Case Studies

Situation

• Muli-location healthcare service provider, serving +4,000 Medicaid customers. 
• Billing errors resulted in significant payback adjustment to cost reports; the company had no sources of capital to repay the State.
• The State’s recoupment procedures were to set-off payments. Medicaid comprised 80% of the company’s billings and therefore recoupment actions, cutting off cash flow, would result in shutting down the business.
• It was impossible to replace the company’s services within any reasonable period of time, therefore hundreds of Medicaid customers could lose their healthcare service. 
• The bank lenders' collateral was immediately impaired, with credit facilities in covenant default and pending payment default.

Consultant's Actions

1. Negotiated with the State and the lenders for a stand-still period with sufficient time to assess the claim, quantified potential consequences of recoupment, and identified alternatives.
2. Determined an overpayment and causes.
3. Developed and implemented corrective actions, including billing procedures, internal controls, and installing new billing software and new accounting software.
4. Developed financial improvement initiatives + timeline/impact to EBITDA and cash flow. 
5. Developed a plan that addressed settling the overpayment while keeping the service provider in business. For timely repayment, the Plan had to generate cash flow that was >4x the EBITDA run-rate of the previous years. 
6. Manage the Plan’s process until completion.

Outcome

• The State accepted the restructuring and repayment plan.
• The lenders agreed to restructure the term loans, including re-amortizing.
• The combination of revenue and efficiency initiatives increased EBITDA from <$1 million to $4 million in two years.
• The company achieved its plan, paid back all obligations per the agreed-to schedules.

Situation

• Largest provider in major metropolitan area, 14 clinics.
• Slow rebounding from the decline in patient visits and overall volumes during COVID, and then also slower subsequent months caused by lower birth rates. 
• Did not adequately adjust the predominately fixed costs to the reduced revenues. The increasing financial losses and declining cash liquidity eventually eroded the lender’s patience.
• Credit facility consisted of line of credit and term loans collateralized by real estate.
• The lender conditioned the company to engage an independent consultant to assist with identifying financial improvements and to develop a plan to satisfy the company’s debt obligations.

Consultant's Actions

1. Negotiated terms for an amendment and forbearance with sufficient time and conditions to assess and develop a plan.
2. Identified and implemented initiatives to increase productivity and reduce expenses. 
3. Assessed each clinic, determined need to exit two locations. 
4. Obtained interim rate increases from payers.
5. Assessed monetizing equity in real properties.  
6. Identified opportunities to improve cash collection cycle by decreasing days-to-bill and increasing billing accuracy. 
7. Developed detailed financial and cash flow forecasts reconciled to key assumptions.

Outcome

• The financial improvements supported confidence in the Plan that illustrated regaining and sustaining compliance with the bank credit facility.
• The lender accepted the plan, amended the credit facility with terms compatible with the plan’s financial forecast.
• The company successfully executed its turnaround plan and achieved its financial targets.

Situation

• Privately-owned group of physical clinics with 100+ locations in several states.
• Bank-sourced credit facility consisted of RLOC supported by the company’s cash flows, and term loans collateralized by clinics’ real property.
• Self-reported Medicare overbilling amounting to >$5 million incurred over a two-year period; repayment + penalty totaled >$10 million.
• The incident created a significant liability and also a significant revision to EBITDA, resulting in default to the credit facility.
• The company’s operating cash flows were plausibly sufficient to repay the obligation to CMS over five years, though would strain existing financial covenants. 
• The lender conditioned the company to engage an independent consultant to assess the situation, validate the company’s actions, enhance the forecasting, and assess the capital structure.

Consultant's Actions

1. Negotiated terms for an amendment and forbearance with sufficient time and conditions to assess and develop a plan.
2. Independently assessed the cause of billing errors and outlined corrective actions; compared findings with company’s implemented and planned corrective actions.
3. Assessed each clinic, determined need to exit four locations. 
4. Assessed planned acquisition of new clinics; recommending cancelling some with low-confidence ROI, and deferring others that had flexible timeline.
5. Reviewed and validated the revised internal controls pertaining to billing. 
6. Developed detailed financial and cash flow forecasts reconciled to key assumptions.
7. Assessed the capital structure for liquidity and compatibility with bank-debt leverage constraints.

Outcome

• Validated the essential elements of the Company’s corrective actions.
• Developed and presented higher-confidence financial forecasts that staged key events, highlighted liquidity needs, and highlighted factors and ratios pertaining to financial covenants.
• The lender accepted the plan, amended the credit facility with terms compatible with the plan’s financial forecast.

Situation

• Healthcare provider incurred suspension of government reimbursement payments after receiving a federal subpoena for Medicaid fraud based on credible allegations of the company’s billings.
• The company discontinued operations after unable to repay and implement corrective actions. All customers were transitioned to other care providers and employees were terminated without notice.
• The State, having been a party to Daniel Wiggins' previous work, proposed Mr. Wiggins as receiver and ultimately the court approved Mr. Wiggins and his firm as Receiver.

Receiver’s Actions

1. Identified real and personal assets at 27 locations.
2. Secured the properties, secured and stored health records.
3. Resolved matters pertaining to employee claims and trust funds.
4. Solicited prospective buyers, conducted sales, abandoned unsalable assets.
5. Developed a Claims Process; solicited and reviewed claims.
6. Distributed proceeds to creditors.

Outcome

• Sold all assets, with the exception of one property, over a period of six months. The single real property was in such neglect and disrepair that it did not attract any offers; the Receiver ultimately abandoned the property through the court process.
• Settled dispute between secured lenders regarding priority of payments. 
• The net recovery for the secured creditors achieved expectations established with the Receiver’s initial budget.

Situation

• Financially struggling facility with negative cash flow. 
• Unable to sell itself to a new operator.
• Incurring increasingly higher past-due balances with suppliers; losing credit and incurring stoppages of supplies for patient care.
• Disfunction accounting management, not producing financial statements.
• Discontinued paying leases for facility and for equipment.
• Lessor petitioned for a receivership.
• Daniel Wiggins was proposed by the lessor to be receiver and ultimately the court approved Mr. Wiggins and his firm as Receiver. 

Receiver’s Actions

1. Assumed management, replacing CEO.
2. Assessed the business operations and quality of patient care. 
3. Negotiated with key suppliers for payment terms during receivership.
4. Reduced labor costs by implementing and managing appropriate staffing levels.
5. Assess RCM to improve collections and expectations.
6. Completed past-due cost reports.
7. Developed a plan with key assumptions for performance improvement, met with prospective partners or acquirers. However, while the plan was applauded, the timeline and investment required was not accepted by any party. 

Outcome

• With no options for a sale or source of capital the lessor providing financing discontinued funding for operations, revering to fund a wind-down of the business.
• The Receiver announced the discontinuation of services, organize an orderly move of all patients to other providers, terminated the employees, and secured the assets and records.
• Managed the property, billed and collected receivables, managed an insured property repair claim, properly disposed of controlled and regulated materials, and facilitated due diligence of prospective new operators. 
• Ultimately the property lessor and a new operator agreed to terms, the Receiver terminated the lease to allow for the new lessee to construct new terms.
• Having completed its tasks, the Receiver requested the Court to terminate the receivership.

Situation

• The company issued amended financials statements reflecting a significantly lower accounts receivable balance and erasing previously reported profits. The company was actually incurring losses and had negative cash flow.
• The lender syndicate was alarmed at the sudden loss of collateral and the inverted financial performance, and highly concerned with the company’s accounting methods and internal controls. 
• The amended financial reporting resulted in multiple defaults to the credit agreement.
• A prospective buyer for the company had been conducting due diligence for almost one year.
• The lender syndicate provided a forbearance with a condition to engage a financial advisor to independently assess the accounts receivable and the company’s forward prospects. 

Consultant's Actions

1. Assessed the billing process and centralized billing office, developed and assessed analytics, analyzed historical collections, and reviewed the methodology used to calculating reserves.
2. Assessed each business unit for balance sheet and financial contribution.
3. Assessed administrative functions, staffing, and contractors.
4. Assessed purchasing, accounts payable, and relationships with critical suppliers.
5. Developed detailed weekly cash flow forecasting and reporting.
6. Cut costs and identified operational financial improvements.
7. Determined business operations were incurring heavy losses and extremely negative cash flow.

Outcome

• Delivered detailed assessment report, including opinion the accounts receivable balance was impaired by more than 2x what the company previously reported. The lenders were significantly under-collateralized, and the business was in an increasingly downward decline and burning significant amounts of cash.
• The prospective buyer backed out, there were no sources of capital; employees, uncertain of the company’s viability, were quitting for other jobs in a favorable labor market.
• The lenders required the company to engage an investment banker to sell the bank debt; the lenders provided new funding for this process. 
• Though offers were presented, the valuation of the debt was rapidly declining, and the lenders were not able to consummate a transaction.
• The lenders discontinued funding which forced the company to close all facilities and terminate employees. The company was placed into receivership to sell the assets.