Interim Joint Committee on Agriculture


Subcommittee on Rural Issues


Minutes of the<MeetNo1> 1st Meeting

of the 2011 Interim


<MeetMDY1> October 12, 2011


Call to Order and Roll Call

The<MeetNo2> 1st meeting of the Subcommittee on Rural Issues of the Interim Joint Committee on Agriculture was held on<Day> Wednesday,<MeetMDY2> October 12, 2011, at<MeetTime> 10:00 AM, in<Room> Room 131 of the Capitol Annex. Representative Mike Denham, Chair, called the meeting to order, and the secretary called the roll.


Present were:


Members:<Members> Senator Vernie McGaha, Co-Chair; Representative Mike Denham, Co-Chair; Senators Joe Bowen, David Givens, Bob Leeper, and Ken Winters; Representatives Will Coursey, Myron Dossett, C. B. Embry Jr., Kim King, Tom McKee, Terry Mills, and Steven Rudy.


Guests: Representative Keith Hall, Representative Jim Gooch, Representative John Will Stacy; Tom Fern, State Director, USDA Rural Development; Vernon Brown, Rural Utilities Service Program Director, USDA Rural Development; Scott Maas, USDA Rural Development; Dr. Becky Naugle, State Director, Kentucky Small Business Development Center; Charles Lovell, CEO, Caldwell Medical Center; Sarah Nicholson, Vice President of Government Affairs, Kentucky Hospital Association; Mac Stone, Department of Agriculture, Maury Cox, Kentucky Dairy Development Council and John Brooks, Kentucky Milk Commission member.


LRC Staff: Tanya Monsanto, Biff Baker, Stefan Kasacavage, and Susan Spoonamore, Committee Assistant.


Update on Federal Rural Development Assistance Programs

Tom Fern, State Director, USDA Rural Development, stated that the mission of Rural Development is to increase economic opportunity and improve the quality of life for all rural Americans. Mr. Fern discussed three service area programs for Rural Development: the Rural Business Service (RBS), the Rural Utilities Service (RUS), and the grant and loan programs supporting homeownership in rural communities.


The Rural Business Service includes 21 programs that are designed to help build competitive businesses that can prosper in the global marketplace. The RBS provides financial resources, technical assistance to businesses and cooperatives located in rural communities, and establishes alliances with partnerships to help create jobs and stimulate rural economic activity. Mr. Fern stated that Rural Development obligated approximately $50 million through its Rural Business and Cooperative programs, including nearly $42 million in the Business and Industry Guaranteed Loan Program. The Rural Energy for America program awarded 61 Kentucky agriculture producers and small, rural businesses approximately $1.3 million for energy efficiency, biomass, and solar energy projects. RBS also awarded $3.3 million to assist industries that are developing alternative biofuels such as biodiesel and wood pellets.


Mr. Fern explained that the Rural Utilities (RUS) programs serve a leading role in improving the quality of life in rural America by administering the electric, telecommunications, water, and environmental programs in a service-oriented, forward-looking, and financially responsible manner. He stated that $93 million had been awarded to assist rural Kentucky communities through the Community Facilities (CF) and Water and Environmental Programs (WEP). He said that RUS approved 25 WEP loans and 22 WEP grants to improve water and wastewater systems. The agency also awarded 24 CF grants and 8 loans, which were used for a wide variety of projects.


Mr. Fern also discussed rural homeownership programs. He said that the programs promote personal and economic security and encourage a sense of pride in the community. The programs have helped 3,500 Kentucky families purchase a new or existing home and assisted another 500 families with repairs. During FY 2011, the agency invested $389 million in rural communities across the state.


In conclusion, Mr. Fern stated that due to the American Recovery and Reinvestment Act, Rural Development’s investment in rural Kentucky communities surpassed $1 billion in FY 2010.


In response to Representative Hall, Mr. Fern stated that applications for single family housing are approved rather quickly. The applications for water and environmental projects are more involved, so it can take up to four or six months before they are approved.


In response to Senator Bowen, Mr. Fern stated that depending on the program, a rural area is defined by the maximum populations as follows: 20,000 for single family housing; 20,000 for the Community Facility program, and 10,000 for Water and Environmental Program projects. He said that most of the rural business programs are 50,000, and there are no population restrictions for the value-added programs. The Rural Business Enterprise Grants program has a 25,000 population maximum. He said that Owensboro would not meet the definitions of a rural area.


Rural Business Development Programs Available Through the Kentucky Small Business Development Center

Dr. Becky Naugle, State Director, Kentucky Small Business Development Center, gave a brief overview of the Kentucky Small Business Development Center (KSBDC) – Rural Small Business Services. She explained that KSBDC is a statewide network with centers located in rural areas. Dr. Naugle stated that in 2010, there were 2,000 business startups and 750 new jobs created with a total capital infusion of $74,927,157. She said that KSBDC served various industries such as: service, retail, manufacturing, construction, wholesale, and start-ups that were not yet in business. In 2010, 42.8 percent of their clients were not in business or wanting to start a business because of the economy. In talking with rural business clients, their top needs are money and customers. The KSBDC works with clients to encourage good business ideas, cash flow management, using credit appropriately, market guidance, and good customer service. Dr. Naugle stated that KSBDC offers no-cost, confidential business consultations, affordable workshops, seminars and 24/7 online training, along with information to help them make well-informed business decisions. Dr. Naugle concluded by describing new services that target independent professionals, rural merchants, providing exporting support, and disaster recovery.


In response to Representative Denham, Dr. Naugle stated that KSBDC partners with KCTCS, but it is not a hosting partner because it does not provide funds. She said that KSBDC is a partnership program with the Small Business Administration (SBA). The SBA funds approximately 40 percent of the program. The KSBDC works closely with lenders by putting loan packages together and providing vital information to help lenders make qualified decisions.


In response to Senator Bowen, Dr. Naugle stated that KSBDC is funded through Higher Education and Economic Development. KSBDC is approximately a $4 million program.


In response to Representative Dossett, Dr. Naugle stated that the number of clients wanting to start a business has changed this year. She said that eastern Kentucky has been slower in startups, and there has been a slight increase in western Kentucky. Northern Kentucky is still experiencing healthy growth, but central Kentucky is the busiest. Dr. Naugle stated that 80 percent of the businesses that started within the past two years are doing well. She said that more businesses have closed within the last three years than in the previous 20 years.


In response to Senator Givens, Dr. Naugle stated that several organizations are aware of the importance of retaining students who are exceptional in entrepreneurship, and they provide help to guide students to services to implement their ideas. Dr. Naugle stated that the main reasons that some businesses have failed include that they were not responsive enough to their clients’ needs and they sometimes did not make good business decisions.


Current Issues Regarding Rural Access to Health Care in Kentucky

Charles Lovell, CEO, Caldwell Medical Center, talked about the importance of Kentucky’s Critical Access Hospitals (CAHs) to their communities and the challenges that they are facing. He stated that there are 71 hospitals in Kentucky’s rural areas, with 29 of these facilities licensed as CAHs. He explained that CAHs are small, rural, acute care hospitals, limited to 25 beds. Because the 71 facilities have been designated as “critical,” Medicare and Medicaid reimburses for services at 101 percent of cost. He stated that 40 out of 120 counties in Kentucky do not have an acute care hospital. It was important to note that rural hospitals and CAHs provide access to healthcare for the disadvantaged, low-income, and uninsured populations in those areas.


Mr. Lovell also stated that it was important to recognize that reductions in funding to hospitals from cuts in governmental programs, like Medicare and Medicaid, are likely to impact hospital employees and affect access to care. He said that Medicare and Medicaid represent approximately 67 percent of patient volume in an average hospital. For many rural hospitals, Medicare and Medicaid cover as much as 75 percent to 80 percent of all patients. As a result of the federal health care reform, rural hospitals will share almost $1 billion in Medicare cuts over the next 10 years. A cut of 75 percent in Medicare disproportionate share payments and 50 percent of Medicaid payments will mean cutbacks for hospital workers, reduction of hours, and laying off existing employees.


Mr. Lovell explained that in 2014, 350,000 to 400,000 additional people will be covered under the state’s Medicaid program due to mandated increases in eligibility under the federal health care reform law. Excluding critical access care facilities, the remaining hospitals will experience substantial Medicaid losses.


Mr. Lovell stated that another area of concern for rural hospitals is the impact of implementing Medicaid managed care. He said that if managed care companies reduce utilization rates or deny payment for services delivered to Medicaid patients, then hospital services and jobs could be adversely affected.


In closing, Mr. Lovell noted several proposals at the federal level that threaten rural providers. One of which would be disallowing the “Critical Access Hospital” status for CAHs less than 10 miles apart. If this proposal were to be accepted, it would result in the closing of Kentucky hospitals, Kentuckians would lose access to health care, and communities would suffer the loss of payroll taxes. Other troublesome proposals include instituting a payment reduction in CAH reimbursement and removing shortage area designations. If the designations were changed, it would cause a significant loss of primary care providers to rural areas, hinder recruitment of health care providers, limit the development of rural health clinics, and put Kentucky communities at a disadvantage to access federal grant funding.


In response to Representative Denham, Ms. Sarah Nicholson, Vice President of Government Affairs, Kentucky Hospital Association (KHA), stated she would provide staff with the number of privately-owned hospitals and county-owned hospitals.


In response to Senator Winters, Mr. Lovell stated that the Medicaid population is the hardest to manage because they make more emergency room visits and the hospitals are not reimbursed.


In response to Representative Stacy, Mr. Lovell stated that some contracts might include pharmacies, but it depends on the negotiated contract. He said that only 15 out of 109 hospitals have signed contracts.


In response to Senator Leeper, Ms. Nicholson stated that the KHA does not get involved with the contract negotiations. It was the hospital’s responsibility.


In response to Senator Givens, Ms. Nicholson said that the KHA is not advising their members to delay signing any contracts. The KHA has met with some of the companies trying to standardize contract language to make it easier for the hospitals to understand. It is up to each individual hospital to accept a contract. Furthermore, the KHA cannot advise on monetary issues. Mr. Lovell said he felt that each hospital was negotiating one-on-one throughout contract negotiations. He said he felt that the managed care organizations (MCOs) did have enough resources to work with the hospitals within the limited timeframe.


In response to other questions from Senator Givens, Mr. Lovell agreed that it was important that the MCOs were successful because if they fail, then it endangers the entire system. He said it is a challenge to make sure that each hospital gets the reimbursement needed in order to stay open, and he also realizes that if the MCOs do not survive, then there would be no Plan B. Mr. Lovell said the process had to be done quickly, and it would have been helpful if the MCOs had the same contract. He said that the MCOs were insured if they failed to make reimbursement to the hospitals. In the contract with Caldwell Medical Center, it states that the MCO must settle all charges by the end of fiscal year. Mr. Lovell stated that the Coventry group had been unwilling to negotiate some terms, but the other two organizations were agreeable to deleting language that did not even apply to Caldwell Medical Center.


In response to Representative Stacy, Ms. Nicholson stated that the delay in getting contracts signed from October 1st to November 1st has been the lack of an adequate network. Ms. Nicholson agreed that the state could not certify to the federal government that there was an adequate network of hospitals and other health care professionals to take care of that organization. Mr. Lovell said it could be possible that some Medicaid recipients, not under the MCOs for Caldwell Medical Center, would be treated at the Center. If that were to happen, then the Center would be reimbursed at 90 percent for out-of-network.


Latest Developments with the Kentucky Milk Commission

Mac Stone, Executive Director of Agriculture Marketing and Product Promotion, Kentucky Department of Agriculture, reported on the progress of the Consumer to Farmer Support Program that is being pursued by the Kentucky Milk Commission (KMC). Mr. Stone explained that the KMC was able to secure some funding from the Agricultural Development Fund, which was matched with farmer money. He said the KMC wants to focus on providing consumers with a Kentucky Proud product at a competitive price. He said that the KMC wants to send a message to consumers that Kentucky dairy farmers are important to the economy, and a message to the dairy industry that working in a coordinated effort will allow all segments of the industry to prosper. He explained that, as a part of Kentucky Proud, the processors would purchase Kentucky Proud Dairy labels from the KMC for any product that can be verified as milk that was 100 percent produced and processed in Kentucky. He said that the KMC will work on behalf of the producers by establishing a marketing and promotion program, and will also work with producers to help improve their products. The KMC also wants to establish programs which will make funds available for haulers or processors, and to help producers in their farming operations. Mr. Stone stated that KMC will launch a pilot program with Southern Belle Dairy and Value Markets in Louisville to determine the basis for the cost of the label. He said that KMC would hire staff to administer the programs and coordinate activities, along with filing reports with the Governor’s Office, Commissioner of Agriculture, and LRC.


John Brooks, Kentucky Milk Commission member, stated that the milk hauler shortage has reached the critical stage because the number of dairy farms has decreased. Because there are so few dairy farms, it is more difficult to find haulers, which further erodes the dairy processing infrastructure.


Maury Cox, Kentucky Dairy Development Council stated that establishing the Milk Commission has been a process of bringing all interested parties to the table. He said that consumers now want to know where their food comes from and the Kentucky Proud label will help meet those expectations.


In response to Representative Embry, Maury Cox said that he would talk to the folks at Bell Cheese in Grayson County to address their concerns regarding the supply of milk. It might be worthwhile to simplify the dairy regulations so milk can be promoted.


In response to Senator Givens, Mr. Stone stated that there will be some information/signage to direct the customer to the new product. The big retailers like the idea of the blue Kentucky Proud label.


There being no further business, the meeting adjourned at 12:00 p.m.