A $90 million billing scheme reached a 10-hospital group, lawsuit says
Larry Paine and the rest of the city leaders in Hillsboro, Kan., have a problem.
EmpowerHMS, the North Kansas City-based company that manages their hospital, owes the city thousands in unpaid utility bills. A check written to the city in December bounced, and Paine, the city administrator, can’t get anybody from the company to resolve it.
“Last night the mayor announced to the city council he has ordered me to turn off the lights, turn off the electricity at noon Friday, unless we get paid,” Paine said Wednesday.
Empower, headquartered at 1700 Swift Ave., operates 14 rural hospitals nationwide, including three in Kansas (Hillsboro Community Hospital, Oswego Community Hospital and Horton Community Hospital) and two in Missouri (Fulton Medical Center and I-70 Community Hospital in Sweet Springs).
But Paine and leaders in other cities worry whether their hospitals can continue to operate under EmpowerHMS management, as signs of financial distress multiply.
Several company executives, including CEO Jorge Perez, didn’t respond to requests for comment. Mike Murtha, president of the nonprofit National Alliance of Rural Hospitals that has championed Perez’s rural hospital takeovers, acknowledged that Empower is having cash flow issues but said they’re temporary. The organization is chaired by Perez.
“The hospitals are having some difficulties,” Murtha said. “They’re confident they’ll overcome it. Jorge Perez and the Perez family have fought tooth and nail for these hospitals.”
The Star reported last month that hospital workers throughout the chain got their paychecks late in December.
And in addition to the problem of back rent and bills, workers at some Empower hospitals say they’re running low on supplies, and others report having problems with their health insurance.
At least two cities — Hillsboro and an Oklahoma town — are now trying to force Empower to pay up.
Murtha said if the cities stick it out, things will improve soon. He said Perez is a Cuban immigrant who made a successful career and is using his wealth and know-how to altruistically rehab and modernize old hospitals to keep them from joining the growing ranks of closed rural facilities.
Bankruptcy filings, a lawsuit and a Missouri state auditor investigation give an alternate viewpoint: that Perez used rural hospitals for a lab billing revenue stream of questionable legality that’s now drying up amid increased scrutiny from insurance companies and government officials.
Several years ago Perez rolled into Graceville, Fla. — just as he would later roll into Fulton, Mo., and other small Midwestern towns promising to rescue a rural hospital.
Michelle Jordan was the attorney for Campbellton Graceville Hospital in the Florida Panhandle. She later told CBS News that from the beginning she was suspicious of Perez’s offer to manage the facility.
But the hospital was in desperate straits, and the board accepted. A few years later, Campbellton Graceville filed for Chapter 11, with a list of several hundred creditors that included unpaid nurses. After more than 50 years in business, the hospital closed. Court filings from the pending bankruptcy case blame the messy ending on the lab billing scheme that Perez and his associates are now accused of trying to employ at Empower hospitals.
Rural “critical access” hospitals get larger insurance reimbursements for running the same tests as free-standing medical labs. The allegations in Florida are that Perez and the company he led at the time, People’s Choice Hospitals, struck deals with lab companies to send their bills through Campbellton Graceville for the higher rate.
Jordan and the hospital board eventually shut down the billing operation. But by then they had lab companies on one side saying the hospital owed them millions for their share of the deal and insurance companies on the other side saying they were owed millions for bills that never should have gone through the hospital.
In 2017 Missouri State Auditor Nicole Galloway issued a report saying another Perez-affiliated company, Hospital Partners Inc., tried a similar lab billing scheme at Putnam County Memorial Hospital in Unionville, Mo., to the tune of $90 million a year.
That hospital has cut ties with Perez, but the Missouri Attorney General’s Office continues to investigate to see if anyone broke the law. Meanwhile, a federal lawsuit filed by a Mission Hills couple with an investment stake in 10 of the EmpowerHMS hospitals alleges that Perez and others intended to use those hospitals for the same scheme.
The defendants in the suit have called it baseless, and Murtha said Perez was a whistleblower in the Campbellton Graceville incident, placing blame on another executive in a sworn affidavit. CBS said it had documents that showed Perez had personally signed off on the questionable deals with lab companies, but Perez said during an interview with the network that his signature was forged.
Still, Jordan said she’s been watching the Empower saga unfold and believes it’s all connected.
“It’s become apparent that CGH (Campbellton Graceville Hospital) was the incubator for this scheme and it’s paid off well for them,” Jordan said via email.
But now insurance companies have begun to rebel. Blue Cross Blue Shield of Oklahoma excluded four Empower hospitals from its network in 2018, telling The Oklahoman it was because of questionable lab billing practices.
According to Galloway’s audit, insurance investigators in other states also contacted her office with evidence of questionable billing.
Murtha said Perez and the rest of the Empower leaders deserve credit for sticking with the hospitals through tough times, even as other companies close down rural facilities.
“These owners are saying, ‘We’re not going to walk away, we’re going to fight, we’re going to keep these places open,” Murtha said.
But some towns now want them to leave.
Jim Greff, the city manager in Prague, Okla., said his town has formed an organization to take over the hospital’s state license until another operator can be found, and it hired a law firm to help with the transition.
The city owns the hospital building, and Greff said Empower owes about 12 months worth of rent and is also behind on utilities.
“We’re looking to salvage it before the doors shut, but we need to get them to transfer the license,” Greff said.
It’s harder for other towns to separate themselves from Empower. In Hillsboro, north of Wichita, the city owns the land that the hospital sits on, but a company related to Empower owns the building — at least for now.
On Tuesday, the Bank of Hays, which provided a loan of almost $10 million to acquire the building, filed a petition to foreclose on the company in Marion County court. The filing says the loan is in default and requests the remaining balance (about $9.7 million), plus about $180,000 in interest and $125 in late fees.
Meanwhile, Paine said the city council has reached a breaking point on the unpaid utility bills, which a week ago stretched to nearly $30,000. A wire transfer on Jan. 7 (three days later than promised) reduced it to about half that, but the city isn’t satisfied.
The plan to cut off utilities Friday is a drastic step, Paine said, and one the city has never before taken with its hospital. But it wouldn’t be the first city to do it with an Empower facility. In Ripley, Tenn., the power was shut off at the Lauderdale Community Hospital for three hours on Dec. 31 because of unpaid bills, and the hospital owed $300,000 in local property taxes, a TV station reported.
Paine said the hospital workers in Hillsboro are still providing good care under difficult and sometimes embarrassing circumstances. According to the Hillsboro Free Press, a memo circulated to hospital workers there said that a local pharmacy had ceased accepting their medical insurance because of a dispute between the insurer and Empower.
A woman who said her husband works at the Empower hospital in Fulton, Mo., told The Star that her family’s insurance was denied during a recent trip to the dentist. When she called the benefits administrator she was told to take it up with Empower. She asked that her name not be published because of her husband’s job.
Jenni Upenieks, Empower’s vice president of human resources, didn’t respond to multiple phone messages and emails.
Murtha said he couldn’t speak to the employees’ concerns but would try to tell the Empower executive team about them.
“That’s an Empower issue,” Murtha said. “I’m sure whatever it is, it will be worked out.”
Several people said Empower’s leadership is increasingly unreachable.
“I’ve been trying to call those folks to say, ‘Hey, what are you going to do about it, what are you going to do about it?’” Paine said.
Dale Fielding said he still hasn’t been paid for the telecommunications work he did for some of the Oklahoma hospitals.
“I can’t get anybody at Empower to answer anything at all,” Fielding said.
On Thursday morning, Empower’s website was down, with a message stating “this account has been suspended. Contact your hosting provider for more information.”
Paine said Hillsboro’s mayor works in sales and occasionally finds himself in Kansas City on business. He’s stopped by the EmpowerHMS office — or at least the building where EmpowerHMS says its office is.
“It’s been his experience to find out nobody’s actually at the place where they say they work,” Paine said.
Three trips by a Star reporter to the EmpowerHMS offices in North Kansas City since Dec. 31 found only a few people working there, and none who were authorized to speak to the media.
Murtha said the office space was nice, but the overhead costs were too high. So most of the jobs have been moved to Miami, where Perez lives.
Greff, the city administrator in Oklahoma, said he has occasionally reached Perez on the phone. But it hasn’t done any good as far as getting bills paid. At this point, he said the city government is ready to cut ties, and he hopes Perez is too.
“If he knows it’s sinking and is OK with getting out and will transfer the license, then we can continue to operate,” Greff said, “and we’ll get somebody to step right in.”