KMC funding problems: How to fill the budget gap

BAKERSFIELD, Calif. (KBAK/KBFX) A day after firing the CEO at the county-run hospital, county supervisors are looking at how to fill a massive budget gap.

Kern County Board of Supervisors Chairman Mike Maggard blamed the Kern Medical Center funding problems on years of untruthful reports from the hospital. He said the board will first look at cost savings within the hospital, and next look at cuts to other county departments.

It was Monday when the board got new information that shows Kern Medical Center over-budgeted, likely to owe millions back to the state and facing a shortfall of some $64 million.

How did things come to this?

"The candid truth is that we were led to believe, with specific reports, that said the results of your operations were one thing, when it turns out these were not true," Maggard told Eyewitness News. "It was something very, very different from that."

After the Monday briefing, KMC CEO Paul Hensler was released from his position at the hospital. On Tuesday, the County Administrative Office released a summary of what led up to that: "A report received by the Board on Sept. 9 from Kern Medical Center's new chief financial officer shows that during the past eight years, KMC overstated intergovernmental revenue from the state, causing receivable balances to be overstated by about $36 million. In addition, the report states that over the same period, KMC may have received $28 million more than it was entitled to retain from a state program to assist hospitals that serve predominantly Medi-Cal and indigent patients. If so, the county may be required to repay this money to the state."

That leaves the county with a $64 million gap, and some tough questions ahead.

"We'll next look at what cuts from within the hospital can be made that do not jeopardize the services that are important to our community, but at the same time, make up some of the significant deficit that we've now learned of," Maggard said.

The county could also try to find savings in other departments. But, on Monday, CAO John Nilon said they expected to deal with a shortfall in the current fiscal year of $15 to $20 million, now things look different.

"The total was more like $64 million," Nilon said after Monday's briefing. "Which, of course, was much greater than we could have ever anticipated."

KMC's financial struggles have already affected county funds. The hospital has borrowed from the general fund to cover operating losses and delayed collection of receivables. The summary from the CAO's office shows the hospital got eight loan increases in the last 12 months. It says the reports from the chief financial officer now put the loan balance to KMC from the general fund at $93 million.

Maggard said the county now has "two very sharp people" working on the KMC funding issue. He could not say if others will lose jobs at the hospital in light of the budget problems. Maggard said no interim CEO has been named, and he didn't know when or if that will happen.

Eyewitness News reached Hensler by phone on Tuesday. The former CEO said he would not comment on the situation at KMC, saying he would let the county make any announcements. As for what he'll do next, Hensler said he "has some things going on," and indicated he would likely stay in California.

At Monday's meeting, Hensler took responsibility for KMC's financial condition.

"It was a lack of proper oversight and laziness in recording things," he said, adding it was the hospital's "finance people" who had erred.

Maggard also laid the blame on financial reports that came from KMC.

"We don't know all the reasons as to why that happened," Maggard said. "It's not very often in private enterprise or in the public sector that you find reports that just are flat out untrue."