Hospital CEOs are joining the Great Resignation

The number of departing hospital CEOs is on the rise as C-level executives are grappling with challenges tied to the COVID-19 pandemic. 

Twelve hospital CEOs exited their roles in January, double the number who stepped down from their positions in the same month a year earlier, according to a report from Challenger, Gray & Christmas, an executive outplacement and coaching firm. 

While some hospital and health system CEOs are retiring, others are stepping down from their posts into C-level roles at other organizations. At least eight hospital and health system CEOs have stepped down from their positions since mid-February. 

The increase in CEO departures isn’t unique to healthcare. More than 100 CEOs of U.S.-based companies left their posts in January, up from 89 in the same month a year earlier, according to the Challenger, Gray & Christmas report.  

The uptick in executive exits shouldn’t be surprising given the challenges presented by the COVID-19 pandemic, experts told NBC News. CEOs and other executives aren’t immune to the pressures that are prompting people to leave their jobs.

It’s many factors — the burnout, the pandemic, the school closures, the need to take stock of life,” Julia Pollack, chief economist at ZipRecruiter, told NBC News in January. “It’s a whole wide range of shocks.”

CFOs might find PCAOB evidence-quality guide a useful auditor check

An opinion that’s supported by irrelevant or unreliable data might not be accurately capturing company performance.

How well is the opinion of your company’s performance supported by the evidence the auditor’s using?

Public Company Accounting Oversight Board (PCAOB) staff have released guidance on what constitutes relevant and reliable evidence for supporting audit opinions.

If evidence auditors are using isn’t relevant or from a reliable source, or if the reliability of the evidence itself is questionable, that can call into question the soundness of the opinion.

“In some cases, information that was determined by the auditor to be more relevant may not be the most reliable, and vice versa,” the guidance, released October 7, says.

Data availability

PCAOB was created in 2002 as part of the Sarbanes-Oxley Act to help ensure auditors don’t allow accounting problems in public companies to get past them and put investors at risk. 

The new guidance tries to put guardrails around auditors’ growing use of external evidence to support their opinions. 

The use of external evidence, like so many things today, is fueled by the widespread availability of data that companies, regulators and other entities collect and release. The question the guidance tries to answer is which data is relevant and reliable and which isn’t.

“Advancements in technology in recent years have improved accessibility and expanded the volume of information available to companies and their auditors from traditional and newer external sources,” the document says. 

Reliability

In general, data generated by regulators or entities that are themselves regulated — stock exchanges are mentioned — can be counted on to be more reliable than data generated by other types of organizations. 

Similarly for data that’s generated by organizations vs. data that is derived through analyses of other organizations’ data. The more raw the data is, in other words, the better chance it’s reliable.

Relevance

Relevance is the other big issue, and the guidance provides several use cases for thinking about that. For example, weather data can be relevant evidence for assessing the accuracy of a company’s sales data, presumably because bad weather can reduce brick-and-mortar sales, but only if the data is used correctly. 

“Before using the weather data in developing certain expectations – e.g., for substantive analytical procedures related to product revenue – the auditor would need to understand the relationship between weather data and company activities,” the guidance says.

A company’s year-end stock price, obtained from an exchange, is another example. That data can be used to compare against the price the company is using to support its valuation of an instrument.

“The exchange price would represent the fair value of the instrument,” the document says. 

The guidance is directed at auditors, but it’s relevant to CFOs for checking whether their auditor is using external evidence appropriately in its assessment of company performance.

A mounting wave of post-COVID CEO retirements

https://mailchi.mp/097beec6499c/the-weekly-gist-april-30-2021?e=d1e747d2d8

The Great Reset - YouTube

A recently retired health system CEO pointed us to a working paper from the National Bureau of Economic Research, which indicates that leading an organization through an industry downturn takes a year and a half off a CEO’s lifespan.

It’s not surprising, he said, that given the stress of the past year, we will face a big wave of retirements of tenured health system CEOs as their organizations exit the COVID crisis. Part of the turnover is generational, with many Baby Boomers nearing retirement age, and some having delayed their exits to mitigate disruption during the pandemic.

As they look toward the next few years and decide when to exit, many are also contemplating their legacies. One shared, “COVID was enormously challenging, but we are coming out of it with great pride, and a sense of accomplishment that we did things we never thought possible.

Do I want to leave on that note, or after three more years of cost cutting?” All agreed that a different skill set will be required for the next generation of leaders. The next-generation CEOs must build diverse teams capable of succeeding in a disruptive marketplace, and think differently about the role of the health system.

“I’m glad I’m retiring soon,” one executive noted. “I’m not sure I have the experience to face what’s coming. You won’t succeed by just being better at running the old playbook.” Compelling candidates exist in many systems, and assessing who performed best under the “stress test” of COVID should prove a helpful way to identify them.

I just got Fired – 2.0

https://interimcfo.wordpress.com/2021/04/06/i-just-got-fired-2-0/

I Just Got Fired

Abstract:  This article is the second in the series that addresses the initial stages of going through a career transition. Career management articles in the blog have been popular. A transition is a traumatic event, to say the least, especially the first time. These articles address what you should be doing BEFORE your transition occurs.

In the last piece that is the first in this series, I addressed the fact that there is little relationship between how good you are at what you do and the probability that you will end up in a transition.

This article addresses what you should be doing to prepare for an unplanned transition.

The ACHE tracks hospital CEO turnover. The average annual rate is around 18%. According to Challenger, Gray, and Christmas, hospital CEO is one of America’s most dangerous occupations measured by potential longevity or lack thereof in a position. One of my most popular articles discusses some of the many reasons for executive turnover that have little to do with performance. A lot of people are very interested in the topic.

HFMA does not track CFO turnover, but it is probably equally rampant as CFOs too often get credit for substandard organizational performance despite having little control or influence over the incurrence of operating cost or results. CFOs and other C-Suite inhabitants bear a disproportionate risk of having their career disrupted by CEO turnover.

If you start asking around, you might be surprised to learn how many healthcare executives were involuntarily ‘freed up to seek other opportunities’ at least once in their career. When I told my friend John at a reunion that I had decided to go into the consulting business, he immediately accused me (correctly) of having been fired. John went on to tell me how lucky I was because few executives that are disruptive innovators have not been fired at least once. To my friend, having been fired is a rite of passage.

John’s career goal at the time was to become the CEO of a large hospital, and he believed that a transition would strengthen his CV. As fate would have it, not too long after the reunion, I got the call from John and, you know, the rest of the story. John went on from this setback to become the long-running CEO of one of the largest Baptist hospitals in the southeast.

For those who push hard in organizations to get them to change their culture for the better and get on a better track, the risk of being let go is much higher. With one exception, every person that I have ever worked with through a transition has emerged a wiser, stronger person in a position much better suited for their skills and talents. While I would never encourage anyone to go through a transition, the process’s outcome has been both cathartic and career-enhancing.

So, given this risk, what should you be doing? Your preparation for a turnover event should start IMMEDIATELY!! If you wait until you are out, you have waited WAY TOO LONG!! If you do not have a networking database, you need to start immediately to develop this asset. My networking database commenced during my first transition. It now has over 3,000 companies and over 4,100 contacts. Most of my contacts are business-related, and most of them will respond to an email or return a call. Contrast this with the call I get too often from a newly terminated executive asking for connection assistance, that never bothered to record phone numbers or email addresses of people that may be in a position to be of help. Too many friends had contact files stored on a corporate phone or a corporate database and lost them when they turned over a phone or access to corporate systems was terminated. Frequently, access is restricted right before the victim learns of their fate as a security measure of the organization. Getting your data back if this happens is not going to be easy or fun.

For this reason, I have successfully refused to use a company-owned phone or put my networking database developed over twenty years on a computer system I do not control. The problem with having business and personal data on the same device is if you give the organization access to ‘their data, they cannot lock it selectively. When they lock or wipe the device, they are going to destroy everything on the device. My networking database is my most valuable personal asset. There is an article in my blog dedicated to networking. The time to start building your networking database and skill is before you need it.

You should start the process of thinking through the next step in your career. Get out a piece of paper. What do you like about your current situation and wish to preserve? What do you want to change? Where are you willing to relocate? What is your idea of the perfect relationship with a superior? What will the effect of a termination/relocation be on your family, and how will you manage that? In other words, what are you going to be when you grow up? A turnover event is sometimes the catalyst that causes someone to decide to start their own business. Is there a path forward in your current situation, or should you be thinking about proactively inducing your turnover event or at least beginning preparations? People that have been through transitions will tell you from experience that it is a lot easier to get a job while employed than when you are not employed.

A turnover event is a huge psychological and physical burden. Everyone around you is going to be affected. Do not delude yourself into thinking you can manage a transition without help, especially the first one. My dad had a sign in his shop,

Shop Rates

Labor – $20

If you watch – $40

If you help – $80

If you already worked on it yourself, $200

My most significant learning from consulting experience is recognizing when an expert is needed and understanding the necessity of getting my ego out of the way in the process of seeking and availing myself or my client of expert assistance. Clients and consultants do more harm than good by trying to do something they have no business doing in a frequently futile effort to save money. Sometimes, the results are disastrous. We have all heard the adages that a doctor treating himself has an idiot patient or a lawyer who represents himself has a moron for a client.

Contact me to discuss any questions or observations you might have about these articles, leadership, transitions, or interim services. I might have an idea or two that might be valuable to you. An observation from my experience is that we need better leadership at every level in organizations. Some of my feedback comes from people who are demonstrating an interest in advancing their careers, and I am writing content to address those inquiries.

The easiest way to keep abreast of this blog is to become a follower. I will notify you of updates as they occur. To become a follower, click the “Following” bubble that usually appears near each web page’s bottom.

I encourage you to use the comment section at the bottom of each article to provide feedback and stimulate discussion. I welcome input and feedback that will help me to improve the quality and relevance of this work.

This blog is original work. I claim copyright of this material with reproduction prohibited without attribution. I note and provide links to supporting documentation for non-original material. If you choose to link any of my articles, I’d appreciate a notification.

If you would like to discuss any of this content, provide private feedback or ask questions, you can reach me at ras2@me.com.

CEO gets 15 years in prison for $150M healthcare fraud

Image result for healthcare fraud and abuse

The CEO of a group of Texas-based hospice and home health companies was sentenced Feb. 3 to 15 years in prison for his role in a $150 million healthcare fraud and money laundering scheme, according to the Department of Justice

Henry McInnis was sentenced more than a year after he was convicted of conspiracy to commit healthcare fraud, conspiracy to commit money laundering, obstruction of justice and healthcare fraud. 

From 2009 to 2018, Mr. McInnis and others submitted more than $150 million in false and fraudulent claims for healthcare services. The claims were submitted through Merida Group, a hospice company with dozens of locations in Texas. 

Mr. McInnis was CEO of Merida. He had no medical training but acted as the director of nursing for the company. He also enforced a companywide practice of falsifying medical records to conceal the scheme and ordered employees to change medical records to make it appear patients were terminally ill. 

Mr. McInnis also paid bribes to physicians to certify unqualified patients for home health and hospice. 

Mr. McInnis was sentenced less than two months after the owner of Merida Group, Rodney Mesquias, was sentenced to 20 years in prison and ordered to pay $120 million in restitution. 

As fraud rises, CFOs must approach numbers skeptically, report finds

https://www.cfodive.com/news/Center-Audit-Quality-financial-reporting-fraud/593123/

Executives might be committed to accuracy, but middle managers and others throughout the organization must be on board, too.

The pandemic is increasing financial reporting fraud, putting the onus on CFOs to create an organization-wide system that prevents wrongdoing, a coalition of auditing and other oversight groups said in a report released today.

Financial statement fraud in public companies is real and that risk has only increased during the Covid-19 pandemic,” said Julie Bell Lindsay, executive director of the Center for Audit Quality, one of four groups to release the report.

To help ensure the integrity of their company’s financial reporting, CFOs can’t rely on external auditors as their bulwark against fraud; they must weave protection into the fabric of the organization and exercise the same skepticism toward numbers auditors are trained to do.

“The strongest fraud deterrent and detection program requires extreme diligence from all participants in the financial reporting system,” Lindsay said. “Certainly, you have internal and external auditors, but you also have regulators, audit committees and, especially, public company management.”

Heightened stress

The report looks at SEC enforcement data from 2014 to 2019, a period of relative calm Linsday said can help set a baseline for assessing how much in pandemic-caused fraud regulators will find when they do their post-crisis analysis.

“The timing of this report is really a great way to … remind all the folks in the financial reporting ecosystem that … the pressures for fraud to happen are strong right now,” she said. 

Improper revenue recognition comprises about 40% of wrongdoing in financial reporting, more than any other type, a finding that tracks an SEC analysis released last August. 

Companies tend to manipulate revenue in four ways:

  1. The timing of recognition
  2. The value applied
  3. The source
  4. The percentage of contract completion claimed

The report singles out revenue-recognition manipulation by OCZ Technology Group, a solid-state drive manufacturer that went bankrupt in 2013, as a typical case.

The company had to restate its revenues by more than $100 million after it was caught mis-characterizing sales discounts as marketing expenses, shipping more goods to a large customer than it could be expected to sell, and withholding information on product returns.

The CEO was charged with fraud and the CFO with accounting, disclosure, and internal accounting controls failures.

The report lists three other common types of fraudmanipulation of financial reserves, manipulation of inventories, and improper calculation of impairment.

Reserve issues involve how, and when, balances are changed, and how expenses are classified; inventory issues involve the amounts that are listed and how much sales cost; and impairment issues involve the timing and accuracy of the calculation. 

Increase expected

More of these kinds of problems will likely be found to be happening because of the pandemic, the report said. 

“This is where all of this comes to a head,” Lindsay said. “You certainly can see pressure, because some companies are struggling right now and there can be pressure to meet numbers, analysts expectations.”

The pressure finance professionals face is part of what the report calls a “fraud triangle,” a convergence of three factors that can lead to fraud: pressure, opportunity and rationalization.

In the context of the pandemic, pressure comes as companies struggle with big drops in revenue; opportunity arises as employees work remotely; and the rationalization for fraud is reinforced by the unprecedented challenges people are facing. 

“It could be anything,” said Lindsay. “‘My wife just lost her job, so I need to make up for it.'”

The report lists fraud types that analysts expect are rising because of the pandemic:

  • Fabrication of revenue to offset losses.
  • Understatement of accounts receivable reserves as customers delay payments. 
  • Manipulation of compliance with debt covenants. 
  • Unrecognized inventory impairments.
  • Over- or understated accounting estimates to meet projection.

About a dozen types in all are listed. 

“Past crises have proven that at any time of large-scale disruption or stress on an economy or industry, companies should be prepared for the possibility of increased fraud.” the report said. 

Lindsay stressed three lessons she’d like to see CFOs take away from the report.

First, the potential for fraud in their companies shouldn’t be an afterthought. Second, protection against it is management’s responsibility but there’s also a role for company’s audit committee, its internal auditors and it’s external auditors. Third, CFOs and the finance executives they work with, including at the middle management level, must bring that same skepticism toward the numbers that auditors are trained to bring.

“Professional skepticism is a core competency of the external auditor and, quite frankly, the internal auditor,” she said. “Management and committee members are not necessarily trained on what it is, but it doesn’t mean you shouldn’t be exercising skepticism, [which is] asking questions about the numbers that are being reported. Is this exactly what happened? Do we have weaknesses? Do we have areas of positivity? It’s really about drilling down and having a dialogue and not just taking the numbers at face value.”

In addition to the Center for Audit Quality, Mitigating the Risks of Common Fraud Schemes: Insights From SEC Enforcement Actions was prepared by Financial Executives International, The Institute of Internal Auditors and the National Association of Corporate Directors.

Sanford Health CEO out after two decades following mask controversy

Sanford Health, CEO Kelby Krabbenhoft part ways
  • Sanford Health’s CEO Kelby Krabbenhoft is leaving the top exec role after almost 25 years, according to a Tuesday announcement from the Sioux Falls, South Dakota-based system, following controversial statements the outgoing CEO made about mask wearing during the coronavirus pandemic.

Krabbenhoft, who has served as CEO since 1996, sent an internal memo to Sanford’s 50,000 employees on Wednesday arguing wearing a mask would defeat its purpose, as he’d already contracted COVID-19 and was therefore immune for at least seven months, as first reported by Forum News Service.

Experts dispute, however, that people previously infected with the novel coronavirus are entirely immune, as the data is not yet definitiveOther Sanford executives sent an email to employees Friday recommending mask wearing and contradicting Krabbenhoft’s claims.

On the heels of the news, Sanford’s board of trustees and Krabbenhoft have now “mutually agreed to part ways,” according to the release. The turnover comes at an acutely crucial time for the major Midwest health system, as it signed a letter of intent last month to merge with Salt Lake City-based Intermountain Healthcare.

If the deal closes, the two would operate 70 hospitals and 435 clinics — many of which will be located in rural communities across the country — and insure 1.1 million people. The merger would form one of the nation’s largest nonprofit health systems with more than $13 billion in combined annual revenue. It’s expected to close in 2021, pending regulatory approvals.

While Intermountain CEO Marc Harrison is slated to lead the combined organization, Krabbenhoft was poised to serve as president emeritus. It’s unclear what the plans are now after Krabbenhoft’s exit.

Sanford, which operates 46 hospitals in 26 states, did not reply to requests for comment by time of publication.