At least one UMC contract is in good shape

Marshall Allen and Tony Cook

Wednesday, Feb. 28, 2007 | 7:01 a.m.

Former University Medical Center boss Lacy Thomas was unapologetic when criticized for how he recommended contracts at the public hospital to the Clark County Commission for approval.

He has since come under criminal investigation for some of those deals and been fired for financial mismanagement. Metro alleges he awarded several contracts illegally to friends in Chicago, accusations that have cast a shadow over other UMC agreements.

But in at least one case, a controversial contract that Thomas pushed through appears to be paying off financially.

New figures released by the hospital Tuesday show that an anesthesiology contract awarded in 2005 could be a better deal for UMC than a competing offer to do the job for $2.6 million less.

The $7.6 million-a-year contract was given to a subsidiary of Sierra Health Services, the state's largest health insurance provider, even though Sierra Health had no anesthesiologists at the time and a qualified group of specialists had offered to perform the services for only $5 million.

To justify the higher cost, UMC administrators pointed to a key contract provision requiring Sierra Health to pay back to UMC the cash payments received from anesthesia patients.

According to UMC financial figures disclosed Tuesday, the repayment amounted to just under $1.4 million in fiscal 2006, and is on pace to exceed $2.5 million in fiscal 2007.

Additionally, payments to Sierra Health are based on actual costs of meeting the contract, and they have been lower than the $7.6 million base rate.

UMC Controller Floyd Stevens said the anesthesia services will cost about $7 million in fiscal 2007, not counting Sierra Health's repayments. That means that despite the high initial expense, the net cost to UMC is projected to be less than $5 million this fiscal year.

In the past two years UMC has bled unprecedented amounts of money: $38 million in fiscal 2006 and $29 million during the first half of fiscal 2007.

The hospital has been widely criticized for awarding lucrative physician contracts at prices much higher than those offered by other qualified groups.

The Clark County Commission, which oversees the hospital, recently reconsidered a $5 million-a-year cardiology contract, a price tag $1 million higher than that of another group. In that instance, UMC administrators argued that the costlier group's reputation would draw more paying patients to the hospital, thereby recouping the higher initial cost.

In the first six months of fiscal 2007, professional fees at UMC - made up mostly of physician contracts - were 43 percent higher than during the same period in fiscal 2005.

Sometimes the contracts were awarded in apparent violation of a county policy that requires a request for proposals for professional services agreements. Exceptions to the policy require a formal justification letter.

UMC spokeswoman Cheryl Persinger could not verify Tuesday whether UMC followed county policy in awarding the anesthesiology contract. The competing physician group said the contract was predetermined in favor of Sierra Health, meaning their proposal never got serious consideration.

The contract for anesthesiology services also was controversial because it was awarded May 17, 2005 - the same day that Sierra Health and UMC entered a separate contract to allow the insurer's patients to select UMC physicians as "their primary doctor of choice."

Critics of the anesthesiology contract accused UMC of overpaying Sierra Health for anesthesia services to gain a new source of revenue through paying Sierra Health patients.

Although the contract figures for the first half of fiscal 2007 are positive ones from UMC's perspective, Henderson health care attorney Maria Nutile cautioned that the hospital's agreement with Sierra Health is nonetheless unusual and risky to UMC. The $7.6 million price, she stressed, is simply a base payment.

The contract's potential cost to UMC has no ceiling because it allows Sierra Health to determine its own costs to provide services, Nutile said. The allowable costs include physicians' salaries and incentives, benefits, malpractice insurance and administrative overhead.

The contract also guarantees Sierra Health an additional 10 percent profit on top of its costs.

"Any group would love to enter into a contract like this," Nutile said.

Anesthesiologist Dr. Richard Singer was part of a coalition of doctors that submitted a proposal for the UMC contract. He said there was no formal request for proposals, and Sierra Health was all but named the new provider before other anesthesiologists had a chance to compete for the work.

Still, Singer, who now works as an independent contractor at UMC under the Sierra Health contract, said the deal is working well for the hospital. Some of the lingering questions about the way it was awarded, however, could have been eliminated if county policy had been clearly followed, he said.

"If you're really concerned about the fiscal responsibility of the contract, you should go to bid," Singer said.