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Already struggling, the nation's rural hospitals face another challenge: for-profit owners

The pace of failure among rural hospitals is quickening. Thirty-five have closed since January 2019, forcing patients to travel long distances for care.
Image: Debbie Crouch Cook
Debbie Crouch Cook and her mother Lottie live outside the 3-square-mile town of Jamestown, Tennessee, which lost its hospital last year.NBC News

Debbie Crouch Cook knows the peril of having a loved one fall ill when the nearest hospital is over an hour away.

A nurse and medical coder, Cook lives outside Jamestown, Tenn., a 3-square-mile town of 2,000 in the northeastern part of the state. Her mom, Lottie, lives nearby and during the summer of 2019, Cook checked in to find her disoriented and acting odd. She called 911 and when the paramedics arrived, Lottie couldn't smile, a sign of stroke.

Normally, paramedics would have driven Lottie to Jamestown Regional Medical Center. But two months earlier, the 85-bed facility had closed after the federal government, citing regulatory noncompliance, pulled its Medicare and Medicaid reimbursements. That meant the nearest facility best suited to treat Lottie's condition was a hospital in Knoxville, an almost two-hour drive away, Cook said.

"For a stroke, especially, every second counts," Cook told NBC News.

Nurse Debbie Crouch Cook's mother had a stroke in 2019, shortly after their town's medical center closed. The nearest facility best suited to treat her mother's condition was an almost two-hour drive away.NBC News

Lottie's story had a happy ending. The paramedics secured a spot for her on a medevac helicopter bound for Knoxville where she got the treatment she needed.

But others have not been as fortunate. Karen Cooper, 61, a former nurse at the Jamestown hospital for more than 30 years, said her best friend died of a heart attack in February because it took her too long to get to a hospital.

"I think she might be alive today if she had got to this ER right here behind me," Cooper said, referring to the shuttered Jamestown facility.

Jamestown Regional Medical Center is one of 134 rural hospitals that have closed in the past 10 years, according to the University of North Carolina's Cecil G. Sheps Center for Health Services Research. As rural hospitals like these vanish across the country, more Americans face agonizing healthcare prospects.

In recent years, the pace of failure among rural hospitals has quickened. Last year, a record 18 closed, and even after Covid-related government assistance for such hospitals came through this spring, 2020 has witnessed 17 shutdowns.

Everyone agrees that rural hospitals face steep financial challenges, largely because of their patient populations. They rely heavily on public payers, like Medicare and Medicaid, which translates to thinner reimbursements and skimpier profit margins for hospitals. The facilities also cover treatment for many uninsured patients, a money loser.

Jamestown Regional Medical Center, an 85-bed hospital in Jamestown, Tenn., shut down in summer 2019. NBC News

But in some cases, rural hospitals' woes have been exacerbated by the practices of for-profit owners, an NBC News investigation has found. In June, for example, federal prosecutors accused a for-profit owner of a dozen failed hospitals of conducting a fraudulent reimbursement scheme. And court documents and regulatory filings show other for-profit owners have been accused of failing to pay health insurance benefits and payroll taxes for workers or defaulted on debt obligations.

Experts say there are as many reasons for rural hospital failures as there are failures themselves. But the pernicious effects of the closures are the same:

An area's mortality rate typically rises by 6 to 9 percent when a hospital shuts down, according to the National Bureau of Economic Research.

Given that these facilities are often a large local employer, areas with shuttered hospitals also experience significant job losses and a diminished tax base.

Companies operating in communities without hospitals also face higher workers' compensation insurance costs, which rise the farther a factory is from an emergency facility. Because of these costs, companies often move their operations elsewhere when a nearby hospital closes, compounding job losses and tax revenue declines.

Mark Holmes, director of the Sheps Center, said rural hospital closures are an even more disturbing trend during Covid-19. Infections are spiking in rural areas. "We place high demands on hospitals to meet the community's needs," he said. "And if rural hospitals can't sustain it, they will be closing right when we need them most."

$1.4 billion billing scheme

Even before COVID struck this year, rural hospitals with between 25 and 50 beds had only enough cash on hand to cover 21 days of operations, according to Sheps Center data. Five years ago, those facilities had twice that amount.

Rural hospitals' financial models are at the heart of their problems. Generally, 70 percent of rural hospitals' reimbursements come from government health insurance and 30 percent from private insurers, a mix exactly reversed among urban hospitals. Treating uninsured patients, experts say, means even fewer revenues.

Other factors contribute to financial woes at rural hospitals. Technological advancements in surgical procedures result in more outpatient treatments and fewer days spent in a hospital. And as younger people move to cities, a community's mix skews more heavily to the elderly and lower-income who stay behind, Holmes says.

Rural hospital closures hammer minority communities, his data shows. In rural areas with high minority populations, an abandoned facility is less likely to be taken over by a new healthcare operation; instead, it will sit empty or be repurposed.

While each hospital closure is unique, some trends emerge from the data.

Among the 35 rural hospitals that have closed since the beginning of 2019, almost half were owned by for-profit entities — either publicly traded companies or private concerns run by entrepreneurs, an NBC News investigation shows. For-profit closures have occurred in Arkansas, Florida, Kansas, Missouri, Oklahoma, Pennsylvania, West Virginia, and Tennessee.

The other failures were owned by either nonprofit companies, local communities or physician groups.

For-profit purchasers can find rural hospitals financially attractive if they are so-called critical access hospitals, a 1997 government designation that aimed to keep rural hospitals afloat by allowing them higher reimbursements from Medicare. To qualify, the facilities must meet certain requirements, such as having fewer than 25 inpatient beds and a location more than 35 miles away from another hospital.

But this reimbursement system can be exploited, as the goverment is alleging in a recent criminal case. In late June, Jorge A. Perez, founder of EmpowerHMS, a big for-profit private buyer of rural hospitals, was charged by federal prosecutors with using some facilities' higher reimbursement allowances to bilk insurers with fraudulent claims on lab tests.

From 2015 through 2018, the Justice Department said, Perez and 9 other defendants conducted a $1.4 billion insurance billing scheme, buying rural hospitals and using them to bill insurers for urinalysis and blood tests run at outside labs they often controlled. The tests received higher reimbursement rates than if they'd been billed through the outside lab; rural hospitals in Florida, Georgia and Missouri were used in the scam, prosecutors alleged.

A lawyer for Perez said he categorically denies the charges.

Perez and Empower owned six of the 14 for-profit rural hospitals that have closed since January 2019. All are in bankruptcy, court records show.

'A little blip in the road'

Rennova Health, a public company headquartered in West Palm Beach, Fla., has also focused on rural hospital ownership. In June 2018, it bought the Jamestown Medical Center in Tennessee for $700,000, financial filings show. Rennova owns two other rural hospitals and a clinic in Kentucky.

The year it bought the Jamestown facility, Rennova recorded a $13.6 million operating loss.

Problems at the Jamestown Medical Center emerged soon after Rennova purchased it, area residents said.

Cooper, the former longtime nurse whose friend died after the hospital closed, said the facility didn't spend money on basics for patients, such as snacks to combat low blood sugar, even cups and napkins. She said she and her colleagues spent their own money buying the items.

Karen Cooper worked as a nurse at the Jamestown hospital for more than 30 years.NBC News

"We had the electricity turned off in areas, the water was turned off in areas," Cooper said.

Sebastien Sainsbury, a spokesman for Rennova Health, did not respond to repeated emails and voice mails seeking comment. NBC News tried to leave a phone message at Rennova headquarters but the mailbox was full.

In February 2019, eight months after Rennova bought the Jamestown hospital, the Centers for Medicare and Medicaid Services determined that its "governing body failed to provide financial resources to meet the facility's contractual responsibilities," a CMS document states. That June, CMS barred the facility from receiving payments for services, effectively shutting it down. At the same time, Community Health Systems, the former owner that sold the Jamestown hospital to Rennova, obtained a $729,000 judgment against Rennova for failing to pay its obligations.

Since its founding in 2011, Rennova has accumulated losses of $663 million, according to financial statements filed in November. The losses and the company's defaults on its debt obligations "raise substantial doubt about the company's ability to continue as a going concern" in the coming year, Rennova said in the filing.

In an interview last year, Seamus Lagan, Rennova's chief executive, voiced optimism about the company's future and called the Jamestown closure "a little blip in the road, so to speak."

Even though it's closed, the Jamestown Hospital received almost $122,000 in CARES Act money meant for operating hospitals, records from Health and Human Services show. Rennova also received $2.4 million under the government's Paycheck Protection Program in May and $12.4 million from HHS under the CARES Act.

The hospital shutdown has hurt Jamestown's economy and made the community fearful, said Miah Ellmore, a registered nurse who worked at the facility from 2012 to 2019. "People just pray to God that they can get to the hospital in time," she said in an interview. "The helicopter is an alternative, but it takes 15 minutes minimum for the helicopter to get to town."

100 jobs lost

Operators of rural hospitals often have no choice but to embrace potential acquirers, even if they are financially weak, said Alan Morgan, chief executive officer of the National Rural Health Association, a nonprofit that advocates on behalf of rural hospitals.

"This pattern points to the desperation of rural communities," Morgan said. "If your decision is, we're either going to shut this down or we're going to take a chance with the business that says they're going to make it work, you don't have a choice."

Pinnacle Regional Hospital, in Boonville, Missouri, roughly 100 miles east of Kansas City, is another privately owned hospital that recently closed. A 32-bed acute care facility in a town of 8,000, it specialized in bariatric weight-loss surgery and said it provided more than one-third of all such surgeries for Missouri Medicaid patients.

The Boonville Hospital closed in January after state inspectors identified problems with pressure, temperature, and humidity in the facility's sterilization room. The nearest hospital is a 30-minute drive away in Columbia.

Pinnacle Regional Hospital in Boonville, Mo.KOMU

Doug Palzer, a Las Vegas businessman who ran bariatric surgery centers, bought the Boonville facility in 2018. He also had interests in a real estate concern, a construction operation, and a staffing company in the Boonville area, court documents show.

The Boonville facility was part of Pinnacle Health, a company owned by Palzer that operated a 12-bed hospital in Overland Park, Kansas. Pinnacle filed for bankruptcy in February and most of its operations were wound down in April.

Gigi McAreavy, director of economic development in Boonville, said the closure slammed the community. "The job loss displaced over 100 people," she said, "and elderly patients are hesitant to drive 30 minutes to Columbia because they don't like the traffic and it's difficult for them to navigate the city."

Two former nurses at the Boonville hospital sued Pinnacle over unpaid health insurance benefits. To draw employees, Pinnacle offered to pay all health insurance premiums for workers and their families, the nurses' lawyer said. In the summer of 2019, Pinnacle changed its policy and said that employees could continue receiving health insurance through the company, but would need to have premiums taken out of their paychecks each month, according to the lawyer. But when the workers tried to submit claims to healthcare providers, the insurer said they had no plan. The employees say Pinnacle deducted funds from their paychecks for medical insurance but never submitted the money to the insurer.

A lawyer representing Palzer declined to comment to NBC News, citing the litigation.

Palzer filed for personal bankruptcy in Nevada this year, listing assets of roughly $800,000 and unsecured claims from creditors of at least $27 million, a May court filing shows. The trustee overseeing the bankruptcy said in a May filing he was investigating Palzer's outside businesses to see if they are related to Pinnacle and might have assets the company's creditors could recover. The trustee referred NBC News questions about the investigation to the United States Trustee program, which declined to comment.

Even though the Boonville hospital is closed, an Aug. 4 filing with the bankruptcy court shows it received $675,000 in CARES Act funding. The bankruptcy trustee recommended returning the money to the government, a filing said.

Ned Beach, Boonville's mayor, said the Pinnacle Regional Medical Center closure has been "hard" for everyone. "To say it is a shock is true," he said. "We took it for granted and it disappeared."