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Scandalous past, prosperous future.

Scandalous Past, Prosperous Future

Business As Usual Shifts From Hanky-Panky To Health Care At Saline Memorial Hospital

Saline Memorial Hospital at Benton has turned a profit every year since it opened in 1956 -- save one. And that was a fluke of sorts.

In 1959, the hospital converted to the accrual method of accounting. As a result of the bookkeeping change, the balance sheet reflected a $20,767 loss.

Even with that blemish, the hospital has an enviable track record. The 134-bed facility recently attracted national recognition for its fiscal operations.

In 1984, however, some were wondering if Saline County's only hospital had reached the end of the line.

"People have described the turnaround as phoenixlike," says Stansel Harvey, Saline Memorial's administrator.

Seven years ago, the flames of scandal threatened to destroy the county-owned facility. Things began to heat up when Ron Morris, hospital comptroller, discovered questionable expenditures in August 1983.

That led to the resignation of E.F. Black Jr., who had been administrator for 10 years. A 1984 grand jury probe followed. The investigation uncovered a cesspool of corruption garnished by sex, narcotics, blackmail, forgery, bribery and theft.

Black concocted the illicit formula for personal gain with the aid of minions such as Carla Hunt, who was granted immunity from prosecution in exchange for her cooperation with law enforcement authorities.

Hunt's title was director of medical records. But the grand jury investigation revealed that she actually functioned as a community consort whose overtime pay at the hospital was for sexual services.

A windowless room at the hospital was a favored spot for Hunt to meet officials such as the hospital's auditor. A hidden video camera captured the action on tape and provided leverage for Black to misappropriate hospital funds with impunity.

The sordid details were made public in an 85-count indictment against Black and six others in 1984. Black pleaded guilty to several of the counts and entered prison in January 1985. He was paroled the following year.

The current administrator believes the scandal was a blessing in disguise. It forced changes that may have saved the hospital from ruin.

"If it had not happened, this hospital would be in deep trouble today," Harvey says.

Good Timing For Bad News

At the time Saline Memorial's dirty laundry was being aired, the health care industry was undergoing a major transition caused by changes in the Medicare reimbursement system.

The hospital operated in the black during Black's years of mismanagement. But the financial malfeasance left the hospital in a precarious position.

Medicare reimbursement changes led to $7.6 million in write-offs this fiscal year. That's a big slice of the hospital's $24.2 million revenue pie.

Still, the profit picture at Saline Memorial has improved 240 percent since the Black administration was swept out in 1984.

"If you don't replace your equipment, you can't stay in business," Harvey says. "That money has to come from somewhere."

Part of the credit for the hospital's improved financial picture must go to Hospital Management Professionals, a Brentwood, Tenn.-based corporation that manages 64 hospitals in 27 states. HMP entered into a contract with Saline Memorial in June 1984.

A reduced Medicare reimbursement schedule, combined with a decaying infrastructure, is a combination for disaster.

A dreary, outdated facility caught in a whirlwind of negative publicity and faced with reduced revenues isn't a candidate for survival.

That was the situation facing Saline County officials when they hired HMP. The Tennessee company's strategy was to head off Saline Memorial's fiscal crisis and embark on a $13.5-million capital project to renovate the hospital and add a six-story patient wing.

The cost ultimately topped $14 million. The project was delayed more than a year by a lawsuit filed by several Saline County Quorum Court members in August 1988. A $21-million 1989 bond issue was used to finance the project.

In the March 4, 1991, issue of Forbes, the hospital drew praise from an analyst who predicted the bond issue would outperform its BBB-plus credit rating.

The analyst's assessment was based largely on Saline Memorial's cash flow. Full payment on its patient accounts averages 41 days, compared with 63 in 1988. The standard collection period for A-rated hospitals is 72 days.

The favorable review was welcome despite the fact that Forbes incorrectly identified the health care facility as Saline County Memorial Hospital. But the mention in Forbes came too late to help market the bond issue.

Controversy No Stranger

The analyst's statement especially was sweet for hospital supporters who saw the bond issue come under political attack last year.

During his unopposed race for prosecuting attorney, Dan Harmon of Benton asked why it took a $21-million bond issue to pay for a $14.5-million project.

Harmon, who served as a special prosecutor in the case against Black and represented a couple of the Quorum Court members who unsuccessfully challenged HMP's management contract, didn't factor in the cost of bond underwriting, contingency fund requirements, etc.

Harmon has continued to go after the hospital since his election.

In May, the prosecutor requested an investigation by the Arkansas State Police based on charges the hospital wasn't following bid procedures.

Contrast those allegations with the fact that Modern Health Care featured Saline Memorial on the cover of its Nov. 26, 1990, issue. The publication evaluated hospitals in terms of highest quality vs. lowest dollar. The trade magazine called Saline Memorial's equipment purchasing method one of the best in the country.

The post-scandal accomplishments are even more dramatic considering that the Saline County Quorum Court only narrowly approved HMP's first three-year contract and came close to ending the contract three years ago.

The reason?

HMP upset some Saline County residents in 1988 when it proposed the hospital be converted into a non-profit corporation.

"People thought we were giving away the hospital, but we were really just changing the tax status," Harvey says. "There was a good deal of misunderstanding. We didn't do a good job educating the public."

The conversion would have involved a nominal sale-lease back between the county and the new non-profit corporation. The same seven-member board of governors would have continued to control the hospital.

The change would have allowed more flexibility in expanding the hospital's service area, entering into joint ventures while creating a medical office park, developing satellite clinics and offering incentives when recruiting physicians.

The hospital was created with the aid of a property tax that has long since expired. The facility uses no public funds, but the impression persists that Saline Memorial uses tax money to pay for operations since the county owns it.

"We have the worst of both worlds," Harvey says. "We don't receive any tax revenues, and we're treated as a governmental entity."

The hospital's growth matches the growth of Saline County. The county's population increased 20.7 percent from 1980-90, according to Census Bureau estimates.

Located in the shadow of Little Rock's large research hospitals, Saline Memorial is focusing on delivering bread-and-butter services. The facility attracts about 43 percent of county residents seeking hospitalization.

"I don't think it's unreasonable to want to capture 86 percent of the market," Harvey says. "Of course, we would have to double the size of the hospital."

In Saline County, such a feat would no doubt be accompanied by the pre-requisite dose of controversy.

PHOTO : AN ADMINISTRATOR AND HIS HOSPITAL: Stansel Harvey of Health Management Professionals has orchestrated an amazing turnaround at Benton's Saline Memorial Hospital during the past six years. The facility has gone from a scandal complete with sex and blackmail to a major expansion.

George Waldon Arkansas Business Staff
COPYRIGHT 1991 Journal Publishing, Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1991 Gale, Cengage Learning. All rights reserved.

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Title Annotation:turnaround of Saline Memorial Hospital from scandalous administration to a favorable business future
Author:Waldon, George
Publication:Arkansas Business
Article Type:company profile
Date:Jul 1, 1991
Previous Article:The phoenix in the park; Pavilion in the Park re-emerges with a 75 percent occupancy rate.
Next Article:From the outhouse to the Statehouse.

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