Siloam Hospital Rebounds Its Books

After Penny McClain arrived at Siloam Springs Memorial Hospital in May 2002, she returned to her then home in Gulf Shores, Ala., only once, to change clothes.

Within six months, she had given up her independent consulting business and was working for SSMH full time as CEO of the city-run hospital that was operating under an estimated $2.4 million net loss.

“Quorum lost $2.4 million in one year,” McClain said. “It was hidden in the books, hidden from the board.”

SSMH is still fighting a legal battle against its former management company, Quorum Health Resources Inc. of Nashville, Tenn., and is set to appear in Benton County Court on Jan. 4 for an appeal hearing seeking more damages.

After SSMH fired Quorum, it sued the firm for accounting fraud, breech of fiduciary duties and mismanagement, originally asking for $5 million in damages, McClain said.

McClain said during the course of her first year at SSMH, the hospital was able to pay $1.4 million in attorney fees. In August, the hospital was awarded $725,000 in lawyer fees and other costs in addition to the $425,000 it had already been awarded.

McClain was able to turn SSMH around to a profitable hospital in less than two years, something that she said is virtually unheard of in health care.

Cost reports showed a $60,131 net loss for SSMH in 2003, but McClain said “on a zero-based budget,” the hospital actually made $600,000 and provided $3 million worth of uncompensated care. She said the hospital is on track to increase revenue by $100,000 this year.

“We started from absolute basics,” McClain said. “We went through every single process to make sure the information was correct.”

The basics meant reviewing and setting up generally acceptable accounting practices. That’s something McClain had experience with in her 18 years with Houston-based Paracelsus Healthcare Corp. as a nurse, CEO in its corporate headquarters, and later in her consulting business.

A little less than 50 percent of the hospital’s operating costs were going to salaries and benefits for more than 300 employees.

“It was just myself and the business accounting office manager for a while,” she said.

McClain updated Medicare procedure codes, which hadn’t been updated for a year prior to her arrival. She also updated supply costs, which hadn’t been examined for more than two years.

From catheters to hernia mesh, McClain said she found countless cases where the hospital was charging less than the cost of the item.

“We worked very hard with our materials management and our supplies,” McClain said. “We set up usage levels on each unit, and we filled those orders so we didn’t have a lot of outstanding stock.”

Invoices were months old, or, in some cases, more than a year old, McClain said.

“We set up a ledger where we enter our invoices and pay them within a month,” McClain said. “It took us a while to get there, but we started setting our priorities.”

The hospital also began partnering with the Bank of Siloam Springs about a year ago, referring patients to the bank to set up low-interest loans to pay back medical bills. SSMH guarantees the loans, which have had a less than 20 percent charge-back rate, said Aaron Holcombe, vice president of the Bank of Siloam Springs.

Holcombe said the bank offers loans starting from a minimum of $500 at an average interest rate of 6.25 percent. Even though the profit margin is low, Holcombe said, the bank hopes it will earn future business from its loan customers.