More than $16 million in federal aid will go to four rural Arkansas hospitals that received preliminary approval for the funds from state lawmakers

By TESS VRBIN | Arkansas Advocate

The full Arkansas Legislative Council on Friday will vote on whether to disburse the funds from the American Rescue Plan Act (ARPA) of 2021, aimed at covering costs incurred during the COVID-19 pandemic. Arkansas received an initial pot of more than $1.5 billion for lawmakers to distribute, and legislators set aside $60 million in August 2022 as emergency relief for struggling hospitals.

The Legislative Council’s Performance Evaluation and Expenditure Review subcommittee approved the following awards with no dissent:

• $4,589,119 to Baxter Health in Mountain Home
• $5,000,000 to Fulton County Hospital in Salem
• $3,301,356 to Arkansas Methodist Medical Center in Paragould
• $3,441,839 to Howard Memorial Hospital in Nashville

The four hospitals are among 18 that the consulting firm Alvarez and Marsal evaluated to determine whether they are eligible for ARPA funds. The state hired the firm to help legislators decide how to prioritize hospitals’ requests for the dwindling supply of federal pandemic relief funds.

Baxter Health has 40 locations throughout 11 counties in North Central Arkansas and is currently in the process of acquiring Fulton County Hospital, Baxter Health president and CEO Ron Peterson told lawmakers.

Rep. Aaron Pilkington, R-Knoxville, asked Peterson and Baxter Health chief financial officer Debbie Henry why the hospital system requested more than $4.5 million in aid when it has $6 million in cash on hand and $58.3 million in restricted funds.

Henry said the restricted funds are for equipment and building repairs and cannot be used for payroll or operating expenses. She added that the hospital has about 85 days’ worth of cash on hand, which is “one of our weakest areas financially.”

“It does look like a lot of cash on hand, but in reality, for the size of our hospital, it’s not much,” Henry said.

Peterson said Baxter Health’s cost structure “shifted significantly” due to pandemic-induced inflation, and since about 80-85% of Baxter Health’s patients are on Medicare or Medicaid, the ARPA funds will help the system sustain itself “as reimbursement catches up with the cost structure.”

Fulton County Hospital had almost no cash on hand and could not cover payroll costs on its own when Baxter Health took over management in mid-August, Henry said. Under the new management, the hospital’s weekly revenue has increased more than threefold, and it had enough cash on Oct. 1 to cover payroll for the entire month, she said.

Henry called Fulton County Hospital’s previous systems “severely broken.” The hospital was fined $63,900 in July for failing to follow federal price transparency rules, according to the U.S. Centers for Medicare & Medicaid Services.

Rep. Jack Fortner, R-Yellville, represents part of Baxter Health’s service area and said the health system “provides services that would never be found” in some of northern Arkansas’ sparsely populated communities.

“The reason they need this money is because they have spread themselves out to serve a much larger portion of the population,” Fortner said.

Past requests for hospital aid

The legislative subcommittee did not discuss the requests for financial aid from Arkansas Methodist Medical Center and Howard Memorial Hospital before approving them.

According to Alvarez and Marsal’s evaluation, Arkansas Methodist Medical Center is projected to lose nearly $8.7 million in the next 18 months. The “sustainability plan” the hospital submitted to the consulting firm projected nearly $5.4 million in reduced expenses.

Howard Memorial is expected to lose $1.9 million in 18 months, and its sustainability plan does not include projected amounts of changes in revenue and expenses, according to the evaluation.

If approved Friday, the disbursements would bring the total number of rural Arkansas hospitals receiving ARPA aid to seven. Ouachita County Medical Center in Camden received $6 million in September 2022, Sevier County Medical Center in De Queen received $6.5 million in December 2022, and Drew Memorial Health System in Monticello received $5 million in June of this year.

The hospitals in Camden and Monticello were among those that Alvarez and Marsal evaluated; the hospital in De Queen was not.

Additionally, Sevier County Medical Center’s funding award came from a different subset of ARPA funds, while the other six awards have come from the $60 million lawmakers set aside.

The legislative subcommittee also approved a motion Tuesday to ask the Legislative Joint Auditing Committee to direct the Legislature’s independent auditing body to ensure hospitals that receive the specially designated ARPA funds are in compliance with state cybersecurity standards.

If the Auditing Committee approves the full Legislative Council’s request in November, Arkansas Legislative Audit will evaluate these hospitals’ ability to protect patient data “sometime within the next two to four weeks,” said Andy Babbitt, deputy director of the state Department of Finance and Administration.

Ouachita County Medical Center is exempt from the cybersecurity evaluation because it received ARPA funds under a previous administration, Babbitt said.