Two South Central Kansas Medical Center officials reported to the City Commission of Arkansas City during a commission meeting Tuesday.
The first such report since February came the same day that Moody’s Investors Service released an update on SCKMC’s construction bonds.
“We have revised the (bond rating) outlook to negative from stable,” the release states. The Public Building Commission’s bond rating also was downgraded from B1 to B2. The commission issued the lease revenue bonds to build SCKMC, of which $21 million still remains to be repaid.
“The negative outlook reflects the expectation the city’s narrow financial position will be pressured over the next 12 to 18 months from the continued financial and operating challenges of South Central Kansas Medical Center,” the release continues.
“The competitive market landscape and challenging demographics will likely limit the hospital’s ability to achieve balanced financial operations prior to the expiration of a 0.5% sales tax in March 2019.”
For some time, there was a hope that the city could refinance in 2019 the bonds that it and the hospital still are financially obligated to ensure repayment of, but the plan was dependent on the bond rating continuing to improve, rather than declining again a year before the tax expires.
Before the meeting concluded, Commissioner Jay Warren asked City Manager Nick Hernandez to set up a joint meeting of the City Commission and the SCKMC Board of Trustees to talk through various issues. This meeting is expected to take place next week.
During her presentation, SCKMC Chief Financial Officer Holly Harper reviewed the hospital’s finances as they stood at the end of February.
Given the impending sales tax sunset, commissioners questioned whether the hospital would be able to support itself and pay the two annual bond payments in the following years.
Harper said she thought the remaining one-cent tax would be enough to cover bond payments into 2020. City Finance Director Kathy Cornwell said she was not sure of the exact date, but indicated there would be some additional money available to the hospital in 2019 and 2020.
This is partially due to the small amount of excess funds currently being collected through both taxes, over the actual amount needed annually.
As for SCKMC’s finances, the Senior Health Unit still is showing a negative income this year, down 42 percent from last year. The fall in income was explained as a lack of diversity in the payer base.
Individuals who are privately insured, those on Medicare and those who have Medicaid all provide SCKMC with different reimbursement levels based on their particular form of coverage. SCKMC Chief Executive Officer Virgil Watson said there were too many with low-paying coverage.
Winfield Medical Arts
The Winfield Medical Arts (WMA) clinic, which was purchased by SCKMC last September, has lost money each month since it was acquired.
At the time of the purchase, some Ark City residents voiced concerns, given the financial standing of the hospital. A few residents took to Facebook with their concerns, posting statements such as “they need to be paying their own bills before making any purchases.”
Others were mad because the city had provided SCKMC with financial help in the last two years, while also tightening its own internal budget.
Hospital officials said the purchase would be mutually beneficial to both parties and Watson called the move a “carefully analyzed” decision.
At the time, both Harper and Watson said they anticipated WMA’s eventual hospital-based Rural Health Clinic status would allow the clinic to continue to be financially self-supporting following the purchase — and the 340B pharmacy program would be up and running by this month.
Harper said WMA has been financially solvent for the last four years. “We would not have done this if they weren’t,” Watson said.
Given the change in Medicare reimbursement, Harper estimated last September that WMA would contribute between $230,000 and $250,000 of profit to SCKMC’s bottom line this year. But WMA has continued to show a loss. “We are still struggling there,” Harper said Tuesday.
“WMA results have been disappointing, and a task force has been put in place to immediately stabilize the operations that appear to suffer from a combination of high cost and low volumes of visits,” said a written report presented at the meeting.
Reasons for WMA loss
Watson said SCKMC is very concerned about the situation at WMA. “We’re monitoring them on a weekly basis,” Harper added.
“Is this less business than they were doing prior to the hospital purchasing (them)?” asked Mayor Dan Jurkovich. “Right,” Harper replied.
“You still have the same amount of doctors in there, right?” asked Commissioner Duane Oestmann. “Actually, we have more,” Watson said.
“So … patients left (due to the acquisition)?” Oestmann asked. “Could be,” Watson said.
He credited some of the weak numbers to one provider dealing with a “serious illness,” but that person should be back next month, he said.
Watson added that he is considering closing WMA for a single day each week in order to stymie the loss SCKMC is seeing from the clinic.
WMA also still is not collecting reimbursement from the 340B pharmacy program, as it now will not be enrolled until July 1.
“It did not occur because we could not get the (clinc) on (our) cost report (before Jan. 15),” Watson said.
“We had some problems with (our billing software) … just getting them to do what they need to do. It just did not get done.”
Tuesday’s meeting was the first time commissioners were informed of the additional three-month delay.
In its release Tuesday, Moody’s also provided the variables that could cause the hospital’ s bond rating to be changed again.
Factors that could lead to an upgrade include:
- material and sustained improvement in the hospital’s operations and financial position, and the city’s operating reserves and liquidity;
- significant tax base expansion;
- improvement in resident income indices;
- moderation of debt burden.
Factors that could lead to a downgrade are:
- deterioration of the city’s or the hospital’s operating reserves or liquidity;
- declining sales tax revenue trends;
- decreases in the city’s tax base or resident income indices;
- increases in the city’s or the hospital’s debt levels or pension burdens.
In other business, the commission:
- issued proclamations designating April as Fair Housing Month and April 16 as Cowley College Student Support Services Day.
- unanimously approved the consent agenda, including the March 6 minutes and a set of body-worn and in-car cameras for the police.
- voted unanimously to table two new appointments to the SCKMC Board of Trustees until the April 17 meeting.
- held a public hearing for and voted unanimously to approve the issuance of Health Care Facilities Revenue Bonds by the City of Wichita for the improvement and equipping of Arkansas City Presbyterian Manor, located at 1711 N. Fourth St.
- unanimously approved the scheduling of a budget retreat at 8 a.m. April 28 at Warren’s cabin west of Arkansas City.
- unanimously approved a resolution authorizing Jurkovich to sign a contract between the city and the Kansas Department of Health and Environment (KDHE) for partial funding of the purchase of a new 25-cubic-yard recycling trailer under KDHE’s Solid Waste Grant Program.
- unanimously approved two change order agreements with Cornejo & Sons, LLC, of Wichita, regarding the Summit Street paving and water line improvement project, for a total amount not to exceed $67,526.92.
- unanimously approved an insurance renewal for the city.
- heard updates on several upcoming events from Hernandez.