Troubles Persist at King’s Daughters Hospital.

Settlement proceedings with federal agencies ongoing.

A measure of the difficulty facing our Louisville Hospitals.

Last March I gave an update on the struggle of King’s Daughters Hospital in Ashland, KY to recover from the abrupt decrease in patient volume and income following the disclosure of a Federal investigation of their cardiac program. Several years of financial boom and building turned into a bust of multi-million dollar losses and a downgrading of their bond rating. A paragraph in their FY2013 Audit led me (and pretty much everyone else) to believe that the hospital had reached a settlement with the Department of Justice and Inspector Generals’ offices. My efforts to obtain a copy of the settlement from Kentucky authorities was unfruitful despite apparent cooperation with my request. A report in today’s Modern Healthcare gives the reason why as well as an interim financial update.

The jury is still out!
In fact, settlement discussions were indeed in progress but are not final. The $48.9 million mentioned in the footnote of the audit referred to a reserve set aside to cover any fine and associated legal costs. The Hospital corrected the misleading language.

“Standard accounting principles require a reserve be set to reflect potential exposure for legal matters once the amount can be reasonably determined. Unfortunately this accrual was reflected in the audit footnote disclosure as though a final settlement agreement had been executed. While it is true King’s Daughters has been in ongoing negotiations with the Department of Justice, a final settlement has not occurred. King’s Daughters will update this notice if a final settlement with the Department of Justice is reached.”

Ongoing losses despite some improvements.
As of March 2014 the hospital reported a 13.5% decrease in admissions and a 15.2% decline in patient days for the year. Meaningful savings in operating expenses were won and the state’s expanded Medicaid program led to a decrease in “self-pay” uninsured patients. These gains were lost to unspecified severance benefits, and consultant and legal fees. The hospital, like others, continues to pay a heavy price for its alleged angioplasty-misadventures.

How are local hospitals dealing with large budget deficits?
This notice comes the same day that leadership of KentuckyOne Health is scheduled to make an announcement to its employees about the status of its own efforts to close an even more staggering budget deficit systemwide of $218 million. Others with experience in hospital finances opined that closing a gap of this size would be essentially unprecedented, and certainly could not be accomplished without earth-shaking changes (such as closing hospitals in a chain). Employees, creditors, and a concerned public are waiting on the details of the announcement. The fact that “town forums” are now scheduled Tuesday for all shifts at the Jewish and University hospitals suggests that this announcement will not routine.

For comparison, Baptist Healthcare with its 7 state-wide hospitals also had a substantial loss in 2013. It has been reported that the quarter ending May, 2013 showed a loss of 17.9 million.  By the quarter ending February, 2014, the losses turned into operating income of $15 million, apparently largely through cost cutting.

Large change or small at KentuckyOne?
What might we expect? If closing a hospital in Lousiville is what it takes, in my opinion, Sts. Mary and Elizabeth may be the most vulnerable. Such rumors have been circulating for some time. KentuckyOne could then transfer the beds elsewhere in the county. How about Jewish or University Hospital? University Hospital is still turning a profit– Jewish Hospital is not. The same email to employees that scheduled the town forums also spoke of future efforts to unify services between the two downtown hospitals as was done for cardiology. Closing one hospital or the other would in my estimation require Governor- and Attorney General- level participation and an unwinding or reformulation of the CHI-KentuckyOne-University partnerships. Certainly, based on information available to the public, that partnership is not working out as well as planned and may need some sort of recalibration in any event. I have little feel for the psychiatric hospital business or the fiscal performance of Our Lady of Peace.

Hospitals the same, but different?
University Hospital may not close, but that does not mean it has remain substantially the same. KentuckyOne reserves the sole right to determine where in its network clinical services are performed. Major cardiac services have already been relocated at Jewish Hospital where I am told that instability and uncertainty have not gone away. What, for example, would happen if University were turned into a cancer hospital and/or a women’s and children’s hospital? Jewish would benefit from the otherwise undifferentiated patients. UofL might have a children’s hospital to offset a withdrawal from Norton Kosair Children’s Hospital. Of course it is far from clear that existing patient volumes would support such a reallocation, or that newly configured hospitals would survive against the expanding cancer and children’s programs of competitors. The effects on the provision of indigent care or on the already compromised teaching program of the Medical School are unfathomable to me at this point.

Perhaps I am worrying too much and drifting too far from the title of this article, but I am not alone. If the community is lucky, KentuckyOne will announce great progress in its financial stability to justify the sacrifice of so many jobs, or perhaps the launching of new initiatives useful to our communities. It does not sould like that, but we will soon find out.

Peter Hasselbacher, MD
President, KHPI
Emeritus Professor of Medicine, UofL
May 19, 2014

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