Departments

Economic Development, Faster Lane, Workforce Development

MRGLSI 2016: Talent attraction today’s economic key

Louisville must draw immigration, especially international, to fill skilled jobs for native business

MRGLSI-2016-300x402

There is no silver bullet for building a robust, regional economy. If there was a clear path to success, then everyone would be following it. That’s simply not the case. It takes investment from business leaders, elected officials and the community as a whole to create a vibrant environment in which people want to work and live. The key ingredient however is clear: It’s skilled people.

The people who comprise a community are what make it go and grow. It’s time we started investing in them and bringing more talented people into Kentucky and Greater Louisville, as well as improving retention of skilled folks already here. Talent attraction is an issue facing communities across the country.

A shortage in qualified workers is one of the top complaints of GLI members. Since the economy rebounded, there are thousands of open high-wage jobs in Greater Louisville. Finding the right people to fill them is more difficult than ever.

In 1Q16, Greater Louisville had more than 8,800 job listings for positions requiring a bachelor’s degree or higher level of education. Those open high-skill jobs carried a mean salary of $79,000, which means that we are missing out on over $700 million in economic impact. When openings include associates degrees and skilled trades, the number of open positions more than double.

Increasingly, businesses are looking to economic development partners to help them recruit. It’s a complicated issue, but one we are ready to tackle.

Oftentimes, we hear that businesses do not have a great way to sell our region to job candidates and their families. Corporate recruiters will say they are good at selling their company, but not as prepared to sell their community.

It’s not just a job that will make someone move. They need to feel like they know the community to which they are relocating. Will there be a good place to meet people who share similar interests? What are the quality of life amenities? How is the traffic? Which neighborhood is right for me? These are vital to someone deciding to relocate, specifically millennials.

In the past five years, our inbound migration of that generation has been 4 percent, compared to 15 percent in places like Nashville. Clearly we must do better.

Strategies around attracting talent are as important as efforts to attract businesses. GLI is working on a number of strategies to support interested newcomers. Strategies like our Talent Ambassador Initiative; our talent toolkit; and our efforts around entrepreneurship.

We are creating an ambassador program that recruits corporate representatives, family members, college roommates and others to be an extension of Greater Louisville.

To assist them with this task, GLI is building an online talent toolkit offering information on career opportunities, real estate and a view into life in the area. It even has a cost of living calculator. This toolkit offers tangible information that helps us sell ourselves.

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A shortage in qualified workers is one of the top complaints of Greater Louisville members. (Brett Hait)

For the next year, GLI also will be focused on recruiting talented international professionals. Data shows that communities that have international migration are growing their talent base at a much faster pace. Louisville added a net 6,367 people to its population over the past five years thanks entirely to the inbound migration of international people.

We need to step up the game-plan for supporting and recruiting international talent to the area. Many times, these professionals are ready to step into jobs in the engineering and healthcare sectors. We need to support their transition and help them integrate into communities.

In addition to recruiting and growing talent, GLI believes that growing entrepreneurs creates a new pool of talent. GLI is known for its support of local start-up companies and while we grow businesses, we are growing new pools of talent focused on innovation. In the first quarter of this year alone, EnterpriseCorp, the entrepreneurial arm of GLI, helped five early-stage companies secure $2.79 million in funding.

There is a lot to do around this talent attraction and retention challenge, and GLI plans to be the loudest and most aggressive we have ever been on this issue. We will rally companies to join our efforts and we will inspire friends and family to be an extension of our cause. Together, we can bring our sons and daughters home. We can recruit friends who have never thought of living here before. And we can transform our population growth to serve companies and better our community. It’s a communal effort and we accept the calling.

Features, One to One, Workforce Development

One-on-One: World’s Manufacturers Rely on Kentucky Machine Tool Maker

Brian-Papke

Brian J. Papke joined Mazak Corp. in 1987 and was named president in 1989.

Editor’s note: This is a longer version of the interview than what appeared in The Lane Report’s June 2016 issue.

Mark Green: Give us a brief history of Mazak in Kentucky and what the ownership structure is.

Brian Papke: It’s family-owned by the Yamazaki family in Japan, and in 2019 it’ll be a 100-year-old company. We’ve been in Florence, Ky., since 1974. In Japan, it started as a very simple company making tatami mats, bamboo mats that people sleep on. The former chairman, Teruyki “Terry” Yamazaki, is the one who took a completely different approach than most Japanese-owned companies. He internationalized much sooner than other Japanese-owned companies.

He started an office in Long Island with one American secretary and 20 to 25 Japanese guys. Today, we probably have 25 Japanese here full-time and 30 maybe in North America, out of about 1,100 people. We were the first Japanese-owned company to manufacture in the state of Kentucky. And I think there are about 160 now, many of which came through here quite a bit sooner than Toyota. Mazak in Florence started very small, 12,000 s.f., and grew to 800,000 s.f. today, plus what we call technology centers around North America.

MG: Why does this region have a significant history of machine-tool companies?

BP: This was a machine tool manufacturing center in the country. Cincinnati was the machine tool manufacturing capital of the world. That was why we came here. It wasn’t such an international industry many years ago. European companies came to certain areas like Milwaukee; Cleveland; Rockford, Ill.; and Cincinnati was actually the largest center. A lot of them were German. In the Illinois area, they were more Swedish. Milwaukee also was a very German heritage. The people settled here, and then they started machine tool businesses.

Most of these guys were really strong entrepreneurs. They were very creative in making machine tools, but the industry and its scope looked so different than it does today. I had occasion to be in China on one trip at a big dinner in the Great Hall of the People, in Tiananmen Square, with maybe 1,000 people from the machine tool industry from all these different countries. We all felt at home with each other because the industry is so international today. But it’s not large. Countries want to make machine tools because it’s kind of a gateway to other kinds of technology.

MG: It’s a cornerstone of manufacturing.

BP: It is and it’s radically, absolutely radically, changing. There’s a lot of opportunity for the companies that want to change and innovate – it’s a classic “Who Moved My Cheese?” scenario. Machine tools are innovating in terms of software usage, and the eventual relationship to the Internet of Things is considerable. We just spent three days with a cool group of people from Cisco Systems, the leading builder of equipment for the internet. We didn’t even know those people years ago; there wasn’t even an internet. Machine tools were hardware-based.

MG: How mature is the internet’s influence on the machine tool sector?

BP: We’re at the infancy. The Association for Manufacturing Technology brings together a broad group of people – software providers and people who make accessories for machines and coolant manufacturers and truck manufacturers and a wide variety of people who affect manufacturing. We’re no longer just making machines that are hardware based. Some years ago, computer-controlled machines came into the picture, and that’s fantastic. They became more sophisticated. Then the controls evolved and started to look like your smartphone; they’re internet-compatible, but still kind of individual pieces.

AMT wanted to do something for U.S. manufacturing to differentiate not just machine tools but manufacturing per se from things being done in other countries. It got together with a group from the University of California at Berkeley – I was on the AMT board at that time – and we embraced a whole new protocol they came up with called NT Connect, which is a connectivity standard. You use software and create analytics that allow you to get better utilization. It’s pretty complex stuff. And that’s before IoT.

MG: Before internet-of-things development? When was this?

BP: Just nine years ago. Now, that world has evolved. As we start doing that, we get involved with Cisco because they provide the cybersecurity for IT departments. Like Big Data for other things, Big Data manufacturing is coming. With networking of information and cloud-based technology, you can study patterns and make determinations. Companies today get high utilization of their equipment; the machines are more sophisticated and maybe they require fewer machines but more complex machines. They’re very dependent upon them, and they want them to run constantly.

One thing you can do is predict the maintenance that’s required – not just preventive but actually predictive. So a component’s going to fail; when is it going to fail? That’s just one example. You can compare it to what’s happening with the unmanned car. Nobody is going to step out today and buy an driverless car, but we all have more sensor technology on the cars we’re driving, and that’s going to continually evolve toward that goal and result in the driverless car. The same thing is happening for machine tools. And Mazak is a leader in terms of adopting that technology and trying to move this industry toward IoT.

MG: How will that affect personnel needs? It will require more technical skill to oversee these more sophisticated machines, but does it mean fewer workers?

BP: We’ve done so much in terms of technology that supposedly reduces employment, but it’s the opposite. Employment has grown because we found all kinds of things that provide value to customers. Mazak’s employment has grown. And every time you create a manufacturing job, it creates anywhere from three to 10 other jobs. There’s all kind of people who work around this area who are not Mazak employees, but they get their livelihood as a result of what we do. But, yes, you need experience with manufacturing.

As far as our needs, we were very involved with the origins of Gateway Community and Technical College in 2001. I personally went to Frankfort and talked to Gov. Ernie Fletcher at the time because we saw we have different needs. We’ve got software engineers needs that are obviously a growth area. Companies today must be more automated in what they do, so there are needs for automation-type engineers. We can’t just sell machines to customers as much as we did at one time; we have to help them apply it. So we created these technology centers in the building across the street and a whole group of engineers are needed that help customers apply those machines to their operation. How do you program them? How do you set them up? How do you set the applications up? And then all the people in the plant, making the machines.

We finally accepted the fact that we were going to need more skilled workers and that people were going to retire, and so we had to play a role in that. We started recruiting people and actually paying their tuition to Gateway.

MG: Are broad industry trends creating an expectation for further growth?

BP: Everything kind of evolves. Years ago everybody thought all manufacturing was going offshore, and it was a mistake. Educational institutions, the media, even the manufacturers themselves made some mistakes in that assumption that all manufacturing was going offshore. As we talk about the kinds of products that we’re developing, that are more high-tech, there’s a great opportunity to do that here. There are all kinds of smart products that are being developed by companies that want to do it here, but you have to set up the right kind of manufacturing to do it. You can’t do it the way you did 20 years ago. You need new automated machines and so forth. Automation requirements are increasing, and the technology in terms of electronics and internet capability and connections with the machines is evolving, and that trend is absolutely going to continue.

MG: What does the rise of the internet of things, in which nearly everything is connected continuously by the internet, mean for your business?” Already it has accelerated your innovation, growth and change.

BP: Looking to the future of our industry, this digital solution area is going to play a bigger and bigger role. Not just with the machines, but selling different kinds of software that will be compatible with IoT and that you can use for predictive maintenance. There’s what we call ‘health monitoring’ of the machines, where you’ve got a footprint of the machine and then you can compare it so that when somebody makes a part, they know that the machine can do it. These machines are incredibly accurate – we’re talking tens of a thousandth of an inch accuracy in their positioning. And they’re getting more accurate all the time, because the end products are getting more accurate. As companies want to make fewer parts, the parts tend to get more sophisticated.

MG: Is U.S. manufacturing growing today?

BP: The opportunity is there. We’ve seen it go down as a percentage of the GDP and kind of bottom out. It’s fluttering around a little bit now, but actually we’ve seen this glimmer of hope that, as a percentage of the GDP, it’s going up. I see that continuing. This is still a huge manufacturing country.

People have mistaken impressions. They have a huge misunderstanding of what factories look like. Factories are evolving! There are still some old factories that need to change, but as companies build new ones and new companies are coming online all the time, these are really neat places to work. People here are excited. We have very low turnover at Mazak. However, there are work skills concerns because turnover is so low that although we are a relatively young company we now have an aging workforce. We have to replace people that are retiring and then we have our growth. It’s really evolving now.

MG: Does Mazak have difficulty finding enough skilled employees?

BP: It jumps around. On the whole, that is true. And in the future, we’re going to have more needs for high-tech people. The skill levels are going to go up, and then the wages will go up relative to their skill levels. There are great opportunities. And I see the same thing happening in other companies, because they have the same kind of skill requirements that are still evolving. The training levels that are going to come into play are going to be even higher than they are today. The skill needs we’re training people for right now are only going to become higher.

MG: How did Mazak play a role in the 2001 creation of Gateway Community and Technical College, which has created special training programs for you?

BP: I remember Gov. Fletcher walking into the room, and I thought I was there just as one of the members who was providing input, and he said, “Mazak, we’re going to decide what we’re going to do on economic grounds. I’d like to hear from you.” So right from the beginning we’ve been very vocal on the need for more skilled worker requirements, and that has continued.

MG: So Gateway, from its origins, has had training programs that were, to some degree, designed to train employees for Mazak?

BP: Gateway provides the basic training that people need to work here, and then we have to supplement the training – things that make them specific to what our needs are. So while they’re going to school, they also work here.

MG: How many employees does Mazak have?

BP: I’ll say 700 in Kentucky, about 1,100 total around the country.

MG: How many expansions has Mazak had in the past decade, and why has this growth happened?

BP: There have been 16. This started with a building across the street that was originally 12,000 s.f. We now have 800,000 s.f. here in Northern Kentucky. And I don’t see it being the last expansion as we broaden our technology out. There are a number of reasons for that. One is, we invest in our own factories. This factory is a very high-tech factory. We’re a leading innovator, and we put in place ways of keeping ourselves competitive relative to other countries of the world that manufacture machines. We took a company that manufactured and engineered all its products offshore to not just manufacturing here but now designing the products here. Significant numbers of products we sell are designed here, and some of those designs get transposed on a world basis, and we export some machines. So that’s played a role in our expansions.

We came up with this Technology Center concept, where we located facilities to help customers develop their manufacturing processes. We’ve changed from a machine tool manufacturer to a solution provider, and that made another significant difference in our business. We have wonderful people here, frankly. Among our North American operations, we only manufacture in Kentucky – we never felt the need to go anywhere else, we just keep expanding here.

MG: How many products does Mazak make?

BP: We can make 100 models of machines here. We can make 400 models around the world at different plants, but this plant actually probably makes the most number of models of any plant in the world. That’s because of our design capability; we can develop products here that match the market, which gives us opportunity for growth.

MG: What’s the price range?

BP: The price range would be anywhere from $100,000 to $2 million for a machine. But we also sell a lot of systems that integrate machines together; they can be much higher. One of the magic things we do is to sell machines that match smaller companies, and we have machines that match larger companies. We have products that match a wide-ranging number of industries. If you need a hip or knee, we’re the leading builder of machines for the medical service companies – the Zimmers, the Strykers, Johnson & Johnson, all the big ones – and a lot of small shops that make those components.

We’ve been the leading supplier for the oil service industry, which is slower right now, so that’s really had a temporary impact on our business. We make machines for the mining industry. Construction equipment: Caterpillar is one of our largest customers, and all the companies that make parts for them. Right now the aerospace industry is very active for us. We do a lot of semiconductor – vacuum chamber kinds of parts – we do big machines for that industry. Automobiles, of course, and trucks. Anywhere there’s a product that takes tolerance and precision machining, would be a Mazak machine.

MG: Are any of those categories your most significant ones, or the biggest buyers?

BP: We were the leader in creating what we call multitasking machine tools that combine a wide variety of processes into a simple machine. Innovation is the area that has been one of our real premier areas. And now the breadth of those machine tools has reached a whole new area. We now manufacture laser gunning machines here, and we’re going into the manufacture of “additive” machines as opposed to subtractive (that create parts by cutting and shaping metal). We’ve come up with a product that will be additive and subtractive. It combines the existing sophisticated multitasking capabilities with the ability to add features and then precision machine them.

MG: Additive is a whole new range of machine-tool activity?

BP: It’s going to add a whole other level of growth to what we do. And we are clearly moving in that direction to embrace that technology.

MG: There are individual machines, but you sell lots of systems. Is there a typical Mazak customer order?

BP: I have a theory about machines. When you look at a factory, you look at it as a highly complex – look at these machines, and the handling and so forth. Well, a good share of the machines we make are actually pre-engineered modules. I think of them as a LEGO set for adults; you have these pre-engineered things that can go together to make something more complex. When we look at a factory, we look at each one of all the things that come together as pieces, that fit together and are pre-engineered – a quotation can be made from an iPad.

You’re just putting all these pieces together in different ways. You can have different numbers of loading stations, different numbers of machines and a palletized system that can have one or eight machines in it. You can grow it over time: Different numbers of tools can be included. So it becomes something very complex, but actually the components are pre-engineered. And we’ve done nearly 1,000 of those in North America alone. We’re doing so much proprietary work on things, even defense projects. We have to sign NDAs for everything we do.

MG: Your relationship with customers can be very collaborative. How many customers order straight from your catalog, as it were, versus customers for whom you have to create a customized product or system?

BP: It’s a blend. Probably half the machines customers order are pretty standard, and then there’s another group of machines that there’s something completely unique about it. And then there are those – and that may be the other 25 percent – that have really got some engineering involved. Special software, special handling, a lot of robotics involved that might be special. Today there’s a lot of partnering in the industry among people who make specific products that come together with our products.

MG: Special licenses are required at least some of the time to purchase your products. Why is this?

BP: It’s restricted in terms of where we sell them. The concern is always that, because of the sophistication of the products, in the wrong hands they can make products for weapons systems and so forth that could be detrimental to our country. And we’re very, very supportive of doing that because, as a company, we want to be very careful about that. We have to get licenses on products that we import: for instance, an export license out of Japan. We also need export licenses to send a machine to Mexico that is a Japan-produced machine. It’s a little complex. But the reason is to control where machines go. Mazak took a further step and put something in our machines that’s not a GPS system, but we call it a relocation detector. The relocation detector essentially shuts off the machine if you move it. And we have to then verify the location and give a new password for that machine. Let’s say a machine becomes a used machine, and it’s sold to a used machine dealer who sells it to another used machine dealer. At some point you have the potential to lose track of where that machine is. But they can’t start the machine until we know where it is and what it’s doing.

MG: How many of your products have relocation detectors?

BP: All of them. Not just some: all. We’ve been doing it for maybe 6-7 years now. As the old ones get retired, we’re getting a base of knowledge that we can feel very secure.

MG: How significant is it for Kentucky business industry to have a machine tool maker like Mazak located here?

BP: Yes. And we’ve evolved into a company that is known everywhere in the world in manufacturing circles. We’re known as a high-tech leader in manufacturing. The International Machine Tool Show in Chicago every two years is the largest – it’s 1.2 million s.f. Mazak is the biggest presenter and has the premier booth, front and center. But it’s much more than machine tools and draws companies from all over the world to show manufacturers all kinds of new technology related to manufacturing. That include more software and IOT compatibility as we look towards the future and adaptive technology that I spoke of, these adaptive machines.

MG: Do the local or state economic development officials use Mazak as a recruiting tool?

BP: A great deal of the companies that have come to Kentucky have come through our plant, looking at what we do and deciding where they’d like to locate. We have a very strong passion towards this area. So we’re happy to do that, and I think we do set a nice image, because the equipment is very modern, the method of manufacturing is very up-to-date and the technology that we use is up-to-date.

MG: Is current public policy and government regulation for your industry at an appropriate level, or are there changes that you would advocate?

BP: We would like to see the tax code change. This country is the highest for corporate income tax. Not just for us – I’d like to see it change for manufacturers; that would improve the ability to recruit them and keep them here in the U.S. Looking at the future, there’s a danger that other countries could go farther in terms of advocating compatibility in the IoT or Industry 4.0. I’m starting to see initiatives towards tax incentives for investment in that area by other countries. We’re the leading country, and you don’t see that being advocated. I’d like to see the government give encouragement to manufacturers to invest in IoT technology. But because of our international connections, I see that this could move faster in places like Japan, Germany and even China than here. The technologies are here, and the big guys in IoT are here. But there’s not really a specific incentive to invest in that.

MG: What are your expectations for growth and demand in the near term?

BP: Now is a slow time because of the global economy. For our customers who export to a place like China, if China’s economy is slow, then Caterpillar sells fewer machines, and their subcontractors make fewer parts, and that all comes back to us. Right now large construction equipment, mining equipment, farm equipment and the oil and gas stuff particularly all are slow. So that affects us. Aerospace is high, and medical is coming up, and the automotive industry is hot. So we have some pluses and minuses. Those companies right now that are only oriented towards automotive manufacturers are doing well, but those that only do business with oil service are really bleak. Mazak is much more diverse, so we have some pluses and some minuses. But the net effect now is a little negative.

But the future? Excellent. I feel very good about manufacturing here and what can be done from a manufacturing standpoint. I’m also including Mexico, because the U.S. is so closely related economically. There’s a lot happening in Mexico for U.S. companies too.

MG: Do you have a closing statement?

BP: The future of manufacturing is going to be much different than we’ve known it. Even for people who feel comfortable that it has advanced and is different than it was, it’s going to be much different in the future, much more so. There are going to be very good job opportunities for people if they have the right backgrounds. And each manufacturing job will provide multiple jobs outside that company. I see it as a nice opportunity for us because our customers are all kinds of manufacturers who make precision equipment, and the way we’re going to address that is to be a continual innovator, come up with new products. So I think it’s going to be a strong success for this company. ■

Mark Green is executive editor of The Lane Report. He can be reached at markgreen@lanereport.com.

Exploring Kentucky, Features

It’s Time to Get Crafty

Alltech Brewing in Lexington is Kentucky’s largest craft beer producer. One of its innovative products is Kentucky Bourbon Barrel Ale, which is aged in used bourbon barrels.

Alltech Brewing in Lexington is Kentucky’s largest craft beer producer. One of its innovative products is Kentucky Bourbon Barrel Ale, which is aged in used bourbon barrels.

My first taste of handcrafted beer came in a Vermont cousin’s basement back in 1976. Until then, I thought the only reason to drink beer was as a thirst quencher served ice-cold at a baseball game. If the suds were cold enough, the taste wasn’t so bad. But that first sip of Bill’s nut-brown ale was thick, malty, sweet and simply delicious.

These days, in tandem with the explo­sion of microdistilleries across the country, craft breweries are popping up every­where, and Kentucky is keeping right in step. Currently, the Louisville area has 17 craft breweries, including four across the Ohio River in Indiana, and the Lexington area features eight on its Brewgrass Trail: six in Lexington, one in Danville and another in Paris. Northern, western and southern Kentucky also boast a few. Fol­lowing industry growth, these numbers are bound to change soon.

Visiting a brewery is, simply put, fun in a mug. Many offer facility tours and most offer tastings. You can settle yourself down in a taproom and sip handcrafted beers brewed onsite and often, “guest taps” from other breweries. Keep in mind that a hefty number of brewmeisters are a gen­eration or two behind the bourbon indus­try’s master distillers but are every bit as proud of and enthusiastic about a prod­uct they’ve devoted time and sweat to cre­ate. Should you have the opportunity to meet the meister, be sure to ask for par­ticulars on how the brewery came to be, a bit about the beers themselves and the origins of the names of the beers and the brewery. You’ll run across great stories waiting to be told.

According to a co-owner of Ethereal Brewing Co. in Lexington, Ethereal’s symbol means “quintessence,” and is the alchemical symbol for “ether.” The name embodies the essence of his brew­ing philosophy, the taste of the beer and the brewing process itself.

“Ethereal means ‘out of this world,’” says Andrew Bishop, “and that’s a good way to describe our Flemish sours, Belgian farmhouse and American craft beers.”

Alltech Lexington Brewery and Distill­ing Co. led the way in Lexington, first producing its popular Kentucky Ale in 2000. Described as a wedding of two clas­sics – Irish Red and English Pale ales – this light amber beer is aged for six weeks in bourbon barrels to create the company’s flagship Kentucky Bourbon Barrel Ale. Putting a Southern Kentucky twist on the process, White Squirrel Brewery dumps its chocolatey brown ale into whiskey barrels and ages it into a Nut Brown Ale. The Bowling Green establishment also serves food. (Think fried chicken and waffles, and a stout beer float!)

If you like to munch as you sip, a few other breweries offer cooked-in-house menus.

Located in a former train station, Lou­isville’s Against the Grain Brewery and Smokehouse, for instance, serves barbe­cue, Kentucky burgoo, ribs and shiitake mushroom patties in its 15-barrel brew­house. In Lexington, Chase Brewing Co. specializes in stone-baked pizza in addi­tion to rotating food styles, menus and guest chefs in its taproom.

A large number of breweries, how­ever, rely on food trucks to supply nour­ishment to their customers so the beermakers can do what they do best. Near the University of Kentucky campus in Lexington, Country Boy Brewery – which has 24 taps, 12 of which pour their own brews – counts on food trucks for evening fare. In a restored 1880s building in downtown Paris, Rooster Brew specializes in “funky, Belgian-inspired beers,” according to owner Ralph Quillin, and also uses food trucks. Look for a Rooster Brew taproom also opening in Lexington soon.

Beer Engine brewery and beer bar in Danville boasts “12 taps, a vintage bar, beer cheese and a TV” and is adding a Louis­ville location in the old Zeppelin Café space in the Schnitzelberg community.

Although Braxton Brewing in Cov­ington serves no food, the brewery encourages customers to BYO munchies or to order in from nearby restaurants. As a tribute to its co-founder’s first home-brewed beer location, this tap­room has a 1,000-s.f. garage in the mid­dle that can accommodate up to 60 people as a private event space.

Paducah’s old Greyhound Bus Termi­nal shines these days as Paducah Beer Werks, which along with brews and an extensive pub food menu – handmade piz­zas, paninis, brats and burgers – serves up live music by local and touring bands, a comedy night and an open mic night.

Giving back to the community is a growing trend among craft breweries. Anchoring Lexington’s renewed Jefferson Street corridor, West Sixth Brewing Co. and gives 6 percent of its net profits back to charities each year via its Sixth for a Cause outreach. Through a program called Mission Mondays, Blue Stallion Brewing donates 10 percent of taproom sales every Monday to Lexington nonprof­its, while Braxton Brewing donates 5 per­cent of all its Trophy Pale Ale sales to Northern Kentucky community projects.

Pick up a Brewgrass Trail Passport card at any brewery or downtown at the Lexington Visitors Center, get it stamped as you swig a tasty craft beer at each stop, and collect a t-shirt.

Be sure to call a craft brewery before you visit to make sure they’re open and ready with a cool one for you!

Departments, Faster Lane

Midway University names new athletic director

Rusty Kennedy

Rusty Kennedy

Midway, Ky. – Midway University announced that Rusty Kennedy has joined its staff as athletic director. He comes to Midway with 18 years of experience as a coach, instructor and administrator at the NAIA, NCAA, and NJCAA levels.

“During the interview process, Rusty really stood out, not only because of his credentials and experience, but because of his passion and enthusiasm,” said Dr. John P. Marsden, President, Midway University. “There’s great potential for Midway’s athletics department, and with his background and drive, I’m confident that Rusty will provide the leadership needed to take our programs to the next level.”

Most recently Kennedy was the Head Women’s Basketball Coach at NCAA Division II member Western New Mexico University in Silver City, NM. Prior to coaching, he was the Athletic Director at Clarendon College in Texas from 2004-2005, and 2007-2010. During his time in that role he supervised 13 sports and more than 280 student-athletes. He also chaired the Athletic Committee and sat on both the Faculty and Student Grievance Appeals Committees.  His start in Athletic Administration came at Central Baptist College during the 1999-2000 where he served as Athletic Director, leading a transition from junior college to four-year athletics.

Kennedy holds a B.S. in Exercise Science from Oklahoma Wesleyan University and a M.S. in Management from Southern Nazarene University.

Along with a new director, the university will also add new sports as tennis and cross country join its roster of varsity teams. Both teams will return from hiatus in fall 2016.

“This is an exciting time for Midway athletics as we expand our offerings. I’m thrilled that we’re able to bring tennis and cross country back from hiatus to provide new opportunities for student-athletes,” said Kennedy.

At the February Board of Trustees meeting, two board members stepped forward with donations for athletics. Board members Jan Hunter and Belinda Metzger each gave $25,000 towards some athletic facilities upgrades.

“Our board members are demonstrating their overall support for a strong athletic program at the University,” said Dr. Marsden.

With the addition of tennis and cross country, Midway will offer 11 school-sponsored sports for the 2016-17 academic year. Additional sports are being considered and studied as part of the University’s strategic plan with the hopes of adding additional offerings in the coming years.

Features, Legal Affairs

Boutique Law Maintains Its Appeal

Boutique practices aren’t one-stop- shops like the big firms but provide clients with specialized knowledge in a more inti- mate setting.

Boutique practices aren’t one-stop- shops like the big firms but provide clients with specialized knowledge in a more intimate setting.

If when you hear the phrase “law firm” you imagine a downtown highrise, bustling with attorneys and staff, well, think again. Big firms may get big attention, but they aren’t where most attorneys do business.

According to the American Bar Association, nationwide, about half of attorneys in private practice work alone. Another 20 percent work at firms with 10 or fewer attorneys – figures that have remained steady since 1991. And many of these are boutique firms, which specialize in a niche area of law.

Boutique law firms aren’t one-stop-shops like the big firms but provide clients with specialized knowledge in a more intimate setting. For attorneys, going boutique can mean a more flexible schedule (though not necessarily fewer hours) and the ability to work from home or meet clients wherever it’s convenient for them. Technology is making this kind of flexibility even easier, said attorneys who spoke to The Lane Report.

“I’ve always been an independent, entrepreneurial sort of person,” said Robert McClelland, an attorney for 33 years, most of that time spent as a sole practitioner or with a small firm. McClelland and Associates, which specializes in elder law, counts three attorneys and five support staff.

“You’re handling pretty much everything – HR, accounting, insurance, the whole thing,” McClelland said. “Running a boutique firm is for the type of person who doesn’t want someone else controlling their destiny.”

Meanwhile, the lean-business shift created by the Great Recession and its long, slow recovery has shifted buying toward legal customers, especially larger ones, who increasingly demand that major firms provide higher-dollar services with seasoned late-career lawyers. Those with deep experience are in demand. With recent grads and early-career attorneys have a harder time getting the career-advancing casework they crave at large firms, boutique practices are becoming an appealing option.

Kentucky has 8,200 attorneys as of 2015, according to American Bar Association statistics, and U.S. Census data show about 2,000 law firms statewide, which equates to an average of four layers per firm.

Small firms are a standard that doesn’t seem to be waning. Looking at data provided by Kentucky’s three law schools – University of Kentucky, University of Louisville and Northern Kentucky University – 62 percent of new graduates who pursued careers in private practice chose firms with 10 or fewer attorneys.

Here’s a look at three Kentucky attorneys who decided to hang out their own shingle.

Scott Townsend, transactional law, Vice Cox & Townsend

Jr. worked together for a decade at a firm with 200 attorneys before they left to open their own boutique firm in Louisville April 2015 specializing in business and real estate matters.

Jr. worked together for a decade at a firm with 200 attorneys before they left to open their own boutique firm in Louisville April 2015 specializing in business and real estate matters.

Scott Townsend, Robert Vice Jr. and Jamie Cox spent a decade working together at a huge Louisville law firm with over 200 attorneys. Last April, they decided the time was right to open their own boutique firm specializing in business and real estate transactions.

Townsend, who spent much of his time advising the owners of family-owned companies, said he saw an opening in the market for the firm the three envisioned. He wanted an opportunity to use technology in new ways, gain more control over his schedule and offer flexibility to his clients’ fee arrangements. Additionally, small firms can be more agile than large, established firms, he said, ready to strike when opportunities arise.

“Personally, I needed to do something different. I worked with a lot of entrepreneurs and small-business owners, and the concept of owning a business was attractive,” Townsend said. “The hard part for us was that we loved it there, and we had to leave the people we worked with who were so talented and fun to be around, but I felt it was a great opportunity to branch out my practice and sustain and grow it.”

Technology enabled the three to reduce overhead. World-class legal resources are available at the click of a button – nowadays, there’s no need to have a physical legal library. They also were able to take advantage of billing and timekeeping software for additional savings. All that combined, he said, to encourage them that they “really could pull this off.”

“This is very rewarding and fun for us, but it is not for everyone – in fact it’s probably not for most attorneys,” Townsend said. “It simplifies our work lives, but it’s not like we’re working less.

“When you’re first starting out, you have to have an owner’s mentality, and that takes more time and attention than a lot of lawyers want to devote to it. I mean, in the beginning, we were doing everything – if we needed stamps or paper towels for the kitchen, we bought them.”

That fact goes over particularly well with Townsend’s clients, most of whom run their own small businesses. He now understands their experiences in a way he just couldn’t before.

“A lot of clients appreciate that we were crazy enough to do this,” he said with a laugh.

Still, Townsend said, he wouldn’t trade his time at a large firm. He cautions against new graduates attempting to go it alone without some experience first.

“I think the only reason this works for us is because of the excellent training and collaboration we got for 10 years at our prior firm,” he said. “I would have never done this straight out of law school. I think you have to get some traction and get your feet under you – you’ve got to learn to deal with clients before you can also run a business at the same time.”

Robert McClelland, elder law, McClelland and Associates

McClelland

Robert McClellan opened his boutique McClellan and Associates firm in Lexington in 2003 to specialize in elder law. It has three attorneys and five support staff. Today’s retiring baby boomer generation keeps them all continuously busy with wills, trusts, pensions and benefits, nursing home issues and estate planning.

A veteran attorney, McClelland decided in 2003 to make his focus elder law – a speciality he says is handled almost exclusively by small, boutique firms nationwide.

“I think that’s because it’s a niche area, and for many of the people in our client base, the only time they’ve met with an attorney was when they bought a house,” he said.

Most of his clients are in their 70s, and they’re facing major decisions about how their loved ones will be cared for in their final days – and how to handle the finances after their passing.

“What I want is for them to come in here without the intimidation of having to drive downtown to a silk-stocking law firm,” he said. “I make sure my staff is welcoming, that they’re offered coffee when they arrive, and that we sit down and meet in a room with a couch and coffee table instead of a desk.”

McClelland’s firm handles trusts, wills, powers of attorney and living wills. The attorneys deal with nursing home issues and advise their clients during estate planning. The firm also helps clients with special-needs family members navigate the maze of government aid and represents veterans in their appeals for pensions and benefits.

“There’s a huge generation of baby boomers coming at us that is woefully unprepared for the aging process,” said McClelland, who stays busy enough that he’s often booked three weeks out for appointments. “I think elder law is a perfect match for boutique firms because of the client base and personalities of the people who come in, and I wish more attorneys would practice it.”

Felicia Snyder, worker’s compensation attorney, Snyder Law Office

Felecia_Snyder

Felicia Snyder started her own sole practitioner firm in Lexington after she was laid off from a large law firm in 2013. She now likes the flexibility she has to work from home and put in as many or few billable hours in a day as she chooses.

Felicia Snyder got her start at a small firm in Eastern Kentucky, where she was one of just two attorneys on staff. On the heels of passing the bar exam, she jumped right into motion hours and depositions, working under the wing of the firm’s founding lawyer. The duties afforded her hands-on experience and confidence, both of which can be hard to come by for a young attorney, she said.

Still, Snyder had ambitions of joining a large firm in a bigger city, so two years later she did just that. She took a job in Lexington, working for a large firm with offices throughout the southeastern U.S. There, she learned the ropes of practicing workers’ compensation law.

But in 2013, she was laid off. At first, she was devastated, but she decided to take a chance and start her own firm.

“When I lost my job, I really felt it was a turning point in my career. I could either start working at a different firm or start my own,” Snyder said. “I had always daydreamed about the idea and figured it was the right time to give it a try.”

The first few months were tough, she said. Several of her previous clients sent work her way, but it wasn’t quite enough.

“I ate a lot of spaghetti during the first year.”

But she invested her downtime wisely, attending conferences, joining professional organizations and marketing her firm. Things soon started to turn around, and her business representing employers facing workers’ compensation claims grew.

“I had several friends and family who were very supportive. There were several people who went above and beyond to help me,” Snyder said. “I also have several clients who are faithful and I consider friends. All and all I feel very fortunate.”

As a sole practitioner, Snyder has the flexibility of working from home and setting her own schedule. She also no longer has to deal with the stress of meeting a large firm’s billable hour requirements.

“I can work 12 hours one day and take a day off. Or if I only have 4 hours of work to do in a day, I can just not work the rest of the day. I feel it is a better quality of life for me.”

One downside to going it alone is that large firms have resources that she does not, including law clerks and staff members. But her clients tell her they like knowing she will be the one handling their case from start to finish.

“I think whether you want to be in a small or large law firm is based on your own personality. For me, I absolutely love having my own firm,” Snyder said. “Lexington has a lot of wonderful and well-respected law firms. I just know what I have experienced and like the place that I am right now.”

Economic Commentary, Features, Features

CPAs Counting On Best Year in a Decade

CPA

National GDP might be mired in the low single digits, but the state’s CPA firms think they could see double-digit growth.

We take notice when a member of the traditionally conservative CPA sector says it could be the best year economically in a decade. Economic outlook projections among Kentucky’s CPA firms are strikingly rosy, though. Generational retirements in the baby boomer cohort are driving demand at accounting firms for succession planning across many commonwealth business sectors, even among CPA firms. Meanwhile, strong growth is expected this year in construction, equine, healthcare, manufacturing and bourbon. Another broad trend, the ongoing growth of online sales, is benefitting Kentucky’s national logistics hub. National GDP might be mired in the low single digits, but the state’s CPA firms think they could see double-digit growth.

 

 

Diane Medley, Managing Partner, Mountjoy Chilton Medley

Diane Medley

Diane Medley

“As a managing partner of a large accounting firm and as the chair of Greater Louisville Inc., keeping an eye on the economic forecast is a part of my job. Economic activity for the country appears stronger this year, particularly with anumber of large-scale mergers and acquisitions transactions in the headlines. We also need to be keeping an eye on changing global economies, which will inevitably impact our own. From an industry perspective, talent retention in accounting continues to be a challenge. Kentucky’s current tax policy and economic situation are also challenges – they hamper our ability to compete with neighboring states and greatly impact clients.”

 

 

G. Alan Long, Managing Member, Baldwin CPAs

G. Alan Long

G. Alan Long

“2016 will be a good year for accounting firms. The strengthening economy along with increased regulation and accounting standard changes will drive more need for services. The connectivity of the world is driving large and small businesses to seek opportunities in the global market, and CPA firms are well positioned to deliver these new services. The biggest obstacle for firms will be finding enough qualified employees to handle the additional work. The “boomer” factor is changing the dynamics of the economy. More are looking to retirement and succession planning, which is creating additional opportunities to provide clients with other necessary planning they need. Succession planning also is driving M&A activity among accounting firms of all sizes as more of the owners are looking to move into retirement.”

 

 

David Bundy, President/CEO, Dean Dorton Allen Ford

David Bundy

David Bundy

“At Dean Dorton we are very optimistic about 2016 and have expanded a great deal to be prepared to assist clients as needed. We expect many of our clients, especially those in the construction, equine, healthcare and manufacturing industries, to see continued strong economic growth. However, we do realize that the economic growth is not consistent across the commonwealth. Many of our clients, especially those outside of the Louisville and Lexington metropolitan areas, those in the natural resources industry, and those impacted heavily by government funding, such as higher education, may experience little to no growth and face on-going business challenges in the year ahead.”

 

 

Mike Stigler, Director, Blue & Co 

Mike Stigler

Mike Stigler

“Unemployment will continue to decline to 4.6 percent. The state will benefit from major manufacturing investments by the automotive industry (Ford and Toyota) and their component suppliers. Completion of the Louisville river bridges will impact investments in distribution and logistics in the regional market. Construction will benefit from demand for commercial and residential building inventory. Uncertainties that could negatively impact the economy are legislative management of state pension funding (second worst funded in the United States), potential changes to Medicaid coverage expansion (affecting 400,000 citizens and $1 billion of federal funding) and lack of readily available skilled labor.”

 

 

Penny Gold, CEO, Kentucky Society of CPAs

Penny Gold

Penny Gold

“While there has been troubling volatility in the stock markets recently, and some indicators show slowing manufacturing and retail sales, consumer confidence runs relatively high. The bright spot for Kentucky is automotive manufacturing; this remains strong, and U.S. optimism has been an important driver. While retail may be sluggish, online sales hit record highs this holiday season. Kentucky is a logistics hub for the nation, so continued growth in this segment is likely. And, of course, Kentucky bourbon and spirits are enjoying strong growth internationally. This provides Kentucky another economic cushion in hard times. The United States is a bright spot in the global economy, and Kentucky is well positioned for a good year.”

 

 

Steve Jennings, Crowe Horwath LLP, Local Office Managing Partner, Lexington

Steve Jennings

Steve Jennings

“What we’re seeing in Kentucky is a reflection of the U.S. economy. While the economy continues to grow, in some areas it is at a slower rate, while other areas are expanding faster. We’re seeing that at Crowe as well with a projection of growth overall, and in many of our practice areas, an expectation of double-digit growth. We continue to use our deep industry expertise to provide audit services to public and private entities while also helping clients reach their goals with tax, advisory, risk and performance services.”

 

 

Matt Coffey, Partner, BKD

Matt Coffey '

Matt Coffey

“We have seen a tremendous increase in demand for consulting and advisory services and expect that trend to continue. Clients’ outlooks of “cautiously optimistic” that were prevalent during the past five years have shifted noticeably during the last 12 months. Clients are proactively making investments and hiring talent to drive growth in their businesses. There continues to be a significant level of activity related to business succession driven by both the number of baby boomer owners looking to retire and the amount of capital available to fund buyouts. The growth within public accounting will be limited only by our ability to continue to develop and retain talent within our profession. I believe 2016 represents a better opportunity for growth than any year in the past decade.”

Features, Features, Legal Affairs

Legal Practice Makes Profits in 2015

Expanding industries in the state could mean more business for Kentucky law firms.

Expanding industries in the state could mean more business for Kentucky law firms.

Kentucky law firms are starting to get excited about economic prospects in this coming year, but know they have to be smart and flexible in responding to a changing marketplace where clients’ needs keep adjusting to new opportunities and a shifting regulatory environment. Corporate law, intellectual property, litigation, regulatory, real estate, and bankruptcy and restructuring practice areas all present opportunities. Construction and healthcare continue to generate business. Those who specialize in energy, banking, manufacturing and the ongoing bourbon boom expect a good 2016 also.

Robert Connolly

Robert Connolly

Robert M. Connolly, Chair, Stites & Harbison, PLLC

“Stites & Harbison is experiencing an increased demand for legal services in the areas of complex litigation, data security and privacy, mergers and acquisitions, class actions and regulatory matters. We are seeing larger volumes of complex legal work flowing back into the marketplace, which had slowed for some time due to economic pressures and the fact that many companies attempted to keep work in-house.

“We are well positioned with highly skilled attorneys maintaining expertise in these areas. The firm also remains focused on geographic expansion across its footprint in 2016.”

 

Mark H. Oppenheimer, Louisville Office Managing Partner, Bingham Greenebaum Doll LLP

Mark Oppenheimer

Mark Oppenheimer

“Bingham Greenebaum Doll LLP expects continued client and firm success in 2016. Our projections, along with client and firm attorney interviews, give us reason to be bullish, specifically in the areas of corporate and intellectual property law. BGD expects revenue to increase in the corporate, intellectual property, litigation, regulatory, real estate, and bankruptcy and restructuring practice areas. Although the U.S. economic recovery is expected to maintain its current pace, market demand for legal services won’t grow significantly. Law firms will continue to compete against one another for new business, and to keep current clients, in order to continue revenue growth.”

 

James H. Frazier III, Managing Member, McBrayer, McGinnis, Leslie & Kirkland

James-H.-Frazier

James H. Frazier III

“The McBrayer law firm is very optimistic about 2016 economic prospects as the firm’s primary focus continues to be giving its clients affordable quality legal counsel that consistently yields positive returns. In 2016 the firm already has added two practice areas: intellectual property and family law. While the firm continues to expand to meet all the needs of our client base, this growth is strategic in nature to guarantee that our clients always receive the personal and responsive attention they deserve. The firm is also expanding its government relations department, MML&K Government Solutions, by improving its infrastructure and practice in Washington, D.C. These strategic moves will benefit our clients on local, regional and national levels.”

 

Jim Dressman, Managing Partner, Dressman Benzinger LaVelle (DBL Law)

Jim Dressman

Jim Dressman

“The Kentucky legal market is dynamic, and the fast-changing environment brings new challenges and opportunities. Hot industries for our firm continue to be manufacturing, healthcare, real estate development, construction and banking.

“Kentucky is a great place for our firm to be; we look to expand our presence into the Lexington market. Many of our clients are family-owned companies, where next-generation leaders have begun to emerge and succession planning is now top of mind. Growth and sustainability, updated operating models, employee recruiting and retention, technology, and more are dominating our client conversations. As a member of the GGI network, our firm continues assisting foreign companies looking to do business in this region and helping regional companies do business internationally.”

 

John R. Crockett III, Chairman, Frost Brown Todd

John R. Crockett III

John R. Crockett III

“The January roller coaster tied to China, oil and the financial markets makes predictions risky, but Frost Brown Todd continues to believe that 2016 presents outstanding opportunities for the business clients we serve. 2015 was a terrific year for the firm, as our growth continued into the Dallas and Pittsburgh markets. We remain grateful to those who trust their most important issues to our team, and are bullish on prospects for continued success here in Middle America. Those of us in Kentucky are hopeful for meaningful and swift progress with debilitating pension deficits, a tax code badly in need of overhaul, and other solutions to enhance our national and international competitiveness. ”

 

Jeff Philips, Managing Member Lexington, and Bonita Black, Managing Member Louisville, Steptoe & Johnson PLLC

“As the Obama administration enters its final year, businesses are confronted with new federal regulatory initiatives. The energy industry, so vital to Kentucky’s economic success, is unsettled. Mergers, acquisitions and bankruptcies for coal and gas companies continue. Healthcare providers and colleges also are encountering increased regulatory obligations, hampering those institutions’ ability to provide a healthy and well-educated workforce. With concerns about cyber security, social media and even drones, technology simultaneously simplifies and complicates our lives. Law firms that offer new and creative solutions for their clients will prosper. Those that do not could suffer.

 

William M. Lear Jr., Managing Director, Stoll Keenon Ogden

bill-lear

William M. Lear Jr.

“Stoll Keenon Ogden’s best barometer of Kentucky’s current and future economic prospects is the performance of the economic sectors in which our firm has a significant footprint. They include aluminum production, automotive, banking, distilled spirits (read “bourbon”), energy, equine, healthcare, information technology and utilities. Among those, all except the energy sector are experiencing solid, and sometimes spectacular, growth and profitability, which should continue throughout 2016. The energy sector, especially the coal industry, continues to suffer under the weight of increased governmental regulation coupled with difficult market conditions. Overall, Kentucky’s near-term economic future looks bright; and, if our governor and the legislature can eliminate the darkest cloud on our economic horizon – public employee pension liability – our future will be much brighter.”

 

Gaines Penn, Managing Partner, English, Lucas, Priest & Owsley, LLP

Gaines Penn

Gaines Penn

“Our law firm primarily practices in the field of business law, so when we’re doing well so is the economy in South-Central Kentucky. Our operations in every sector are expanding gradually, which is ideal for us and the community.

“In the past year, we created a new practice area, business startup services, designed to get businesses off the ground quickly for an affordable flat fee. That area, along with the transactional areas, are all growing, and our tax practice is particularly busy as business owners seek ways to lower their tax burden. We anticipate a strong 2016.”

 

Chauncey S.R. Curtz, Lexington Office Managing Partner, Dinsmore & Shohl LLP

Chauncey Curtz

Chauncey Curtz

“As the economy continues to make a slow recovery, I anticipate more businesses will be moving to finalize transactions and complete capital restructuring, especially with the prospect of rising interest rates.

“Regulatory compliance and data security are top of mind across most every industry sector and need to be proactively addressed to avoid serious and costly issues.  Our energy and natural resources clients are in a period of continuing transition and must evolve to stay competitive.  We are committed to assisting all our clients by providing practical solutions to difficult problems.”

 

Taft A. McKinstry, Managing Member, Fowler Bell

Taft A. McKinstry

Taft A. McKinstry

“Positive energy is flowing in the Bluegrass, and Fowler Bell welcomes this surge of excitement and growth. The economy is blooming, and business is changing for the better. Law firms must keep pace with this change. Clients increasingly prefer firms with focused practice and value-added services over extensive offerings and legal invoices to match. Like our most celebrated Kentucky spirit, we must distill our strengths over time, rather than attempting to be all things to all comers.

“Responsiveness and high-quality work are Fowler Bell’s hallmarks. We continue to apply these core values to a more refined practice in order to serve clients even better in 2016 and coming years.”

 

Franklin Jelsma, Managing Partner, Wyatt, Tarrant & Combs LLP

Franklin Jelsma

Franklin Jelsma

“At Wyatt, we saw an uptick in real estate and merger and acquisition activity in 2015 while healthcare remained strong and coal-related businesses faced increasing challenges. We expect these trends to continue in 2016. Kentucky continues to make progress in diversifying its economy and expanding beyond traditional sectors, but to keep pace with other markets we must make education our top priority. Education is economic development. It is the only real long-term solution for increasing opportunity, strengthening our communities and improving our quality of life. There are no shortcuts.”

 

Henry C.T. “Tip” Richmond III, Member, Dickinson Wright

Henry C.T. “Tip” Richmond III

Henry C.T. “Tip” Richmond III

“We expect sustained growth in 2016 for a number of business sectors.  For example, due to recent changes in the laws affecting trade between the United States and Canada, we anticipate increased cross-border activity that will require sophisticated legal support and solutions. Likewise, we see continued growth in agribusiness, healthcare, intellectual property protection and construction projects. Other sectors such as energy will continue to be depressed due to numerous challenges. Notwithstanding global market challenges, we believe that our clients and our firm will have significant opportunities for continued overall growth.”

Agribusiness, Features, Features

Kentucky’s Living Legend Bourbon Distillers

Master Distiller Jimmy Russell’s experience covers all stages of bourbon making. He is known as The Buddha of Bourbon.

Master Distiller Jimmy Russell’s experience covers all stages of bourbon making. He is known as The Buddha of Bourbon.

If Kentucky is best known for horse racing, then Secretariat is one of the state’s undeniable legends. If it’s fried chicken, then Col. Harlan Sanders’ legacy will be with us long after our time here is gone.

But of course bourbon is one of the state’s richest heritages, and has enjoyed a surge in popularity in recent years that few could have predicted. Just ask the Kentucky Distillers Association, which reports that bourbon is a $3 billion state industry, generating more than 15,000 jobs and pouring more than $166 million into tax coffers annually.

What’s more, bourbon production continues to ride, with more than $1.3 billion in capital projects underway or planned the next five years, from distilleries to tourist attractions.

How did bourbon become so popular, not just in Kentucky but worldwide? Many factors play into answering that question, but what cannot be understated is the importance of the people behind the industry.

With the assistance of bourbon writer Fred Minnick, author of “Bourbon Curious: A Simple Tasting Guide for the Savvy Drinker,” The Lane Report has identified five living legends of the bourbon industry, people without whom our current bourbon industry would not look the same.

“Bourbon’s growth and popularity is thanks to a cast of distillers, marketers, executives, production workers, etc.,” Minnick said, “but these men transcended the business in their own way and forever changed the course of bourbon. Each one is either in the Bourbon Hall of Fame or should be.”

Jimmy Russell, Wild Turkey

Wild Turkey Master Distiller Jimmy Russell

Wild Turkey Master Distiller Jimmy Russell

It’s hard to argue with a man who might be referred to any given day as “The Buddha of Bourbon” or “The Master Distiller’s Master Distiller.” Jimmy Russell has been in the business for more than 60 years, easily the longest-tenured active master distiller in the spirits industry, and his legacy shows it.

His tenure at the Wild Turkey Distillery in Lawrenceburg has meant more than just distilling traditional bourbon, however – Russell has ushered in a number of successful Wild Turkey sub-brands and bourbon products, like Tradition, Tribute, 17-year-old Wild Turkey (Japan), Rare Breed, American Spirit, Kentucky Spirit and Russell’s Reserve, which he co-created with his son, Eddie. He was a visionary in the 1970s, creating and releasing the first honeyed bourbon product – some 40 years ahead of the current popular trend of flavoring bourbons and whiskeys.

Starting his tenure at Wild Turkey as a boy sweeping floors – he grew up just five miles from the distillery – he learned from his father and went on to study distilling under such bourbon luminaries as Bill Hughes, Wild Turkey’s second master distiller, and Ernest W. Ripy Jr., son of Wild Turkey’s original owners.

Because of his involvement in distilling from the beginning of the process (selecting grains) to the end (aging), the friendly Russell is looked to as something of a living legend of bourbon. He’s a member of the Kentucky Bourbon Hall of Fame and a whiskey judge for the International Wine and Spirits Competition; if bourbon whiskey is a brotherhood, he is the big brother. This is in part because he reached the level of master distiller in the 1960s, learning how to do it the right way from the right people. He has since passed on that knowledge to Eddie, who, in an homage to his father, created 2014’s Wild Turkey Diamond Anniversary, an outstanding limited-edition expression of 13- and 16-year-old whiskies.

That year was declared “The Year of Jimmy Russell” by Wild Turkey, and led to a number of accolades and tributes, including being awarded a Lifetime Honorary Membership to the Kentucky Distillers’ Association’s board of directors, an honor bestowed to only five other people in the organization’s 130-plus-year history.

Eddie recently was named master distiller himself, meaning that Jimmy Russell has achieved yet another first as the only father-son master distiller team. When making the announcement, the elder Russell was quick to point out that his son isn’t taking his place – just taking a place beside him.

“After 34 years, I think he’s finally earned it,” Jimmy Russell said in the press announcement, “but that doesn’t mean I’m going to go any easier on him – or that I’m going anywhere anytime soon.”

Bill Samuels Jr., Maker’s Mark Distillery

As CEO of Maker’s Mark for 35 years, Bill Samuels Jr. was instrumental in marketing efforts that popularized premium Kentucky bourbon across the United States and around the world.

As CEO of Maker’s Mark for 35 years, Bill Samuels Jr. was instrumental in marketing efforts that popularized premium Kentucky bourbon across the United States and around the world.

While Bill Samuels Jr. is not a master distiller, he is about as Kentucky – and bourbon – as a person can get. Born into a family that had been making whiskey for six generations, Samuels grew up on Distillers’ Row in Bardstown and as a young man had a job driving the aforementioned Col. Sanders around the state as he was trying to grow his new fried chicken concept.

After earning a degree in engineering physics at Vanderbilt, Samuels helped design the Gemini and Polaris rockets in the 1960s before assuming leadership of the family business in the 1970s. Today, his son Rob runs Maker’s Mark, but only after Samuels Jr. served as president and CEO for a memorable and productive 35 years.

During that time, he ushered in the Maker’s Mark Ambassador Program as a way to build camaraderie among fans of the brand, believing that a brand is built one customer at a time. Maker’s marketing was key in introducing premium bourbon to much of the world. Similarly, he helped turn Bourbon Country into a tourism destination, carrying out a long-time dream of his mother. As a result, rustic Maker’s Mark distillery in rural Marion County is visited by more than 100,000 tourists annually.

A few years ago, he also introduced a new brand, Maker’s 46, which he jokingly referred to as “realizing the dream of a desperate old man about to retire with no legacy.”

Samuels is not a master distiller, but he is recognized as a keen businessman and marketer, and he was part of the inaugural class of the Kentucky Bourbon Hall of Fame in 2001. He was named Kentucky’s Entrepreneur of the Year on three occasions and was named Louisville’s Citizen of the Year in 2004. He was inducted into the Kentucky Business Hall of Fame in 2006.

His professional humility, coupled with his personable nature, is probably what stakes Samuels’ reputation so firmly in the bourbon industry. He attributes his success to having smart parents – his father created the Maker’s Mark process and his mother its distinctive name, labeling and wax-dripped bottle – and really good luck. He also believes he managed to continue Maker’s Mark’s run of success thanks to following one piece of good advice handed down by his father: “Don’t screw up the whiskey.”

Jim Rutledge, Four Roses

Four Roses bourbon soon became one of the top brands in the United States after Jim Rutledge returned to Kentucky in 1992 to relaunch a product that had been sold only in Europe and Japan for 50 years.

Four Roses bourbon soon became one of the top brands in the United States after Jim Rutledge returned to Kentucky in 1992 to relaunch a product that had been sold only in Europe and Japan for 50 years.

With nearly 50 years in the bourbon business and 20-plus as master distiller, Jim Rutledge was known by most as “the face of Four Roses” – at least until he retired last September.

But Rutledge is legendary for more than the bourbon he made; he is legendary for his role in bringing what originally was a Frankfort brand back to the United States. Until the early 1940s, Four Roses was one of the best known brands in the business, but when Seagram purchased the Frankfort Distilling Co. in 1943, it moved the Four Roses brand strictly to the European and Japanese markets.

Rutledge joined Seagram in 1966 as an employee in the Louisville plant’s research and development department, where he worked until 1975 before transferring out of the Bluegrass state. After a long stint at Seagram’s corporate headquarters in New York, however, Rutledge returned to Kentucky in 1992 to help revive the Four Roses brand, becoming master distiller in 1995. From there, it became his mission to return Four Roses to the states and to its former glory. That dream came true in 2004 after the Kirin Brewing Co. of Japan purchased the brand.

Thanks to Rutledge’s vision and distilling mastery, Four Roses quickly rose back to the top of the ranks, and remains there. Distilling 10 separate recipes, Four Roses has been named American Whisky Distiller of the Year for four times in the last five years by Whisky Magazine (2011, 2012, 2013 and 2015). Four Roses Small Batch is an acclaimed bourbon that has won numerous awards, starting in 2008 with a gold medal at the International Review of Spirits.

Rutledge was inducted into the inaugural class of the Kentucky Bourbon Hall of Fame in 2001. Following this, he received a “Lifetime Achievement Award” by Malt Advocate magazine in 2007, while in 2008 Whisky magazine named him “Whisky Ambassador of the Year – American Whiskies.” In 2012, he became only the second American named to Whisky magazine’s global Icons of Whisky Hall of Fame.

According to a Four Roses press release upon his retirement, Rutledge plans to stay involved in the bourbon industry.

Harlen Wheatly, Buffalo Trace Distillery

In his 10 years as master distiller at Buffalo Trace, Harlan Wheatley has been nominated three times for a James Beard Award, which is sometimes called the Oscars of Food.

In his 10 years as master distiller at Buffalo Trace, Harlan Wheatley has been nominated three times for a James Beard Award, which is sometimes called the Oscars of Food.

Harlen Wheatly is a native Kentuckian – born in Mt. Sterling – who parlayed a degree and career in chemical engineering and a love of the craft of bourbon into becoming master distiller for one of Kentucky’s most recognized distilleries, Buffalo Trace.

Much like Samuels, Wheatly is pure Kentucky, spending most of his life living and working in the state. It was right around the time he joined the distillery in the late 1990s as a supervisor that the now-flagship Buffalo Trace Bourbon was introduced, and the name of the distillery was changed from George T. Stagg Distillery to Buffalo Trace. In other words, he landed at just the right time to help start and then continue what is now a bourbon tradition that seems much older than it is.

By 2000, Wheatly was promoted to distillery manager; in 2005, he became Buffalo Trace’s resident master distiller, becoming only its sixth master distiller since the Civil War.

Wheatly has driven a number of Buffalo Trace initiatives as the brand has grown, including solidifying standards and consistency, quality focus and efficiency gains. He is responsible for a number of distilling and aging operations, all while acting as a brand ambassador who educates the public on bourbon whiskey while also producing the legendary Pappy Van Winkle bourbons.

Buffalo Trace has won dozens of awards in the time Wheatly has been master distiller, from Whisky magazine’s Distiller of the Year in 2005 to World Whisky Brand Innovator of the Year in 2015. Buffalo Trace has won awards at the International Wine & Spirits Competition, from the Kentucky Travel Industry Association, and even from Wine Enthusiast magazine.

And Buffalo Trace also has been a key contributor to bourbon tourism in Kentucky under Wheatly’s oversight – Buffalo Trace entertained just under 150,000 tourists in 2015, an increase of 18 percent over 2014. Since the end of 2009, Buffalo Trace has seen an astonishing 190 percent growth in tourism.

For his part, Wheatly also is a three-time James Beard Award nominee in the Outstanding Wine and Spirits Professional category. Chances are, he has many more such honors ahead of him.

Chris Morris, Woodford Reserve

Under Chris Morris’ tenure as master distiller, Woodford Reserve bourbon has launched multiple highly acclaimed specialty lines such as its Double Oaked and Master’s Collection.

Under Chris Morris’ tenure as master
distiller, Woodford Reserve bourbon has launched multiple highly acclaimed specialty lines such as its Double Oaked and Master’s Collection.

Affable and approachable, Woodford Reserve’s Chris Morris would be just as happy talking about food as he would bourbon. But make no mistake: Morris knows distilling like few others. Sit in on his Flavor Wheel session, and you’ll marvel at his appreciation of the flavors that can be summoned by bourbon. And the fact his title is not just master distiller but also spirits historian, and one gets a sense of just how important Morris is to distilling in Kentucky.

He actually has spent his entire life in the bourbon industry, having grown up around it as one of three generations of his family to work for Brown-Forman, Woodford’s parent company. He began as a trainee in 1976 and never looked back. He departed for a time in the late 1980s to join another spirits company before returning to Brown-Forman in 1997 to begin his training as a master distiller under legendary distiller Lincoln Henderson.

The consummate brand ambassador for Woodford Reserve, he became master distiller in 2004, launching the Woodford Reserve Master’s Collection to critical acclaim. He also created bourbon finished in Chardonnay and Pinot Noir barrels and even developed what Woodford Reserve says is the world’s first maple barrel. In 2012, he created the delicious, limited-edition Woodford Reserve Double Oaked bourbon. Last year, he released a new rye whiskey, Woodford Reserve Rye.

While he spends much of his time educating people about bourbon and distilling, along with planning new releases, Morris also has served on the Kentucky Distillers’ Association and Kentucky Bourbon Festival’s boards and as co-chair of the DISCUS Master Distillers Committee. In addition, he has served as a judge at the International Wine and Spirits Competition and International Spirits Challenge.

It’s no surprise Woodford Reserve perennially wins awards at competitions such as the San Francisco World Spirits Competition, Whiskies of the World Awards, World Spirits Competition, New York Spirits Awards, and others, not to mention a 2009 Whisky magazine award for Whisky Innovator of the Year.

As long as this kind of success continues, and tourists keep flocking to the gorgeous distillery in Woodford County, don’t expect Morris’ innovations to stop anytime soon.

“The idea is to create new and different things with an artisan’s touch,” Morris said. ν

Kevin Gibson is a correspondent for The Lane Report

He can be reached at editorial@lanereport.com.

Features, Healthcare

Elder Care Insurance Matures

To the old adage that two things are guaranteed – death and taxes – a third could be added: high medical costs for the elderly.

To the old adage that two things are guaranteed – death and taxes – a third could be added: high medical costs for the elderly.

Long-term care insurance rose as a private product over the last decade with state encouragement to counter rising Medicaid costs. Care cost increases, though, have brought premium hikes that have cooled the market somewhat.

House Bill 259 in 2008 created Kentucky’s Long-Term Care Insurance Partnership Program. Signed into law by Gov. Steve Beshear on April 7, 2008, the bill seemed a win-win all around. The state was able to shift some of the cost of long-term care for the elderly away from the Medicaid budget, while consumers faced fewer hurdles to access Medicaid benefits once their private insurance was tapped out.

Those who obtained coverage did not have to drain their personal assets below $2,000 before Medicaid would foot any long-term care costs. Their private insurance benefits often were dollars that Medicaid – hence, taxpayers – would have had to reimburse to providers.

Brad Montel, State Representative, House District 58

Brad Montel, State Representative, House District 58

“The driving motivation was to certainly save the state money,” said Rep. Brad Montell, a Shelby County Republican who co-sponsored the bill. “It encourages the consumer to purchase long-term care insurance and assume that risk themselves, rather than shifting that cost to the state.”

The bill’s other sponsor, Meade County’s Rep. Jeff Greer, said his long work experience as the owner of an insurance firm in Kentucky convinced him of the need for this bill.

“I knew how important it was to have this program,” Greer said in a statement released by his office, “both for the families who would benefit from the financial protection it provides and the taxpayers who would benefit from the resulting savings in Medicaid where long-term care is a major cost driver.”

Since Kentucky became one of approximately 40 states offering partnership incentive programs, conditions have changed dramatically. The 2008 recession has pressured the insurance industry, and premiums have gone up. More medical advances have lengthened lives, but they have come at a cost. And Kentucky’s newly elected governor has said he desires to limit the number of new people on Medicaid, the primary source of elder-care benefits.

A question remains as to whether the long-term care policies are effective at reducing the Medicaid-funded taxpayer burden, or whether they’re a stop-gap measure before someone can develop a better solution to manage healthcare costs for the elderly.

“The governor’s intent is to get fewer people on the Medicaid rolls, so if that’s the case we’re going to see further need for this bill and other initiatives that attempt to shift the risk to consumers in an equitable and fair way,” Montel said.

The high cost of growing old

To the old adage that two things are guaranteed – death and taxes – a third could be added: high medical costs for the elderly.

According to the American Elder Care Research Organization, a Nevada-based nonprofit that maintains the
PayingforSeniorCare.com website, the roughly one in eight Americans 65 and older spend an average of $11,000 annually on healthcare.

If you consider that the average Social Security payment in 2015 was $1,335 per month and factor in that the average cost for a nursing home stay is $76,680 a year, a grim picture emerges about the lack of affordable healthcare options for seniors.

Rising costs are attributed to a variety of factors, including supply and demand as the number of Baby Boomers entering retirement is increasing. Life expectancy has also grown, from 47 years a century ago to almost 80 years in 2015.

Long-term care insurance generally covers home care, assisted living, adult daycare, respite care, hospice care, nursing home and Alzheimer’s facilities. Private long-term care insurance is growing in popularity in the United States. Premiums, however, have risen dramatically in recent years even for existing policy holders.

Once a person purchases a policy, the language cannot be changed by the insurance company, and the policy usually is guaranteed renewable for life. It can never be canceled by the insurance company for health reasons, but can be canceled for non-payment.

Forbes reported in February 2015 that buyers of market leader Genworth’s newest policies (called PC Flex III) are purchasing insurance that averages $137 per day for 3.4 years, about $170,000 in maximum coverage – a lot less than some older policies that typically provided almost $200 per day for four years (more than $283,000).

A 2014 survey by Broker World magazine found sales of five-year policies plunged from 18.9 percent in 2007 to 13.5 percent in 2013, while sales of three-year policies increased from 23.6 percent in 2007 to 35.3 percent. Sales of lifetime policies fell from 5.7 percent to just 3.6 percent.

Beth Munnich, Assistant Professor of Economics, University

Beth Munnich, Assistant Professor of Economics, University

“People are living longer,” said Beth Munnich, an assistant professor of economics at the University of Louisville. “As people live longer, there’s a greater likelihood that they will need a nursing home at some point.”

And the likelihood of poor health is a sticking point in Kentucky, which boasts diabetes, smoking and heart disease rates above the national average. Shannon Gadd, senior director of programs with Louisville-based ElderServe, says residents ElderCare serves in the seven-county metro region on average have two chronic illnesses.

“Typically we see people who are living on their Social Security benefits or on a small pension,” she said. “All it takes is one bad fall before your health can really deteriorate.”

To bridge the gap in care, ElderService provides in-home care that recipients pay for on a sliding scale; it is funded by Kentuckiana Regional Planning & Development Agency.

“It’s an option that allows people to stay in their home and live independently as long as possible,” said ElderServe CEO Julie Guenthner.

But for some with the worst illnesses, such as dementia, remaining at home is not an option, especially if they have no family members who can help with their care. Hence the need for the Kentucky’s partnership program.

“If they have a long-term care policy, it might give (consumers) a choice of where they receive their services,” said Ron Burkhart, a consultant with the Kentucky Department of Insurance. “And it can pay for nursing home care that can relieve family members who may have been the sole caregivers.”

Good for some, but not for everyone

Although long-term care insurance can protect one’s assets, experts say they work best for a certain slice of middle-income retirees who live above the poverty line but would not be considered wealthy.

“Long-term care insurance isn’t a fit for everyone, but it has value for people who are interested in preserving some of their estate for their heirs,” said John Accius, a senior strategic policy advisor for the American Association of Retired Persons.

Typically, when someone applies to receive Medicaid benefits, they must have no more than $2,000 of available assets. Partnership programs like the one in Kentucky allow consumers to get around this limitation. If someone has a $200,000 house, for example, they can buy a policy for $200,000 in long-term care benefits, allowing them to keep the house and still qualify for Medicaid benefits, once their insurance policy benefits have been exhausted.

Policy costs vary depending on age and coverage level, according to statistics from the American Association of Long-Term Care Insurance. For example, a 50- to 54-year-old can expect to pay anywhere from $1,384 to $11,667 per year, whereas the rates jump significantly for a 60- to 65-year-old, to $3,321 to $10,002 annually.

So, in the eight years the partnership law has been in effect, what kind of results have been seen?

Stephanie Bowker, Senior Insurance Program Manager, Kentucky Department  of Insurance

Stephanie Bowker, Senior Insurance Program Manager, Kentucky Department
of Insurance

The jury’s still out, it seems. Burkhart said no official report tracks the issuance of long-term care policies in Kentucky, but data suggests 700 may have been issued annually in 2014 and 2015, down from 1,500 in 2013.

“You have to keep in mind, it’s an expensive product,” said Stephanie Bowker, a senior insurance program manager with the Kentucky Department of Insurance.

“So it’s not for everyone. They are expensive policies to maintain.”

On its website, the AARP publishes a checklist for evaluating policies, and notes that premiums can increase over time. One reason is that insurers suffered from sticker shock when they found costs were much higher than expected when they issued these policies, the site says.

“Because interest rates are low, (insurance carriers) are not getting as much money from their investments as they would have otherwise,” Munnich explained. “They have to find other ways to fund coverage, so it’s now coming through premium increases.”

Features, Features, One-On-One, One-on-One

One-on-One: Owensboro Health CEO Phillip Patterson

Philip Patterson joined Owensboro Health as president and CEO in 2013 and has over 20 years experience in healthcare in New York, Dallas, New Orleans, Atlanta and Birmingham. He came from the Bon Secours Charity Health System, a three-hospital system based in New Jersey where he served as CEO. Patterson has been vice president and chief operating officer of Mercy Hospital, an affiliate of Allina Hospitals & Clinics based in Minneapolis. A Mobile, Ala., native, is known for spending time away from his desk, visiting with employees and physicians at every opportunity, and has a reputation as a visionary executive with an ability to inspire others. His leadership philosophy emphasizes: shared organizational vision, open communication and exemplary performance. He and his wife have two young daughters.

Philip Patterson joined Owensboro Health as president and CEO in 2013 and has over 20 years experience in healthcare in New York, Dallas, New Orleans, Atlanta and Birmingham. He came from the Bon Secours Charity Health System, a three-hospital system based in New Jersey where he served as CEO. Patterson has been vice president and chief operating officer of Mercy Hospital, an affiliate of Allina Hospitals & Clinics based in Minneapolis. A Mobile, Ala., native, is known for spending time away from his desk, visiting with employees and physicians at every opportunity, and has a reputation as a visionary executive with an ability to inspire others. His leadership philosophy emphasizes: shared organizational vision, open communication and exemplary performance. He and his wife have two young daughters.

Mark Green: The Kentucky healthcare sector has been going through significant changes in recent years, just like the national scene: mergers and acquisitions, network realignments. How does Owensboro Health fit into today’s changing healthcare sector?

Philip Patterson: As a regional and trauma-designated medical center, Owensboro Health fits the footprint for Western Kentucky as a tertiary-care referral center. But being a community hospital is where it starts. We are the primary healthcare provider for clients in our home Daviess County and in a few of the surrounding communities and counties. Secondary to that, in relationship with other hospitals throughout our region – small community hospitals, critical-access hospitals – we become their secondary and tertiary provider. We’re trying to build in systems to ensure the availability of that tertiary level of care here in Western Kentucky.

We work with many quaternary partners across Kentucky as well as in Tennessee. We’ve got a tremendous network of partnerships that allow us to grow here locally as well as move people through to Louisville or Lexington as necessary. We have partnerships such as the NICU (Neonatal Intensive Care Unit) relationship we have with Kosair and the University of Louisville Physicians group. They not only staff our NICU but also have a collaborative effort with our Level 3 NICU that we just obtained last year. We can send children to the Level 4 NICU at Kosair, and there’s a seamless transition with us having the same medical group.

We are cementing ourselves as the regional preference for tertiary care and recognize it’s going to take our quaternary partners in Louisville and Lexington to maintain that.

MG: Describe the facilities that you have now. Owensboro Health built and in 2013 opened a $400 million hospital.

PP: Yes. It opened in June 2013. On the main campus at Pleasant Valley, the new hospital has 477 beds. We are a designated trauma center as well as the largest freestanding emergency room in the state when it comes to volume. We have Level 3 NICU capabilities and a full array of surgical complements at all levels. We’re now responsible for the 90-bed Muhlenberg Community Hospital, which has now been renamed Owensboro Health Muhlenberg Community Hospital, in Greenville. It also has a nursing home with 45 beds. Then we’ve got 29 ambulatory locations with over 170 providers in our One Health network, across the 14 counties we serve. So, OH is a pretty large organization.

MG: What entity owns and operates Owensboro Health, and for how long?

PP: Owensboro Health Inc. is a Kentucky not-for-profit corporation set up as a charitable organization under the 501(c)3 laws for the Internal Revenue Code. It has a board of directors of about 14 members appointed by the city, the county, the medical staff and the community at large. The current structure was developed in 2003.

MG: What is Owensboro Health’s geographic market?

PP: Our market consists of a 14-county region in Kentucky and Indiana. Our primary market is Daviess County, Ky., and our secondary market includes the Kentucky counties of Breckinridge, Butler, Grayson, Hancock, Henderson, Hopkins, McLean, Muhlenberg, Ohio, Union and Webster, and the Indiana counties of Perry and Spencer.

MG: What is the One Health subsidiary?

PP: One Health is the new name that Owensboro Health has given to its medical group, which now includes 180 physicians and allied health providers in more than 32 subspecialties. The group’s presence spans more than 25 clinic sites and satellite facilities across all 14 counties we serve. We chose One Health because we wanted our name to reflect the aim of our healthcare: simple to access, receive, understand care. We also want one point of contact tied to the health system. Previously we’d gone under a number of names for the medical group. Last year, in FY2015, 23,000-plus new patients chose to seek an affiliation with our company through One Health.

MG: How many patients does your organization see in a year?

PP: We’ve had significant increases in outpatient volume over the last three years and have grown from about a half a million outpatient visitors to well over 800,000.

MG: What has been Owensboro Health’s experience with the broad trend of fewer inpatient days and more outpatient
services? Is your experience is any different from what’s occurring elsewhere?

PP: For FY2015, our admissions were up about 5 percent from the previous year, and already in FY2016 we’re about 7 percent ahead of last year. So for the last two years we’re still seeing a trend towards the inpatient care that’s pretty significant. That is a trend that is not seen nationally.

For the most part, what you’re seeing across the healthcare world is a shift of inpatient-related care to more of an outpatient setting. But because of the capabilities of our hospital and our regional platform, we’re seen as a more trusted partner throughout the region. As we’ve become that and become a more tertiary provider, we’re seeing increases on the inpatient side as well as the outpatient side.

We’ve had success recruiting primary care and specialty physicians and allied health professionals. We’ve added 55 new providers the past two years. We’ve increased the acuity capabilities at the hospital with our Level 3 NICU, as well as adding trauma services. We’ve added two plastic surgeons who cover inpatient needs – emergency patients, not the cosmetic type. We’ve increased the number of general surgeons, and, in reflection of what you’re saying as the transition of healthcare, we’ve gone into the outpatient pharmacy world in the last two years.

Medicaid expansion has provided increased volume to the organization, as many others have seen. Unfortunately there’s been a large increase in our emergency department, which did ultimately become a large source of inpatient admissions. We continue to address with education across the region about Medicaid expansion that appropriate, proper access of care can lead to a more economical provision of sustained care that has a long-term benefit of creating a better relationship with patients, who then have a better quality of life. If we can address those conditions, it will provide a more long-term, continuing patient relationship instead of the episodic relationships and they end up in the emergency room.

Outpatient surgeries were up in 2015 about 12 percent over FY2014, and we’re running another 8 percent higher this fiscal year – so, continued growth on the outpatient surgery side. We’re seeing numbers up across the board. Some of it has to do with Medicaid expansion, but at the same time we have gone through a significant growth of our whole resources across our region, which has led to some of that growth. People have received quality care at Owensboro Health, and have gravitated to using our newly expanded services and providers.

MG: What were OH’s latest revenue and profit-loss numbers, and how do they compare to the industry?

PP: Total operating revenue in 2015 was about $500 million, which was 11 percent higher than the prior year. Our operating cash flow in 2015 was about $70 million, which was $22 million higher than FY2014. We’re on track for a similar performance this year. Current fiscal year revenue is running about 17 percent higher than a year ago; our operating cash flow compares very favorably to industry averages and significantly ahead of FY2014 for comparable organizations.

MG: Your 14 percent cash flow in 2015 is considerably higher than the industry average.

PP: It is. We are the sole community provider, driven by the Owensboro Health mission to heal the sick and improve the health of the communities we serve. We truly believe the entire community is our responsibility, but we don’t do it alone. We created a community benefit grant program to assist not-for-profit organizations that work to address the priorities identified from the community health needs assessments that we now have to provide to the federal government.

Last year, we gave over $700,000 in grant money to care partners and not-for-profits. It helps drive the second part of our mission, which is to raise the overall health of our communities. It’s not just about healing people episodically. It’s more about really preventative care, and it’s also about getting to the socioeconomic disparities in our community and how we can change that dynamic to improve the overall health of communities we serve. That program’s been in place for about five years, and we’ve given out over $3.5 million.

MG: Which service sectors are generating the most revenue or are shifting the most?

PP: Like most across the industry, we’re seeing growth mainly in our outpatient network and in our physician and provider clinics. The business from the clinics has increased 70 percent the last couple of years. Our physicians saw 430,000 visits last year, versus 250,000 just two years ago. Due to needs, we are increasing our capabilities around primary care and allowing those who previously were underserved to access primary care. We’ve also expanded significantly across our subspecialties; where people used to have to travel out of our region for certain subspecialty care, they can now receive it here.

Growing our physician network has led to a significant increase of people wanting to access care through Owensboro Health. We talked about Medicaid expansion, but enhancing and increasing the locations and services and physicians as well as the Medicaid expansion, has driven growth. It’s also driven hospital services in the hospital itself. We’ve seen an increase in surgery, in obstetrics. Our emergency room is still growing, and we are seeing inpatient service growth of 5 percent, 7 percent, the past two years.

Our laboratory services revenues are flat over that time, because we’ve learned to be more efficient and more effective in that world. And we’ve actually seen a decrease in our volume of diagnostic radiology.

MG: Owensboro Health has 4,000 employees, making you Western Kentucky’s largest private employer. What are the largest categories? What has driven changes in staffing?

PP: Our most relative category, like every other provider, is nursing services. Of those 4,000 employees, 1,782 are in nursing services and 684 are in eight other ancillary services – other providers not in nursing. We’ve got significant inpatient and guest services and tried to be more service-oriented; provide point-of-care and point-of-need individuals. There are no more “phone trees.” People are not getting recordings or having to leave messages but have a live nurse’s or a care coordinator’s voice to help them with their need or crisis. We put a lot into our call centers and people at the front desk to try to make sure that everybody’s care experience is as efficient as it can be on the service side, too.

MG: Why did Owensboro Health acquire Muhlenberg Community Hospital last year, and do you anticipate further merger and acquisition deals?

PP: The hospital has been there since 1938 and was looking for a partner with a regional health system that could strengthen its financials as well as service offerings and preserve its identity as well as its capability within their community. We fit that bill. In June last year, we signed a 20-year lease with the county, then purchased everything at Muhlenberg Community Hospital. The providers and the personnel all became Owensboro Health employees. It led to strengthening the quality and financial initiative at the community hospital level in Greenville.

To answer your question about other merger and acquisition deals, we’re concentrating more on growing our physician capabilities across the 14 counties. It’s about answering those access-to-care issues that still exist in the more rural areas of our community and in basic primary care access, so people can have intervention at the right time and not have to wait to drive 30 minutes to an hour when an intervention will be at the hospital level. I don’t see us making an acquisition at this time with any other health provider.

MG: How has the expansion of Medicaid affected Owensboro Health? And would you like to see Kentucky continue that expansion or make changes as are being considered?

PP: There’s been an increase in people seeking care across the state. We’ve seen that in trend data across all health systems. While some of our increase in primary care is due to Medicaid, part is due to us expanding access; we’ve increased the number of primary care providers and other physicians. Also, Medicaid expansion coincided with the opening of the new hospital. Expansion of the hospital and our capability is driving increases in tertiary care, and some of that is due to Medicaid.

We have seen a decline in people who have no insurance; 6 to 7 percent of our population used to be “self-paying,” and we’re seeing half that now. Since the Affordable Care Act came into effect, self-pay at the hospital is at about 2 percent. That is significant. We’re very, very happy about that.

To the point of our mission of being the community hospital, we turn nobody away. We see 100 percent of those individuals who need us. We have to continue that. Owensboro Health needs to be resilient and adapt to the national and statewide changes as directed by the regulatory agencies. I’m putting together a group of leaders from the business community right now that will help us discuss how we can better care for our community workforce as well as their families – not just the Medicaid population. It’s about partnering across all aspects of our community to create the dialogues necessary and the care and access that’s needed.

Medicaid expansion has been good for the providers financially. It has been very good, even better, for the residents of Kentucky as many now have access to all forms of healthcare that they didn’t have prior. It’s been good across the board.

We know that expansion has come with a price tag of financial support from our commonwealth, and we hope that our new Gov. Matt Bevin has a plan – or it all shakes out and that the work that he’s doing with Mark Birdwhistell and his group comes out as a balanced and well-thought-out plan that allows residents to continue to have access to healthcare. To Gov. Bevin’s point, we also need to be fiscally prudent.

MG: Our magazine reported last year many Kentucky hospitals are investing hundreds of millions of dollars in imaging systems that allow more precise and less invasive treatments. How does OH assess such investments?

PP: We’re not different from any other hospital. Our organization conducts ongoing evaluations of our imaging equipment as well as changes in technology. We look at the age of existing equipment. Are there significant changes that would bring significant capabilities and new opportunities for our patients? We look at what is changing just on the quality of the images, not on the scope itself or the technology. We look at what it’s taking us to maintain the existing equipment versus what is new out there.

Technology advances and vendors are always reviewed by staff and management, and the radiologists, along with having on-site visits to formalize recommendations. Then they work through the capital process. Last year we purchased three 3D mammography systems, which still are not widely reimbursed. But we felt that capability was something necessary to better meet the needs here in our community, so we made that investment. This year, we have approved a replacement MRI as well as a CT. All this is built on the significant investment we made at the hospital with expanded technology in that $400 million expansion two years ago.

MG: So you do a subjective assessment of how much improvement in care you can give patients, not just potential profitability?

PP: Obviously every organization needs to do a return-on-investment procedure to make sure it’s being prudent with its resources. But in the case of the 3D mammography, the clinical side of our operation said, “This is what is right for our caregivers and for our community, for our patients that require these services.” The financial performance is not really there yet, but we thought it was important.

Our service line managers and directors work with our finance department and gather as much information as possible on volume and revenue – what’s the overall assessment and expense projection – and we do multiyear financial performances and review cash flow. If it’s big enough, we bring that to the board and ask if they feel this commitment level is warranted at this time. So we do a thorough investigation, but finance does not drive that decision every time.

MG: There is a healthcare insurance industry trend of shifting more cost to patients, who are now opting for higher deductibles to get lower premiums. How is that affecting patients’ decision-making in accessing care?

PP: It’s not only the high deductible that has changed but the advent of “first dollar” coverage in many plans – not just a deductible, patients pay the first dollars of any service provided before the health insurance company is at risk. It really is about transference of risk back to the patient. First-dollar coverage insurance really does put that expense on the hospital as well as the patient, and deflects the risk of insurance significantly.

If you look at patients without first-dollar coverage, many pay the full deductible in full, but it is significant because the relationship there does get to the patient having to make those choices. We as community providers will not restrict that care, but it does place a different risk burden on the provider and the patient and reduces the risk on the insurance.

With Medicaid expansion, we saw a lot of our self-pay volume go down and bad debt expense and charity decrease overall early on, but with the new high-deductible plans we’re seeing shifts in these increases in bad debt charity onto the commercial population. As a sole community hospital, we realize we’re the only option for healthcare for many of these residents we serve. We take that responsibility seriously.

We have a generous financial assistance program at OH, which we revised up this past year to help work on that. For example, patients with annual gross income of 225 percent of the federal poverty level are eligible for a 100 percent charity write-off, which for this community is significant. A family of four with an annual income of $54,000 or less is eligible for 100 percent assistance with their bill. And we increased that this year, so there’s a sliding scale of assistance. Annual gross incomes of 375 percent of the federal poverty level are eligible for up to a 70 percent write-off, which in layman’s terms means that a family of four with an income of less than $90,900 annually is eligible for 70 percent assistance from the hospital.

We try and make people realize that keeping themselves healthy should not be a financial decision solely, and we need to work towards that. We believe our policy is more generous than other health systems throughout the region, and we do have other forms of assistance such as self-pay discounts for those who don’t have any insurance coverage but don’t qualify for the levels of charity that we just talked about. We have prompt-pay discounts, we have flexible payment plan options for people so that there’s not an expectation of paying immediately. One area we’ve increased is our financial counselors who are certified Kynecters through the KYNECT program. They can assist individuals with Medicaid and insurance applications on the exchange, if people want to seek what is the best plan for them.