Health Care

Former North KC firm under federal criminal investigation for failed hospital chain

A $90 million billing scheme reached a 10-hospital group, lawsuit says

Missouri's auditor highlighted questionable billing practices at a rural Missouri hospital. Now, a Mission Hills couple has sued, alleging the scheme had spread.
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Missouri's auditor highlighted questionable billing practices at a rural Missouri hospital. Now, a Mission Hills couple has sued, alleging the scheme had spread.

A company tied to a slew of rural hospital closures — including several in Kansas and Missouri — is under federal criminal investigation, according to court records.

EmpowerHMS, a hospital management company formerly headquartered in North Kansas City, once ran 14 facilities across seven states. But it collapsed this year amid scrutiny of a lab billing scheme allegedly spearheaded by CEO Jorge A. Perez, leaving unpaid bills and unpaid workers in its wake.

Records filed in a bankruptcy case last month say that the U.S. Department of Justice is investigating a web of related companies used to purchase the hospitals and run their billing operations.

That was welcome news to Oswego city clerk Carol Eddington, whose southeast Kansas community was among those whose hospitals closed.

“I just think it’s appalling what these people did to the workers,” Eddington said. “I hope they’re made accountable because that’s just awful.”

Empower’s offices at 1700 Swift St. have been largely empty for months, with most employees and the company’s top executives in Miami.

Perez transferred management of Empower’s remaining hospitals in February to a Miami-based company called iHealthcare for millions of dollars and a role in that company. Perez and iHealthcare’s public relations department didn’t respond to emails seeking comment on the federal investigation.

Jorge Perez.jpg
Jorge Perez spoke at a presentation in 2017 in Fulton, Mo., after a change in ownership of Fulton Medical Center. Jenny Gray Fulton Sun

The investigation was revealed in documents related to one of the few former Empower hospitals still in operation, the Hillsboro Community Hospital north of Wichita.

The Bank of Hays filed a petition to foreclose on the hospital in January, citing a nearly $10 million loan that a company related to Empower had used to buy the hospital and had fallen behind on repaying.

The bank and the city of Hillsboro asked the judge to remove Empower and install a temporary receiver to run the hospital so it could remain open.

In the federal bankruptcy proceedings that followed, the bank’s lawyer, Nicholas Zluticky, filed memos seeking to keep the receiver in place. They include one that said he had “recently learned” that entities related to Empower, including a company called CAH, “are currently under criminal investigation by the United States Department of Justice.”

“Upon information and belief, the Department of Justice’s investigation relates to CAH and its parent company’s management of healthcare facilities nationwide,” the memo says.

Zluticky, reached by phone in his Kansas City office, said he couldn’t comment beyond what was in the court filings.

Department of Justice policies generally prevent the agency from confirming or denying active investigations.

But recent filings in another court case also reference a criminal probe into Empower-related companies.

A Mission Hills couple who are investors in a company that owns a portion of the Empower hospitals are suing Perez and others, alleging that they used the lab billing scheme to improperly siphon money out of the properties.

In a filing last month, their attorney, Kansas City-based Brooks Wood, wrote that he couldn’t get bank records he had requested because the defense attorney “advised that he had become aware of a criminal investigation and that he was not in a position at that time to voluntarily produce any documents.”

The defendants cited their Fifth Amendment right to avoid self-incrimination.

Wood said he couldn’t comment further. Florida-based defense attorney Frank Martin Smith didn’t respond to a phone message.

Zluticky’s memos to the court say that in addition to the federal investigation, the Kansas Department of Revenue is investigating the Hillsboro hospital’s owners for unpaid payroll taxes. He mentioned employees’ medical, dental and vision insurance being canceled and the hospital being critically short of supplies while under Empower management.

Employees at other Empower hospitals reported similar problems. Eddington said that the workers at the Oswego Community Hospital told her the company was still deducting money from their paychecks for benefits, even though they were no longer receiving those benefits.

“We knew that there were a lot of people who had things withheld from their checks and it wasn’t being used for what it was supposed to be used for so there have to be criminal charges for that at some point,” Eddington said.

She said some of them had spoken to the Kansas Attorney General’s Office, which has already said it is investigating what happened at another Empower facility, Horton Community Hospital.

That facility north of Topeka was the last of the hospitals in Kansas and Missouri to continue operating under Empower management before it closed in March. Employees had been working without pay for nearly a month.

“I don’t think there’s been any compensation to date, or any back pay,” said John Calhoon, Horton’s acting city administrator. “I do know that a number of employees have found employment elsewhere. There’s still a certain number holding out hope, optimistic they’re going to get their jobs back.”

Empower’s presence in Missouri is now gone as well. Fulton Medical Center near Columbia is operating under new management, and the I-70 Community Hospital about an hour east of Kansas City voluntarily suspended its operations during a Missouri Department of Health and Senior Services inspection in February. It has since lost its Medicare certification and remains closed.

According to local media reports, Empower hospitals in other states are in similar straits.

Eddington said Oswego still has two medical clinics in town providing primary care, but no more hospital beds, and the nearest emergency room is now almost 20 miles away.

She said a federal investigation is probably the only way to tally the damage Empower did to her community and others.

“I think it will all come out in the end,” Eddington said. “Well, I say ‘all.’ It won’t all come out in the end. There’s probably no way it will all come out and I don’t know who knows it all even because there’s so many hospitals and so many different circumstances in each hospital. … We’ll see. We’ll see what comes of it.”

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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.


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