Daily Independent (Ashland, KY)

Local News

August 27, 2013

KDMC CEO addresses Rotary Club

ASHLAND — King’s Daughters Medical Center CEO Fred Jackson on Monday said “rumors in the community” concerning a more than two-year investigation by the federal government were having a major impact on the medical center’s patient volume.

In a candid and wide-ranging speech and PowerPoint presentation to the Ashland Rotary Club, Jackson said that by causing patients to seek care elsewhere, the rumors were impacting KDMC’s profitability, the lack of which was the main factor in the hospital’s decision earlier this month to terminate about 150 employees.

Jackson said the rumors stemmed from an investigation by the Department of Justice of the hospital’s practices concerning cardiac stents. He said KDMC was one of “many” medical centers in the county undergoing such a review. He also said that in the 25 months the probe has been taking place, “not much has happened.”

He said stories circulating in the community — which have included him being charged with fraud and other high-ranking hospital personnel being indicted or arrested and led out of the medical center in handcuffs — were “a bunch of bull.

“I guess a small town loves to talk about whatever it loves to talk about,” he said. “It used to be that people talked about Armco and Ashland Oil. Now, they talk about us.”

Jackson said the hospital had been able to determine most of the patients who were dissuaded from going to KDMC by the rumors had gone instead to medical facilities in either Huntington or Charleston for the services they needed.

“That ultimately results in a loss of jobs in our community,” he said.

He also said hospital staff had been encouraged to let those they hear spreading the rumors know they’re false, and he requested Rotarians do likewise.

The most recent layoffs at KDMC marked the third time since 2010 the hospital has had a major reduction in its work force. And, for the first time, the job cuts were not enough to restore the hospital to profitability, Jackson said. He said KDMC was currently operating at a loss, a first for him in his 37-year career in hospital administration.

“We’re not making money at all right now,” he said.

From 1996 to 2009, KDMC grew at a rate of 15 percent a year and had operating margins of 5 percent a year during that period, Jackson said. But, in May 2010, the effects of the recession hit the hospital hard, he said. Within about six months, the growth rate had dropped to zero and the operating margin dwindled to below 2 percent in 2011 and 2012.

Jackson said an operating margin of 3 percent was optimal for KDMC to be able to fulfill its mission while investing in new infrastructure and technology. He also explained that KDMC’s designation as a not-for-profit hospital was strictly for tax purposes and merely meant the medical center is required to reinvest whatever it makes above expenses.

“You still have to make a profit,” he said. “The revenue coming in has to be greater than the expenses going out or you’re out of business.”

Jackson said cutting jobs was one of the few means the hospital had at its disposal for reducing expenses because salary and benefits constitute 60 percent of its expenses.

He also acknowledged KDMC was caught off guard by the 2010 dropoff in growth and profits because “there was nothing that would have suggested that trajectory.”

One of the ways the recession has hurt the hospital, he said, was by causing people to “self-ration” health care — going without certain services because they can’t afford them, they don’t have insurance or they have insurance, but can’t afford the co-pays. Also, Jackson noted, KDMC’s bad debt and charity write-offs have increased from $75 million prior to 2010 to $130 million today.

Jackson said the Affordable Care Act, or “Obamacare,” which he said he had nicknamed “the Unaffordable Care Act,” had greatly impacted the ability of hospitals, including KDMC, to earn a profit, and that he expected that to continue.

He said the ACA had taken away billions of dollars from mostly hospitals to be set aside to pay for health insurance for the estimated 30 million Americans who are currently uninsured, with the promise hospitals will be “made whole” once health care reform is fully implemented because those without insurance will have some form of coverage.

“We don’t believe that. No one in health care believes that,” Jackson said.

Also, Jackson said, KDMC is operating in a challenging environment because studies show the Huntington-Ashland metro area — its primary service region — has among the highest rates of health risk factors such as diabetes, obesity and smoking in the nation. Yet even though its utilization is higher than medical centers in healthier areas of the country, KDMC is reimbursed by Medicare at the same “flat rate” as everyone else, he said.

Despite the challenges KDMC faces and will continue to face for the foreseeable future, Jackson said not all the news surrounding the hospital and its umbrella organization, King’s Daughters Health System, was bleak. Surveys continue to show the quality of the services provided by KDMC  “is second to none,” he said. And, he said KDMC’s new Portsmouth facility, KDMC Ohio, which opened in February, had recently become the No. 1 referral center in the system. A new outreach center that opened in Prestonsburg in May also is doing well, he said.

  KENNETH HART can be reached at khart@dailyindependent.com or (606) 326-2654.

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