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An Overland Park Weight-Loss Hospital Struggles To Regain Its Medicare Certification

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Blue Valley Hospital, now known as Pinnacle Regional Hospital, says it provides a third of all bariatric surgeries for Medicaid patients in Missouri.

An Overland Park weight-loss hospital that lost its Medicare certification last year remains in legal limbo.

On Wednesday, a federal appeals court upheld on procedural grounds a lower court’s dismissal of Blue Valley Hospital’s lawsuit challenging the loss of its certification.

The hospital’s lawyer, Randy Schultz, said it would now attempt to make its case before the Centers for Medicare & Medicaid Services (CMS), the federal agency that revoked its certification.

Health officials conducted an unannounced inspection of the hospital in November 2017 and concluded it did not "primarily engage" in providing inpatient services, a requirement for Medicare coverage. CMS says hospitals must average at least two inpatients a day and an average length of stay of at least two nights to be eligible for Medicare reimbursement.

Schultz said the two-night rule penalizes hospitals that try to practice more efficient medicine.

"It's frustrating that these innovative hospitals may not be able to survive and do this stuff," Schultz said. "What CMS is telling these small, innovative hospitals is: 'Keep your patients at least two nights, come up with a reason to hold them longer.'"

The hospital maintains that the two-night rule is "arbitrary and capricious" and was unlawfully enacted.

"The two-night standard isn't a proper standard because it wasn't made appropriately and no hospitals across the country should be subject to it," Schultz said.

A CMS official did not immediately respond to a request for comment.

The hospital, located at 129th Street and Metcalf Avenue, opened in 2010 and claims to perform more than a third of all bariatric surgeries – a procedure to help extremely obese people lose weight – for Missouri Medicaid patients.

The hospital remains open under a new name, Pinnacle Regional Hospital, but may not be able to stay in business if it loses its battle with CMS.

Medicare reimbursements were a crucial part of the hospital's funding, and private insurers might also stop paying if it isn't Medicare-certified.

The hospital changed its name after its private owner bought Cooper County Memorial Hospital in Boonville, Missouri, last year and rebranded both hospitals as Pinnacle Regional Hospital. Registration documents with the Missouri secretary of state's office indicate Pinnacle is owned by Douglas Palzer, who incorporated Blue Valley Hospital in 2009 and was its first CEO.

The hospital in Boonville remains eligible for Medicare reimbursement, according to Schultz.

Although the Overland Park hospital has only four beds, it generated patient revenue of about $165 million in 2016 based on 1,580 total discharges, according to the American Hospital Directory.

Schultz said none of CMS' reasons for cutting off the hospital's Medicare certification related to patient safety or care.

Records, however, show that CMS reduced the hospital's Medicare payments by 1 percent in three successive years – 2016, 2017 and 2018 – because of high rates of complications.

The government began imposing the penalties five years ago as part of an ongoing effort to improve patient care. The quarter of hospitals nationwide with the highest rates get punished, even if their records have improved over the previous year.

Dan Margolies is a senior reporter and editor at KCUR. You can reach him on Twitter @DanMargolies.

Dan Margolies has been a reporter for the Kansas City Business Journal, The Kansas City Star, and KCUR Public Radio. He retired as a reporter in December 2022 after a 37-year journalism career.
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