KMC: on the mend, but still healing

County officials discuss progress in correcting fiscal crisis of county medical facility

Rebecca Neipp

News Review Staff Writer

News Review Correspondent

In the months following the Kern County Board of Supervisors’ drastic changes to cover a $64-million financial liability that arose through mismanagement of Kern Medical Center, the county’s top staffer said that a multipronged solution has put the institution back on course for fiscal solvency.

“We have a lot of work ahead and still some heavy lifting to do, but we have identified a path to make KMC a more relevant and financially responsible asset,” said John Nilon, Kern County’s chief administrative officer.

“The board rightly focused a lot of its time and attention on correcting this situation, and I believe they’ve selected a very capable management group to turn KMC around.

“There will be pain and suffering in the process, and you have to acknowledge that it might not look like the same hospital in the end, but the goal is to achieve a sustainable service to our county. And I think we can get there from here.”

“We were in a dire situation in the county. And we could not afford to continue hemorrhaging $3 million a month,” said 1st District Supervisor Mick Gleason. “So we made this our top priority.”

Gleason said that when he briefed a local audience on the subject earlier this month, he was surprised at how few had heard about the struggle.

Despite the distance between Ridgecrest and KMC’s Bakersfield location, he said, the course correction has had deep impact on the entire county budget.

Last fall an examination of the KMC books revealed that the installation was in trouble for two primary reasons — building a budget structure based on overinflated revenues and drawing more state funds than it was entitled to. Upon these discoveries, Nilon was placed as an interim manager while the board investigated the depth of financial loss. Later, the board fired the CEO and the CFO resigned.

“Having John fill in this way gave us a significant advantage,” said Gleason. “We were able to shine a light in the dark recesses to help us get an understanding of the depth of problems that existed.”

According to Nilon, a combination of factors that led to the tipping point.

“First, KMC had apparently been operating at a structural deficit for the last five or six years, but because the revenues were misreported it was not realized until last year,” said Nilon.

“When you take money from the state, it’s based on an estimate. So typically you put aside a portion in case you are paid more than you are owed. We didn’t. In the end the county owed the state $27 million.”

Compounded with the operating losses, the KMC liability threw Kern County into a fiscal emergency that prompted steps from the county. In addition to the firing of top executives, the county also realigned responsibilities so that the financial officer reports directly to the board to provide an additional layer of oversight.

“The numbers the board was reviewing from KMC were provided by the CEO. We wanted the board to be able to see that data unfiltered, which is why we shifted reporting of the financial officer directly to the board,” said Nilon.

The board also dipped into reserves to make a $6-million payment to the state and reopened the books to do a midyear budget adjustment. “Every department of the county was impacted by this crisis,” said Gleason.

But the greatest impact has been directly on KMC, where county officials have been making adjustments on both revenue and expenditure fronts. For the first, management is putting in procedures to ensure that KMC is not “leaving money on the table” for services provided. The next steps, said Nilon, will mean bringing staffing in line with industry standards.

“Right now, we are overstaffed when you compare us to other institutions in California,” said Nilon.

The News Review reported last year that the 20 top-paid staffers in Kern County were employed at KMC. However, Nilon said, some of those numbers could be misleading without appropriate context. For example, an orthopedic surgeon who collects $700,000 annually bills for far more than that. “We want our professionals to produce, and we want their compensation to reflect that.”

Gleason and Nilon agreed that ultimately the objective is to achieve financial sustainability.

“It is imperative that we bring KMC into a point where it is at least revenue-neutral,” said Nilon. “But this institution has a value beyond medical services. Right now KMC is the only trauma center and the only teaching hospital in the county. We just have to find our niche in providing service in order to become more financially solvent.”

That mission grew in “geometric complexity” with the federal mandates for health reform. “Now that people have more choice in where they can seek care, we are seeing a trend where our service to the uninsured population is growing. That is a wrinkle that makes reaching our goals more complex,” said Nilon.

“But I think in government it’s always good to have examination and introspection. I am confident we will come out the other side of all this as a better hospital.”

“John served our county very well, and I hope that our new CEO, Russell Judd, can keep us on course,” said Gleason. “I think the next step for the board is to extract ourselves from the operational management and return to governance. We will be providing strategic performance objectives for KMC and monitoring their progress toward those goals.”

Story First Published: 2014-03-26