From left: Baptist Health Chief Financial Officer Brent Beaulieu, Drew Memorial Health Center CEO Scott Barrilleaux and Alvarez and Marsal consulting firm representative Daniel Harlan take questions from the Arkansas Legislative Council’s Performance Evaluation and Expenditure Review subcommittee on Tuesday, June 13, 2023. (Screenshot courtesy of the Arkansas Legislature)
Arkansas lawmakers awarded nearly $5 million in federal funds on Tuesday to a rural Southeast Arkansas hospital that will start merging with the Baptist Health system on July 1.
Drew Memorial Health System will receive $4,926,897 from the pot of money, originally more than $1.5 billion, allocated to Arkansas from the American Rescue Plan Act (ARPA) of 2021 in light of the COVID-19 pandemic.
The Arkansas Legislative Council’s Performance Evaluation and Expenditure Review subcommittee approved the relief funds for the hospital in Monticello with no audible dissent.
The subcommittee also voted, with no audible dissent, to require quarterly reports on the use of the ARPA funds from Drew Memorial Health System and the consulting firm Alvarez and Marsal, which evaluated 18 rural hospitals in 2022 to determine whether they were eligible for ARPA financial relief. The state hired the firm to help legislators decide how to prioritize hospitals’ requests for the state’s dwindling ARPA funding.
Drew Memorial had roughly 11 days’ worth of cash on hand in February, according to the report Alvarez and Marsal released to the subcommittee Tuesday. The report projected a net loss of $7.7 million for the hospital at the end of Fiscal Year 2023, based on financial data from September 2022 to February 2023.
The hospital has also experienced “high staff turnover” and competition from nearby hospitals, resulting in “not enough cash to adjust pay rates” and “staffing shortages that are impacting the ability to take patients,” the report states.
Rep. Jeff Wardlaw, R-Hermitage, whose district includes Monticello, made the motions to award the money to Drew Memorial and to require the quarterly reports. The hospital will receive half of the promised $5 million immediately and the other half Dec. 1 when the merger with Baptist Health is complete, Wardlaw said.
He added that he thought the subcommittee should have required the hospitals in Ouachita County and Sevier County to also submit quarterly reports on their use of federal financial aid.
“The only way this committee would know if all the money was expended or if all avenues were done correctly to what we made and approved is if they give us a report on a quarterly basis, and a lot of [hospitals’] actions and strategic plans are quarterly based,” Wardlaw said.
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Drew Memorial stayed afloat financially in 2021 and 2022 due to other federal COVID-19 relief funds, including a Paycheck Protection Program loan and subsequent debt forgiveness, according to Alvarez and Marsal’s report.
The hospital submitted a “sustainability plan” to the consulting firm that included a $3.2 million reduction in expenses within its first year and an overall $4 million increase in revenue, according to the report. However, both efforts are set to come from “initiatives that have not been executed” and require steps to begin that the hospital has not yet taken, the report states.
Drew Memorial’s imminent merger with Baptist Health led the Arkansas Department of Human Services to fast-track the hospital’s funding request, DHS chief of staff Mark White said Tuesday. He added that other rural hospitals will approach legislators with ARPA funding requests in the future.
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Twenty-six rural hospitals that do not belong to larger health care systems were eligible for review, and eight declined to be evaluated. Drew Memorial and Ouachita County Medical Center were among the 18 hospitals that Alvarez and Marsal evaluated; Sevier County Medical Center was not.
Ouachita County Medical Center had less than five days’ cash on hand when representatives approached the Arkansas Legislative Council with a request for financial assistance. The council directed $6 million to the hospital out of $60 million in ARPA funds set aside in August 2022 as emergency relief for struggling hospitals.
The $6.25 million Sevier County Medical Center received came from a different subset of ARPA funds and prevented the new hospital from taking out a loan and going into debt. Before December, the county had been without a hospital since 2019, when the previous facility’s out-of-state owner was charged with Medicaid fraud.
Daniel Harlan, the managing director of Alvarez and Marsal’s public sector services practice, explained to the subcommittee on Monday how the firm evaluated the 18 hospitals. The firm examined the hospitals’ revenue and expenses, physical layouts, workforces, distance from other hospitals, patient volume trends, and use of technology, among other things between July and December 2022, Harlan said.
Legislators expressed frustration Monday that Harlan did not have the report on all 18 hospitals’ data readily available, and they questioned Harlan’s use of statistics from another study that might have applied to a different sample of Arkansas hospitals.
On Tuesday, Sen. Kim Hammer, R-Benton, asked Harlan if hospitals’ management styles determined staff retention rates.
Harlan said the firm sought input from each hospital’s human resources department in the evaluation, and multiple factors besides management styles contributed to differences in retention rates. Those factors included the proximity of other healthcare facilities and pay rates for nurses who traveled instead of being based at one facility, Harlan said.
“As we talked with leadership at hospitals, all of those factors came up in nearly every conversation, including at facilities where turnover and loss of staff was less of a challenge,” he said.
The higher pay nurses receive from traveling contracts than from in-house contracts has created staffing problems at many hospitals, Harlan said. Drew Memorial Health System stopped using travel nurse contracts and employs nurses solely with in-house contracts, according to the report.
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