The management company CARTI hired to help turn around the Little Rock cancer treatment organization recently released its strategy to slash costs, a plan that should result in a savings of about $7 million a year.
The Berkeley Research Group LLC of Emeryville, California, said in its four-page letter, which was marked “Proprietary & Confidential,” that the nonprofit could save between $6 million and $8.1 million annually by focusing on five areas, including nonlabor expenses and its physician practice management.
Central Arkansas Radiation Therapy Institute Inc. reported an operating loss of $13.8 million for the fiscal year that ended June 30. It was forced to hire BRG in the fall because it failed to maintain the required long-term debt service coverage ratio on the $49 million bond issue that was used to build its four-story center, which opened in November 2015.
CARTI’s revenue of $152.2 million for its fiscal year that ended June 30 placed it at No. 62 on Arkansas Business’ list of largest private companies.
The improvement plan began in December. BRG touted in its April 7 letter that the initiatives that already have been put in place are expected to result in an annual savings of $2.7 million.
And more savings are expected over the next several months.
“Based on the progress management has made thus far in addressing their performance efforts and their commitment to implement the remaining improvement initiatives, we believe CARTI’s management team can successfully address all of these issues,” BRG said in the letter, which was on file with the Electronic Municipal Market Access system. “All of these actions are expected to be addressed as soon as possible and continue to be implemented throughout 2017 and beyond.”
For the first half of its current fiscal year, July through December 2016, CARTI reported a loss of $5.7 million. One of its biggest increases in expenses was the cost of oncology drugs. That expenditure totaled $46.2 million for the first two quarters, $2.4 million more than CARTI had budgeted.
Interim CEO Craig Comish told Arkansas Business last week that he didn’t know if the changes CARTI has made so far would be enough to prevent it from having a loss for the fiscal year that ends next month.
Still, Comish said, CARTI is expected to meet its debt service coverage ratio requirement for the current fiscal year.
BRG said one of the biggest cuts in expenses will come from a restructuring of CARTI’s workforce. BRG said CARTI could save between $1.7 million and $3.7 million annually through staffing and compensation changes.
In March, CARTI laid off nine workers and is eliminating 20 to 24 full-time equivalents, but without layoffs. “If we stay on target, we will be able to achieve that through a combination of attrition [and] increasing our part-time workforce,” Comish said. CARTI has 488 employees.
BRG said another target area is CARTI’s physician practice management, where changes could save between $1.4 million and $2.3 million.
CARTI doctors are some of the highest-paid nonprofit physicians in Arkansas. When Arkansas Business listed the state’s highest-paid nonprofit employees last November, four of the top six positions were occupied by CARTI physicians, who had compensation of $2.3 million, $1.8 million, $1.65 million and $1.6 million.
BRG said an organizational redesign will affect physician pay. “Management expects to develop new models for physician compensation which will be better aligned with the economic realities of operating the entire organization,” the letter said.
Comish said that “a large number” of CARTI’s physician contracts are up for renewal in the next eight months.
The consulting firm Aon Hewitt of Lincolnshire, Illinois, is helping CARTI set salaries for the doctors. Comish said Aon has completed its analysis but it hadn’t been shared with CARTI’s board as of last week. He also said he hasn’t seen the report yet and didn’t know if the doctors will see a pay cut.
In its report, BRG also said that CARTI could save $1 million a year by improving accounts receivables, bad debt management and coding procedures.
It could generate an extra $900,000 to $1.2 million a year by getting more use out of existing resources like imaging equipment.
Comish replaced Jan Burford, who retired in February after serving as president and CEO for more than 26 years. Comish said interviews of candidates are expected to start in a few weeks and a CEO will be named by the end of summer.