More Turmoil Envelops North Kansas City Company That Took Over Rural Hospitals | KCUR

More Turmoil Envelops North Kansas City Company That Took Over Rural Hospitals

Feb 7, 2019

Another hospital led by EmpowerHMS, the North Kansas City company that has defaulted on its bills and missed payroll at its hospitals over the last couple of months, is under new management.

City officials said that Fulton Medical Center, a 37-bed acute-care hospital in Fulton, Missouri, is now being run by a management team led by its CEO, Mike Reece.

Bruce Hackmann, economic development director of the Callaway Chamber of Commerce, told KCUR that EmpowerHMS’ contract to run the hospital had expired and not been renewed.

“We’re now hearing very good things about how the hospital is performing and that’s the main thing to us, because we have jobs at stake and a hospital means a lot to a community our size,” Hackmann said.

News of the takeover was first reported by the Fulton Sun.

The Fulton hospital was on the verge of closure in September 2017 when Empower, led by Florida resident Jorge Perez, stepped in to say Empower had taken over the hospital and would keep it open.

In fact, Empower had not acquired the hospital. Rather, it had a contract with Leawood, Kansas,-based NueTerra, the hospital’s owner, to manage the hospital and an option to buy it. But those agreements expired sometime last year, according to Hackmann, and NueTerra did not renew them.

NueTerra officials did not return calls seeking comment.

Fulton Medical Center is under new management.
Credit Google Maps

Missed payments

Empower and other companies affiliated with Perez own around 20 rural hospitals in Missouri, Kansas, Oklahoma, Tennessee and elsewhere. Since late last year, various news outlets have reported that Empower has missed payments to its hospitals’ creditors and been late in paying hospital employees.

Last month, a Kansas state judge appointed a receiver to run Hillsboro Community Hospital in Hillsboro, Kansas, about 50 miles north of Wichita, after it defaulted on a bank loan and the bank foreclosed on the hospital. Around the same time, a Tennessee state judge appointed a special master to temporarily oversee the finances of Lauderdale Community Hospital in Ripley, Tennessee.

More recently, The Kansas City Star reported that employees of Horton Community Hospital in northeast Kansas did not receive their paychecks last week and were dipping into their own pockets to pay for supplies. Other Empower hospitals in Oklahoma have experienced similar financial woes recently.

The CEO of Horton Community Hospital, Ty Compton, told the Topeka Capital-Journal this week that a clerical error caused paychecks to be deposited late. He also blamed the hospital’s woes on the problems afflicting rural hospitals nationwide.

“It’s at risk in every rural community,” Compton told the newspaper. “The facility in Fort Scott and the facility in Independence, Kansas, both closed and those are much bigger towns than Horton is. So we’d be naive to say that health care’s not in a crisis. It certainly is in a crisis. Rural America, in general, is in a crisis.”

Since 2010, 95 rural hospitals have closed in 26 states, according to the North Carolina Rural Health Research Program. Another 673 are vulnerable to closure, according to a report by iVantage Analytics.

Related: Rural Hospitals’ Plea to Federal Government: Help Us Stay Open

The U.S. Government Accountability Office last year said that rural hospital closures were generally preceded and caused by financial distress. That distress, it said, was due to multiple factors, including the higher percentage of elderly residents in rural areas, the higher percentage of residents with chronic conditions, lower median household incomes, decreasing populations and slow employment growth.

Lab billing backlash

George Ross, senior marketing director at Empower, blamed Empower’s cash flow problems on insurers’ unwillingness to pay Empower's hospitals in the wake of questions raised about lab billing arrangements at other hospitals owned by groups affiliated with Perez.

“There’s so much backlash right now that it’s real hard for him to receive his money,” Ross said. “Yet he tries to find a way to pay the bills even though he’s not receiving money.”

One of Perez’s hospitals, Putnam County Memorial Hospital in Unionville, Missouri, was the subject of a highly critical audit by Missouri State Auditor Nichole Galloway in 2017. Galloway questioned the legality of the lab billing arrangement, under which the tiny hospital billed insurers for lab tests for patients who had never set foot in the hospital.

“Based on our review of hospital accounts, the vast majority of laboratory billings are for out-of-state lab activity for individuals who are not patients of hospital physicians,” the audit stated.

Perez, through a company called Hospital Partners Inc., took over Putnam County Memorial Hospital in late 2016. At the time, the hospital was on the verge of closing. The hospital is now under different management and Hospital Partners has since sued the hospital for breach of contract and Galloway for exceeding her authority.    

Ross said Perez had taken out personal loans to cover bills and payroll, all the while awaiting delayed reimbursements from Medicare and Medicaid.

“See, if these hospitals are little gold mines feeding him money, or if there’s no money coming in, right? And I don’t have to tell you, if there’s no money coming in, then the guy’s going above and beyond to make it happen,” Ross said.

Ross insisted the lab billing arrangement at Putnam County Memorial Hospital was perfectly legitimate.

“He had all his hospitals send their samples to that hospital,” Ross said. “He basically invested money into lab equipment (at Putnam County Memorial Hospital) in order to be able to process what you’d normally send” to Quest Diagnostics, the giant lab testing company. 

A federal judge recently declined to dismiss a lawsuit alleging that the lab billing scheme was fraudulent. The suit was brought last year by RightChoice Managed Care and dozens of Blue Cross Blue Shield insurance plans.

The suit charges that Hospital Partners and individual defendants, including Perez, defrauded RightChoice by billing it for blood, urine drug and other lab tests run through Putnam County Memorial Hospital, even though the tests were performed at outside labs throughout the country.

RightChoice alleges the scheme defrauded it of more than $73 million — a staggering sum for a hospital that in fiscal 2016, before it was taken over by Hospital Partners, posted operating revenues of just $7.5 million.

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