Alva Review-Courier -

It was the sort of miracle cure that the board of a rural Oklahoma hospital on the verge of closure had dreamed about: A newly formed management company promised access to wealthy investors eager to infuse millions of dollars.

The company, Alliance Health Southwest Oklahoma, secured an up to $1 million annual contract in July 2017 to manage the Mangum Regional Medical Center after agreeing to provide all necessary financial resources until the 18-bed hospital brought in enough money from patient services to pay its own bills.

But about a month later, hospital board members were summoned to an emergency meeting.

Early one morning in August 2017, Alliance’s CEO Frank Avignone told hospital board members that his company, which had boasted of access to up to $255 million from well-heeled investors, was out of money.

Alliance needed a line of credit, and the bank required the board’s permission to use the hospital’s incoming payments as collateral. If board members didn’t agree, paying nurses and other health care workers would be a “slight miracle,” Avignone said, according to an audio recording of the meeting that was obtained by The Frontier and ProPublica.

“There were supposed to be so many millions available,” Staci Goode, chairwoman of the hospital board, said during the meeting, asking what happened to the promises made just weeks earlier.

Investors needed to see an improvement in the hospital’s finances before committing their money, Avignone replied.

“We’re in a bad spot right now with our investors just like you are,” he said. “We’re out over our skis a little bit.”

Exasperated, Mangum’s hospital board approved the line of credit.

Over the next year and a half, Alliance borrowed millions of dollars from the bank. The company paid itself and businesses tied to its partners a significant chunk of the money and then used $4 million from Medicare to help pay down the line of credit, according to interviews with town leaders and court records obtained by The Frontier and ProPublica.

Financial pressures have forced the closures of 130 rural hospitals across the country in the past decade, leaving communities grasping for solutions to avoid losing health care in areas with the most need. Rural health experts fear many more won’t survive the coronavirus pandemic.

An investigation by The Frontier and ProPublica found that some private management companies hired to save the most vulnerable hospitals in rural Oklahoma have instead failed them, bled them dry and expedited their demise.

It starts like this: Rural communities desperate to protect their hospitals hand the reins to management companies that portray themselves as turnaround experts and vow to invest millions of dollars.

Those companies are often hired without background checks or any requirement that they have experience running hospitals. They operate under nearly nonexistent state and local regulations with little oversight from volunteer governing boards. After they extract hefty monthly fees, they sometimes cut ties and leave rural communities scrambling.

In Mangum, a prairie town of 2,800 people in southwestern Oklahoma, the hospital is fighting several ongoing lawsuits stemming from Alliance’s management. It also has filed its own litigation, accusing Alliance of fraud and of siphoning away millions of dollars from the hospital. Alliance disputes the allegations and is countersuing to collect $1 million in management fees it claims the hospital still owes for its services.

Leaders from the Oklahoma towns of Seiling and Pauls Valley, who relied on Alliance’s assurances that it could revive their hospitals, similarly accuse the company of making lofty promises and leaving them deeper in debt.

Alliance’s failure to produce promised investments for the Pauls Valley Regional Medical Center made it harder for the hospital to escape the debt it had incurred under its previous management company, said Jocelyn Rushing, the town’s mayor. The hospital closed in October 2018 under Alliance’s management.

“What I can tell you is that Frank is a smooth talker, and he definitely knows how to play the media to his side,” Rushing said, referring to Avignone. “And he left Pauls Valley high and dry.”

Avignone denies wrongdoing. He said leaders in Mangum and other small towns have no experience running hospitals and don’t understand enough about the industry to appreciate the work done by his management company.

“At the end of the day, we did save the hospital but, you know, no good deed goes unpunished,” Avignone said of Mangum. “The local municipality decided they didn’t want us and called us crooks and ran us out of town.”

In the end, Avignone said, his company did the best it could given the economic pressures facing rural hospitals.

“Vulture Capitalists”

Across the country, rural hospitals struggle under crushing financial realities. They are more dependent on Medicare and Medicaid, which generally provide lower reimbursement rates than private insurance companies. They also treat higher percentages of uninsured patients and struggle to recruit doctors and nurses. And they have millions of dollars in costs for basic maintenance and repairs that are often deferred for years because of razor-thin profit margins.

A study released in February by the Chartis Center for Rural Health estimates that about 450 rural hospitals across the country are vulnerable to closure.

The challenges are magnified in states like Oklahoma that have opted against expanding Medicaid for the working poor, as encouraged under the Affordable Care Act, hospital advocates and researchers say.

On June 30, Oklahoma voters will decide whether to expand Medicaid through a constitutional amendment. The state’s Republican leadership has previously blocked expansion, but a petition drive supported by the Oklahoma Hospital Association landed the question on the primary ballot. “Clearly, had these hospitals not been in such a precarious situation, these companies wouldn’t even be in the picture,” said Patti Davis, president of the hospital association.

Last year, the hospital association released guidance urging local officials to carefully assess the financial standing of management companies by requesting records that include tax returns and audited financial statements. The records, which offer a glimpse into a company’s liabilities and assets, are not required under state law, but the association said refusing to produce them can be a red flag.

The guidance came as multiple rural hospitals struggled under the control of Missouri-based EmpowerHMS. One Oklahoma hospital run by the company closed in 2018 and four more entered bankruptcy in 2019.

Empower had boasted of its ability to increase revenue by entering into deals with outside toxicology laboratories that allowed flailing rural hospitals to bill at higher rates for blood and urine tests performed elsewhere. But insurance companies soon flagged ballooning laboratory bills as possible fraud and the U.S. Department of Justice launched a criminal investigation. It’s not clear if the investigation is still ongoing. Empower has denied allegations of wrongdoing in response to a federal lawsuit filed by insurance companies.

The vast financial challenges facing rural hospitals can make it difficult to determine how much strain resulted from the management companies. A recent federal report found that hospitals owned by for-profit companies have a particularly high closure rate. Such hospitals represented 11% of rural medical facilities but 36% of closures from 2013 through 2017, according to a 2018 report from the U.S. Government Accountability Office.

Struggling hospitals can be good business for companies seeking to turn a quick profit, said Tom Getzen, professor emeritus of risk, insurance and health management at Temple University.

“What you’ve got is management companies that are vulture capitalists,” Getzen said. “These are organizations that know that entities that are in difficulty probably would never be profitable but can have their assets stripped out and can therefore make money. It’s important to recognize that troubled company management is actually a very profitable business.”

As the coronavirus threatens to further hamstring rural hospitals, forcing them to cancel lucrative elective procedures and purchase additional medical supplies, concerns grow that more communities will fall prey to promises of magical turnarounds.

“You have these communities that are desperate, and they are willing to sign a deal with the devil,” said Casey Murdock, a Republican state senator whose district includes nine of Oklahoma’s more than 80 rural hospitals. “These companies strip the hospital down, make all they can make and move on to the next one.”