2016 Sales Tax
Shall the City of Arkansas City, Kansas be authorized to impose a one-percent (1%) Citywide retailers’ special-purpose sales tax (the “SCKMC Sales Tax”), the proceeds of which will be applied only for payment of debt service previously incurred to construct and equip South Central Kansas Medical Center (“SCKMC”), to commence on October 1, 2016 and expiring ten (10) years after its commencement, pursuant to K.S.A. 12-187?
80% In FAVOR! - THANK YOU ARKANSAS CITY
We appreciate everyone who took the time to attend public meetings, ask questions, post yard signs, and vote for the hospital’s one cent sales tax initiative. It is through your support that we are able to reach for a higher standard of healthcare for our community.
A special thank you to the dozens of volunteers that have assisted during these past few months. Through your donations, both monetary and time, we were able to explain the need for the sales tax initiative, and the path for SCKMC’s financial stability in the future.
Rest assured, a sales tax is not something hospital officials take lightly. We understand the burden being asked of the community, but realize local support is the key for our success. Currently 67% of all Kansas hospitals receive local tax support.
We are proud to continue our tradition of personal caring to our community, and realize you have a number of choices for where and how your family receives their healthcare.
Once again, thank you for supporting your local hospital.
2016 Sales Tax Questions and Answers
How Bad Is It?
SCKMC has operated at a loss since 2011 and ended 2015 with a loss of $1.5 million. South Central Kansas Clinic ended 2015 with a loss of $400,000, giving the total organization an unaudited loss of $1.9 million. In addition we owe $1.9 million in accounts payable to our business partners. Should SCKMC remain status quo, the facility is projected to have additional losses each year reaching a $3.9 million annual loss by 2020.
SCKMC staff are currently investigating all possibilities for reducing expenses and generating revenue, and expect to break even as early as 2017 by focusing on a strategic plan that centers around improved patient experiences, physician recruitment and expansion of specialty healthcare programs
Initially SCKMC will lower expenses through cost reduction measures estimated at an annual savings of over $750,000, many of which have already been enacted. In addition, the hospital will focus on completing two Federal designation programs (340B retail pharmacy & rural health clinic status) when combined are estimated to generate approximately $800,000 in additional revenues annually. The medical center will also develop the full-time family medicine practice of recent recruit Dr. Willie Posey II, and actively work to expand local orthopedic services. The growth of these two programs are estimated to net a combined $1.5 million in additional revenue for SCKMC. And while all of these items are important steps, they alone will not be enough to support the hospital and the bond payment debt for the long-term. Which is why the 1% sales tax is critical for long-term success.
How Did the Hospital Get Into This Financial Crisis?
The National healthcare climate has changed over the past five years. Only three hospitals closed in the United States in 2010, but that number has increased each year since. Nationwide, eight hospitals have already closed or announced they will be closing in 2016. The State of Kansas has made it especially difficult for hospitals to survive. A recent report was published stating that 1 in 3 hospitals in Kansas are in danger of closing this year.
One of the most significant reasons is the failure to expand Medicaid, or KanCare. Expansion of this service would have provided insurance coverage to 7,000 people in Cowley County. SCKMC currently averages over $1 million in uncompensated care each year, and 60% of those services are to uninsured patients. In addition participation in the program would have increased SCKMC’s revenue by approximately $913,000 in 2016 alone.
Second, roughly $1.2 million is paid from hospital operations towards the hospital construction bonds each year. The bonds are financed at a high interest rate, but may be able to be refinanced in 2019 for a lower rate, saving hundreds of thousands of dollars in interest each year.
Finally, the acquisition of South Central Kansas Clinic was essential in keeping local doctors and assisting in recruiting new doctors. However in the first year and a half of operation SCKMC has been unable to make the clinic profitable, costing the organization almost $500,000 over that time. An increased focus on record completion, the billing process, and increased reimbursements through the approval of rural health clinic status should bring the clinic to a profitable status.
Another tax, didn’t we just go through this?
The failed attempt at the 2014 proposed sales tax was to prevent the hospital from reaching this point financially. Since that time, hospital staff have worked non-stop to find alternative avenues for revenue. They have had some success, but not enough in such a relatively short time frame. Currently 67% of all Kansas hospitals receive local tax support. A sales tax is not something hospital officials take lightly. They understand the burden being asked of the community but still feel this would be a fairer solution than a property tax or cutting City services outside of the hospital. The current half cent sales tax will end in 2019 and generates between $800,000 – $850,000 each year. The annual hospital bond payment is roughly $1.9 million. The difference is made up from hospital operations, although the City has also loaned the hospital $550,000 within the last year to cover a shortfall in available hospital funds. An additional sales tax, proposed to be a 1% hospital specific tax for ten years, would cover the majority of the bond payment through 2026, providing the hospital more time to develop additional sources of revenue such as physician recruitment and expanded service lines.
Why should I have to support the hospital? When my business loses money no one "bails me out".
Hospitals are unique businesses as they are not allowed to deny service to any patient who presents through the ER, regardless of their ability to pay. This resulted in $380,000 in charity care write-offs for SCKMC last year alone. In addition hospitals cannot control how much they are paid for services provided to Medicare, Medicaid, and to some extent even commercial insured patients. On average SCKMC receives $0.50 of every dollar charged and writes off over $43,000 worth of services every day.
What happens if the sales tax fails?
There are other possible options for SCKMC, versus the current quasi-municipal structure, such as significantly scaling down services, selling the facility, or closing the doors. However, the City of Arkansas City, and in turn its citizens, are still responsible for the bond payment even if the hospital is no longer open or is functioning in a limited capacity. Should the sales tax fail, SCKMC will be forced to eliminate a significant number of staff and reduce healthcare services. In addition, the City of Arkansas City has stated they will be forced to consider an increase in property tax (between 10-40 mills) along with cuts in local services. If the City were to be able to find a buyer for the hospital, it would likely be for pennies on the dollar and the City would remain responsible for the remaining bond debt. In addition, the organization would likely be transformed into a for-profit model, potentially limiting both local services and community input.
How does that impact me?
Should a sales tax fail the impact reaches beyond the obvious reduction/elimination of the availability of local healthcare services, and likely increased property tax and spending cuts at the City level. For every dollar of revenue generated in the hospital sector an additional $0.54 is generated in other businesses. SCKMC is a $30 million annual business, that is $16.2 million in additional revenue generated each year. Loss of the hospital would equal the loss of over 200 local jobs, a hit to industry recruitment, and a downgrade to the overall quality of life for Arkansas City.
What can I do to keep local healthcare services?
Ultimately it will be up to the citizens of Arkansas City to decide what type of local healthcare services they want moving forward. If you are a registered voter who lives within the city limits of Arkansas City, you will receive a mail ballot around May 4. It will ask the following question: Shall the City of Arkansas City be authorized to impose a one-percent (1%) Citywide retailers’ special-purpose sales tax (the “SCKMC Sales Tax”), the proceeds of which will be applied only for payment of debt service previously incurred to construct and equip South Central Kansas Medical Center (“SCKMC”), to commence on October 1, 2016, and expiring ten (10) years after its commencement? If you do not want to see a reduction or elimination of local healthcare services, along with your property taxes increased, please vote YES to this one-cent, 10-year sales tax and return your ballot to the Cowley County Clerk’s Office in Winfield by May 24.
Register to vote online at: https://www.kdor.org/voterregistration/Default.aspx
Do you have more questions? Just ask!