RICHMOND — MEPCO, the home health agency run by the Madison County Health Department, is laying off seven employees.

“We’ve done all we can do without involuntary layoffs,” Nancy Crew, health department director, told the Madison County Health Board Wednesday night at its bi-monthly meeting in Berea.

The agency that has offered home-health services in Madison, Estill and Powell counties since 1974 has been under financial stress for more than two years

The seven employees being laid off were notified Thursday morning and other staff were given a letter explaining the move, a health department spokesperson said Thursday afternoon.

The layoffs, representing a range of disciplines, will take effect Oct. 19 and reduce MEPCO’s total staff to 42, Crew said. Despite the staff cuts, there will be no reduction in the quality of care, she said. In addition to nursing care, MEPCO personnel provide a variety of therapies.

MEPCO has been cutting expenses dramatically and relying on attrition to reduce staff for about two years. Still, the agency finished the 2011-12 fiscal year with a deficit of about $610,000.

Since June, six MEPCO employees had left voluntarily and two others retired, but those reductions were not enough, Crew told the board at its August meeting.

“We have to stop the loses, so were putting a tourniquet on it,” she told the board, using a first-aid metaphor.

In the first two months of fiscal year 2012-13, MEPCO registered loses of nearly $193,000, David Reed, the health department’s financial director told the board Thursday night.

Declining reimbursements from Medicaid and Medicare are behind the financial difficulties, both Crew and Reed said.

Unlike private home-health services, MEPCO as a public agency may not limit service only to patients who can guarantee payment. That leaves MEPCO with a disproportionate number of Medicaid patients at a time when those re-reimbursements often are inexplicably denied, they said.

No more than 15 percent of MEPCO revenue comes from private insurance, Reed said.

In an effort to reduce its Medicaid costs, state government has delegated reimbursement decisions to a series of managed-care agencies. In some cases, instead of denying reimbursement with an explanation, an MCO will post a reimbursement as paid, but the payment will be zero, Reed said.

The state health department has challenged some denial of claims by the Kentucky Spirit MCO, but the firm has appealed issues  to Franklin Circuit Court where it awaits adjudication, Reed noted in his report.

The problem is not all with Medicaid, however. MEPCO’s Medicare reimbursements began a steep decline in 2008, according to a graph Reed presented to the health board. From nearly $3.24 million in 2008 when they made up nearly 43 percent of MEPCO’s $7.67 million in receipts, they had fallen to $2.55 million in 2012, when they accounted for 39 percent of the agency’s $6.52 million in revenue.

In addition to cutting staff through attrition, MEPCO closed its Powell County office and had followed the advice of consultants  to make other cost-saving organizational changes.

After those changes were announced in May 2011, Crew told the board, “We have a one-year window. We’re budgeting a break-even MEPCO for 2012.”

Falling re-reimbursements are putting stress on the health department’s finances, including the school nursing service contracted by the Madison County School District, Reed said.

Although the department's financial status appears acceptable, “We have serval concerns,” he said.

After two months of the 2012-13 year, health department expenses had exceeded revenue by $3,870, even with a surplus of more than $123,570 for the month of August. The three MCOs still under contract to the state had approved only $13,482 in Medicaid re-reimbursements for the health department’s public clinics and school-nurse program, according to Reed’s report. One MCO had approved no reimbursement.

The health department began listing the school-nurse program as a separate cost center in it ‘s  accounting system only this year, but Reed estimated that it was a sizable financial drain last year.

School district officials are being kept informed of school-nurse finances, Crew said.

The board accepted its financial audit Thursday night as presented by Fred Brown of the Lexington accounting firm Brown & Dougherty.

The only recommendation was for board employees to closely monitor age eligibility of children receiving Women, Infants and Children (WIC) benefits. The state’s computerized accounting system, over which local health departments have no control, does not remove the names of children too old to receive WIC benefits, Brown said. Health department staff must visually recognize a child’s age listing in the accounting system to verify eligibility and not assume the child is eligible just because he or she is listed, he said. The audit found no ineligible WIC payments, however. The state health department has been told of the auditor’s concern, Brown said.

Bill Robinson can be reached at brobinson@richmondregister.com or at 624-6690.