are already becoming much larger organizations — not only from the standpoint of consolidation with other hospitals but also with physicians and physician organizations,” Mr. Fenstermaker says.
The CFO networking group’s expertise, however, is much broader than how to handle healthcare reform. The CFO consultants can lend time and support to a hospital CFO if he or she is experiencing too many projects at once. For example, if a major bond refinancing simultaneously occurs as a hospital is preparing to acquire a large physician practice, a hospital CFO may not be able to devote 100 percent of his or her attention to each of the major issues. “I suspect that independent of reform, those things will always be out there and in demand,” Mr. Fenstermaker says.
How hospital CFOs can act
Currently, Warbird’s CFO Consulting Network consists of six senior CFO consultants: David Ebel, James Fox, Robert Gill, David Kiehn, Michael McGinnis and Pamela Vukovich. Their prior hospital experience ranges from interim hospital CFO positions at Stanford Hospital in Palo Alto, Calif., to permanent hospital CFO tenures at Mayo Clinic in Rochester, Minn., Fairview Health Services in Minneapolis, Legacy Health and more.
“This is something we’ve incubated,” Mr. Draa says. “Doug and the team are assisting healthcare organizations, and we are adding to this an elite group of CFOs. These folks are at the top of their game in terms of experience level and what they’ve seen, and they can help CFOs out with projects as they are going through various [challenges].”
Whether it’s the impending regulations of the healthcare reform law or the typical day-to-day frenzy a hospital CFO endures, an experienced helping hand may be just enough to keep the younger generation of hospital CFOs sane.
“Some CFOs are stressed and are worried about the economic future of their own organization,” Mr. Fenstermaker says. “They may not be sure what the right strategic direction should be at this point, and it makes it difficult to take any action for the long-term future. This [network] is intended to help incumbent CFOs manage the difficult times going forward.”
White Nelson Diehl Evans LLP, Irvine, presented Kick Off 2012 with New Goals, a forum for nonprofit leaders, on January 20. … Haskell & White LLP, Irvine and San Diego, announced a roundtable series to address the future of revenue recognition.
Tammy Whitehouse
Compliance Week – August 14, 2012
First, the Public Company Accounting Oversight Board hit most large audit firms with intensely critical audit inspection reports. Now, it’s telling audit committees how to find out more about all the unflattering details of the reports.
Last week, the PCAOB armed audit committees with a list of questions to ask audit firms about the latest inspection reports, giving committee members new ideas on how to probe past dismissive answers.
Savvy audit committees may already be asking the right questions, and forthright audit firms are providing the right answers, but that’s not the case across the entire profession, says PCAOB Chairman James Doty. “We prepared this document in part
because of concerns we have heard audit committee members express regarding a lack of information about PCAOB inspections of their auditors and because of questions from audit committee members about how to understand what their auditors say about
inspection results,” he says.
Although the board has no authority over audit committees, the PCAOB directed the guidance toward them to help them draw more information out of their auditors about the board’s inspection process and the audit firm’s own inspection findings. Audit committee members like Charles Bowsher, former comptroller general for the United States who has served on several
audit committees, says he believes the document will help audit committees that have struggled to get good information.
The release explains to audit committees that the PCAOB takes a risk-based, not random, approach to selecting individual audits for inspection and that inspectors also examine aspects of each firm’s quality control processes. Audit deficiencies—where inspectors find that auditors have failed to gather enough evidence to support an audit opinion—are described in inspection reports, although individual auditors and issuers are not identified. Concerns about quality control are not made public in the reports, but can be made public later if the PCAOB is not satisfied with the firm’s work to address concerns.
With the guidance, the PCAOB is also urging audit committees to ask auditors whether the company’s own audit was selected for inspection and whether inspectors identified deficiencies in its own audit or in audits for other companies with similar issues. Audit committees should question auditors about how they are responding to any PCAOB findings, the board advises, and audit committees should be skeptical if auditors downplay the importance of a PCAOB finding with explanations like, “It was just a documentation problem,” or “There was a difference in professional judgment.”
“A lot of times in the past, auditors just said we had an inspection and there was no problem, other than they think we should do more documentation,” Bowsher says. “Most audit committee members would kind of accept that and move on to the next agenda item. If an audit committee has a lot of background in finance, we can get a dialogue going and auditors are responsive. But if you don’t have the right people on the audit committee, auditors don’t volunteer too much information.”
Denny Beresford, former chairman of the Financial Accounting Standards Board and an audit committee member of Legg Mason’s board, says good audit committees are already having robust conversations with auditors about inspection findings, but the guidance may prove useful for those at smaller companies or that are less sophisticated.
Big 4 firms have been generally unwilling to discuss PCAOB inspections, but “second tier” firms Grant Thornton and Crowe Horwath say they already instruct auditors to discuss the issues that the PCAOB has suggested in the audit committee guidance with client companies.
Trent Gazzaway, national managing partner of audit services for Grant Thornton, says the firm has already instructed its staff to discuss all of the things that are described in the PCAOB release. “There wasn’t anything in the release that gave me concern about anything we are not already doing,” he says.
Crowe Horwath also had already prepared information for its clients’ audit committees on its most recent inspection report, says Rick Ueltschy, managing partner for audit services for the firm. The information includes an overall description of the PCAOB inspection process, a summary of the deficiencies identified in the public portion of the report, and quality control concerns that are not made public in the report. “Our information also describes the responsive actions we have taken already and are continuing to take,” Ueltschy says.
Reasonable Differences
The PCAOB guidance for audit committees on audit inspections also explains the basis for deficiency findings. “The PCAOB bases deficiency findings on an absence of available evidence in the audit files or elsewhere to support that adequate work was done to support an audit opinion, not just a failure to document work that was in fact done,” the board says in the release. “The PCAOB bases deficiency findings only on failures to obtain sufficient audit evidence, not on disagreements when reasonable judgments appear to have been made about such matters.”
That message is a bit stark for Beresford. From his vantage point, it’s plausible for experienced auditors and audit regulators to have reasonable differences in professional judgment. “The PCAOB is saying here we’re always right and the accounting firms are always wrong on those issues,” he says. “I find that to be somewhat one-sided. There’s no way for me to know that that’s a fair way of assessing all of the differences of opinion on judgment issues unless I can look at each of the relevant circumstances and apply my own judgment.”
The point is a fair characterization of the nature of PCAOB findings, says Gazzaway. “The PCAOB is our chief regulator, and when they interpret a matter of judgment, that judgment prevails,” he says. “They set the standards, and they interpret the standards, so when they put something in the report, in their view it is the correct interpretation.”
Dee Mirando-Gould, a director at consulting firm MorganFranklin and a former staff member at the PCAOB, says inspectors in recent years have made more of an effort to assure that findings in inspection reports represent only important audit flaws. Auditing standards have gotten tighter, she says, especially around documentation, so there’s less room for judgment than there was when inspections began in 2004, she says. “Essentially, if it’s not documented it’s not done,” she says. She acknowledges there may still be differences of opinion at times, “but the bottom line is the regulator is going to win that one.”
Although the PCAOB is working separately on the second draft of a standard to outline communication requirements for auditors, specifying issues they must discuss with audit committees, the board chose to direct guidance at audit committees in part to get it out more quickly. It also helps facilitate dialogue on the non-public portion of the reports, says Doty, where firms are not required to provide audit committees with information that is not publicly available but aren’t prohibited from doing so either.
Jim Feltman, senior managing director at Mesirow Financial Consulting, says he sees the release as a “pretty clever way” for the PCAOB to inspire more dialogue over inspection findings. “This is positive, certainly for audit committees that don’t have the best relationship with their auditors,” he says.
Scott Peterson, managing director at Warbird Consulting Partners, says the guidance should prove to be a useful framework for opening discussions that might otherwise be difficult to initiate. “While the discussion of the inspection report may be awkward initially, auditors can focus on what remediation steps are under way or have been completed to address deficiencies noted,” he says.
Mergers and acquisitions generally occur because organizations want to become bigger or they want to acquire capabilities that will make them more effective, but no matter what the reasons for the transactions, they aren’t simple.
Due to the high level of consolidation in the healthcare industry, the amount of hospital closures has increased. Although some hospitals have closed due to bankruptcy and financial issues, some hospitals close because the healthcare services are transferred to another facility. A health system may consolidate services to increase efficiency and reduce unnecessary healthcare costs. Regardless of the reason, the closing of a hospital — often a long-standing symbol in a community — can be hard for employees, physicians and community members to accept. They may pushback on the deal. According to Doug Fenstermaker, managing director and vice president of healthcare for Warbird Consulting Partners and former CFO of HealthEast Care System in St. Paul, Minn., when an executive team closes a hospital, they need to prepare employees and even community members for a “grieving” process: denial, anger, bargaining, depression and acceptance.
A North Chicago medical school with booming enrollment and an Arlington Heights nursing home that needs to modernize are plowing ahead with construction plans.
(Crain’s) — A North Chicago medical school with booming enrollment and an Arlington Heights nursing home that needs to modernize are plowing ahead with construction plans.
Professional Services Firm Adds David Ebel and David Kiehn to Healthcare CFO Consulting Network; Names CarolAnn Denton-Fitzpatrick and Scott Peterson Managing Directors
(Atlanta, GA – July 17, 2012) – Warbird Consulting Partners today announced the addition of two veteran healthcare finance experts to its Healthcare CFO Consulting Network, as well as the promotion of two longtime directors to managing director, filling key leadership positions in the rapidly-growing company.
“Warbird has experienced tremendous growth since the beginning of the year because of the depth of knowledge and experience we can provide across multiple disciplines and industries,” said Mike Draa, CEO and managing director of Warbird Consulting Partners. “We maintain our strong value proposition by ensuring we have top talent both internally and in our consulting partners. The addition of nationally-recognized experts to the Healthcare CFO Network, and the promotion of proven leaders to managing director, is evidence of Warbird’s commitment to excellence as we grow.”
Ebel, Kiehn add more expertise to Healthcare CFO Network
David Ebel has joined Warbird’s Healthcare CFO Consulting Network, a nationwide network of hospital and health system CFOs that assists hospitals and physicians with complex accounting and financial projects, and provides expert strategic counsel. The former CFO of the Mayo Clinic, Ebel has more than 35 years’ experience in finance and more than 20 years’ experience in healthcare. Recognized as a top strategist and effective communicator, Ebel also has served as interim CFO at Stanford Hospital and Clinics, and the Billings Clinic. A graduate of both Yale and Harvard universities, Ebel began his career in accounting at Arthur Andersen LLP.
Also joining the Healthcare CFO Network is veteran healthcare finance expert David Kiehn. An accomplished healthcare operations professional with decades of experience, Kiehn previously served as vice president of operations at Stanford Hospital and Clinics, and as CFO for West Penn Allegheny Health System. Kiehn received both a bachelor’s degree and MBA from Eastern Washington University, and began his career at Arthur Andersen, LLP, in the healthcare practice.
“The CFO Network provides clients with a tested, trusted resource to help manage the additional workload and strain from healthcare reform and the growing complexities of today’s regulatory environment,” said Draa. “Our experts are some of the best in the field and understand how to deploy efficient accounting and finance teams while balancing the many other financial management requirements of today’s healthcare industry.”
Denton-Fitzpatrick, Peterson named managing directors
As Warbird continues to expand both its client base and service lines, the company also announced the promotion of two long-time directors to managing director to fill key leadership positions.
CarolAnn Denton-Fitzpatrick has been with Warbird since 2003 and has more than 20 years of experience leading government contracts and financial services engagements, and overseeing compliance and due diligence reviews. As managing director, she will serve as leader of Warbird’s government services practice. Denton-Fitzpatrick holds a PhD in finance and accounting from Kennedy-Western University, an MBA in statistical economics and accounting from Cleveland State University, and a BSc in chemistry and mathematics from the University of the West Indies.
Scott Peterson has been with Warbird since 2004, and has more than 25 years’ experience in a variety of client and service line management roles in the areas of financial planning and analysis, shared services and accounting. As managing director, Peterson will assume leadership of Warbird’s accounting advisory practice. Peterson earned a BS in accounting from DePaul University and an MBA from Emory University.
“These promotions represent a significant milestone for us because they are Warbird’s first internal promotions to managing director,” added Draa. “Accounting advisory and government services have been key to our growth to date and we are very pleased to have strong, competent leaders in these areas to ensure continued success.”
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About Warbird Consulting Partners
Founded in 2012, Warbird Consulting Partners is a professional services firm based in Atlanta, Georgia that specializes in scalable, value-driven accounting and financial solutions. Warbird’s five key areas of expertise include accounting advisory, the Healthcare CFO Consulting Network, financial institutions, government agencies and On-Demand Services. The company provides cost-saving, measurable results to Fortune 500 companies, healthcare organizations, government agencies and small- to medium-sized businesses. For more information, please visit warbird.wpengine.com.
Hospital transactions can be transformative periods for hospitals due to the potential cultural and operational shifts that could result. Hospital staff and physicians may find it difficult to adjust to enterprise wide cultural changes. The following five best practices will help hospital executives and administrators guide their hospital staff and physicians through these cultural transitions.