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King's Daughters trying wide-ranging plan to turn around financials


By Beth Kutscher
Posted: March 25, 2014 - 7:00 pm ET
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King's Daughters' Medical Center, Ashland, Ky., is undertaking a wide-ranging financial improvement plan (PDF) to turn around its performance after struggling with declining patient volumes and a government investigation.

The 612-bed hospital, the largest in Kentucky, reported an operating loss (PDF) of $36.6 million on revenue of $485.9 million for fiscal 2013, which ended Sept. 30. That compares to $10 million in operating income on $552.8 million in revenue the previous year.

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“Volume was by far our biggest issue,” Autumn McFann , vice president of finance and chief financial officer, said on a call Tuesday with municipal bondholders. While its 6.5% year-over-year drop in admissions was in line with the rest of the state, the medical center saw higher declines in surgery (down 12.4%), cardiac catheterizations (48.3%) and imaging studies (17.2%) than its peers.

King's Daughters saw its cardiac procedures plummet after two high-volume cardiologists left the hospital, McFann said. In addition, the hospital has grappled with negative publicity following a U.S. Department of Justice investigation into the high volume of cardiac device implantations it performed on Medicare patients between 2006 and 2011.

The hospital also disclosed a settlement with the Justice Department that would amount to $40.9 million, which McFann said delayed the release of its 2013 financial results, in violation of its debt covenants.

Although no whistleblower lawsuits have been filed, Sheryl Mahaney, VP and general counsel, said there have been “collateral consequences” related to malpractice suits. Starting last March, a Texas-based law firm began soliciting patients who received cardiac care at King's Daughters—and it didn't limit its advertising to stent patients. This month, about 500 potential plaintiffs were identified when two separate actions were filed, Mahaney said.

The hospital is pushing back with a rebranding and imaging campaign to address what McFann called rumors about the investigation and to highlight the quality of its cardiac services, which recently received full accreditation from the Accreditation for Cardiovascular Excellence—the only program in Kentucky, Ohio or West Virginia to do so.

On the imaging side, King's Daughters has negotiated new terms with two commercial payers that had been steering patients toward its competitors, McFann said. It is now offering them a fixed pricing strategy for imaging and laboratory services.

It also established a Volume Growth Tactical Team and is actively signing up uninsured patients for health plan coverage. In addition, it has implemented a patient responsibility estimator service and is redesigning its electronic health-record system to help increase collections. “We plan to do a better job of pursuing patient balances earlier in the process,” McFann told investors.

It also plans to reduce its workforce through attrition and will eliminate unprofitable service lines. In addition, it is moving away from guaranteed salaries for physicians in favor of productivity-based compensation. It does not plan to acquire physician practices at this time, McFann said.

If the early months of 2014 are any indication, the hospital could see a turnaround this year, and expects to reach break even by its fiscal year-end. Kentucky has had particular success in enrolling uninsured residents in a health plan, and King's Daughters has seen a decrease in self-pay patients as more individuals come in with Medicaid or commercial insurance.

As a result, McFann said the hospital should see a $7 million reduction in bad debt if the trend continues. Already that reduction has meant net year-to-date revenue at $194.5 million is 1.6% ahead of budget.

Follow Beth Kutscher on Twitter: @MHbkutscher


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