Allegiance Health Seeks Tax-Backed Infusion from Eureka Springs

The troubled health care management company that originally planned to build a new hospital in Eureka Springs is now asking city taxpayers to borrow millions to renovate a facility that is nearly 100 years old.

Allegiance Health Management Inc. of Shreveport operates 17-bed Eureka Springs Hospital for the city, often at a net loss, and CEO Rock Bordelon told the City Council in March that the city’s Hospital Commission would have to borrow the estimated $6 million to $8 million for the upgrades.

“In the case here, I wouldn’t be borrowing the money,” Bordelon said during a March 27 council meeting, a video of which is posted on the city’s website. He said that the terms of Allegiance’s lease agreement with the city would change “with whatever the terms of the loan would be … once everything goes through.”

Bordelon said he approached the city government to start the discussions on the hospital’s future. It’s a far different vision than his company pitched when it entered a management agreement with the city 10 years ago, but its promise to replace the hospital with a new one faded away after a financial dispute over lease payments and provider reimbursements.

Renovating the hospital would bring it “to where we could serve the patients and population here in Eureka Springs for years to come in a building that’s not dilapidated and falling down,” he said.

Allegiance owns the North Metro Medical Center in Jacksonville, where it is facing tax liens and collection suits from vendors. Allegiance also operates the River Valley Medical Center in Dardanelle, which is owned by Yell County.

In addition, a pending whistleblower lawsuit filed in 2010 in federal court in Arkansas accuses Allegiance Health of providing medically unnecessary psychotherapy services. Court documents filed last month say an out-of-court settlement is near.

Eureka Springs Hospital Commission Chairman Michael Merry told Arkansas Business last week that “there’s no doubt” the hospital could use some updating. But how much is debatable.

He said the commission has asked Allegiance for a list of improvements it would like to see. If the commission approves the renovations, it would then collect cost estimates for the project.

To pay for the renovations, Merry said, the commission would take out loans or issue bonds, and Allegiance would then repay the money.

Merry said that within months, he hopes to have an idea of what renovations would be made and an estimated cost.

Eureka Springs Hospital lost a combined $1 million on $20.6 million in net patient revenue in fiscal years 2013-15, according to the most recent annual Medicare cost reports available to Arkansas Business.

River Valley Medical Center was Allegiance Health Care’s best-performing hospital, with $36.9 million in net patient revenue and $1.2 million in net income during the three-year period that ended June 30, 2015.

Its worst-performing hospital during that time was North Metro Medical Center in Jacksonville. While it had $66.2 million in patient revenue for the three-year period, it also reported a loss of $11.7 million. And the problems weren’t only on the balance sheet. In addition to the suits from vendors and tax liens, its former chief of staff has sued. (See North Metro Medical Center Faces Lawsuits, Tax Liens.)

Calls to Allegiance officials weren’t returned.

Rocky Start
In 2007, Allegiance started managing the city-owned Eureka Springs Hospital. The city owns the property, and Allegiance leases the hospital operating license from the city for about $180,000 annually, Merry said.

Soon, however, the relationship with the Hospital Commission soured over a $162,000 payment Allegiance received from Arkansas Health Care Group LLC, a home health and hospice provider.

In July 2009, Bordelon met with the commission and said Allegiance should keep that money and, in fact, it was owed more, according to the commission’s lawsuit, filed in U.S. District Court in Arkansas.

The commission disagreed and filed a civil suit in 2009 in an attempt to claim the money.

The commission also said in the lawsuit that Allegiance owed approximately $250,000 for unpaid lease payments. The commission asked a judge to rule that Allegiance wasn’t entitled to any future payments for the hospice and home health services.

The case settled in 2010.

New Hospital
Hospital Commission Chairman Merry told Arkansas Business that when Allegiance first entered the contract to operate the hospital, the company was supposed to build a new hospital.

After a few years, “it became apparent that they weren’t going to put one up,” Merry said.

As part of the settlement of the lawsuit over the payment from Arkansas Health Care, Allegiance wasn’t required to build a new one, he said.

Still, Allegiance expressed interest in building a new hospital. In October 2014, Chris Bariola, who was then CEO of the hospital, told the Carroll County News that construction on a new hospital would begin by the fall of 2015.

Allegiance spent tens of thousands of dollars preparing to build the new hospital, Merry said, but failed to carry out the project for a number of reasons.

The focus then turned to renovating the existing one-story hospital, which dates to 1923 and is the oldest continuously operated hospital in the state, Merry said.

Bordelon told the City Council in March that his vision for the renovated hospital included expanding its emergency room from three rooms to six and having a patient services area with radiology and lab services all on the first floor. On the second floor, which would have to be added, Bordelon said, he would like to have 12 semiprivate patient rooms with 24 beds.

He said hospital services would be shifted to other areas of the building during construction. A city councilman asked if Allegiance would consider buying the hospital from the city.

Bordelon said the city would have to put the property up for bid, which would open the door for other hospital systems to buy the property.

If the property was put out for bid, “I’d be more than happy to consider it,” Bordelon said.

Bordelon told the City Council that he knows the renovation project is in its early phases and it’s going to take work.

“But we’re willing to put in the time and the effort to help do what we can to help make sure that the people of Eureka Springs have health care services for years to come,” he said.

Allegiance Health Management Inc.
Shreveport, Louisiana

*Most recent available to Arkansas Business
Source: Annual Medicare cost reports (most unaudited) filed with the Centers for Medicare & Medicaid Services.