Healthcare News & Insights

Instead of saving them, one man ruined 18 at-risk rural hospitals

Rural, for-profit hospitals are closing at an alarming rate — in part because of the combination of lower incomes and fewer insured people, which makes it difficult for at-risk hospitals to cover their fixed costs. 

On the brink of bankruptcy or with a date set to close the doors, there’s a sense of desperation to keep the ship afloat. And with desperation comes the potential for an answer too good to be true.

Case in point: Over a stretch of nearly four years, several struggling hospitals fell victim to a buyout that promised to save jobs, save the hospital and, in essence, save the small town it helped support.

Kaiser Health News reported this week on the building up of hope — and how hope was lost — with investor Jorge Perez and his Miami-based company, EmpowerHMS.

Perez started his hospital acquisitions with his first partnership in 2015, taking over a hospital in Graceville, FL. He went on to build his company, EmpowerHMS, with additional partners and from 2015 through 2017 went into small towns as a white knight on a steed. He promised enough money to save their hospitals and preserve the jobs, sometimes dozens of jobs, sometimes hundreds, depending on the town.

In all, the company bought 18 hospitals in eight states. Perez either owned or co-owned 11 of the hospitals and was CEO of the companies that provided management and billing. He was affiliated with the companies that owned the rest.

In the first six months of ownership, the Unionville, MO, hospital, in a town of 1,790 people, generated $92 million in hospital lab fees for blood and urine samples alone.

In Plymouth, NC, lab billings nearly tripled in the first six months Perez was in charge, growing to $32 million. Major health insurance companies took notice, as did government officials.

Blue Cross Blue Shield and other insurers started filing lawsuits and stopped making reimbursement claims.

Funding for the lab venture dried up, and 12 of the hospitals are in bankruptcy court. Eight have closed their doors.

Hundreds of employees lost their jobs, many of them owed back pay. Bankruptcy court interviews revealed that former employees found out they hadn’t had health coverage because Perez hadn’t paid the bill.

Some of the hospitals that already closed owe back taxes because the companies Perez ran had stopped paying payroll taxes.

‘When you rescue a hospital…’

Perez’ mantra was “When you rescue a hospital, you rescue a community.”

However, the alleged savior had zero experience managing hospitals. He was trained as an electrical engineer and helped his father run a medical billing company in Miami, serving doctors and hospitals.

To generate income to buy the struggling hospitals, Perez allegedly took advantage of federal health care regulations that allow some rural hospitals to bill for laboratory services at a substantially higher rate than other providers.

Several of the hospitals linked to Perez then established lab programs that went outside hospital doors. By contracting with outside labs, the hospitals were processing blood and urine from people who never set foot in the hospital’s doors. Insurance was billed at the allowed higher rate, and those contracting with Perez got a cut.

Hung out to dry

Even when the money was rolling in for lab services, employees couldn’t prove it. The facilities were perpetually starved for cash, former employees said in interviews. A Plymouth, NC, hospital employee said they were often without soap to bathe patients, didn’t have crackers or juice, and didn’t have enough people working night shift to run a code.

In Drumright, OK, the CEO said he began to dread Mondays, when the certified letters would roll in from vendors that needed to be paid.

At the same time, Perez and his Empower-affiliated companies were buying condos in Key Largo at nearly $4 million total.

In August 2017, the Missouri State Auditor audited a Putnam County hospital run by Perez. The hospital that generated $7.5 million in fiscal 2016 had, from December 2016 to May 2017, generated $92 million in lab services. Of that amount, 80% went to labs where Perez had a financial stake, 6% went to billing companies Perez controlled, and there were 33 out of state phlebotomists on the hospital’s payroll.

When the findings were released, dozens of major insurers banned together to file lawsuits against Perez-affiliated hospitals in Missouri and other states, asking for hundreds of millions in restitution. Those lawsuits are ongoing.

Perez maintains his innocence, claiming what his company did was done according to Medicare and state guidelines. Blue Cross and Blue Shield of Oklahoma have dropped Perez-affiliated hospitals, and lenders have taken Perez and his partners to court to force them out of four other hospitals, Kaiser reports.

Perez is still based in Miami, and he told Kaiser Health News that he is turning his business interests to software now.

And though he worries about going to jail, he believes he operated in the best interest of the communities where he took over hospitals, giving them “two to three years of life” before they finally locked the doors.

Moral of the story

Townspeople who heard Perez’s pitch told Kaiser Health News, “He seemed to be a nice enough guy” and “He seemed to say the right things.”

Here’s what could they have done differently:

  • Dig deeper. If your local hospital is approached by someone claiming to be able to turn it around, check the person out. In Perez’s case, he had no history of managing a hospital.
  • Check the facts. If an investor promises to double or triple income for a certain area of the facility, like Perez did with hospital lab billing, have an expert look into it. Where else has it worked? Is it legal?
  • Check out the group. In Perez’s case, some of his business partners had been convicted of money laundering, fraud and check forgery. The board should have this information before voting to affiliate with a business partner or sell outright.

Put the legal team to work on checking out what appears to be a white knight – because some things are too good to be true.

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