Health

Thursday, May 10 2012 11:00 PM

Kern Health Systems to tap reserves for local health care improvements

BY STEVEN MAYER Californian staff writer smayer@bakersfield.com

Kern Health Systems has been criticized for years for holding onto excess reserves that have grown to more than $98 million.

Now the Medi-Cal funded managed-care organization is finally doing something about it.

At a KHS board meeting Thursday, the governing board unanimously approved a tentative plan to distribute $24.5 million from Kern Health's excess reserves to benefit the three safety-net providers in the county -- Kern Medical Center, Clinica Sierra Vista and National Health Services.

By extention, the grants will benefit thousands of patients who depend on the safety net for their medical care, and will provide an economic benefit to the community at large, board members said.

County ordinance limits the outside distribution of Kern Health Systems excess reserves to safety net providers.

Board Chairman Paul Hensler, who is also the CEO of Kern Medical Center, recused himself from the vote, as did Al Wagner, a member of Clinica's board of directors.

The bulk of the money will likely be used for the construction of new clinics and the improvement of existing clinics, according to verbal presentations made to the board by Clinica CEO Steve Schilling and National's Chief Financial Officer Novira Irawan.

Kern Health's Chief Executive Doug Hayward, who took the reins in January, said he and the board have been looking at options to reduce the reserve in ways that would benefit its members and enhance the delivery of health care in Kern County.

"We went through a thorough financial analysis," Hayward said, to determine how much of the organization's reserves could be used while ensuring its financial stability into the future.

"We're custodians of public funds," noted board member Gayland Smith, a certified public accountant by profession.

Smith made it clear that the three safety net providers must show the board detailed plans for exactly how the money will be used before the board will finally allocate the funding.

Thursday's action represents a major change in direction for KHS, which found itself under intense public scrutiny -- first by The Californian and then the community generally -- in 2010 and 2011 over questions about lax financial oversight and the loss of some $8 million paid out to a medical claims audit company in Southern California.

For years, Kern Health Systems resisted calls to spend more of its reserve money on community health programs.

Eventually several board members resigned, as did embattled CEO Carol Sorrell. New bylaws were put in place requiring stronger financial oversight and the board adopted an attitude a few members had had all along, that they were stewards, not only of the interests of KHS and its members, but also of the community and taxpayers as a whole.

Last year, KHS sued the audit company, Allied Management Group, in an attempt to recoup all or a portion of the $8 million it charged Kern Health. That lawsuit is still pending.

The $24.5 million will be distributed as follows: $13 million to KMC; $8 million to Clinica; and $3.5 million to National. More than half of Kern Health's members receive their primary care from one of the three safety net providers.

Schilling told the board he would like to build a new clinic on Niles Street, near Morning Drive, in east Bakersfield, and another near McKee Road and South H Street in south Bakersfield, at a cost of $7 million. The remaining $1 million would be used to improve existing clinics.

National's Irawan said the organization also intended to build new facilities, improve others and transition medical record keeping to an electronic format. KMC did not have a representative at Thursday's meeting other than Hensler, who recused himself from the discussion.

Schilling said he's thrilled that KHS has decided to invest excess reserves into the community's heath care infrastructure.

It's consistent, he said, with Kern Health's core mission.

"This is wonderful," he said. "The value of this grant to our patients, Kern Health's members and the entire community is phenomenal."

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