Kittson Healthcare operated at deficit, making changes to remedy financials

By Anna Jauhola
After making drastic changes over the last year, Kittson Healthcare in Hallock is working to get financially back on track.
At the Kittson Memorial Hospital Association meeting on Tuesday, Jan. 14, Interim CEO Everett Butler and CFO Jeni Schwenzfeier said revenue was down and spending was up, leaving the facility operating in the negative.
“There were a lot of factors that hit hard in 2019 that will not be sustained going forward in 2020,” Schwenzfeier said.
At the end of Fiscal Year 2018, former CEO Ashley Rivera left following a controversial association meeting where many stockholders asked tough questions about administration salaries and the state of the facility’s financials.
Throughout FY2019, which began in October 2018, the new administration has been working to remedy the issues left behind. In doing so, Kittson Healthcare engaged two accountancy firms – Eide Bailly to construct financials and Clifton Larson Allen to handle the annual audit.
Final findings were that expenses were up to $15.9 million in FY2019, which is an increase of $800,000 from the previous year. The facility operated at a loss of $1.2 million.
“The end result of this was our expenses were increasing faster than our cash was coming in,” Schwenzfeier said.
The good news is, they are looking forward to a progressive and regenerative FY2020, one solid benchmark being the retail pharmacy. Although the pharmacy took a big chunk of expenses in FY2019, it also significantly helped increase operating revenue for the year. In FY2018, operating revenue was at $59,201, but because of the pharmacy, the operating revenue in FY2019 jumped to $293,000.
The facility’s operating margin calculated out to negative 8.7 percent due to the nonrecurring expenses incurred in FY2019, such as hiring outside accounting firms, implementing the pharmacy and staff turnover expenses. The total margin, when adding in nonoperating income like investments and grants, goes up to negative 7.2 percent.
“We spent most of this year readdressing the direction of where we needed to be as an organization, identifying and reducing nonessential costs, looking at different revenue opportunities,” said Butler. “We also looked at recruitment and retention efforts, and primarily one of the main focuses was making sure we adhered to all the Medicare and Medicaid reporting issues.”
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As a critical access facility, Medicare and Medicaid are one of the largest income sources.
“We ended up with some significant losses and lots of residual stuff this year in cleaning up the financials from 2017 and 2018 cost reports,” Butler said.
As they restructured, Butler said the administration has implemented internal controls, including a template for monthly financials. They have worked with department managers to ensure they know they are accountable for what happens and the costs within their departments.
“We’ve reduced administrative salaries,” Butler said. “We’ve taken out a layer of management throughout this last year.”
The administration was also able to implement pay raises for certain employees who hadn’t received pay increases for three years or more. This added $118,000 to the current budget. But, to make it fair for all, they were able to secure a 1.5 percent salary increase across the board for the 2020 budget.
Through the cuts made, Kittson Healthcare was able to reduce expenses by $611,000 in 2019 going into 2020, Butler said. Although that’s half of the loss for the year, he is confident 2020 will be better. He said the Minnesota Department of Health issued new nursing home rates that will likely generate $300,000 to $400,000 in the next year.
“The $611,000 in cuts were from staffing reductions and program changes in several areas, but primarily in administration,” Butler said.
Participating in the 340B subsidized drug expense program, along with Thrifty White Drug’s participation in Karlstad, that should generate another $400,000.
“Take the nursing home rates, the 340B program and revenue we’re getting from the pharmacy, that has us losing a lot less in 2020 than what our depreciation is,” Butler said.
Butler commended all the employees at the hospital, clinic, nursing homes and assisted living for their outstanding work, noting that everyone came together to get the facility back into good financial shape. He said the board and administration owe a lot to department heads and their employees for diligently working to ensure Kittson Healthcare is a solid organization.
“One of the things I have been very fortunate, I feel, by being here this last year is the quality of people you have working in this facility,” Butler said. “And these people, when I’ve asked them to step up to the plate, when I’ve asked them to make changes, they got on board.”
Lastly, Butler addressed a stockholder’s question of employing a new doctor. Kittson Healthcare has been working with recruiting services to find a new physician after Dr. Kevin Coonan left in late 2019. He said they have offered a contract to Dr. Kevin Maguire who would work part-time to offset Dr. James Surdy’s schedule.
“Dr. Maguire has visited Hallock, expressed an interest in coming here. We just need to clarify the credentialing process with insurance companies,” Butler said. “Once that’s clear, then we’ll proceed with licensure in Minnesota.”
Currently, Maguire is practicing in Alaska but wants to return to the lower 48 states.
“He understands rural and he understands cold,” Butler said.
They expect Maguire will start around May 1.
In the meantime, three other locum tenens doctors have been filling in.
In other business at the meeting:
• Dr. Roland Larter and Richard Mortenson were re-elected as board members.
• The following people were recognized for their years of service: 15 years – Tina Wilwant, Torey Peterson, Debra Ingeman and Barb Pantzer; 20 years – Maylea Boursaw and Lee Pemberton; 30 years – Marjorie Hugg-Olson and Dale Hanson; 35 years – Karen Warner, PA-C.
• Patti Swanson, Kittson Memorial Foundation president, gave a short presentation on the foundation’s year. She said through several efforts, the foundation received $31,400 in donations in 2019. Currently, the foundation has $312,478.09 in four dedicated accounts. The interest in these funds is spent annually.