California Watch

Flickr photo by mynameisharsha

The former president of a Laguna Beach hospital has been operating a debt-collection company that recovered medical payments from his own facility, raising conflict-of-interest questions as the CEO moves to a new hospital in Riverside County.

Bruce Christian ran South Coast Medical Center from 2005 until it was sold in 2009. At the same time, Christian was owner of Metro Republic Commercial Services, a consulting and medical debt-collection firm that provided at least $110,000 in services to South Coast while Christian was a top manager, records show.

South Coast Medical Center disclosed the arrangement as “self-dealing” in federal tax filings. State law allows self-dealing by board members of nonprofits, typically as long as the body explores other options and determines they are not unduly enriching one of their own.

But allowing a hospital administrator – who can have considerable power over setting prices on medical procedures – to operate as the hospital’s own bill collector presents a thorny conflict of interest, said Ken Berger, executive director of Charity Navigator, a New Jersey-based charity evaluation group.

“Just because the (hospital) board may sanction it doesn’t make it right, appropriate or ethical,” he said. “The mission of hospitals and the mission to squeeze money out of those that are slow to pay can be quite contradictory. It’s just wrong.”

Christian earned $360,000 and $400,000 in salary, benefits and deferred compensation in 2006 and 2007 at South Coast Medical Center. Christian, who was also a board member there, declined through a spokesman to comment for this report.

Adventist Health West, the Roseville-based company that owned South Coast, acknowledged that the arrangement was “unusual” and “not the norm” for the firm.

In a statement, Adventist said Christian's firm collected hospital debts for years before Adventist bought the hospital and prior to Christian’s tenure as president and CEO.

Board members were aware of the arrangement. It remained in place while the chain sought to sell the medical facility throughout Christian’s tenure, the statement said.

“Unfortunately, it took much longer than originally envisioned to sell the hospital,” Adventist Health said in a statement. “Adventist Health continues its deep commitment to providing mission-driven, quality health care to the communities we serve.”

Adventist Health says it owns 17 hospitals, 30 rural health clinics and 14 home-health services in California, Oregon and Washington. It is affiliated with the Seventh Day Adventist church and its mission is “to share God's love by providing physical, mental and spiritual healing,” its website says.

South Coast has said in tax statements that Christian, as CEO, did not choose which accounts were sent to his company for collection. His company, in turn, has said the Christian was on administrative leave from Metro Republic while Christian ran South Coast and since then.

State regulators collect data that shows how much hospitals charge for common services. While South Coast charged less than average for most services, its prices were higher for types of care it rendered most frequently.

In 2008, South Coast billed for 875 services for patients with psychiatric disorders at an average cost of $21,900 each, about 5 percent more than the state average. It also provided 658 services to those with alcohol or drug dependence at an average charge of $20,800, or 29 percent more than the average state charge of $16,200, according to data compiled by the office of statewide health planning and development.

Documents that South Coast filed with the Internal Revenue Service do not detail the company’s debt-collection activities. They do spell out the “self-dealing” arrangement, which was first reported in the Payers & Providers health industry newsletter.

However, Christian was also at the helm of the hospital in 2006 when Adventist hired one of his Metro Republic consultants as interim chief financial officer, tax records show.

Adventist said it appointed the interim CFO when it believed the hospital would be sold quickly. 

Additionally, a version of the Metro Republic website in 2006 said the firm supplied South Coast Medical Center with health care financial consulting, managed care-revenue recovery and accounts-receivable services.

The website, which appears to have been offline since 2006, describes Christian as a health industry leader for 30 years who built the Corona-based Metro Republic from a three-person office to one with 150 employees.

Christian is now chief executive of a Loma Linda University Medical Center campus expected to open in 2011 in Riverside County. A Loma Linda University Medical Center spokesman said the Murrieta campus will not contract with Metro Republic.

Kathryn Peisert, managing editor for publications at the San Diego-based Governance Institute, said a hospital CEO’s duty is to further the interests of the hospital. As such, she said, Christian should have eliminated all appearances of impropriety and cut ties between the medical center and his consulting firm.

“That’s really a big no-no,” said Peisert, whose organization advises hospital boards. “I’m surprised some regulatory agencies haven’t been after this.”

Belinda Johns, who heads the charitable trust section of the attorney general’s office, said when the office is alerted to such situations it asks the board to provide proof that it considered alternate contractors to any owned by the board member.

Johns said the attorney general’s office can also urge board members to determine whether one received an “excess benefit” and, if so, to recoup the money. She declined to comment on the specific case.

Marcus Owens, a Washington, D.C. attorney who previously headed the Internal Revenue Services tax-exempt division, said the IRS tends to ask similar questions, seeking whether a charity paid too much for a service that benefits one of its leaders.

He said the IRS also looks to see if such a deal is done at “arms length,” with the board member who stands to benefit sitting out during a vote about the contract.

Violations of IRS regulations can lead to fines. In rare cases, the agency can revoke the tax-exempt status of a nonprofit.

Adventist Health sold South Coast Medical Center to St. Joseph Health System Mission Hospital in 2009 for about $35 million, records show. Adventist said it sold the hospital because it consistently lost money and had a hard time attracting patients beyond a five-mile radius, according to a report summarizing the sale.

The hospital drew more than $68 million in revenue in 2008 but fell $11.9 million short of paying its expenses, according to a report summarizing aspects of the sale. The attorney general's office approved the sale.

Page 33 of this document contains the hospital's "self-dealing" disclosure.

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