The news of the imminent closing of Mercy Hospital in Independence has many rural Kansans on edge as to whether their local hospitals are also in danger.
Jay Kretzmeier, an Iola accountant who has served on the board of trustees of Allen County Regional Hospital for five years, can allay those fears for locals, at least for the immediate future.
The balance sheet for ACRH is in good standing, he said, verified by an auditor’s report at Tuesday night’s board meeting.
That said, Kretzmeier, who admits being of a nervous temperament, said, “there can be no comfort in rural hospitals, and so we must be vigilant in its maintenance.”
So, can he sleep at night?
He breaks into a smile.
“Yes.”
SEVERAL things play into the local hospital’s favor, Kretzmeier said.
First, he views it as fortuitous that ACRH is now managed by a local board of trustees after a 28-year relationship with outside entities. In early 2013, the hospital moved out from the auspices of Hospital Corporation of America. Before that, its management and upkeep was through Health Midwest.
Kretzmeier said when he learned of the fate of the Independence hospital, his immediate reaction was to wonder, “would we be in the same position?” if Allen County’s hospital were still under the umbrella of HCA, which is the largest hospital corporation in the United States.
“I came up with the answer that we’ll face all kinds of challenges, but at least the residents of Allen County have the ability to determine their hospital’s fate,” and not some outside entity.
Independence’s hospital is one of 30 owned by Mercy Health Systems. Other sites are Fort Scott and those scattered about Missouri, Arkansas and Oklahoma.
That ACRH is a critical access hospital also plays into its favor. That designation means the federal government reimburses the hospital’s costs for treating Medicare patients at a higher rate. To qualify as critical access, a hospital must have 25 or fewer beds and be in a rural area.
Even so, the federal government’s across-the-board cuts enacted with “sequestration” last year has made the designation less profitable. Instead of getting reimbursed at a rate of 101 percent, the hospital receives 99 percent of costs.
With about 52 percent of the hospital’s patients on Medicare, that 2 percent difference in reimbursement adds up, Kretzmeier said.
A report issued last February from the Kansas Hospital Association also has trustees worried.
If current laws and those proposed stay on track, Allen County Regional Hospital can expect to lose $10 million over the next 15 years, according to the report.
“So you’re talking about cuts of about $680,000 a year in government funding,” he said. “And of course there’s the Medicaid issue.”
Kansas is one of 20 states that has not expanded the federal program that provides health insurance for the disabled and indigent. An estimated 150,000 additional Kansans would be covered by the expansion. Without it, hospitals lose millions of dollars treating this segment of the population with no reimbursement.
Another challenge for the hospital is steady staffing.
Registered nurses and lab technicians, especially, are in short supply and as a result the hospital is forced to rely on contract labor provided by a staffing agency to fill the positions. Contract labor comes at a higher cost as opposed to those employed by the hospital, trustees discussed at their meeting Tuesday.
On Thursday, ACHR hospital administrators attended a job fair in Independence in efforts to recruit those who will be laid off when Mercy Hospital closes next month.
Also, on Nov. 7, trustees will participate in a visioning and strategic planning session to set the course for the hospital under the leadership of Tony Thompson, the hospital’s new chief executive officer.
“It will be a time when we’ll re-evaluate our services,” Kretzmeier said.
INSTALLING electronic medical records in a timely fashion was to the hospital’s advantage, Kretzmeier said, resulting in additional cash flow, though only for the short term.
“It’s an immediate bump to our bottom line and we’ll get a few more payments,” he said. The hospital contracts with Cerner Corp., out of Kansas City, to provide the services.
Altogether, the hospital’s current assets outweigh its liabilities by about $6.2 million, with total net operating revenues of about $18 million.
And while that “should give people some level of comfort,” it doesn’t tell the whole story, he said.
The hospital’s financial reporting model is “fairly sophisticated,” he said, or in another word, confusing.
“We don’t operate like the city or county, which use a cash basis method of accounting,” he said. That straight-forward model maintains you can’t spend what you don’t have on hand. Instead, the hospital uses what is called an accrual method of accounting, in part because so much of its expenses are reimbursed by outside entities and come many months after services are rendered. The difference is that the hospital rarely deals in cash transactions, but instead depends on long-term revenue streams from insurance companies and the federal government. Also, what a hospital charges is rarely reimbursed at its full rate by insurance companies.
What can be even more confusing is there’s no “real estate” on the hospital’s balance sheet, to show its paying down $25 million in bonds on the new hospital, which opened in late 2013. The real estate rests within the county and the Public Building Commission reporting.
To refresh memories, in 2009 Iolans passed a quarter-cent sales tax to go toward the hospital, good for 10 years. In 2010, county voters followed suit, approving a quarter of a percent sales tax, good for 20 years.
Those sales tax revenues never reach hospital coffers. They are coupled with a portion of hospital revenues that go toward retiring bonds issued by a Public Bond Commission.
So far this year, the sales taxes have accumulated $571,000.
The hospital makes payments on the bonds twice a year, in December and June. The payments are “laddered,” Kretzmeier said, varying in their amounts. For 2015, the hospital will pay $790,000 toward the bonds. The plan is to have the bonds paid off by 2036.
Any worries about that happening?
“Not in the immediate future,” Kretzmeier said.
