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Auditor's Report Reveals Challenges in Kentucky's Healthcare Success Story

Mary K. Caffrey
A 2011 switch to Medicaid managed care, which occurred during a budget crisis, has been blamed for financial challenges at rural hospitals and declining numbers of providers. Auditor Adam Edelen said the plight of Kentucky's rural hospitals is complex but must be addressed.
This week, Kentucky auditor’s found a third of the commonwealth’s rural hospitals are in poor financial health, raising questions whether a 2011 switch to Medicaid managed care is undermining Governor Steve Beshear’s much-touted launch of the Affordable Care Act (ACA).

Auditor Adam Edelen noted his report, based on 2013 data, did not reflect the infusion of $506 million in Medicaid funds that came in 2014, when Kentucky trimmed cut the number of uninsured residents by 400,000. Beshear’s creation of Kynect, a state-run exchange, and efforts to reach skeptical residents who were otherwise not fans of President Barack Obama, were considered keys to his success. The commonwealth reduced its uninsured rate 8.5%, the second-largest drop in the nation.

But Edelen’s audit uncovered how Kentucky’s earlier move to manage care in Medicaid, which was done swiftly in the midst of a budget crisis, left scars on rural hospital finances. The shift has also been blamed for declining numbers of providers in remote areas.

Beshear addressed the issue with providers in a statement this week: “Thanks to a large federal grant, we have held meetings, organized summits and shared national practices with our hospital partners to design strategies for finally sound business practices. That work is ongoing through 5 work groups of stakeholders.”

Edelen, for his part, credited the “historic” implementation of the ACA and its effect on the uninsured. Rather, he said, rural hospital health appears to be affected by a host of complicated factors, the shift to managed care among them. Rural hospitals may struggle to keep pace with technological change. High unemployment in rural areas means a smaller share of the population has commercial insurance, which typically reimburses at higher rates.

Most of all, Edelen observed, changing patterns of healthcare delivery are taking more care outside the hospital, leaving rural institutions with fewer patients. Yet, he wrote in an op-ed in the Louisville Courier-Journal, solutions for rural hospitals must be found. Across the country, he wrote, they are vital pieces of the economic fabric and lifelines to underserved populations.

“In Kentucky, rural hospitals provide care to 45% of our population. They tend to be among the largest employers in their community, paying a significantly higher wage than the local average,” Edelen wrote. “Their importance to local communities cannot be overstated.”

Edelen’s report and op-ed called for more collaboration to help rural hospitals adapt to new payment models under the ACA. He also called for reducing administrative costs from the switch to Medicaid managed care, which cost each hospital $157,000 a year on average. It was unacceptable, Edelen said, for hospitals to face laying off patient care staff to hire people to do paperwork.

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