Improving YKHC’s Financial Performance

Story by – Dan Winkelman, President/CEO

May 8, 2014 - 7 minutes read

By Dan Winkelman, YKHC President/CEO

When I became President & CEO, YKHC’s yearly budget indicated a large budget shortfall. We were projecting a $7.3 million loss by year’s end, which is 13% over budget. According to our audited financials, budget performance in 2013 was also poor as operations experienced its largest loss in company history, $11.7 million.

The major factors for last year’s operational loss and this year’s projected loss are varied, but include:

  • Not achieving annual budgeted revenue collection goals since late 2012;
  • New operational expenses for the Elder’s Home that opened in 2013;
  • Adding new employees and contract support expenses for “RAVEN” (YKHC’s name for its electronic health record);
  • Increases in temporary duty physicians and YKHC’s employee health insurance costs;
  • Last year’s federal sequester by the U.S. Congress which resulted in mandatory spending cuts to defense and domestic spending that decreased the Indian Health Service’s budget by 5.1%; and
  • No meaningful decrease in expenses when revenue collections significantly declined and when the federal sequester was implemented.

Additionally, since 2012, YKHC has also been low on cash at critical times.  There are a number of major reasons for this. This year’s and last year’s large operational losses; the purchase of RAVEN; YKHC’s previous and significant cash contributions to LifeMed (YKHC’s medevac joint venture company); and recent delays in processing Medicaid payments by the State of Alaska to YKHC. As a result, YKHC was forced to use a large line of credit of up to $8 million for much of 2013 and through this spring.  Until YKHC is able to begin producing significant positive margins, YKHC will need to rely upon a line of credit into the future as well.

I have held numerous Senior Leadership Team meetings focused on our budget and we are developing two plans that will increase our revenue collections and decrease our expenses.

1. A Plan To Increase Our Revenue Collections

We recently partnered with consultants to complete an assessment on how to ethically and lawfully improve our revenue collections.  The plan to increase our revenue collections will not be completed for the next few months.  It will likely require YKHC to make immediate and sustained improvements over a period of time in a number of areas, including staffing, productivity and throughout our revenue cycle processes.  The plan to decrease our expenses, however, was recently completed.

2. A Plan To Decrease Our Expenses

YKHC cannot sustain these significant losses and an immediate budget correction is being implemented.

At this time, to align our expenses with our revenues YKHC is required to perform a significant reduction in force of approximately 110 employees. In addition, approximately 50 position vacancies have already been closed.

It is expected to take approximately 30 days to implement the reduction in force. Affected employees will be notified June 2-6.

Severance will be offered to all employees affected by the reduction in force.  Severance is intended to assist affected employees in their transition to find new employment. YKHC has partnered with the State of Alaska’s Employment Office to assist affected employees in their search for new employment.


I know this reduction in force will be a significant hardship on our employees and their families, but it is necessary for YKHC to stop spending far beyond its actual annual revenues.

In many instances, affected employees may be our family members, friends and neighbors.  Let me be clear, this reduction in force is not due to anything those affected employees might have done or not done, rather it is because the company has to get smaller in order to live within its current revenues. At the end of the day, affected employees will still remain our family, friends and neighbors.

In every instance, we have tried to protect core health care services but we still expect this reduction in force to have some impact on services to our patients.  Unfortunately, our patients can expect decreased access to appointments, longer wait times and reduced services.

Recently, it was reported that YKHC received approximately $40 million to settle a lawsuit with the Indian Health Service (IHS) over unpaid contract support costs for years 2005 through 2011. Contract support costs are those costs incurred as a result of performing our health contract with the IHS to deliver health care to the people of the Yukon-Kuskokwim Delta. They are administrative costs like insurance, utilities, etc.

The YKHC Board of Directors and I recently met and we decided to safeguard these funds for a long-term hospital replacement project. Therefore, these one-time funds cannot be used to pay for recurring annual budget expenses. If YKHC decided to use the settlement funds to subsidize our annual budget shortfall, at our current rate of spending, this entire settlement would be gone in four short years.

Even with this large reduction in force and other cost-containment measures, YKHC is still expected to lose over $3 million this year.  Additionally, with current revenue collection goals, a positive margin will be difficult to achieve in 2015 and 2016.  Nevertheless, trust that YKHC will rebuild our revenue collection processes so that we can improve services to our patients.

We are confident that as we make these significant expense reductions and continue improving our revenue collections, YKHC’s financial performance will improve.