by Tracy McCue, Sumner Newscow — To put things in perspective, the amount of money the Wellington City Council gave Sumner Regional Medical Center last week, $880,476 out of its contingency fund, is more money than what the half-cent sales tax generated in a year. A half-cent sales tax usually brings in $50,000 a month revenue to the hospital or about $600,000 annually.

But SRMC Administrator Leonard Hernandez is optimistic that it is a one time event. The hospital is in a state of flux and a lot of it is about timing. He is convinced the potential is there for better days ahead.

Leonard Hernandez

We sat down with Hernandez for a one-on-one interview outlining the current state of finances at SRMC and what the future may be for the premier health clinic in Sumner County.

Sumner Newscow: What has caused SRMC to be in such a dire financial situation as of late?

Hernandez:  Everyone is aware we lost (Wellington Family Practice) clinic at the end of May in 2013 and Dr. Janelle Yutzie (a former SRMC surgeon) a couple years ago. With those people in place the hospital was generating $88,000 a day in revenue. That number dropped to the mid-60s when they all left and that is where it has stayed. Last year. we had to get a surgeon and we did that with the hiring of Mr. (Gregg) Shore.

The trouble is he hasn’t gotten all of his credentialing with the various healthcare agencies completed and some of that can take 30 to 90 days. Once he gets his full credentialing intact, he will be go full steam ahead.

SN: What did that $880,000 pay for?

Hernandez: I’m not going to get into a lot of specifics where the money went. There were some issues we had been talking with the city for a couple months and these were the best places that we felt needed taking care of immediately.

SN: Can you at least tell us what that money was going toward?

Hernandez: One is KPERS. Another are the various accounts payable that have been due past 60 days. Cerner, our software company is a monthly payment program. Impact (Bank) was part of a loan repayment agreement and we needed to pay the initial $135,000 for a line of credit in 2013.

SN: Does this put you back to where you need to be with your creditors?

Hernandez: It puts us back on a 30-day payment schedule.

SN: You lost a quarter-cent sales tax (which sunset in April). How has that affected the hospital?

Hernandez: We lost around $25,000 a month. That’s why we are talking to the city about an additional half-cent sales tax referendum because we feel that will keep us going.

SN: Do you think that is going to be a tough sell?

Hernandez: Yes, it will be a tough sell. But if we can present it outlining our long-term strategies and convince them it is affordable to the public, I believe the community will listen.

SN: How would you define SRMC’s financial state if it was a corporation? Would you invest in its stock?

Hernandez: That’s an interesting question. Right now we are operating at a $60,972 profit (see income statement here: SRMC income statement April 2014. However, we received a $834,000 incentive payment in March for electronic records reimbursements which is a program through Medicare. If you took that out we would be losing $160,000 a month. We have a couple of more payments on our electronic records and that will dry up.

SN: It sounds to me like you are in desperate need of another source of funding. Do you have anything down the pike?

Hernandez: Well I’m glad you asked. I’ve been told since coming here that this hospital could not be a Sole Community Provider which is a Medicare designation or a critical access hospital because of our location. We are part of the Wichita MSA – Metropolitan Statistical Area which the county joined on when that was offered years ago. Because of that status we have not been able to join those programs.

But I was doing some research last weekend (this interview was conducted on Friday), and I think we could prove we could become a Sole Community Provider. In order for that to happen, we need to get some designation from a state or a national group that says we are “rural.” If we are able to opt out of the MSA, then that makes us eligible to becoming a Sole Community Provider. Then we can apply. It would be a two-prong process.

SN: Do we have a chance of getting that done?

Hernandez: I was looking and in a 2013 report by the Kansas Department of Health and Environment on medicine, Sumner County is listed as a densely populated “rural” county. Because the “rural” designation is there, the people I’ve been talking with, like auditors, feel that will be enough to apply and opt out of the MSA. If we can find others, who can call us rural, this will help our cause even further.

SN: So what do they have us designated now?

Hernandez: We are urban.

SN: So what would happen next if we were declared a “rural” county?

Hernandez: Our goal is to have this in place by October 1, so we can be a sole community hospital before the federal fiscal year. If that happens, we would then be able to get higher reimbursements for in-patient care and cost-based reimbursements on our labs. That would be huge for us.

You are talking literally $100,000s of dollars. I started working on it on Monday and talked to a lot of people in the know and they think we have a good shot.

I was an administrator in Elkhart and that hospital was a Sole Community Provider and I can’t imagine that we don’t meet the same criteria as that hospital out there (in western Kansas).

SN: You have worked at both Elkhart and Wellington. Do you think the hospitals are comparable?

Hernandez: They are now. You can go to all the western Kansas hospital towns and they are having the same discussions as we are.

Hospitals are going to their cities and counties asking for more money. You see that up and down the map. There are not many independent hospitals left. The problem is small-town hospitals have to compete with the big boys, like Wesleys and the Via Christis, and that is impossible to do.

SN: So are these hospitals going to survive?

Hernandez: Well, they are doing what they have to do and a lot of them are increasing taxes. A lot of them are talking about being something less than a hospital like a federally qualified health center. Those decisions are tough to make and the change is going to be very big.

People want their hospitals. If you had one you don’t want to lose one.

SN: It’s hard for a town to grow without a hospital.

Hernandez: Absolutely.

SN: Do you think the financial situation is worse in Wellington than other hospitals in Kansas?

Hernandez: I don’t think it is any worse. Many hospitals across the state are having the same financial problems that we are having. A lot of those hospitals are critical access hospitals and are getting 101 percent reimbursements on medicare costs which constitutes 70 to 80 percent of their volume. And yet they are still not able to fully fund themselves and be self sufficient without tax money.

The financial assistance we have had in the past with the half cent sales tax is considerably less than those rural hospitals receive on an annual basis as a critical access hospital. We are not eligible for that program because of our proximity to Wichita. But again we have a chance by being a Sole Community Provider.

SN: Does SRMC have to redefine what a hospital is?

Hernandez: No I don’t think so. What I think we will have to do is enhance the services that we are good at.

When I came here we had 143 FTEs (full time employees). I think we have 128 now. We made some tough decisions. On the other side of the coin we have added two highly paid positions: the CRNA (nurse anesthetist) and a surgeon.

We may have dropped our salary level on one side, but now we have two additional salaries on the other and it doesn’t reflect a change in the financial statements.

But we needed a surgeon and that was the best shot we have with turning the hospital around.

SN: Is losing these employees affecting the quality of care at the hospital?

Hernandez: We have been surveyed by Medicare on the hospital side, the lab side, the radiology side, the skilled nursing side, and we had just one deficiency cited. There isn’t another hospital in the area maybe in the state that can make that claim.

When people want to talk about quality, I feel very confident with the quality of the services and care we provide.

Now would we like to be busier? Of course, we do.

SN: Do we have less patients than we have had in the past at SRMC?

Hernandez: If you look at the statistics (see here: SRMC inpatient admissions.) and the average number of patience we take in a year at our hospital, nothing has changed. Even with all the the major things that have happened in the community with the doctors and the surgeon, we haven’t had any major changes in the volume of patients at the hospital.

Where you do see the big change is in the out-patient services.

SN: And how do you fix that?

Hernandez: We do very well with BHU (Behavior Health Unit), skilled nursing and residential services. The BHU has been asking for additional beds. So we started thinking about increasing the size of the BHU unit from 10 to 14 beds by moving them to the main floor (it is currently upstairs). The jump in beds would generate an additional $150,000 net a year for the hospital.

What that will do is free up more rooms upstairs for residential housing. Those rooms generate about $5,200 a month – all cash. We currently have had to turn people away on residential housing because there is such a big demand for it. We can do this without affecting the number of beds available for acute care.

This won’t happen immediately. It will be a long term process, and take up to five years. Barring some major changes in acute admissions this will be additional revenue for the hospital.

Those expansions with BHU and residential along with having a surgeon are keys to making this hospital financially viable for the long-term.

SN: You and the city council had four-hour of executive session before the city allocated $880,000. Are you going to have to do that again?

Hernandez: I don’t think we will have to. Let’s give the city council a lot of credit for the decision they had to make. They knew the viability of the hospital was at stake. They want to see the hospital succeed. But they want us to do as much as we can on our own.

That is why these designations and these other proposals are so important.

SN: How about the Affordable Healthcare Act, aka Obamacare? How is that going to affect the hospital?

Hernandez: The biggest thing that hurts us are uninsured people coming into the hospital. Part of that is the state not accepting the Medicaid money provided through Obamacare.

There are an estimated 200,000 people that could have been covered by that Medicaid. Those are the same people who come into our E.R. several times a month.

By not getting Medicaid payment, it is estimated by several groups like KHA (Kansas Hospital Association) that it costs us $200,000 to $300,000 a year that would have come to us if the state accepted that money.

SN: Are there other areas where we can get additional funding?

Hernandez: We knew we had to enhance our coding (the billing process). So we outsourced our coding in March.

Since March, the outsource company has generated $5.2 million in accounts receivable for the hospital which is a huge difference than what we had a year ago. The goal is to bill our patients in a more timely manner, 60 days or less. Right now, our billing process is at 78 days. If we have accounts over 70, there is a blunder in the system. If we get under 60 days, that is a big gain and a huge potential for additional cash.

For every bill we send out we expect 42 cents to 60 cents in return. I know when you bill you expect full payment. But for hospitals that is not the way of the world. That’s why we have to increase reimbursement with that rural designation. It’s huge for us.

SN: Sounds like you have lots of opportunities. Are you optimistic about the hospital?

Hernandez: Absolutely. We have done our best to keep the staff informed. We are all in this together. We need it to work. I’ve been here a year-and-a-half now but I knew walking in it would be a three-year project. Now we have some things to grab onto and be the hospital we can be.

Does that mean we will be self sufficient? Probably not. But it means we will be the best model we can be after three years. It will take that long.

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