Financial straits of hospital in Breckinridge County illustrate many of the problems of small, rural hospitals all over Ky. and the U.S.

Breckinridge Memorial Hospital, with 25 beds plus 18 nursing-home beds, is in Hardinsburg.

By Melissa Patrick
Kentucky Health News

HARDINSBURG, Ky. – When the Breckinridge County Fiscal Court voted unanimously in December against raising property taxes to shore up the local hospital's empty savings account, that made Breckinridge Memorial Hospital face some tough choices about the services it offers. Meanwhile, county officials may be faced with similar choices to save the hospital, such as new management. Others in Kentucky may have to do likewise.

Tim Crockett, CFO, Breckinridge Health

“We're going to have to make some hard decisions on some services that the county likes," said Tim Crockett, chief financial officer of Breckinridge Health Inc., the nonprofit that owns the hospital. "We are going to have to make some of the same decisions that an outside entity would have to make – and the county can't complain, because we've asked for support and they've turned us down.”

One service up for cutting is the hospital's 18-bed nursing-home facility, beloved by the 20,000 residents of the rural county between Elizabethtown and Owensboro. Crockett said the beds generate no net income and "actually pull reimbursements away from other areas" that would be profitable.

"The board has been very reluctant in cutting some of those services, particularly our nursing-home beds, but now that the taxing district has not gone through, we're going to be taking a very hard look at some of those services," he said.

Angel Portman, the hospital's chief executive officer, said the hospital's board has always tried to meet the community's needs and desires for services, but that may no longer be possible, especially with the threat of future cuts in Medicare and Medicaid: "It causes a situation for the board and the administrative team to start having to think in just different terms, not service oriented – in survival."

If the nursing beds were closed, "That would really be a problem with this community," said Hardinsburg lawyer Thomas Brite, who was on the board of the hospital's supporting foundation through December.

"Most of us, including yours truly, have had a parent or a relative that has spent the last years or months of their lives in that skilled care facility. It's been there for years," Brite said, adding that the move was especially possible if another entity took over the facility.

One of many rural hospitals in financial straits

Crockett said the hospital has less than one week of operating cash on hand "at any given time," and estimated it had about 10 days' worth when he was interviewed Jan. 25. Portman said the daily operating cost is in the "mid-$50,000 range."

“We have no actual savings at this point,” Portman said. “We have a line of credit that we established mid-year 2018 that has saved us on a few occasions in the last several months.” The $1 million credit line is secured by the $2 million in assets of the Breckinridge Health Foundation, which was created to support the hospital.

The story of Breckinridge Health, which also includes a home-health service and primary-care clinics in Hardinsburg, population 2,300, is becoming more common in rural America.

“There are a large number of hospitals that have got less than a week's cash on hand, and that is dangerous because they run the risk that they won't be able to pay their bills, that they won't be able to meet payroll and so on,” said George Pink, a senior research fellow in the North Carolina Rural Health Research Program.

The program, at the University of North Carolina, tracks the state of rural hospitals. It says 95 have closed across the nation since 2010, four in Kentucky. The four in Kentucky were in Adair, Carlisle, Fulton and Owen counties. A hospital is considered closed if it has stopped providing inpatient care, even if it still offers other services, like emergency or primary care.

Pink said 35 to 38 percent of rural hospitals are losing money. His program's financial distress index model shows that eight rural hospitals in Kentucky are considered at high risk of financial distress and closure within two years. He said he could not reveal which eight. In Pineville, Southeastern Regional Medical Center owes back taxes and has filed for bankruptcy.

What happened in Breckinridge County?

Angel Portman

Portman, who became CEO in 2015, said the hospital had been losing $1.2 million to $1.5 million every year since 2012, largely due to reduced Medicare and Medicaid reimbursements – which account for 70 percent of its revenue – and changes in the private insurance market. She said many of its privately insured patients have such high deductibles that they don't pay them.

Portman said she hired a new doctor and CFO, cleaned up billing practices, cut operating costs and consolidated three physician offices to get higher-paying “rural health clinic” status, but it wasn't enough – until the hospital started participating in a federal drug-discount program known as 340B in June 2017. That allowed it to “barely” break even in 2018, she said.

However, the Centers for Medicare and Medicaid Services is actively trying to reduce payments in the program. The 25-bed hospital was already getting special treatment as a critical-access hospital, getting slightly higher reimbursements in return for limiting its size and services.

Breckinridge Health began its campaign for a tax of 10 cents per $100 worth of property in February 2018, taking until July 31 to gather more than 1,900 signatures. Portman told the weekly Breckinridge County Herald-News that they needed 1,812 signatures, 25 percent of the average voter in the last four general elections.

The tax would have been an increase of almost 10 percent in local countywide tax rates. As reported by the Herald-News, the county's other countywide property taxes are 53.2 cents for schools, 11.3 cents for county government, 8.7 cents for the library, 4.2 cents for the Cooperative Extension Service, 3.1 cents for the health department and 1 cent for the Soil and Water Conservation District.

The total of $1.01.5 per $100 is one of the lowest rates in the nation, according to TaxRates.org, but property taxes are an especially sensitive subject in Breckinridge because it is one of Kentucky's most agricultural-dependent counties. And last year the Fiscal Court was on the ballot.

Portman said that “from the beginning,” the six magistrates and Judge-Executive Maurice Lucas said the timing was bad. She quoted Lucas as saying, “Angel, it's an election year, and it's going to be very hard to do this in an election year.”

To promote the tax hike, the hospital held three public forums. The fiscal court held three public hearings after it received the petition, and at a special meeting held on Dec. 20, voted 7-0 against it. On Dec. 31, three of the magistrates left office.

Breckinridge County (Google map)

Lucas and several magistrates who voted on the issue told Kentucky Health News that it was hard to ask their constituents to pay more taxes when the hospital was making money, even just a little.

“When you are trying to decide to put a tax on people and then you find out that the hospital is doing a little better than breaking even, you just can't justify putting that tax on people,” Magistrate Gary Greenwell said. Others noted that the tax would generate about $800,000 a year, less than the annual loss before 2018.

Crockett said the hospital and its clinics need money for upgrades, "to grow and expand and be competitive."

Magistrate Tim Milburn said many constituents didn't want a tax that applied only to property and would have preferred it to be more like a “flat tax so that everyone from bottom to top gets taxed, not just those who own property.” Kentucky law doesn't allow such taxes for a hospital.

The bottom line, retired magistrate Willis Bosley said, was that he had to vote the way his constituents asked him to vote – and while they said they didn't want to see the hospital close, they also said they didn't want any new taxes.

Transparency and communication

Brite, the former foundation board member, blamed the effort's failure on several things, including a lack of active participation by the hospital's corporate board and the fact that Portman, a Grayson County resident, was "relatively new" to Breckinridge County politics.

"The fiscal court and the county were not adequately advised of the situation," Brite said. But he also said he thought the hospital would have had more success if it had first appealed to citizens for a tax instead of the fiscal court: "This project basically started from the top down and it was in trouble from the get-go."

Lucas said that other than hearing rumors, he didn't know "until early last year" that the hospital was in financial trouble.

That's a familiar story, said Pink, the North Carolina researcher: "Quite often we hear in these communities where the hospitals have closed that the local community had no idea that they were that close to perishing."

Lucas said the hospital gave Fiscal Court some information, but couldn't get it in "laymen terms and laymen figures." He said that every time a financial question was asked at a forums, hospital officials didn't give direct answers or said, "It's complicated" or "You all wouldn't understand."

Portman said she offered to go over hospital finances in detail with each Fiscal Court member, but they declined, saying they would pay for an examination of the records. Lucas said they ended up not hiring an outside accountant, mostly because the ones he reached out to said they didn't have enough time to review the materials in the time-frame given.

Also, Lucas said,"We just felt like if we met with Tim or even with Angel, they were going to be talking over our heads anyway, so we felt like it was probably just a waste of time."

He added, "There was a lack of communication and transparency revealed to the court. The whole thing just wasn't handled properly, from the start to the finish. . . . It just wasn't as transparent as it needed to be to basically inform all of us."

Magistrate Greenwell said he expects the issue to come up again, and encouraged hospital officials to be fully transparent with their numbers and to work on simplifying their language to better communicate a message in terms that regular people can understand.

"Just trying to convince six magistrates and a judge of this is not enough; you have to convince the public, because that is who you are asking to do this," Greenwell said. "You've got to convince the taxpayers out there about how essential this is, and they just didn't get that done. . . . I really don't think people realized how big of an issue this is."

Hospitals must be actively engaged within their communities, said Alison Davis, executive director of the University of Kentucky's Community and Economic Development Initiative of Kentucky, who presented a report for the hospital showing the local economic impact of health care. "Hospitals need to be embedded in their communities and constantly telling their stories, so that when something like this happens, they are just ready to go," she said.

Lucas said he was open to calling another vote on the tax to resolve the hospital's plight: "Now that we are aware of it, we will be monitoring it to the effect that they will let us. Most of their stuff is private. If they come to us with a problem, we're going to be Johnny-on-the-spot to look at it and to try to address those issues.”

Noting that the county would be responsible for the hospital's $7 million in bonds if it closed, Lucas said he would like himself and one magistrate to attend hospital board meetings. The meetings are closed to the public, since Breckinridge Health is a nonprofit corporation.

Asked if there was room for more communications and transparency with the community and the Fiscal Court, Portman said she thought the board “would be in favor of that and would be supportive of those kinds of conversations.”

Board member Bill Monin, the board's previous financial chair, said the failed tax effort should have some positive effect: "Now we can deal with it in different ways, because it's a well-known problem and we are trying to work on it. That makes it a whole lot better deal than it was two years ago.”

He added, "I think the community has to digest what we've just done and then think about it and in years to come, they will be more receptive to what the hospital is trying to do."

An option for survival: partnering with another hospital 

The hospital is also being eyed by a much larger hospital, in Owensboro, as a possible satellite.

At the first Fiscal Court meeting after the election, before their vote against the tax, the magistrates and Lucas heard from former Daviess County judge-executive Reid Haire, a consultant for Owensboro Health, which recently took over a hospital in Greenville, south of Owensboro.

Haire told Kentucky Health News that he initiated a conversation with Lucas in October after he learned about the tax campaign, and after they talked about Owensboro Health's successful partnership with Muhlenberg Community Hospital, which had "similar financial straits," Lucas invited him to speak to the magistrates.

Lucas recalled, “Up unto that point, the only thing that me and the magistrates had presented to us, the only option was the hospital taxing district with a tax imposed on our citizens. There was nothing mentioned about partnering with anyone or anything like that.”

Bosley, the former magistrate, said his constituents were open to the idea of the hospital merging with a bigger one, saying such a merger would likely bring the county more and better services. He added that the best time to explore this option is while the hospital is breaking even: "Let them take over now. Don't wait until it's too late, because then they won't want it."

Haire said he can't initiate a conversation with the hospital because it has a management contract with Alliant Management Services in Louisville. In Kentucky, Alliant also manages Carroll County Memorial Hospital in Carrollton and Twin Lakes Regional Medical Center in Leitchfield. The Breckinridge hospital also has a clinical agreement, with Norton Healthcare in Louisville.

The Alliant contract was renewed Jan. 26, 2017 for five years, Crockett said. He said it could be canceled with 30 days' notice for various causes, while giving the party that allegedly breached the contract to seek to resolve the issue while keeping the contract in effect. Termination without cause requires 180 days' notice, he said.

Lucas was adamant that the county will continue to have a hospital.

“We're not going to let it close," he said. "We're going to do everything within our power to keep that thing open. If we have to partner with someone, so be it. But we're going to keep it open as Breckinridge Health."

Hospital mergers and partnerships have become more common. The North Carolina program found 380 rural hospital mergers from 2005 through 2016. (Ten of the hospitals involved later closed without reopening, nine of them in 2010-16.) It found Kentucky had 10 mergers in the study period. Since then, at least two more hospitals in the state have partnered with larger hospital systems.

The main reasons listed for mergers were hospitals' difficulty keeping up with the quality and technological standards set by Medicare, low patient volumes, workforce shortages, and lack of access to capital. “For many rural hospitals joining a system is seen as a way of maintaining services, enhancing services or in many cases just pure survival,” said Pink, of the North Carolina program.

Concerns listed in the research about such mergers are similar to those voiced by the hospital administration and the magistrates in Breckinridge County: outsourcing support services; the likely consolidation of services that could reduce local jobs; the possibility that local residents will have to drive further to get care; and a fear of losing local control and independence.

Pink said the overarching need is to find a way to provide access to health care to everyone who needs it, especially in communities where hospitals are no longer viable.

He said much of what ails financially distressed rural hospitals is out of their control, including "declining populations; the high percentage of folks with no insurance or who are under-insured; greater than average dependency on Medicare and Medicaid; sicker, older and poorer folks" – all true in Breckinridge County.

Crockett said the hospital must "find another big chunk of cash somehow, someway, to offset this and future losses that we are going to have, or five years from now we will be right back in the same situation we were in."