clients | case study

The Baylor College of Medicine: Prognosis Positive

“Mark Harrison was extremely helpful to us in developing a strategy for significant budget reduction without interruption of our core programs. Similarly, Mark’s knowledge and experience were most valuable as we considered a major merger opportunity and other strategic partnerships.”
Dr. William T. Butler, M.D.
Former President and recent Interim President
Baylor College of Medicine

Like many academic health-care organizations, Baylor College of Medicine (BCM) was hit by the perfect storm of financial market turbulence and academic medicine market dynamics in 2008.

That short time ago, Houston-based BCM faced a challenging financial environment, with operating deficits rising since 2002 and a 2009 deficit budgeted at $85 million. Equity market declines had taken a toll on the college’s endowment and liquidity position. At the same time, the college was refinancing nonperforming auction-rate securities it had issued to finance the construction of its own hospital, which it had undertaken following the termination of a major private adult hospital affiliation. The hospital construction was well under way, but still more than a year from completion. The chief financial officer had just departed, and the college was receiving merger proposals. BCM was challenged on multiple fronts and retained Apex founder Mark Harrison to collaborate with senior management and the board in addressing a broad range of issues.

One of Harrison’s first roles was to assist the college in identifying an internal candidate to serve in the interim CFO role. Drawing on his health system and Fortune 500 company executive experience, he was also able to support the transition of this talented individual into her new role under circumstances that would have challenged veteran CFOs. He then led an evidence-based organizational diagnosis to identify the specific issues and opportunities associated with the college’s complex business model—one comprising education, clinical, and research enterprises supported significantly by philanthropy. Harrison combined his own objectivity and expertise with senior management collaboration and expertise in performing the diagnosis, thus creating a credible product. Further, by focusing on the business model as a whole, along with the separate component enterprises, the diagnosis established an understanding and awareness critical to developing and implementing a unified board- and management-driven action plan.

The diagnosis, presented to the Finance Committee and later to the board, created a preliminary path to sustainability for BCM as an independent institution. It also included a turnaround plan for the remaining six months of FY 2009. Harrison worked closely with the senior management team to implement the six month turnaround plan and, later, to facilitate the development of a multiyear recovery plan. He also helped prepare BCM’s leaders for creditor discussions necessitated by a liquidity-triggered technical covenant default.

Simultaneously, BCM formally entered into both merger and private adult hospital clinical affiliation discussions with multiple parties. Harrison drew on his Wall Street background to assist BCM in a consulting capacity throughout these complex discussions.

Though BCM seriously contemplated both a merger proposal and new affiliate relationships, these options became less appealing as the organization regained strength. Management’s work yielded improvement of more than $20 million in the final six months of FY 2009 and continued improvement in FY 2010 as the college achieved cash flow-breakeven results. BCM’s acting CFO was appointed to a permanent role after demonstrating her strong capabilities. Apex’s diagnostic recommendations and collaboration with management and the board focused BCM on its core business model challenges, improved measurement of operating and financial performance, and contributed to the success of management’s reversal of negative financial and operating trends to create a sustainable future.

In the end, BCM withdrew from the merger discussions. As one of the largest independent medical schools in the U.S. and a premiere education, clinical, and research institution, Baylor’s future was again on a positive path.