Home-health-sale details slim, raise questions

Senate President Pro Tempore Jonathan Dismang, R-Searcy, left, is shown with Sen. Larry Teague, D-Nashville, during a meeting of the Senate Committee on Insurance and Commerce.
Senate President Pro Tempore Jonathan Dismang, R-Searcy, left, is shown with Sen. Larry Teague, D-Nashville, during a meeting of the Senate Committee on Insurance and Commerce.

Some lawmakers praise the Arkansas Department of Health's plan to sell its in-home health care services program to Kindred Health Care Inc. for $39 million.

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Arkansas Democrat-Gazette

Robert Brech, the Health Department’s chief financial officer is shown in this file photo.

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AP

Sen. Larry Teague, D-Nashville, is shown in this 2015 file photo.

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Rep. Charlotte Douglas, R-Alma, is shown in this 2014 file photo.

Other lawmakers have raised questions about what the sale will mean for services to Arkansans. The sale is to close Aug. 1.

After figuring costs associated with the sale and transition, including retention bonuses for about 1,800 employees and contract workers, the state will net about $24 million from the sale, said Gov. Asa Hutchinson, who announced the deal nearly three weeks ago.

"Just as importantly, the services are provided, the employees are protected and we have done it in a way that protects the interests of this state," the Republican governor said.

Kindred is a publicly traded Fortune 500 company based in Louisville, Ky. It reported revenue of $7.2 billion last year and has 102,000 employees in 46 states, including Arkansas.

In the deal, the company will acquire the Health Department's 74 home health care locations that provide services in 69 counties; seven offices that provide hospice services in 42 counties; and its personal-care services, according to Kindred.

The transaction will expand Kindred's services from six offices that provide home health and hospice services in four counties to offices that provide home-health, hospice and personal-care services in 70 of Arkansas' 75 counties.

Senate President Pro Tempore Jonathan Dismang, R-Searcy, said in an interview: "It is my understanding that the sales price is very good. [State officials] are pleased with the amount that the state is going to receive.

"Obviously, it is going to reduce a lot of pressure on the state. That had become a losing enterprise for the state and has been for quite some time, and to relieve that pressure is going to be good for taxpayers," Dismang said.

The program's revenue dropped from $71.5 million in fiscal 2011 to $58.5 million in fiscal 2015 as its number of in-home patients dipped from 18,649 to 13,399 and the number of in-home health services declined from 2,978 to 2,411 during the same period, according to the Health Department.

"I think the key is stopping the drain on the budget and the provisions for the employees, the bonus and a guarantee of employment for at least one year. Aside from the net sale price, I still have not seen a figure on what the net savings to the state will be. I would still be interested in seeing that," Rep. Ken Bragg, R-Sheridan, said in a written statement.

Robert Brech, the Health Department's chief financial officer, said the state will not save any money by no longer operating the program but that services "should be able to be continued and possibly expanded by Kindred."

The program's annual budget "didn't include any funding other than what was expected to be collected from their billing receivables, so there will not be any money to reallocate in the future. As their revenues declined, they had fewer dollars available to budget for staff. As their staffing decreased, they saw fewer patients, and this led to even lower revenues," he said.

Brech said there was no written analysis from the state or a consultant on how much money was expected from the winning bidder.

So Kindred's total payment and the net to the state was how much more than expected? "I really cannot answer this question," Brech said.

He said Kindred submitted the highest bid of the six bidders and received the highest scores in the department's evaluation of those bidders. He declined to disclose how much each of the five other bidders offered for the program.

"Until closing, the bids cannot be shared," he said in response to a state Freedom of Information Act request filed by the Arkansas Democrat-Gazette.

"I have to admit, this is an unusual circumstance to be selling a program. If you look at the agreement we have with Kindred, there are a number of reasons that the agreement would be terminated. Should that occur, we would need to go to the next-highest-scoring bidder and begin discussions," Brech said. "There is also the potential issue if the bidders would wish their bid information shared and if it could cause them substantial harm if it were to be released."

Brecht pointed to Arkansas Code Annotated 19-11-230 (e)(3) of the state's procurement law to justify not disclosing the amounts of the other bids.

"In conducting discussions, there shall be no disclosure of any information derived from proposals submitted by competing offerors," that provision of state procurement law says.

The other bidders for the program are: Arkansas Hospice Inc. of North Little Rock; Arkansas Post Acute Care LLC of Fort Smith; Amedisys Inc. of Baton Rouge; Hospice Home Care Inc. of Little Rock; and Brandi Melton of Jonesboro, president of Home I.V. Specialists and Baker Healthcare.

The program, started in 1981, offers home health care, personal care and hospice care.

Home health care is for care after a hospital stay or serious illness, personal care is help with daily activities so a patient can continue to live at home, and hospice care is for a patient suffering from a terminal illness, said Meg Mirivel, a spokesman for the Health Department. In-home services is the umbrella program under which these services are provided, she said.

Most patients pay for the services through Medicare and Medicaid, although some patients use private health insurance, Health Department Director Nathaniel Smith said.

Few states operate in-home health care programs now, and Arkansas' program has been among the "anomalies," said William Dombi, vice president of law for the National Association for Homecare and Hospice.

When Hutchinson announced the deal with Kindred, he said it was no longer feasible for the state to continue providing home health care services because of declining patient numbers and competition from private companies.

The decision to sell the program will preserve the jobs of about 280 state employees and an additional 1,600 contract employees for up to a year. The arrangement also allows for 3,380 patients to continue coverage for at least a year.

Three months ago, several lawmakers, including Rep. Charlotte Douglas, R-Alma, and Sen. Larry Teague, D-Nashville, told department officials that they were worried about the consequences of selling the program to a private company.

They said they feared that rural areas would lose service once a company purchased the program, and they were concerned about the fate of the program's state employees.

Teague said in an interview that he plans to read a copy of the department's agreement to sell the program to Kindred and then possibly seek more information about the deal.

Douglas said in a written statement, "The current concern is whether their delivery [of services] to those patients in very rural parts of Arkansas will be as [good a] quality as they have been getting with the Health Department in charge of home healthcare."

She said she has asked whether Kindred will serve the underinsured population and if it will commit to serving patients in areas of the state that are hard to access. She also wants to know if Kindred will have contact points in each county so its services will be accessible for patients when problems arise, and if the firm will retain the Health Department personnel as was promised.

"Our Health Department's worked very hard to accomplish all of these things and, if the new owners of this business cannot perform up to these quality standards held by our Health Department personnel, then we as a state are remiss in selling this program to the private sector," Douglas said.

In response to Douglas' questions, Brandon Ballew, senior vice president and chief operating officer for Kindred at Home, said, "We have worked with the Arkansas Department of Health to respond to those questions and have reached out to her personally to address any concerns.

"We have expressed our commitment to serving the underinsured or those who lack insurance, just as Kindred does in other states," Ballew said in a written statement. "Kindred is also committed to serving populations in remote areas. We have experience doing so in other states and will utilize that experience in Arkansas.

"As part of the agreement, Kindred agreed to retain all current employees and serve all current patients upon consent. We have communicated our plans to the employees. We are very excited to increase our presence in the state of Arkansas. Working on integration planning with the Arkansas Department of Health has been a great experience. We are very committed to taking care of all employees and patients and upholding the exemplary culture and service standards established by the State," Ballew said.

HIGH SCORES

Two of the Health Department's evaluators scored Kindred's bid as the highest, while one of the evaluators rated Amedisys Inc.'s bid the highest, according to Health Department records.

Renee Mallory, the director of the department's Center for Health Protection, and Glen Baker, the director of the department's Public Health Laboratory, gave Kindred the highest scores of the six bidders. Tracy Bradford, the department's associate director of management and operations, gave Amedisys the highest score of the six bidders.

The six bidders' scores were reached on the basis of continuing high-quality, in-home health care services; continuing services to indigent/self-insured patients, Medicaid patients and pediatric patients; continuing services to the Health Department's service area; continuing employment of the department's employees; qualifications; and profiles and disclosures.

REACTION OF OTHER BIDDERS

Attorney Amy Wilbourn of Fayetteville, representing Arkansas Post Acute Care LLC, said her client company submitted a lower bid than Kindred's, but she declined to disclose how much it was.

"My clients were disappointed they weren't chosen for the winning bid and the resulting contract," she said in an interview. The company offered a unique ability to provide services to people in rural areas, "but money prevailed," Wilbourn said.

Nursing home owner Michael Morton of Fort Smith has "a minority share" in Arkansas Post Acute Care, Morton spokesman Matt Decample said. Businessman David Norsworthy of Gateway is listed as an officer for Arkansas Post Acute Care LLC, according to its March 13 filing with the secretary of state's office. Norsworthy has been a partner in several nursing homes with Morton.

Melton, president of Home I.V. Specialist and Baker Health Care, said she knew that she wouldn't be the top bidder because "I'm not a national company that would come and turn a profit on it."

"I know my bid was substantially lower than Kindred's bid, but I have different motivations for wanting that business," she said. "I think it just came down to money and who is willing to pay the most. I would have thought locally owned companies would have more favoritism than a nationally owned company, but that was not the case."

Melton declined to say how much she bid.

Home I.V. Specialists has offices in Jonesboro and Little Rock, and Baker Health Care has offices in Jonesboro and Mountain Home. The companies work with home health agencies, according to their websites.

Arkansas Hospice spokesman Corey Gilmore said, "While we are disappointed, we are not surprised at the outcome of the bid process, since the request for proposals and acquisition (RFPA) issued by the department of health, clearly expressed a strong preference to sell the entire in-home services division -- including hospice, home health and personal care -- to a single provider.

"The bid Arkansas Hospice placed was for the hospice-only portion of the business," Gilmore said in a written statement. "However, it was our hope that once the review process began, the department of health would recognize the benefit to the affected communities of having an award-winning, Arkansas-based, not-for-profit hospice assume the care of their loved ones facing end-of-life."

According to its website, Arkansas Hospice has eight offices and three inpatient centers that touch more than 30 counties and is now the largest hospice organization in the state.

Spokesmen for the two other bidders -- Amedisys of Baton Rouge and Hospice Home Care Inc. of Little Rock -- declined to comment.

Amedisys is a leading home health and hospice-care company, according to its website. The company's shares trade on the Nasdaq exchange.

According to its website, Hospice Home Care has a 33-county service area with offices in Conway, Hot Springs, Little Rock, Monticello and Pine Bluff. It's a nonprofit group, according to records in the secretary of state's office.

MORE DETAILS ON THE DEAL

The Department of Health has a $1 million contract with BKD Corporate Finance of Springfield, Mo., to broker, market and transition the state's in-home health care services, according to its amended agreement with the firm that will be reviewed by the Legislative Council's Review Subcommittee this month.

The contract was originally for $900,000, but the state since has added $100,000 to it, raising the "Success Fee" from $500,000 to $600,000, according to the amended agreement.

Under the agreement with the state, Kindred has authority to close current agency locations. A consolidation plan was drawn up between the company and the state, but Brech declined to disclose it.

"The Final Consolidation Plan lists the Agency locations which Kindred will close and consolidate ... and the redistribution of counties among the locations which will continue to exist," according to the agreement.

As to why he would not disclose the consolidation plan, Brech cited an exemption in state law that lets files be withheld from release if their disclosure would give an advantage to competitors or other bidders.

He sent a reporter a copy of an advisory opinion to that effect that was written by then-Attorney General Dustin McDaniel in 2008. Brech highlighted a portion that states a company may invoke the exemption if it feels "that public disclosure is likely to cause substantial harm to his competitive position."

Asked how a company demonstrates "substantial harm," Brech said in an email, "Well, that is where we typically work with them to ensure that the concern is real and that documents are released if appropriate."

In a follow-up email, he said, "I agreed that their consolidation plan could harm Kindred if their competitors were to know how and where they plan to consolidate offices throughout the portions of the state that they will now be serving."

According to the agreement, the Department of Health and Kindred were required to work together to agree on the final consolidation plan.

Asked when the location closures will occur, Brech said, "Please keep in mind that Kindred will continue to provide services in all of the service area that they will acquire from the department.

"Most of the department offices are located within the local health units. Since Kindred would not be able to utilize that space on a long-term basis, it was always contemplated that new offices would have to be opened. Understandably, they plan to also consolidate offices in the process. I am sure that Kindred will want to accomplish the consolidation as soon as practicable," he said.

The money paid by Kindred will be placed in the department's Public Health Fund, and "after all expenses related to the transaction are paid, the remaining funds can be transferred" under Act 246, which the Legislature passed in this year's fiscal legislative session, Brech said.

Act 246 allows the state's chief fiscal officer at the governor's request to put any leftover money into the state's rainy-day fund. "This is one-time revenue and should be transferred to the rainy-day fund for future needs," Hutchinson spokesman J.R. Davis said.

The state's rainy-day fund now contains $41.1 million, said Jake Bleed, a spokesman for the state Department of Finance and Administration. That's the amount after $50 million in state unallocated surplus money was put into it and $40 million was transferred out for state highway funding after July 1, the start of fiscal 2017.

Information for this article was contributed by Brian Fanney of the Arkansas Democrat-Gazette.

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