Difficult Year Continues for Allegiance Health

North Metro Medical Center in Jacksonville
North Metro Medical Center in Jacksonville (Mark Friedman)
(Becky Gillette)

The sudden closing last month of North Metro Medical Center in Jacksonville was the latest in a series of woes facing the Shreveport company that runs the hospital, Allegiance Health Management Inc.

The Eureka Springs Hospital Commission is considering cutting its management contract with Allegiance, which operates the city-owned 12-bed hospital.

“Our No. 1 concern, of course, is to make sure that we can offer the best health care we possibly can,” the Hospital Commission’s chairman, Dr. John House, told Arkansas Business last week. “And at this point, we have lost faith in Allegiance’s ability to do that.”

Problems range from maintenance problems at the facility to failure to pay physicians and vendors. Allegiance must start working to repair the deficiencies in the building by mid-September or it will be considered in breach of its contract, triggering a default on its management contract, said Michael Merry, a hospital commissioner. A default could end the contract in six months. Neither the Eureka Springs Hospital administrator nor Allegiance returned calls for comment.

Allegiance had fallen behind on its $15,000-a-month lease this year, though it was current last week, Commissioner Michael Merry said. Earlier missed payments this year cost Allegiance its management contract with River Valley Medical Center in Dardanelle.

The Yell County board that oversees that hospital sued Allegiance in December to terminate the contract. While the suit was pending in U.S. District Court in Little Rock, the board asked in March that the hospital be placed in receivership.

The hospital “is in an operational and financial crisis — one that is putting hospital patients at risk,” according to a March filing by attorneys representing the county, John Keeling Baker and Devin Bates of the Mitchell Williams Selig Gates & Woodyard firm in Little Rock.

Allegiance denied the allegations, but before a hearing on the appointment of a receiver, it reached an April deal with the board to stop managing the hospital. On June 1, Conway Regional Health System began operating the facility, now called Dardanelle Regional Medical Center.

Meanwhile, Jacksonville Mayor Bob Johnson said he’s been talking to two Little Rock area hospitals about providing emergency room service to his town since North Metro Medical Center converted to a psychiatric facility on Aug. 20.

He said the hospital closing left about 100 people out of work. Patients needing emergency services are using CHI St. Vincent North in Sherwood, about 7 miles away, or Baptist Health Medical Center-North Little Rock, 10 miles distant.

On Aug. 20, Allegiance surrendered its hospital license for North Metro to the Arkansas Department of Health. Allegiance, which has owned the Jacksonville facility since 2012, then licensed a new provider called Freedom Behavioral Hospital of Central Arkansas, which had more than 12 patients in the Jacksonville facility as of Thursday.

Johnson said Allegiance had asked him early this year to help find a buyer for the hospital. “They just haven’t been serving our community as well as … they used to,” Johnson said.

North Metro has also grappled with several legal issues.

Cybernet Manufacturing of Irvine, California, sued North Metro in April for about $10,000 owned on computer equipment. North Metro didn’t answer the complaint and a default judgment was placed against it in July for about $11,000, including court costs and attorney’s fees.

In September 2018, the Arkansas Department of Workforce Services placed a lien against Allegiance’s North Metro for owing $70,000 in unemployment insurance tax.

And in June 2018, the U.S. Department of Justice announced that Allegiance and four of its hospitals had agreed to pay $1.7 million to resolve False Claims Act allegations.

In a news release, the DOJ said that, beginning in 2005, Allegiance provided outpatient psychotherapy services to Medicare beneficiaries who did not qualify for reimbursement.

The Allegiance defendants included North Metro and three hospitals outside of Arkansas.

‘Knights in Shining Armor’

In 2007, Allegiance signed contracts to operate hospitals in Pocahontas, Eureka Springs and Dardanelle. The city of Pocahontas fired Allegiance in 2008. Allegiance added North Metro in 2009, buying North Metro’s property and a day care center from the city for $10.2 million in 2012.

When Allegiance agreed to manage the Dardanelle hospital, “we were Knights in Shining Armor,” Rock Bordelon, Allegiance president, said last fall in a letter to Ron Merritt, chairman of the Yell County Board of Governors of Dardanelle Hospital (formerly River Valley Medical Center). The letter was included in the board’s suit against Allegiance. “The community was so grateful that we ‘saved’ their hospital in infusing HUNDREDS of thousands of dollars to rectify the horrific condition that the hospital was in at that time.”

Bordelon said that he personally invested more than $100,000 to cover payroll the day Allegiance took over the hospital “or the doors would have shut.” But Bordelon said River Valley Medical Center began having financial problems in 2018, partly because of low reimbursement rates from government payers.

In the October 2018 letter to the Yell County board, Bordelon requested more time to get caught up on the rent.

He also reminded the board that Allegiance provided nearly $13 million in charity care over the 12 years that the company managed the hospital.

“AHM has paid for this care provided to YOUR town and county without ever requesting support, without receiving a thanks in MANY years,” Bordelon wrote.

He said he intended to be a good partner and “continue to deliver quality care to the people of Dardanelle.”

“It really saddens me to see that your group thinks we are doing anything less than all we can to make sure RVMC is all it can be,” Bordelon said.

Nevertheless, the hospital’s finances weren’t improving. In the month of December, RVMC reported a loss ot $446,000.

“The financial situation at [the hospital], … gives rise to substantial doubt as to whether [the hospital] managed by Allegiance will continue as a going concern,” Bruce Engstrom, a CPA in North Little Rock, said in a March statement after reviewing the hospital’s financial statements for the lawsuit by the Yell County board.

Allegiance denied the allegations in its court filing.

Problems at Eureka Springs

House, chairman of the Eureka Springs Hospital Commission, said Allegiance “did a fairly decent job” when it started managing the Eureka Springs Hospital more than a decade ago. “But in the last few years, they have had a variety of different problems that have affected the hospital,” he said.

Vendors complained that they weren’t being paid, and others alleged the hospital building wasn’t being maintained, he said. “There are rotting boards and peeling paint, … and things of that sort,” House said. “We’ve had quite a few complaints from the community and from city commissioners and medical staff, so we’ve been trying to work with them and get things straightened out.”

But he said Allegiance hasn’t been responsive.

Commissioner Merry also said that “the commission has been somewhat concerned about their financial status over the last year.”

In 2017, Eureka Springs Hospital had a loss of $823,000 on net patient revenue of $6.9 million, according to the most recent figures available to Arkansas Business. In 2016, the hospital had a net income of $305,000 on net patient revenue of $7.6 million.

Merry said Allegiance has about two and a half years left on its management contract. He said there’s a “good likelihood” that the commission will look for another operator when the contract ends, if Allegiance is still operating the hospital.

“The Commission is prepared to take over the operating of the facility should Allegiance back out or fail to meet their agreements,” Merry said.