Local Politics

Wednesday, Aug 08 2012 08:41 PM

Cash-flow problems putting county hospital's services in jeopardy

BY JAMES BURGER Californian staff writer jburger@bakersfield.com

Kern Medical Center was in "crisis" mode Wednesday, unable to pay vendors and concerned that its trauma center -- the only one between Fresno and Los Angeles -- may have to shrink or close after county supervisors impatient for change cut off additional financial support.

Officials banged together enough quick payments to keep the county-owned hospital's operations intact for a couple of weeks. But the fate of its longer-term services was uncertain.

The scrambling was caused by two members of the Kern County Board of Supervisors voting down Tuesday a motion to approve a temporary, $8 million increase in the cap on the county's $70 million general fund operating loan to Kern Medical Center. They called it a "symbolic" decision aimed at motivating officials to fix cash-flow problems at KMC, largely caused by delayed payments from federal and state agencies.

Supervisor Mike Maggard doubled down on that decision Wednesday.

"Symbolism sets the bar that we should strive for," he said.

Opposition from Maggard and Supervisor Jon McQuiston was enough to stop the loan increase because it needed approval from four of the five supervisors.

So on Wednesday, KMC officials rushed to pay critical hospital vendors and contractors before the cap was exceeded, cash flow cut off and emergency room and trauma center operations jeopardized.

Hospital CEO Paul Hensler said he tried to explain to supervisors what would happen if they didn't increase the cap.

"I don't know if the intent was to create a crisis or if they didn't really understand," Hensler said.

Maggard said nobody told supervisors on Tuesday that vendor payments were at risk. But he stood by the decision to leave the cap as-is, saying Wednesday's energetic search for solutions was exactly the kind of exercise he was hoping to trigger: for KMC to look harder for solutions rather than ask for more money.

"I don't want to make a false crisis," Maggard said. But "there are new solutions that are not on the table yet that we are about to hear."

Pinch

On Wednesday morning, the county loan to KMC stood at $65.8 million, CEO Hensler said.

By Wednesday evening, he said, the hospital had paid critical vendors and the loan sat at $70 million. That should be enough to continue services for about two weeks if vendors stick with KMC, he estimated.

Also Wednesday, Kern County Auditor-Controller Ann Barnett released about $7 million in KMC payroll checks and the hospital blew through the $70 million cap.

The law requires Barnett to pay hospital employees, but not vendors, she said.

And "a hospital needs vendors to operate," said County Administrative Officer John Nilon.

In a worst-case scenario, Tuesday's decision could cripple critical operations at KMC because it relies on contract doctors to keep the trauma center open and on vendors to keep medicine and other medical supplies in stock, maintain billing systems and keep computers running.

"We are in uncharted waters," Hensler said. "It's our obligation to worry about the worst-case scenario and how we're going to deal with it -- and try never to get there."

Vendors were already putting the hospital on "credit watch" -- limiting how much service they provide to KMC without immediate payment. And they could choose, Hensler worried, to pull out of their relationship with the hospital completely.

The hospital has "about two dozen critical vendors and if any one of them decides to cut us off, it could be a major problem," Hensler said.

One vendor, for example, handles the paperwork KMC needs to bill patients. Losing that vendor could hurt the hospital's ability to bring in money.

Maggard made it clear Tuesday that he wasn't trying to short vendors -- just push KMC to get aggressive about its finances.

"I do not think we should hold off and hold up good, earnest, honest local or non-local vendors who are performing services at the hospital. I have advocated on behalf of a local vendor more than once who could go broke if we don't pay them," he said. "I'm not saying we shouldn't pay them. But I don't think this is everything we can do."

Hensler's problems extended beyond supplies and computer support.

One of his biggest worries centered on the approximately 20 "white claim" doctors that work at KMC under contract. They are trauma doctors and neurosurgeons critical to keeping KMC's trauma center open.

They are often travelling or out-of-town physicians who practice at KMC part-time and aren't on payroll, he said.

According to Barnett, they can't be paid if the hospital owes Kern County more than $70 million.

But, Hensler said, those doctors can continue to work at KMC with a promise of pay -- if they wish to.

One of the critical spending decisions his staff made Wednesday, Hensler said, was to bring some of those critical doctors' checks up-to-date in the hope they will be willing to wait out the crisis.

Root problems

Kern Medical Center's root problem isn't a budget deficit. The hospital has been profitable for five years after operating in the red for about a decade.

It's that the hospital has trouble getting paid on time by state and federal government for the work it does.

For example, Hensler said, KMC was supposed to be paid in June for services it supplied under the federal Low-Income Health Plan program, which provides managed care benefits to indigent adults.

But that multimillion-dollar payment hasn't been received because federal overseers are still organizing a new system for making those payments.

And that is just one example.

In all, the county expects to bring in about $45 million in long-delayed payments by November.

"Some of this is for services we delivered two years ago," Hensler said.

He said the delays are bureaucratic and there is little the county can do to speed up the process.

But Maggard argued that, for example, a little pressure on local members of Congress and a couple of U.S. senators might break something loose.

He argued Tuesday that there have to be more ideas for how to address these problems and that holding the line on the loan balance would likely inspire KMC officials to creativity.

Discussion of the loan balance is not over. Hensler said supervisors will revisit their Tuesday debate at their monthly meeting at Kern Medical Center on Monday.

At that time, more information about the impact of the decision is expected to be available.

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