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Hospital CFO Fired for Figures

The short article below concerns the firing of the CFO of a local hospital. What do you think about this story, especially what it infers about the responsibility of the CFO? Also, what is your opinion of the financial issues brought out in the story? Write a brief paragraph or two of 150 words total or less using MS word to check for passive words and complete sentences. Please cite the attached materials relevant concepts for additional guidance.

Hospital CFO Fired for Figures by Thomas J. Baird, Jun 18, 2005

Gila Regional Medical Center fired its chief financial officer this week after an audit showed the hospital will essentially have no net income at the fiscal year's end.

John Rossfeld, Gila Regional's chief executive officer, made the announcement that Cliff Olsson had been terminated during a board of trustees meeting Wednesday. Olsson had been CFO for the past seven years. Olsson would not comment Friday to the Sun-News.

The board also discussed current and future fiscal operations at the meeting, and was told that after bad debts and contractual allowances are taken into consideration, the hospital's bottom line is static.

Sunny McFarren, a spokeswoman for the hospital, said Friday that Rossfeld called in the auditors early because of concerns he had with some projections. "Usually they would not come in until after the June figures," she said. "But John had some concerns about our contractuals and bad debts - whether they were appropriately stated, so we asked them to come, I think it was in early May."

Over the past several years, the hospital had averaged an annual net income of about $3 million, officials reported. "This is a very disappointing finding, because our net income is what we use to fund everything from equipment and new construction, to caregiver raises and new caregiver recruitment," Rossfeld said.

Rossfeld cited numerous factors for the bad fiscal news, but focused on lower collection rates. He said bad debts have increased due to regional layoffs during 2002-03, the fact fewer people have health insurance and those who do often have higher co-payments and deductibles. That, he said, means people are not always opting for services they would have accessed in the past.

Rossfeld added that many people in Grant County who are unable to pay their hospital bills, refuse to sign up for the free care available to them under the Grant County Health Plan. But the bottom line is the hospital is not taking in the revenues it projected.
"We recently called in our auditing firm because we were worried that some of the estimates that had been made here on bad debts and contractual allowances had been much too optimistic," Rossfeld said. "Unluckily, we were correct."

Rossfeld said the hospital had projected it would take in 57 cents on the dollar for services billed during the current fiscal year. "In fact, we now know we are likely to only receive about 51 cents on the dollar," he said. "We will have to do a lot of belt-tightening in this coming year, but we believe our current financial problems are only an unfortunate bump in the road and much less of a financial problem than the medical center faced in 1997."

But Rossfeld said he has no doubt that Gila Regional will be a stronger organization than ever in a year from now. Rossfeld noted that calculating a hospital's contractual allowances - that is, the difference between what a hospital charges and what entities like Medicare actually pay for those services - and calculating the amount of bad debt the hospital will incur, are not exact sciences in the health-care industry. "That is because we incur the cost of care as it is given, but we are not paid for 50 to 70 days," he explained. "With Medicare, Medicaid and HMOs, you are to some extent guessing about what you will actually be paid. And with bad debts, you are guessing about not only what percentage you will be paid, but also whether you will even be paid at all."

But, that's the reason hospitals have audits - to reconcile those possible fluctuations in receivables, he added.

Thank you.

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Response:

Hello!

Interesting assignment scenario!

1. Hello BrainMass OTAs, The short article below concerns the firing of the CFO (chief financial advisor) of a local hospital. What do you think about this story, especially what it infers about the responsibility of the CFO? Also, what is your opinion of the financial issues brought out in the story? Write a brief paragraph or two of 150 words total or less using MS word to check for passive words and complete sentences. Please cite the attached materials relevant concepts for additional guidance.

This question is fairly straightforward. It asks you to read and analyze the story below, especially in reference to the inferences made about the responsibilities supposedly negated by the CFO.

Let's critically analyze the scenario, then, with my points, suggestions and comments highlighted in red and bracketed in the attached response (and bracketed with e.g.) in the response below. You can then draw on this information for your final copy e.g., brief paragraph of 150 words:

Hospital CFO Fired for Figures by Thomas J. Baird, Jun 18, 2005

....Gila Regional Medical Center fired its chief financial officer this week after an audit showed the hospital will essentially have no net income at the fiscal year's end.

(E.g. Problem: No net income at the end of fiscal year e.g. questions that we might consider are things like, what are the potential causes for this extreme end result? Specifically, what did the CFO do (or not do) that resulted in the organization having no net income at the fiscal year's end?)

....John Rossfeld, Gila Regional's chief executive officer, made the announcement that Cliff Olsson had been terminated during a board of trustees meeting Wednesday. Olsson had been CFO for the past seven years. Olsson would not comment Friday to the Sun-News.

(E.g. Solution: Cliff Olsson, the CFO was fired, but was he the only problem one has to ask?)

...The board also discussed current and future fiscal operations at the meeting, and was told that after bad debts and contractual allowances are taken into consideration, the hospital's bottom line is static (issue).

(E.g. Olsson is responsible for supervising the financial managements functions, such as supervising the controller who is charged with accounting and reporting functions, the generation of periodical financial reports, and the cost analysis and budget functions (see p. 2 chapter 1 of attached article). Olson also was also responsible for supervising the internal auditor, who was to report to Olsson, and who is responsible to ensure that the accounting and reporting functions are performed in accordance with GAAP. The internal auditor cannot do her or his job properly as watchdog without independence from the controller (p. 2, chapter 1 of attached article). Was there a breakdown in the system? Olsson's job is to supervise these relationships? Was he doing his job, or did he let things slide? It appears that this might be the case.]

...Sunny McFarren, a spokeswoman for the hospital, said Friday that Rossfeld called in the auditors early because of concerns he had with some projections. "Usually they would not come in until after the June figures," she said. "But John had some concerns about our contractuals and bad debts ? whether they were ...

Solution Summary

Based on the short article concerning the firing of the CFO of a local hospital, this solution discusses the meaning of the story, especially what it infers about the responsibility of the CFO through article analyzes and review. The financial issues brought out in the story are also discussed.

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