Hospital Vendors Earn Millions for Range of Contract Services

Doing business with hospitals can mean big business for vendors, and tax forms filed by nonprofit hospitals provide a peek into how hundreds of millions of dollars are spent.

A review of the most recent IRS Form 990s filed by 33 nonprofit hospitals in Arkansas showed that a total of $286.1 million was paid just to their largest independent contractors, an increase of almost 23 percent compared with 990s from the previous fiscal year. The most recent data for the hospitals was from 2012 or 2011. The comparison was made by using the collective total of each of the most recent contract amounts and then comparing it to the previous year’s available aggregate amount.

Most of the contractors supplied physician coverage to the hospitals, according to the public tax records, which were used to create a list of the highest-paid independent contractors as disclosed by nonprofit hospitals. For-profit and government-owned hospitals are not required to file 990 forms with the IRS and weren’t included on the list.

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As during the years covered by the 990s, finding physician coverage remains a top priority for hospitals, said Paul Cunningham, executive vice president of the Arkansas Hospital Association.

“I don’t think that’s gotten any better since those years,” he said. “Matter of fact, it might have gotten a little worse, to tell you the truth.”

Emergency room physicians are especially vital outside contractors, said Larry Morse, the administrator of the 80-bed Johnson Regional Medical Center in Clarksville. He said hospitals would either contract directly with a physician or contract through a company to receive emergency room services. Some hospitals even use physician contractors to perform surgeries.

“It’s less [expensive] than having to hire someone full time and allows us some flexibility,” Morse said.

The contractor that received the most money from a single hospital was the University of Arkansas for Medical Sciences of Little Rock, which was paid $50.7 million to provide medical services to Arkansas Children’s Hospital in the fiscal year that ended June 30, 2012. ACH paid UAMS 5.6 percent more in the previous fiscal year.

Accretive Health of Chicago was the second-highest paid independent contractor paid by a single hospital. Baptist Health of Little Rock paid the consulting company $43.5 million in 2011.

Nabholz Construction Corp. of Conway was paid more for services rendered to nonprofit hospitals in Arkansas than any other independent contractor during the most recent year and the previous year. Disclosed payments to Nabholz totaled $104.3 million during the period.

The biggest client was Arkansas Children’s, which paid Nabholz $37.5 million during the fiscal year that ended June 30, 2011, and another $29.4 million during the year that ended in mid-2012. Nabholz was the general contractor for the largest construction project in the hospital’s 100-year history: the 258,000-SF, $121 million South Wing, which opened in 2012.

Nabholz was paid $11.9 million by Conway Regional Medical Center in 2011 and $863,376 in 2010; $9.3 million by St. Bernards Hospital in Jonesboro in the year that ended Sept. 30, 2012, and $1.9 million for the previous year; $4.6 million by St. Vincent Infirmary Medical Center in Little Rock in the year that ended June 30, 2012; and $5 million by White River Health System in Batesville for the year that ended Sept. 30, 2011, and another $3.4 million the following fiscal year.

The List

Every nonprofit hospital that is required to file a Form 990 only has to list the top five contractors that were paid at least $100,000 during the hospital’s fiscal year. That means the Form 990 doesn’t list all of the hospital’s vendors that received more than $100,000.

The hospital, though, is required to report the total number of independent contractors that received more than $100,000. Eighteen hospitals on the list had more than five vendors. At 98 contractors, St. Bernards Hospital and St. Vincent had the highest number of contractors that received more than $100,000.

The tax filings are available online at GuideStar.org, a nonprofit organization that compiles nonprofit IRS reports and publishes them online. Some of the hospitals may have filed more recent 990s that are not yet available from GuideStar.

The list of the highest-paid independent contractors would be useful to several groups, GuideStar spokeswoman Lindsay J.K. Nichols told Arkansas Business last week.

“There’s two ways to look at it,” she said. “If you’re selling your business to nonprofits, it’s really nice to see who’s buying what. But then separately, if you are curious about how a nonprofit is spending its money, it’s nice to see which groups are” getting the contracts.

The vendors that provide the most services to hospitals are, as expected, tied to physician coverage.

“That’s why we’ve got to try and fix the physician shortage issue,” said Ron Peterson, the president and CEO of Baxter Regional Medical Center. He said that the independent contractors plug the holes left by a lack of staff doctors, but it is “every expensive.”

In 2011, the most recent year available, Baxter Regional paid Mercy Health System $562,406 for physicians for its intensive care unit.

Peterson said the contracts are critical for the hospital. “It is very important to us to be able to make sure that we’re able to provide the continuity of care,” he said. “What we find is it’s really invaluable to us.”

Still, Peterson said, the contract costs have been rising in recent years. “What I’m finding is we’re working very hard to try and reduce our costs with all our vendors,” he said. “We’ve been able to negotiate with several of them, but when it comes to that contract-labor category, it’s a supply-and-demand issue.

“And we really have not seen those prices drop at all,” Peterson said.

Johnson Regional’s Morse said he is putting pressure on vendors to lower costs. “We would sit down and have a conversation with a supplier if our volumes were down about the cost of that service, absolutely,” Morse said.

The biggest single contract for physician services was $6.7 million. White County Medical Center in Searcy paid that amount to White County ER Physicians LLC of Judsonia for emergency room doctors for the fiscal year that ended Sept. 30, 2012. The previous year the hospital paid a similar amount, $6.6 million, to the company.

Other Vendors

Hospitals are spending money on other services, from anesthesia to wound care.

But not all of the contracts were tied to patient care. Highly paid nonprofit vendors whose work is outside of health care include:

• Collection services. North Arkansas Regional Medical Center in Harrison paid $372,568 to NCO Financial Systems of Chicago for collections in the year that ended March 31, 2012. Washington Regional Medical Center in Fayetteville spent a little more than $1 million with Amcol of Columbia, S.C., for collection services for 2010 and 2011.

• Security. Crittenden Regional Hospital in West Memphis paid $155,552 to Imperial Guard Service of Memphis for security in 2011, which was down 5.7 percent from the previous year.

• Landscaping. GCE Inc. of Paragould received $363,077 for landscaping services from Arkansas Methodist Medical Center in Paragould for the fiscal year that ended June 30, 2011. Arkansas Methodist had built an assisted living facility, and GCE handled the landscaping work on the project, said the hospital’s CFO Brad Bloemer. Arkansas Methodist didn’t use GCE after the project was completed.

• Transcription, although that may be on the wane. In 2010, Baxter Regional paid $676,431 to Spheris of Franklin, Tenn., for transcription services. But Spheris wasn’t on the hospital’s list of highest-paid contractors in 2011. Peterson said the amount paid for transcription services had dropped in recent years “because of the implementation of electronic medical records.”