New team finds red ink at Northern Inyo Hospital

District board hears fiscal measures to be taken

The recently installed financial team at the Northern Inyo Hospital District has spent the last two months reviewing the books and recently delivered a somber message: A number of “egregious” errors and omissions by the former Chief Financial Officer Vinay Behl understated the district’s previous and ongoing budget deficits by millions of dollars.

New Chief Financial Officer Stephen DelRossi told the NIHD Board of Directors on Wednesday that the district actually ended last fiscal year more than $3 million in the red, and has been running monthly budget deficits over the last three months that have put the district about $9 million in the red during this current fiscal year. That has made the district cover about $12 million in deficit spending since the start of the fiscal year on July 1.

DelRossi told the board that the district’s overall balance sheet and reserves are still healthy and have been able to absorb the deficit spending.

A number of steps were laid out by DelRossi and approved by the hospital CEO to help manage the new budget reality. Those include adding staff and oversight in two departments, strictly conforming to “Generally Accepted Accounting Principles” and healthcare industry accounting standards, and providing more financial information to the board and the public.

DelRossi said he was determined to “follow through and address the problems” so by the end of the fiscal year in June 2023 there would be “no negative audit issues.”

In a statement after the meeting, NIHD Chief Executive Officer Kelli Davis said she was confident that under DelRossi, “the district’s financial planning, fiscal health, budgeting, and accounting practices will become stronger than ever. Every aspect of financial reporting and analysis is and will continue to be scrutinized to ensure performance improvement through the highest data integrity.”

Budget estimates

The new budget figures are in stark contrast to the prior CFO’s Behl’s budget estimates. The 2022-22 budget was estimated to end in the black by about

$5 million. That surplus was going to carry over to the 2022-23 budget and cover an estimated operating deficit of about $4 million, according to a budget presentation before the board in June of this year.

The latest budget estimates showed a potential $2 million budget deficit for 2022-23, according to a written report from Davis to the Bishop City Council earlier this fall.

That is not what happened, according to an analysis and review by DelRossi and the recently hired financial controller, Andrea Mossman, CPA. Their analysis was in line with suggestions and insights provided recently by the district’s auditors. DelRossi said outside audits are typically “internal documents,” and it is rare that audit results or suggestions are provided to the public, since the information is typically very technical and some is confidential.

Audit reveals ‘egregious’ mistakes, issues

The outside financial audit firm was “hired to find our mistakes,” he said at the meeting, so the district can learn from those mistakes.

However, he said that the issues and mistakes cited in the audit were “so egregious” and impacted the district’s “bottom line” so he felt compelled to bring those issues to the board and the public.

In a written report to the board, DelRossi said former CFO Behl did not act to rectify known shortcomings and did not offer “open and honest conversations” about the district’s finances to the CEO and the board. That meant neither could make “informed decisions” about ongoing financial issues.

He told the board at the meeting that “two years of deficiencies have not been addressed,” which led him to “restate” the district’s financial reports.

That was not a move made lightly, he noted. DelRossi’s written report laid out the accounting principles around when and why financial statements should be restated due to “significant deficiencies” in those statements.

Budget deficits

The first large change was to June 2022 financials. DelRossi said former CFO Behl did not reconcile a year’s worth of uncollected billing from Medicare and Medical.

That led to having to put an additional $8.3 million in expenses on the books. That led to the full fiscal year having a deficit of $3.2 million.

That same improper approach to how to account for unpaid patient and insurance billings carried over in the next three months. The revised budget deficits are: $4.5 million in July; $2.5 million in August; and $2 million in September. The total budget deficit for the current year is now around $9 million, DelRossi’s financial statements showed.

Another “misstatement” by Behl involved understating the district’s pension contributions by about $3.3 million. The district’s COVID-related funding from state and federal sources was also not correct, DelRossi said. The revised figure added to the district’s bottom line.

There were also issues with accounting for “accrued expenses,” DelRossi said.

New controller Mossman “has been working feverishly to correct” those issues, he said. “She’s fixed what was wrong” with the expense accounting.

Hiring Mossman was one of the changes to the financial team. Mossman, who is a CPA and also holds a master’s degree, worked for 13 years with Healthcare Company of America, the world’s largest for-profit health care company. She was the associate chief financial officer for two hospitals in that time.

Hiring more staff for collections

Another issue being addressed is hiring three more staff members for the NIHD collections office. DelRossi said when the district outsourced billing and medical coding, it took on collections. But that department was never staffed adequately.

DelRossi said the current staff of two cannot keep up with 2,700 accounts. He estimated the enhanced collections effort could net between $1.1 and $1.5 million in revenue a month. That would go a long way to easing monthly deficits.

In addition, the board agreed to revive the long dormant Financial Advisory Committee, made up of a board member, members of the public and staff. Also, the monthly financial reports will be a discussion item at every board meeting to inform the board and the public of the district’s financial condition.

Health care challenges

During his presentation, DelRossi said that the issues found by him and the auditors “reflect negatively” on previous CFO Behl, but not on CEO Davis and the rest of the administrative team.

“The CEO could not have known” the financial issues accruing under

Behl. “She had to rely on the CFO” for correct information, which “she was not given,” referring to Davis.

Davis provided a statement after the meeting outlining the challenges facing NIHD and other rural hospitals while offering a vote of confidence for DelRossi’s efforts.

“Today, hospitals face unprecedented financial challenges daily,” Davis stated. “These challenges are even greater for rural hospitals like Northern Inyo. Rising costs of labor, pharmaceutical, supplies, and equipment, coupled with staffing shortages, all add to financial burdens and sustainability risks. Revenue cycle processes at every level must be efficient and, most importantly, compliant.

“Now more than ever, hospitals must have a strong revenue cycle team led by a skilled and qualified CFO. NIHD remains committed to building a strong and fiscally dynamic revenue cycle team under the leadership of Stephen DelRossi, CFO. With Stephen’s oversight, I remain confident that the district’s financial planning, fiscal health, budgeting, and accounting practices will become stronger than ever. Every aspect of financial reporting and analysis is and will continue to be scrutinized to ensure performance improvement through the highest data integrity.”

The meeting marked the last board meeting for CEO Davis, who will step down on Dec. 1. The district already has several qualified applicants for the CEO position and is proceeding with the recruitment effort.