South Central Kansas Medical Center administrators fielded serious questions from Arkansas City Mayor Dan Jurkovich and City Manager Nick Hernandez during the Sept. 28 meeting of the SCKMC Board of Trustees.
The questions came on the heels of SCKMC’s announced intention to scale back a project that had showed significant profit in its first six months.
To date in 2017, this program — a lab outreach effort that crossed several state lines — has generated more than $1 million of revenue for the hospital.
During the last City Commission meeting, held Sept. 19, SCKMC Chief Executive Officer Virgil Watson said the program was not really working for the hospital. “That’s probably not something we’re going to do going forward,” he said.
Immediately after this meeting, the Arkansas City Public Building Commission — which includes the five city commissioners and holds the bonds used to construct the new hospital — met in a series of executive sessions at noon Sept. 28 at City Hall to discuss personnel productivity matters related to the medical center.
Hospital officials in attendance for at least one of the sessions included Watson, SCKMC Chief Financial Officer Holly Harper and Carol Hearne, chair of the SCKMC Board of Trustees.
No details are available about the discussions, which were closed to the public.
Back and forth
Many of the questions related to financial projections if the lab outreach program is scaled back.
“The lab outreach number, the $1.1 million … that’s basically going to go away, and what we can expect next year is $250,000?” Hernandez asked during the trustees’ meeting. “Is that correct?”
“I did not give a number for 2018 lab outreach,” Harper said. “So what are you anticipating for lab outreach?” Hernandez asked.
“It depends on how we move forward with that, but I don’t think we intend to continue that program,” Harper answered.
“So it could be zero?” he said.
Harper then confirmed Hernandez could be right about the total revenue estimate for 2018.
“So then you’re going to have to (make up) that $1 million dollars in revenue. So potentially you’ll be … back to a $2 million dollar loss (like in 2016),” he said.
Watson weighs in
Watson interjected to explain that the recent acquisition of Winfield Medical Arts will help to offset some of the lost revenue.
“Well, I think she tried to communicate in the commission meeting (that) Winfield Medical Arts will pick up some of that, and I tried to address the fact that we have several other endeavors that we’re working that will come online,” he said.
“I understand that,” Hernandez said, “but the problem is that at the end of the day, there’s still potential for a $1 million-plus-dollar loss. We have 2019 (when) the sales tax is coming off and then we cannot keep saying that ‘This is going to happen,’ ‘This is going to happen’ … But our revenues are not keeping up with our expenses.
“Our hospital expenses are higher, the hospital revenue is flat, (South Central Kansas Clinic) is still losing money, we have Winfield Medical Arts that is coming on board — we don’t know if it will be positive — and we know that lab outreach is going away. … We were hoping that we could get the financials good enough that we could potentially reissue the debt, but at this point, there is absolutely no way that that is going to happen.”
“I understand your concern,” Watson said.
Repayment to city
In addition to the other concerns he listed, Hernandez brought up the more than $1 million the hospital still owes the city from the 2015-16 bailout loans.
The repayment of those loans has been included in the 2018 city budget, based on Harper’s continued assurances of repayment starting next year.
“I did budget in, next year, for that payment to start coming in,” Hernandez said.
Harper responded to his concerns by outlining the programs that have been added to the hospital’s efforts to gain additional income, such as the 340B pharmacy program and the purchase of Winfield Medical Arts.
SKCMC Board Counsel Otis Morrow suggested that the hospital start working on its 2018 projections, while Hernandez suggested a five-year projection.
He cited the possibility for fluctuations in staffing with physicians and surgeons as added concerns for changes in income.
“I’m very, very concerned that you will probably come ask for money next year,” Hernandez said.
Watson said projections further out than a year are difficult due to continued uncertainty in health care.
“Well, I wish I could prognosticate to say what would actually happen, but I can’t. With the health care industry the way it is, who knows,” he said.
“But we can anticipate what we’re doing on our agenda and our strategies will hopefully put us in the position to have more predictability, and a lot less influence from such (things) as Medicare and Medicaid and the Affordable Care Act.”
“I can just tell you it’s not going to get easier — it’s going to get tougher,” Watson added. “I don’t have a crystal ball. What we’re trying to do is put into place things that are affected far less from what they do in Washington or the State of Kansas.”
Watson noted that SCKMC was not enrolled until very recently in some of the programs it now takes part in — such as the 340B program, Rural Health Clinic status and more — despite their existence for the last 30 years.
Sales tax and Moody’s
Hernandez pointed to declining sales tax revenue and bond ratings as additional reasons for concern.
“The sales tax is going down because people are just getting tired of paying that sales tax (and choosing to shop elsewhere),” he said. “If you go back in 2019, it will probably not have the same success.”
“We heard from Moody’s again this week — the bond rating is basically junk. The city had an internal rating of one rating above (SCKMC),” Hernandez added.
“These are concerns.”
Due to the ratings from Moody’s, there is limited opportunity for the City of Arkansas City to invest in capital outlay projects or road projects due to the financial issues at the hospital and the city’s link to the hospital bonds through the Public Building Commission.
The way the bonds were issued left the city — and its property taxpayers — ultimately liable for the payments on the bonds, regardless of whether the hospital can pay them or not. This was one of the tipping factors for why the city loaned the hospital money to make three bond payments in 2015 and 2016.
SCKMC lab outreach revisited
Lab outreach eventually returned as a topic of conversation as the meeting continued.
“I think there’s some confusion as to why you are discontinuing a program that is lucrative,” this reporter said.
“It’s based on the model not being well received by the insurers,” Watson said. “It’s not that we want to stop, it’s that we have to — they’re not going to pay for an off-site lab.”
“So, they were willing to pay, (but) now they won’t?” Jurkovich asked.
“We can go ahead and do the work and not get paid,” Hearne said. “That would be worse,” Jurkovich admitted.
“Why would you continue to pay for something that would make you continue to go into the hole?” Hearne asked.
“When I first heard about this on (Sept. 19), it was like (we were) throwing away the beautiful baby,” Jurkovich said of his perception of the program.
“And that’s not the case,” Hearne said. “We are still trying to secure opportunities with the lab outreach program,” Watson added.
The continuation of the program is dependent upon finding a model that works in Kansas.
Approximately $1.4 million of the cash SCKMC has on hand is going back to insurers who have refused payment through the program.
In other business, the trustees:
- heard a report on the SCKMC Landrush fundraiser.
- heard quality performance reports from Yvonna Tozier, director of quality improvement and risk management.
- approved recommended staff credentials.
- heard a report from Chief of Staff Dr. Perry Lin regarding medical staff.
- heard a report from Watson regarding strategic planning and management.
- held an executive session to discuss risk management and matters of non-elected personnel.
Trustees Hap McLeod and Dr. Jerry Old were absent from the meeting.