Health Care

Kansas hospital closes after troubled North KC manager is sold to Florida company

A hospital in rural Kansas that until recently was run by a North Kansas City-based company closed Thursday, blaming a litany of cash flow problems but not its manager.

The Oswego Community Hospital’s board of directors announced the closure via an emailed statement. It did not mention the hospital’s manager, EmpowerHMS, whose hospitals have been struggling with unpaid bills and late paychecks, or that company’s CEO, Jorge A. Perez, who is facing accusations he used hospital labs for improper billing.

Instead, the hospital board said the 12-bed facility in southeast Kansas closed due to struggles no different than those at other rural hospitals around the country.

“We have weathered low patient volumes, high numbers of uninsured patients, low reimbursement rates, difficulty in getting payment from private insurance providers, low Medicaid and Medicare rates, and the state’s refusal to expand Medicaid,” the statement read. “The trickle of low revenue stream we have generated has not been enough to cover payroll, let alone to meet all of the other costly expenses needed to operate and maintain a hospital.”

Kansas Gov. Laura Kelly seized on the closure as a reason to support her Medicaid expansion proposal.

“Just by expanding KanCare — the state’s Medicaid program — we can help keep these important facilities open and provide affordable health care to 150,000 more Kansans — no matter where they live,” Kelly said in a statement Thursday.

Rural hospitals have been closing at a greater rate in states like Kansas and Missouri, which declined to expand Medicaid under the Affordable Care Act, commonly called Obamacare.

But the Empower hospitals have the added challenge of the lab billing controversy, which led some insurance companies to take them out of network.

Perez and Mike Murtha, a spokesman for a group that has supported Perez’s rural hospital acquisitions, didn’t respond to phone messages seeking comment.

Jorge Perez.jpg
Jorge Perez spoke at a presentation last year in Fulton, Mo., after a change in ownership of Fulton Medical Center. Jenny Gray Fulton Sun

For months, warning signs showed things were getting dire for Empower, headquartered at 1700 Swift St., starting with the October closure of Latimer County General Hospital in Oklahoma.

About two months later, reports of late paychecks, unpaid utility bills and other serious financial woes started emerging at 13 other Empower hospitals across seven states, including three in Kansas and two in Missouri.

At the time Murtha said the cash flow issues were just temporary and would resolve in January or February, when Medicare pays out increased reimbursements for rural facilities.

Over the last few months, Empower’s presence in North Kansas City has been minimal — most of its employees, including Perez, were based in Miami. Now Empower may be gone entirely.

Documents filed with the federal Securities and Exchange Commission show that on Jan. 7, Perez entered into an agreement with Miami-based iHealthcare. Empower will give iHealthcare 10-year management contracts for its remaining hospitals in exchange for millions of dollars in “success fees.”

The documents also show that Perez will stay involved in the management of the facilities, running them in partnership with iHealthcare, whose leadership team includes several other Empower executives.

“The Parties agree to mutually work together to grow the business model and create new revenue lines that are currently not operational,” the SEC filings say.

The deal was announced on Feb. 6.

IHealthcare CEO Noel Mijares didn’t respond to a phone message Thursday.

The hospitals included in the agreement were:

DeQueen Medical Center (Ark.), Fulton Medical Center (Mo.), Regional General Hospital (Fla.), Drumright Regional Hospital (Okla.), Fairfax Community Hospital (Okla.), Haskell County Community Hospital (Okla.), Hillsboro Community Hospital (Kan.), Horton Community Hospital (Kan.), I-70 Community Hospital (Mo.), Lauderdale Community Hospital (Tenn.), Oswego Community Hospital (Kan.), Prague Community Hospital (Okla.), Washington County Hospital (N.C.).

It’s unclear how much of the success fees Perez will ultimately collect. The SEC documents say that they’re pro-rated if any of the facilities close or are put in receivership before the 10 years are up. Some already have.

Oswego has closed. On Jan. 18, a Kansas judge approved Hillsboro’s request to remove Empower as the operator of its hospital and install a temporary receiver until another manager can be found. According to local news reports, Fulton Medical Center is under new management, Lauderdale Community Hospital has also filed for a receivership and Washington County Hospital and DeQueen Medical Center are in danger of closing.

Prague, a small town about 60 miles east of Oklahoma City that owns the Prague Community Hospital, is also seeking a receiver to take over management of its hospital.

The city filed suit Jan. 15, alleging that Empower and several affiliated entities failed to pay hospital employees, public utilities and vendors on time and was behind on lease payments to the city to the tune of $39,000.

Lynn Howell, an attorney representing Prague, said he just recently learned about iHealthcare’s management of the Prague hospital.

“All we know is what we read in the paper, as Will Rogers said,” Howell said. “We know what’s going on on the ground at the hospital. Above that, it seems like every time we turn around there’s some new management company there.”

He added: “It may be that we need to join in iHealthcare as an additional defendant. We didn’t know they existed, that that deal had been done when we originally filed everything.”

Property tax records show that I-70 Community Hospital in Sweet Springs, Mo., is two years behind on its tax bill, with an outstanding balance of more than $371,000. Cindi Sims, the Saline County Collector of Revenue, said it’s the biggest unpaid bill out of 388 properties in the county that are two years behind.

“It’s by far the largest delinquent on that list,” Sims said.

A nurse at I-70 Community Hospital who asked that her name not be published for fear of retaliation, said it’s short on supplies and the lab is closed, putting patients at risk.

“Empower is well informed and knows that patients’ lives are at stake yet only does the bare minimum required to keep the doors open,” the nurse said.

Jennifer McCutcheon, a social worker who was hired as the hospital’s CEO in December, said the lab has been closed for a couple of weeks following the departure of its director. But they’re in the process of hiring a new director, and in the meantime neighboring hospitals have helped out with lab testing and accepted transfers of patients when necessary.

She said the hospital is well-supplied and people shouldn’t hesitate to come there when they need medical attention.

“We, here, are doing really well,” McCutcheon said. “They’re still going to get that same excellent level of patient care when they come here.”

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Kansas City Star health reporter Andy Marso was part of a Pulitzer Prize-finalist team at The Star and previously won state and regional awards at the Topeka Capital-Journal and Kansas Health Institute News Service. He has written two books, including one about his near-fatal bout with meningitis.
Steve Vockrodt is an award-winning investigative journalist who has reported in Kansas City since 2005. Areas of reporting interest include business, politics, justice issues and breaking news investigations. Vockrodt grew up in Denver and studied journalism at the University of Kansas.