Wall Street Journal combs through nonprofit hospitals' board-business ties: 6 things to know

As some of the largest nonprofits in the U.S., hospitals face a major challenge — their board members or executives often have direct ties to organizations with which the hospital does business, The Wall Street Journal reports.

Here are six things to know about nonprofit hospitals and their business associations, according to WSJ.

1. WSJ examined 2014 IRS data for more than 2,300 nonprofit hospitals. WSJ found 46 percent of these hospitals "had at least one trustee or officer with business ties to the hospital — either directly or through a relative," according to WSJ. This compares to only 7 percent of nonprofits across all industries that have a leader or board member with business ties to a third party company that does business with the organization for which they serve on the board.

2. Many of the outside businesses struck million-dollar deals with the nonprofit hospital. The deals were at least $1 million each at more than 270 of the nonprofit hospitals. Various deals involved medical companies who shared a board member with the hospital.

3. In some deals, nonprofit hospitals did business with companies owned by a trustee. Sioux Falls, S.D.-based Avera McKennan Hospital & Health Center — a subsidiary of Avera Health — struck a deal with Journey Group, a construction company where Avera McKennan trustee David Fleck is board chairman. Avera McKennan paid Journey Group $91.2 million between 2010 and 2014.

Mr. Fleck, who isn't compensated for his work as a trustee, told WSJ he wasn't involved in discussions or voting procedures on the Journey Group contract. In 2012, he sold his stake in Journey Group.

4. Other nonprofit hospitals have done business with companies owned by executives' family members. In 2011, San Francisco-based Dignity Health struck a contract with eLead Resources, an advertising agency. eLead Resources would create and produce Dignity's branded goods such as lapel pins and badge clips. From 2011 to 2013, Dignity paid eLead $3.8 million, and the contract was renewed in 2014.

Dignity Health CEO Dean Lloyd's son, Nathan Lloyd, owns 51 percent of eLead Resources. The elder Mr. Lloyd said he stayed out of conversations about the contract, and that "eLead met the criteria for the open-bidding process," according to WSJ.

5. Avoiding potentially tricky business relationships can be even tougher for nonprofit hospitals in small towns. Cape Girardeau, Mo.-based SoutheastHEALTH was looking to spearhead branding project, so it approached Red Letter Communications. The catch? Red Letter is co-owned by Frank Kinder, who happened to be on the SoutheastHEALTH board of directors. "It was just kind of a natural development of me being present in the boardroom at that time," Mr. Kinder said, according to WSJ.

Red Letter's work for SoutheastHEALTH increased, and the nonprofit paid Red Letter Communications $8.3 million between 2010 and 2014. Mr. Kinder didn't attend board meetings in which advertising budgets were discussed.

Due to his twofold role, Mr. Kinder's company stopped doing business with SoutheastHEALTH in 2015. He is still on the hospital's board of directors.

6. Some nonprofits have prohibited contracts with businesses tied to board members. Newark, Ohio-based Licking Memorial Health Systems did so in the early 2000s. CEO Rob Montagnese claimed Licking wanted to ensure the "community had confidence that our board members were truly here as volunteers" rather than for personal gain.

Licking Memorial Health Systems implemented the ban after three board members had to choose between losing their company's business with the hospital or their hospital board seat. Each of them — a real estate developer, a bank leader and an attorney — relinquished their board seats.

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