Kentucky's rural hospitals faring worse than others across the U.S., nine-month audit finds

03/30/2015 03:46 PM

FRANKFORT — Reiterating that his review of Kentucky’s network of rural hospitals is not a “rebuke” against Medicaid managed care or the Affordable Care Act, Auditor Adam Edelen called on Monday for the creation of a panel to better monitor the fiscal wellbeing of rural medical facilities as federal health reforms solidify.

Edelen hopes his nine-month review of the state’s 66 rural hospitals, which provide care for an estimated 45 percent of Kentucky’s population, will provide a “baseline” for tracking progress or regress in the years ahead.

The audit covers fiscal years 2011 through 2013 in its assessment of rural hospitals’ finances, and auditors found 15 facilities in poor fiscal health. In all, the report indicates 68 percent of the state’s rural hospitals rank below the national average financially.

The primary problems in some areas, Edelen said, lie in an ever-evolving health industry, a shrinking base of medical providers and an economic climate that’s still shaky in parts of Kentucky.

Other mandates on the horizon, such reductions in Medicaid disproportionate share hospital payments and cuts in Medicare fee-for-service programs, will also affect rural hospitals’ bottom lines, he said.

“Refusing to drill down robs stakeholders of the information they need to guide this transformation,” Edelen said during a press conference. “Although closure may be an unfortunate reality for some, I believe more can and should be done to help these hospitals rethink their models of business in delivering health care in the 21st century.”

The audit calls on the governor to form a workgroup to evaluate health care delivery in rural parts of Kentucky, with additional oversight given to the Cabinet for Health and Family Services on the financial wellbeing of rural hospitals.

“The Cabinet for Health and Family Services should begin using an analysis tool to regularly monitor the fiscal strength of rural hospitals,” Edelen said, noting Kentucky has received a $2 million federal grant to test new payment and service delivery models.

“Monitoring is important to ensure that the commonwealth has sufficient information on hand to plan for and to attempt to prevent gaps in health care accessibility. It should closely monitor community access hospitals and other hospitals in poor financial health.”

But CHFS Secretary Audrey Haynes said she sees potential conflicts of interest in keeping closer tabs on rural hospitals given the cabinet’s roles in licensing, settling regulatory appeals and setting Medicaid rates.

Those were among myriad concerns laid out in CHFS’s 58-page response to Edelen’s 54-page audit.

“It’s a conflict to the regulatory responsibilities that we have in statute,” Haynes said in a phone interview with Pure Politics, restating the cabinet’s recommendation that hospital boards post more financial information to their websites for greater transparency. “But then more importantly is that they have boards of directors and they all have to have external audits done.”

Haynes said the report did not include data from the the Affordable Care Act, particularly Medicaid expansion, but Edelen said those figures were not available in the hospitals’ most recent audited financial statements.

CHFS, in its response to the audit, noted rural hospitals netted $174.3 million last year from Medicaid expansion.

Gov. Steve Beshear also noted the audit’s omission of 2014 data, calling increased Medicaid payments and diminishing uncompensated care costs “huge changes to hospitals’ bottom lines that are not shown here.”

“Several years ago, we identified challenges for medical providers, and quickly took steps to help them develop new strategies for health care delivery,” Beshear said in a statement. “Thanks to a large federal grant, we have held meetings, organized summits and shared national practices with our hospital partners to design strategies for financially sound business models. That work is ongoing through five work groups of stakeholders.

“We remain committed to making sure that Kentuckians have access to affordable, reliable health care, and rural hospitals are an important part of our state’s overall health.”

Edelen said he hoped the issue would transcend politics in a gubernatorial election year, adding that the cabinet has a “tremendous opportunity” in ensuring the fiscal stability of rural hospitals.

“What we’re trying to do is get an understanding at the local level of the specific challenges that specific hospitals are facing,” he said.

But keeping the topic apolitical will be difficult in a gubernatorial election year, even though Edelen said his report should generate “more light than heat” on the condition of Kentucky’s rural health care system.

Republican Agriculture Commissioner James Comer, in fact, tossed his support behind specific recommendations in Edelen’s audit during a public event in Louisville half an hour before the report was unveiled.

Edelen, a Democrat seeking re-election this year, said GOP support for the rural hospital initiative is “significant.” He noted that he has discussed the audit in public before Monday’s release and his office did not provide Comer’s campaign a copy of the report.

“I suspect that when other candidates for governor who have the opportunity to see the work, which we’ll make sure we do today, my guess is that they’ll follow suit,” he said.

Kevin Wheatley

Kevin Wheatley is a reporter for Pure Politics. He joined cn|2 in September 2014 after five years at The State Journal in Frankfort, where he covered Kentucky government and politics. You can reach him at kevin.wheatley@charter.com or 502-792-1135 and follow him on Twitter at @KWheatley_cn2.

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