Endgame: How the Visionary Hospice Movement Became a For-Profit Hustle

Half of all Americans now die in hospice care. Easy money and a lack of regulation transformed a crusade to provide death with dignity into an industry rife with fraud and exploitation.

Over the years, Marsha Farmer had learned what to look for. As she drove the back roads of rural Alabama, she kept an eye out for dilapidated homes and trailers with wheelchair ramps. Some days, she’d ride the one-car ferry across the river to Lower Peach Tree and other secluded hamlets where a few houses lacked running water and bare soil was visible beneath the floorboards. Other times, she’d scan church prayer lists for the names of families with ailing members.

Farmer was selling hospice, which, strictly speaking, is for the dying. To qualify, patients must agree to forgo curative care and be certified by doctors as having less than six months to live. But at AseraCare, a national chain where Farmer worked, she solicited recruits regardless of whether they were near death. She canvassed birthday parties at housing projects and went door to door promoting the program to loggers and textile workers. She sent colleagues to cadge rides on the Meals on Wheels van or to chat up veterans at the American Legion bar. “We’d find run-down places where people were more on the poverty line,” she told me. “You’re looking for uneducated people, if you will, because you’re able to provide something to them and meet a need.”

Farmer, who has doe eyes and a nonchalant smile, often wore scrubs on her sales routes, despite not having a medical background. That way, she said, “I would automatically be seen as a help.” She tried not to mention death in her opening pitch, or even hospice if she could avoid it. Instead, she described an amazing government benefit that offered medications, nursing visits, nutritional supplements and light housekeeping — all for free. “Why not try us just for a few days?” she’d ask families, glancing down at her watch as she’d been trained to do, to pressure them into a quick decision.

Once a prospective patient expressed interest, a nurse would assess whether any of the person’s conditions fit — or could be made to fit — a fatal prognosis. The Black Belt, a swath of the Deep South that includes parts of Alabama, has some of the highest rates of heart disease, diabetes and emphysema in the country. On paper, Farmer knew, it was possible to finesse chronic symptoms, like shortness of breath, into proof of terminal decline.

When Farmer started out in the hospice business, in 2002, it felt less like a sales gig than like a calling. At 30, she’d become a “community educator,” or marketer, at Hospice South, a regional chain that had an office in her hometown, Monroeville, Alabama. Monroeville was the kind of place where, if someone went into hospice, word got around and people sent baked goods. She often asked patients to write cards or make tape recordings for milestones — birthdays, anniversaries, weddings — that they might not live to see. She became an employee of the month and, within a year, was promoted to executive director of the branch, training a staff of her own to evangelize for end-of-life care.

Things began to change in 2004, when Hospice South was bought by Beverly Enterprises, the second-largest nursing-home chain in the country, and got folded into one of its subsidiaries, AseraCare. Not long before the sale, Beverly had agreed to pay a $5 million criminal fine and a $175 million civil settlement after being accused of Medicare fraud. Its stock value had slumped, and Beverly’s CEO had decided that expanding its empire of hospices would help the company attract steadier revenue in “high-growth, high-margin areas of health care services.” Less than two years later, as part of a wave of consolidations in the long-term-care industry, Beverly was sold to a private-equity firm, which rebranded it as Golden Living.

It might be counterintuitive to run an enterprise that is wholly dependent on clients who aren’t long for this world, but companies in the hospice business can expect some of the biggest returns for the least amount of effort of any sector in American health care. Medicare pays providers a set rate per patient per day, regardless of how much help they deliver. Since most hospice care takes place at home and nurses aren’t required to visit more than twice a month, it’s not difficult to keep overhead low and to outsource the bulk of the labor to unpaid family members — assuming that willing family members are at hand.

Up to a point, the way Medicare has designed the hospice benefit rewards providers for recruiting patients who aren’t imminently dying. Long hospice stays translate into larger margins, and stable patients require fewer expensive medications and supplies than those in the final throes of illness. Although two doctors must initially certify that a patient is terminally ill, she can be recertified as such again and again.

Almost immediately after the AseraCare takeover, Farmer’s supervisors set steep targets for the number of patients marketers had to sign up and presented those who met admissions quotas with cash bonuses and perks, including popcorn machines and massage chairs. Employees who couldn’t hit their numbers were fired. Farmer prided herself on being competitive and liked to say, “I can sell ice to an Eskimo.” But as her remit expanded to include the management of AseraCare outposts in Foley and Mobile, she began to resent the demand to bring in more bodies. Before one meeting with her supervisor, Jeff Boling, she stayed up late crunching data on car wrecks, cancer and heart disease to figure out how many people in her territories might be expected to die that year. When she showed Boling that the numbers didn’t match what she called his “ungodly quotas,” he was unmoved. “If you can’t do it,” she recalled him telling her, “we’ll find someone who can.”

Farmer’s bigger problem was that her patients weren’t dying fast enough. Some fished, drove tractors and babysat grandchildren. Their longevity prompted concern around the office because of a complicated formula that governs the Medicare benefit. The federal government, recognizing that an individual patient might not die within the predicted six months, effectively demands repayment from hospices when the average length of stay of all patients exceeds six months.

But Farmer’s company, like many of its competitors, had found ways to game the system and keep its money. One tactic was to “dump,” or discharge, patients with overly long stays. The industry euphemism is “graduated” from hospice, though the patient experience is often more akin to getting expelled: losing diapers, pain medications, wheelchairs, nursing care and a hospital-grade bed that a person might not otherwise be able to afford. In 2007, according to Farmer’s calculations around the time, 70% of the patients served by her Mobile office left hospice alive.

Another way to hold on to Medicare money was to consistently pad the roster with new patients. One day in 2008, facing the possibility of a repayment, AseraCare asked some of its executive directors to “get double digit admits” and to “have the kind of day that will go down in the record books.” A follow-up email, just an hour later, urged staff to “go around the barriers and make this happen now, your families need you.”

That summer, Boling pushed Farmer to lobby oncologists to turn over their “last breath” patients: those with only weeks or days to live. At the time, Farmer’s 59-year-old mother was dying of metastatic colon cancer. Although Farmer knew that the service might do those last-breath people good, it enraged her that her hospice was chasing them cynically, to balance its books. The pressure was so relentless that sometimes she felt like choking someone, but she had two small children and couldn’t quit. Her husband, who had been a co-worker at AseraCare, had already done so. Earlier that year, after fights with Boling and other supervisors about quotas, he had left for a lower-paying job at Verizon.

Farmer’s confidante at work, Dawn Richardson, shared her frustration. A gifted nurse who was, as Farmer put it, “as country as a turnip,” Richardson hated admitting people who weren’t appropriate or dumping patients who were. She was a single mom, though, and needed a paycheck. One evening in early 2009, the two happened upon another way out.

The local news was reporting that two nurses at SouthernCare, a prominent Alabama-based competitor, had accused the company of stealing taxpayer dollars by enrolling ineligible patients in hospice. SouthernCare, which admitted no wrongdoing, settled with the Justice Department for nearly $25 million, and the nurses, as whistle-blowers, had received a share of the sum — $4.9 million, to be exact. Farmer and Richardson had long felt uneasy about what AseraCare asked them to do. Now, they realized, what they were doing might be illegal. They decided to call James Barger, a lawyer who had represented one of the SouthernCare nurses. That March, he helped Farmer and Richardson file a whistleblower complaint against AseraCare and Golden Living in the Northern District of Alabama, accusing the company of Medicare fraud. The case would go on to become the most consequential lawsuit the hospice industry had ever faced.

The philosophy of hospice was imported to the United States in the 1960s by Dame Cicely Saunders, an English doctor and social worker who’d grown appalled by the “wretched habits of big, busy hospitals where everyone tiptoes past the bed and the dying soon learn to pretend to be asleep.” Her counterpractice, which she refined at a Catholic clinic for the poor in East London, was to treat a dying patient’s “total pain” — his physical suffering, spiritual needs and existential disquiet. In a pilot program, Saunders prescribed terminally ill patients cocktails of morphine, cocaine and alcohol — whiskey, gin or brandy, depending on which they preferred. Early results were striking. Before-and-after photos of cancer patients showed formerly anguished figures knitting scarves and raising toasts.

Saunders’ vision went mainstream in 1969, when the Swiss-born psychiatrist Elisabeth Kübler-Ross published her groundbreaking study, “On Death and Dying.” The subjects in her account were living their final days in a Chicago hospital, and some of them described how lonely and harsh it felt to be in an intensive-care unit, separated from family. Many Americans came away from the book convinced that end-of-life care in hospitals was inhumane. Kübler-Ross and Saunders, like their contemporaries in the women’s-health and deinstitutionalization movements, pushed for greater patient autonomy — in this case, for people to have more control over how they would exit the world. The first American hospice opened in Connecticut in 1974. By 1981, hundreds more hospices had started, and, soon after, President Ronald Reagan recognized the potential federal savings — many people undergo unnecessary, expensive hospitalizations just before they die — and authorized Medicare to cover the cost.

Forty years on, half of all Americans die in hospice care. Most of these deaths take place at home. When done right, the program allows people to experience as little pain as possible and to spend meaningful time with their loved ones. Nurses stop by to manage symptoms. Aides assist with bathing, medications and housekeeping. Social workers help families over bureaucratic hurdles. Clergy offer what comfort they can, and bereavement counselors provide support in the aftermath. This year, I spoke about hospice with more than 150 patients, families, hospice employees, regulators, attorneys, fraud investigators and end-of-life researchers, and all of them praised its vital mission. But many were concerned about how easy money and a lack of regulation had given rise to an industry rife with exploitation. In the decades since Saunders and her followers spread her radical concept across the country, hospice has evolved from a constellation of charities, mostly reliant on volunteers, into a $22 billion juggernaut funded almost entirely by taxpayers.

For-profit providers made up 30% of the field at the start of this century. Today, they represent more than 70%, and between 2011 and 2019, research shows, the number of hospices owned by private-equity firms tripled. The aggregate Medicare margins of for-profit providers are three times that of their nonprofit counterparts. Under the daily-payment structure, a small hospice that bills for just 20 patients at the basic rate can take in more than a million dollars a year. A large hospice billing for thousands of patients can take in hundreds of millions. Those federal payments are distributed in what is essentially an honor system. Although the government occasionally requests more information from billers, it generally trusts that providers will submit accurate claims for payment — a model that critics deride as “pay and chase.”

Jean Stone, who worked for years as a program-integrity senior specialist at the Centers for Medicare and Medicaid Services, said that hospice was a particularly thorny sector to police for three reasons: “No one wants to be seen as limiting an important service”; it’s difficult to retrospectively judge a patient’s eligibility; and “no one wants to talk about the end of life.” Although a quarter of all people in hospice enter it only in their final five daysmost of the Medicare spending on hospice is for patients whose stays exceed six months. In 2018, the Office of Inspector General at the Department of Health and Human Services estimated that inappropriate billing by hospice providers had cost taxpayers “hundreds of millions of dollars.” Stone and others I spoke to believe the figure to be far higher.

Some hospice firms bribe physicians to bring them new patients by offering all-expenses-paid trips to Las Vegas nightclubs, complete with bottle service and private security details. (The former mayor of Rio Bravo, Texas, who was also a doctor, received outright kickbacks.) Other audacious for-profit players enlist family and friends to act as make-believe clients, lure addicts with the promise of free painkillers, dupe people into the program by claiming that it’s free home health care or steal personal information to enroll “phantom patients.” A 29-year-old pregnant woman learned that she’d been enrolled in Revelation Hospice, in the Mississippi Delta (which at one time discharged 93% of its patients alive), only when she visited her doctor for a blood test. In Frisco, Texas, according to the FBI, a hospice owner tried to evade the Medicare-repayment problem by instructing staff to overdose patients who were staying on the service too long. He texted a nurse about one patient: “He better not make it tomorrow. Or I will blame u.” The owner was sentenced to more than 13 years in prison for fraud, in a plea deal that made no allegations about patient deaths.

A medical background is not required to enter the business. I’ve come across hospices owned by accountants; vacation-rental superhosts; a criminal-defense attorney who represented a hospice employee convicted of fraud and was later investigated for hospice fraud himself; and a man convicted of drug distribution who went on to fraudulently bill Medicare more than $5 million for an end-of-life-care business that involved handling large quantities of narcotics.

Once a hospice is up and running, oversight is scarce. Regulations require surveyors to inspect hospice operations once every three years, even though complaints about quality of care are widespread. A government review of inspection reports from 2012 to 2016 found that the majority of all hospices had serious deficiencies, such as failures to train staff, manage pain and treat bedsores. Still, regulators rarely punish bad actors. Between 2014 and 2017, according to the Government Accountability Office, only 19 of the more than 4,000 U.S. hospices were cut off from Medicare funding.

Because patients who enroll in the service forgo curative care, hospice may harm patients who aren’t actually dying. Sandy Morales, who until recently was a case manager at the California Senior Medicare Patrol hotline, told me about a cancer patient who’d lost access to his chemotherapy treatment after being put in hospice without his knowledge. Other unwitting recruits were denied kidney dialysis, mammograms, coverage for lifesaving medications or a place on the waiting list for a liver transplant. In response to concerns from families, Morales and her community partners recently posted warnings in Spanish and English in senior apartment buildings, libraries and doughnut shops across the state. “Have you suddenly lost access to your doctor?” the notices read. “Can’t get your medications at the pharmacy? Beware! You may have been tricked into signing up for a program that is medically unnecessary for you.”

Some providers capitalize on the fact that most hospice care takes place behind closed doors, and that those who might protest poor treatment are often too sick or stressed to do so. One way of increasing company returns is to ghost the dying. A 2016 study in JAMA Internal Medicine of more than 600,000 patients found that 12% received no visits from hospice workers in the last two days of life. (Patients who died on a Sunday had some of the worst luck.) For-profit hospices have been found to have higher rates of no-shows and substantiated complaints than their nonprofit counterparts, and to disproportionately discharge patients alive when they approach Medicare’s reimbursement limit.

“There are so many ways to do fraud, so why pick this one?” Stone said. This was more or less what Marsha Farmer and Dawn Richardson had been wondering when they filed their complaint against AseraCare in 2009. Now, working undercover, they imagined themselves as part of the solution.

In the absence of guardrails, whistleblowers like Farmer and Richardson have become the government’s primary defense against hospice wrongdoing — an arrangement that James Barger, their lawyer, describes as placing “a ludicrous amount of optimism in a system with a capitalist payee and a socialist payer.” Seven out of 10 of the largest hospices in the U.S. have been sued at least once by former employees under the federal False Claims Act. The law includes a “qui tam” provision — the term derives from a Latin phrase that translates as “he who sues on behalf of the King as well as himself ” — that deputizes private citizens to bring lawsuits that accuse government contractors of fraud and lets them share in any money recovered. Qui-tam complaints, like Farmer and Richardson’s, are initially filed secretly, under seal, to give the Justice Department a chance to investigate a target without exposing the tipster. If the government decides to proceed, it takes over the litigation. In 2021 alone, the government recovered more than $1.6 billion from qui-tam lawsuits, and the total amount awarded to whistleblowers was $237 million.

In the two years after Farmer and Richardson filed their complaint, both slept poorly. But their covert undertaking also felt cathartic — mental indemnification against a job that troubled their consciences. Farmer continued to bring in patients at AseraCare while passing company documents to Barger, including spreadsheets analyzing admissions quotas and a training PowerPoint used by the company’s national medical adviser, Dr. James Avery. A pulmonologist who was fond of citing Seneca, Tolstoy and Primo Levi in his slides, Avery urged nurses to “be a detective” and to “look for clues” if a patient didn’t initially appear to fit a common hospice diagnosis. (Avery said that he never encouraged employees to admit ineligible patients.) He sometimes concluded his lectures with a spin on an idea from Goethe’s “Faust”: “Perpetual striving that has no goal but only progress or increase is a horror.”

Barger was impressed by the records that Farmer collected and even more so by her candor about her involvement in AseraCare’s schemes. She and Richardson reminded him of friends he’d had growing up: smart, always finishing each other’s sentences and not, he said, “trying to be heroes.” Nor, as it turned out, were they the only AseraCare employees raising questions about company ethics. The year before, three nurses in the Milwaukee office had filed a qui-tam complaint outlining similar corporate practices. The False Claims Act has a “first to file” rule, so the Wisconsin nurses could have tried to block Farmer and Richardson from proceeding with their case. Instead, the nurses decided to team up with their Alabama colleagues, even if it meant that they’d each receive a smaller share of the potential recovery. Also joining the crew was Dr. Joseph Micca, a former medical director at an AseraCare hospice in Atlanta. Every hospice is required to hire or contract with a doctor to sign forms certifying a patient’s eligibility for the program, and Micca accused the company of both ineligible enrollments and lapses in patient care. In his deposition, he described one patient who was given morphine against his orders and was kept in hospice care for months after she’d recovered from a heart attack. The woman, who was eventually discharged, lived several more years.

Among the most critical pieces of evidence to emerge in the discovery process was an audit that echoed many of the allegations made by the whistleblowers. In 2007 and 2008, AseraCare had hired the Corridor Group, a consulting firm, to visit nine of its agencies across the country, including the Monroeville office that Farmer oversaw. The Corridor auditors observed a “lack of focus” on patient care and “little discussion of eligibility” at regular patient-certification meetings. Clinical staff were undertrained, with a “high potential for care delivery failures,” and appeared reluctant to discharge inappropriate patients out of fear of being fired. Emails showed that the problems raised by the audit were much discussed among AseraCare’s top leadership, including its vice president of clinical operations, Angie Hollis-Sells.

One morning in the spring of 2011, Hollis-Sells strode into the old bank building that housed the Monroeville office, her expression uncommonly stern. Farmer knew at once that her role in the case had been exposed. She was sent home on paid leave, and that evening half a dozen colleagues showed up at her clapboard house in the center of town. Some felt betrayed. Their manager had kept from them a secret that might upend their livelihoods; worse, her accusations seemed to condemn them for work she’d asked them to do. But shortly afterward, when Farmer took a job as the executive director of a new hospice company in Monroeville, Richardson and several other former co-workers joined her.

Less than a year later, the Justice Department, after conducting its own investigation, intervened in the whistleblowers’ complaint, eventually seeking from AseraCare a record $200 million in fines and damages. As Barger informed his clients, the company was likely to settle. Most False Claims Act cases never reach a jury, in part because trials can cost more than fines and carry with them the threat of exclusion from the Medicare program — an outcome tantamount to bankruptcy for many medical providers. In 2014, Farmer traveled to Birmingham for her deposition, imagining that the case would soon end. But, in the first of a series of unexpected events, AseraCare decided to fight.

United States v. AseraCare, which began on Aug. 10, 2015, in a federal courthouse in Birmingham, was one of the most bizarre trials in the history of the False Claims Act. To build its case against AseraCare, the government had identified some 2,100 of the company’s patients who had been in hospice for at least a year between 2007 and 2011. From that pool, a palliative care expert, Dr. Solomon Liao, of the University of California, Irvine, reviewed the records of a random sample of 233 patients. He found that around half of the patients in the sample were ineligible for some or all of the hospice care they’d received. He also concluded that ineligible AseraCare patients who had treatable or reversible issues at the root of their decline were unable to get the care they needed, and that being in hospice “worsened or impeded the opportunity to improve their quality of life.”

Before the trial started, the judge in the case, Karon O. Bowdre, disclosed that she’d had good experiences with hospice. Her mother, who had an ALS diagnosis, had spent a year and a half on the service, and her father-in-law had died in hospice shortly before the trial. Principals in the case disagree about whether she disclosed that the firm handling AseraCare’s defense, Bradley Arant, had just hired her son as a summer associate.

The defense team had petitioned Bowdre to separate the proceedings into two parts: the first phase limited to evidence about the “falsity” of the 123 claims in question, and the second part examining, among other things, the company’s “knowledge of falsity.” The Justice Department objected to this “arbitrary hurdle,” arguing that the purpose of the False Claims Act was to combat intentional fraud, not accidental mistakes. “The fact that AseraCare knowingly carried out a scheme to submit false claims is highly relevant evidence that the claims were, in fact, false,” the government wrote. Nonetheless, in an unprecedented legal move, Bowdre granted AseraCare’s request.

Trial lawyers are expected to squabble over the relevance of the opposing party’s evidence — and, in the private sector, they are compensated handsomely for doing so. But the government lawyers seemed genuinely confused about what the judge would and wouldn’t allow into the courtroom during the trial’s “falsity” phase. In long sidebar discussions, during which jurors languished and white noise was piped in through the speakers, Bowdre berated the prosecution for its efforts to “poison the well” with “all this extraneous stuff that the government wants to stir up to play on the emotions of the jury.” Much of her vexation was directed at Jeffrey Wertkin, one of the Justice Department’s top picks for difficult fraud assignments. A prosecutor in his late 30s, he had a harried, caffeinated air about him and had helped bring about settlements in more than a dozen cases. This was only his second trial, however, and Bowdre was reprimanding him like a schoolboy. “It made me sick to watch her treatment of him,” Henry Frohsin, one of Barger’s partners, recalled. “At some point, I couldn’t watch it, so I just got up and left.”

The judge’s prohibition on “knowledge” during the trial’s first phase constrained testimony in sometimes puzzling ways. Richardson, for instance, could talk about admitting patients, but she couldn’t allude to the pressure she was under to do so. The audit by the Corridor Group that corroborated whistleblower claims was forbidden because it wasn’t directly tied to the specific patients in the government’s sample. Micca, the former medical director from Atlanta, was not allowed to testify for the same reason. Nonetheless, over several days, the government’s witnesses managed to paint a picture of AseraCare’s cavalier attitude toward patient eligibility. Its medical directors were part time, as is common in the industry, and workers testified that they’d presented these doctors with misleading patient records to secure admissions. One said that a director had pre-signed blank admissions forms. “Ask yourself: How could a doctor be exercising their clinical judgment,” Wertkin told the jury at one point, “if he’s signing a blank form?”

When Farmer took the stand, Wertkin asked if she was nervous. “A lot nervous today,” she replied. She thought the jurors might judge her for trolling for wheelchair ramps or other recruitment tactics. She needn’t have worried. Bowdre’s restrictions prevented Farmer from testifying about much of anything. “I felt like the judge did not want to know the truth,” she said. “The whole time that I was on the stand, I kept thinking, Why would you not listen to the story?”

The bulk of phase one was dominated by doctors: Liao, the government’s expert, read selections from thousands of pages of medical files to explain why he’d concluded that patients were ineligible, and AseraCare’s medical experts took the stand and disagreed with most of his conclusions. However, the crux of AseraCare’s defense was that the entire debate about eligibility was essentially moot because, although death is certain, its timing is not. A medical director who signed a hospice certification form would have had no way of anticipating whether a patient’s illness would deviate from the expected trajectory of decline. Even Medicare, the defense team emphasized, has noted that predicting life expectancy is “not an exact science.”

After nearly two months of testimony, the jurors deliberated for nine days on phase one. On Oct. 15, 2015, they found 86% of the patient sample ineligible for some period of hospice care. Elated, Barger rushed out of the courtroom to call Farmer and tell her that the jury had come back overwhelmingly in the government’s favor. The next part of the trial will be icing on the cake, she remembers thinking.

The next part never happened. A few days later, Bowdre made a startling announcement: She had messed up. The instructions that she’d given the jury had been incomplete, she said, and because of this “major reversible error” she was overturning the jury’s findings and granting a request by AseraCare for a new trial. She invited the government to submit evidence other than Liao’s opinion to prove that the claims were false; the government replied that the record presented ample evidence of falsity. Five months later, in March 2016, Bowdre granted summary judgment to AseraCare.

It’s unusual for a judge to overturn a jury’s findings, order a new trial and then declare summary judgment on her own accord, Zack Buck, a legal scholar at the University of Tennessee who studies health care fraud, told me. The case, he said, “just kept getting weirder.” Wertkin, who had expected to return to Washington, D.C., with that rare article — a jury verdict in a False Claims Act case — later said he felt as though the “rug had been ripped out from under me.”

In a widely circulated opinion, Bowdre wrote that clinical disagreement among doctors was not enough on its own to render a claim false. Otherwise, hospice providers would be subject to liability “any time the Government could find a medical expert who disagreed” with their physician, and “the court refuses to go down that road.” The Justice Department appealed Bowdre’s ruling, but many in the hospice industry celebrated the opinion. “There are huge implications,” Buck said. “So much of our system is based on a doctor’s discretion, and if you can’t say the doctor is wrong you’ve really hamstrung the government’s ability to bring these kinds of cases.” In op-eds and on the lecture circuit, defense lawyers for health care companies hailed the beginning of a post-AseraCare era.

That year, Dr. Scott Nelson, a family practitioner in Cleveland, Mississippi, was wrapping up a lucrative tour of duty in the hospice trade. Since 2005, Nelson had referred approximately 763 patients to 25 hospices, 14 of which employed him as the medical director, according to a special agent in the Department of Health and Human Services’ Office of Inspector General. Some of Nelson’s patients, however, didn’t know that they were dying and a decade or more later remained stubbornly alive.

In the course of roughly six years, by the doctor’s own account, he received around $400,000 for moonlighting as the medical director at eight of the companies. Meanwhile, those hospice owners, some of whom were related to one another, received a total of more than $15 million from Medicare for the patients he’d certified. In a scheme that the special agent, Mike Loggins, later testified was spreading across the Mississippi Delta “like cancer,” hospices bused in vans of people to Nelson’s clinic. The owner of Word of Deliverance Hospice — one small-town provider that briefly put Nelson on its payroll — bought a $300,000 Rolls-Royce that was later confiscated by the government. Nelson, who was convicted earlier this year of seven counts of health care fraud, told me that he’d fallen victim to greedy hospice entrepreneurs who had done hundreds of “third-grader-level forgeries” of his signature when racking up illegal enrollments, and that he’d assumed other forms he’d signed were truthful. Nelson awaits sentencing and has filed a motion challenging the verdict.

The Mississippi Delta has an acute shortage of primary-care providers — a problem that contributes to the region’s poor health outcomes. When I visited some of the fraud victims in the case, all of whom were Black, they told me that the experience of being duped had deepened their mistrust of a health care system that already seemed out of reach. Some of the patients Nelson had approved for hospice were in their 40s and 50s. One had cognitive disabilities, and another couldn’t read. Marjorie and Jimmie Brown, former high school sweethearts in their 70s, found out that they had been enrolled in Lion Hospice only in 2017, when Loggins knocked on the front door of their yellow brick bungalow. A worker for Lion had tricked the Browns into trading away their right to curative care, and Nelson — whom they’d never heard of, let alone seen — was one of two doctors whose names were on the paperwork.

Losing access to care is hardly the only thing that can go wrong for patients inappropriately assigned to hospice. In May 2016, Lyman Marble found his wife, Patricia, unresponsive and lying face down in their bed. At a hospital near their home in Whitman, Massachusetts, doctors were shocked by the high doses of opiates she’d been prescribed. An addiction specialist later observed that she was ingesting the equivalent of dozens of Percocet pills a day. Only after Lyman told the doctors to “flush her out like Elvis” did her family come to suspect that her health crisis was caused by hospice care itself.

The Marbles, who had been married for more than 50 years, worked together in a variety of jobs, among them operating an outer-space-themed carnival ride. Five years earlier, Patricia had been admitted to a hospice owned by Amedisys, the third-largest provider in the country. The diagnosis was end-stage chronic obstructive pulmonary disease.

She was 70 years old and had health troubles: She used a wheelchair and supplemental oxygen, and had diabetes, hypertension and a benign tumor that caused her pain. That pain had been treated by a fentanyl patch, but once she was in hospice the medical director, Dr. Peter Roos, prescribed morphine, Vicodin, Ativan and gabapentin, too. Over the next five years, he kept prescribing narcotics, recertifying her for hospice 30 times. (Roos, who said in a deposition that he prescribed morphine to ease Marble’s respiratory distress, did not respond to requests for comment.) Court documents later revealed that cash bonuses were a reward for good enrollment numbers at that branch of Amedisys, and that nurses had resigned after being pressured to admit and recertify patients who they didn’t think were dying.

While under the care of Amedisys, Patricia sometimes couldn’t remember who or where she was. “I felt like I was dead,” she later said. “It just made me feel like ‘That’s right, I’m in the right place because I’m going to die.’” But after Lyman learned that he could “fire hospice,” as he put it, and Patricia was slowly weaned from narcotics, her memory began to return and her breathing improved. Lyman, who had thought that he might lose his wife at any moment (at one point, Amedisys had asked if he was making funeral arrangements), was stunned by her transformation. Today, more than a decade after first enrolling in hospice, Patricia remains opioid-free and has described her lost years as like being on “the moon or someplace.” For that misadventure, the company billed Medicare almost half a million dollars. Last year, Amedisys settled a suit brought by the Marbles for $7.75 million. The company declined to comment, stating that the settlement was confidential.

Because pinpointing what constitutes a “good death” is nearly as difficult as determining what makes a good life, families may not always realize when hospice is failing them — even when they work in the industry. In November 2014, Carl Evans, a 77-year-old former janitor from Orange County, took a fall and, when hospitalized, was tentatively diagnosed as having end-stage thymus cancer. Soon after, he was discharged to a nursing home and enrolled in a hospice run by Vitas, one of the largest providers of end-of-life care in the United States. Andrea Crawford, one of his daughters, was a hospice nurse and had worked for the company early in her career. When she visited her father in his private room, which had a sofa and a flat-screen TV, he told her that he was being treated “like a king.”

Evans had been living independently, with his longtime girlfriend, before his fall. And, unlike many hospice patients, he remained mobile and gregarious, with a big appetite much noted in his charts. Early in the morning of Nov. 22, in search of a non-institutional meal, he climbed out a window and got on a bus to his girlfriend’s house. (His preferred ride, a lovingly maintained burgundy Trans Am, was unavailable.) A family friend eventually located him, 30 miles away.

On Evans’ return, Dr. Thomas Bui, a medical director at Vitas, placed an urgent order for him to receive phenobarbital, a barbiturate that is sometimes prescribed for agitation and can cause extreme drowsiness. A few days later, Vitas records show, Bui added Keppra, an anti-seizure medication that also has sedative properties, to the mix. Evans had no known history of seizures, and Crawford later suspected that the two drugs had been prescribed to subdue him for the convenience of the staff. After the addition of Keppra, his chart shows, Evans became wobbly on his feet and then so lethargic that he couldn’t get out of bed — though he remained alert enough to be terrified at his sudden decline. Crawford, concerned, attributed the change to the drugs he was taking, as did a Vitas employee, according to medical records. On Dec. 6, Evans died.

The official cause of death was cancer (hospice patients are not typically given autopsies), but Evans’ family filed a suit against Vitas and Bui. The lawsuit was settled, and Vitas denies allegations of wrongdoing. Bui, who said in a deposition that he medicated Evans to soothe his agitation, didn’t respond to requests for comment. The California medical board disciplined him for his handling of the case. He was placed on a three-year probation, during which he was prohibited from practicing alone, and was ordered to take a course on safe prescribing.

Malpractice cases against hospices are rare. As Reza Sobati, an elder-abuse lawyer who represented Evans’ family, told me: “The defense we often get in a nursing home case is that they were going to die anyway from their issues. That’s even harder to overcome with hospice, since a doctor has literally certified it will happen.”

Afterward, as Crawford reviewed medical charts and tried to understand what had happened to her father, she came across some notes that surprised her. When Evans entered hospice, Vitas had certified him for a heightened level of care intended for patients with uncontrolled pain or severe and demanding symptoms, which Evans didn’t have. As a hospice nurse, Crawford knew that such coding allowed Vitas to bill Medicare more — roughly four times more — per day than the rate for a routine patient. (Vitas denies inappropriate billing.)

In 2016, not long after Judge Bowdre dismissed the AseraCare case, someone began to anonymously contact companies that were the subjects of sealed qui-tam complaints. Those sealed complaints named the whistleblowers and the details of their accusations — information that the accused companies could use to get ahead of government investigators and their subpoenas or possibly to intimidate informers into silence. When a general counsel at a tech firm returned the mysterious voicemail, the insider, who called himself Dan, offered to share a complaint that named the company in exchange for a “consulting fee” of $300,000, preferably paid in bitcoin.

The lawyer alerted the FBI and began recording his conversations with Dan, including one arranging the handoff of the documents in Silicon Valley. On the morning of Jan. 31, 2017, Dan texted an FBI agent posing as one of the tech company’s employees the address of a hotel in Cupertino and instructed him to sit in the lobby on “a chair with a newspaper on it” just past “the water station.” Moments after the undercover agent sat down, Dan approached him with a copy of the complaint and was arrested. It turned out that Dan, who the FBI said was disguised in a wig, was the former government prosecutor Jeffrey Wertkin.

By then, Wertkin had left the Department of Justice to become a partner at the elite law firm Akin Gump, a job that paid $450,000 a year. His bio on the company’s website noted that, after leading more than 20 fraud cases, he had “first-hand knowledge of the legal and practical considerations that shape government investigations.” As part of a plot that his former Justice Department colleagues termed “the most serious and egregious example of public corruption by a DOJ attorney in recent memory,” Wertkin had, on his way out the door, taken at least 40 sealed qui-tam complaints belonging to the Civil Fraud Section.

He later ascribed his short-lived criminal spree, which his defense team compared to “a scene out of a B-grade action movie,” to what had occurred in Judge Bowdre’s courtroom. Wertkin’s wife said in a letter to the court that he had returned home from the AseraCare trial a “shell of a man” who drank heavily and spent several days watching movies on his phone in bed. Wertkin, who pleaded guilty in 2017 and was sentenced to two and a half years in prison, wrote in a statement that the government’s reversal of fortune in the case had led him “to question things I never doubted before. Does the system even work?” At his sentencing hearing, a prosecutor argued that the False Claims Act itself was one of Wertkin’s victims. “The False Claims Act is incapable of deterring fraud if the Department of Justice can’t be trusted by whistleblowers,” she said. “We have no way of measuring what chilling impact there might be on whistleblowers based on what the defendant did in compromising their secrecy.”

On Sept. 9, 2019, the False Claims Act took a second hit when the U.S. Court of Appeals for the Eleventh Circuit published a long-anticipated ruling on the AseraCare case. The judges concurred with Bowdre that the government needed more than the testimony of an outside expert to prove a claim was false. However, they vacated Bowdre’s summary judgment, saying that the prosecution should have been able to present all its evidence, including AseraCare’s alleged “knowledge of falsity,” and sent the case back to her courtroom for a retrial. “When the goalpost gets moved in the final seconds of a game,” the judges wrote, “the team with the ball should, at the least, have one more opportunity to punch it into the endzone.”

The government did not appear enthusiastic about trying the AseraCare case for a second time before Bowdre, though. Wertkin had been disbarred and was serving his sentence, and some of his former colleagues had left for the private sector. In February, 2020, 11 years after Farmer and Richardson filed their complaint, the government reached a settlement with AseraCare for a million dollars. As in most such settlements, AseraCare paid the sum, admitted no wrongdoing and was allowed to keep billing Medicare. Jack Selden, a partner at Bradley Arant who worked on the defense team, told the trade journal Law360, “When a case settles for $1 million where the claims have been for over $200 million, I think that speaks for itself.”

From a certain point of view, Wertkin’s attempts to shake down government contractors made manifest the transactional logic that governs the False Claims Act. Even to some of their biggest beneficiaries, these qui-tam settlements have come to resemble a mutual-protection racket: Executives keep their jobs and their companies keep billing Medicare; whistleblowers and their lawyers get a cut; and Justice Department attorneys can cash in on their tough-on-fraud reputations by heading to white-shoe law firms to defend the companies they once prosecuted.

In 2020, not long after AseraCare settled with the government, the company was bought for $235 million by Amedisys, which was facing qui-tam troubles of its own. A nurse from an Amedisys office in South Carolina had filed a lawsuit accusing the corporation of admitting ineligible patients, falsifying paperwork and handing out bonuses to staff to entice new recruits. (Amedisys denies the allegations.) This time, the government has declined to join the nurse’s case.

Earlier this year, when I visited Farmer at her home in Alabama, boxes were piled in the living room. She was preparing for an upcoming move to Missouri, where her husband had taken a job with a nonprofit hospice and home health company. Farmer had remained close with Richardson, who told me: “I have a whole different view of justice in America now. It’s definitely powered by the dollar bill.” But the women no longer talked about the trial. “Nobody really cared,” Farmer said. “The government didn’t care, the judge didn’t care, and all of these people’s money was wasted.” Sitting in a plush reclining chair, Farmer let out a short, sharp cough as she spoke. In December, she had been diagnosed as having an aggressive form of breast cancer, and the chemotherapy had left her vulnerable to lingering infections.

The hospice benefit imposes a dichotomy between caring for the living and caring for the dying, when, in truth, the categories are often indistinguishable. Most older people will face a chronic disability or a disease in the last years of their life and will need extra care to remain safely at home. That help is rarely available, and Americans often end up in a social-welfare purgatory, forced to spend down their savings to become eligible for a government-funded aide or a nursing home bed. “We all think it’s not going to affect us, but if you have a stroke and go bankrupt you’re not just going to go out and shoot yourself in the desert,” Dr. Joanne Lynn, an elder-care advocate and a former medical officer at the Centers for Medicare and Medicaid Services, told me. Once you cross over into the kingdom of the sick, she said, it’s easier to see that some problems classified as hospice fraud are really problems of the inadequate long-term-care system in this country.

In the 1970s, Lynn worked at one of the first hospices in the United States. At the time, most of the patients had cancer and died within weeks; the six-month guidance was originally designed around their needs. Today, the majority of hospice patients have chronic illnesses, including heart disease and dementia. And some of them — regardless of whether they have six months or six years to live — depend on hospice for in-home support and holistic services that would otherwise be unavailable. Yet under the current system, as the number of patients with ambiguous prognoses rises, providers (including ethical ones) are under financial pressure to abandon those who don’t die quickly enough. It’s a typically American failure of imagination that people with dire but unpredictable declines are all but left for dead.

Elisabeth Kübler-Ross thought she understood why societies isolate the old and the dying: They remind the rest of us of our own mortality. This aversion might partly explain why decades of warnings about hospice care — including a full quarter century of pointed alerts from the inspector general’s office at the Department of Health and Human Services — have gone largely unheeded. Recently, though, some of the reports were so disturbing (maggots circling feeding tubes, crater-like bedsores) that members of Congress have called for reforms, and the Centers for Medicare and Medicaid Services is enacting a few. The agency has just begun making available to the public a greater range of data on hospice providers, including the average number of visits that nurses and social workers make in the last days of a person’s life. More significantly, the agency now has the power to impose fines on problem providers, should it choose to use it. (Previously, the agency’s only consequential penalty for bad hospices was to boot them from the Medicare program, an option it seldom exercised.)

Some state lawmakers, too, are asking deeper questions about end-of-life care. This year, in the wake of a Los Angeles Times investigation, California placed a moratorium on new hospices, and state auditors raised alarms about a raft of tiny new hospices, some with fictional patients and medical staff, that were engaged in “a large-scale, targeted effort to defraud Medicare.” In Los Angeles County alone, there are more than a thousand hospices, 99% of them for-profit. By comparison, Florida, which, unlike California, requires new providers to prove a need for their services, has 51 hospices.

But when regulators close a door they sometimes open a window. Licensing data I’ve reviewed suggests that, as scrutiny of end-of-life-care providers intensified in California, the hospice boom traveled eastward. In Clark County, which contains Las Vegas, the number of new hospices has more than doubled in the past two years, and in Harris County, which encompasses Houston, the number has grown almost as quickly. Sheila Clark, the president of the California Hospice and Palliative Care Association, attributed some of the surge in new licenses to a scheme called “churn and burn.”

“Providers open up a hospice and bill, bill, bill,” she said. Once that hospice is audited or reaches the Medicare-reimbursement limit, it shuts down, keeps the money, buys a pristine license that comes with a new Medicare billing number, transfers its patients over and rakes in the dollars again. The directors of two nonprofit hospices in the Southwest told me that they had been accepting patients who were fleeing such new providers. Some patients switched because while they were with the startup hospices they hadn’t seen a nurse in two weeks, and no one was answering the phone.

On a rainy morning in November, I found myself in a vast, sand-colored commercial plaza on the outskirts of Phoenix. The complex was designed in the style of a Spanish hacienda, with a central courtyard, a stone fountain and a stately bell tower. Maricopa County was another place where the number of hospices had doubled in two years; 33 new ones, licensing data indicated, had appeared at this single address. There was no building directory, but eventually I realized that most of the hospices were clustered together on the basement level. All the hospices listed the same phone number for inspectors to call, and some had taped the same apology to their door: “Sorry we missed you! We’ll be back in 45 mins, if you need immediate assistance pls call us.” Each time I called the listed number, I got an answering machine whose mailbox was full.

When I buzzed the Ring video doorbell of B-116, which housed at least nine hospices, I was told by the man who answered that the manager was currently on the other side of the building. When I walked to the other side and rang B-117, the same man picked up. Sensing my confusion, he said, “I’m just the voice at the door.” His name was Ted Garcia, and he had been hired to monitor the hospices from his laptop at home. I told him that I was searching for a registered nurse named Svetik Harutyunyan, who was listed as the CEO of multiple hospices in the neighborhood, among them Ruby, Sapphire and Garnet, which were within the complex, as well as Platinum, Bright Star and First Light, down the road. I told Garcia that I particularly wanted to ask Harutyunyan about Ruby Hospice, which I’d seen listed for sale in an online ad for a quarter of a million dollars.

The day before, I’d searched for her at a squat building in Los Angeles that had drawn auditors’ attention. That address holds, according to state records, 129 hospices — a tenth of the city’s supply. When I knocked on the door of a hospice that the licensing data had linked to Harutyunyan, a worker told me that no one by that name was involved. Later, when Harutyunyan and I spoke by phone, she acknowledged owning hospices in California and Arizona and said that the arrangement was legal. She had wanted every member of her family to have one, she said.

Garcia told me through the doorbell that, as far as he understood, the hospices he monitored weren’t seeing actual patients; instead, the offices were a kind of “holding pen” to keep the licenses viable with requisite physical addresses until demand could be drummed up. The remote work was dull, he allowed. Apart from inspectors occasionally stopping by and transient people defecating outside the doors at night, my visit was the most action he’d seen in months. As the rain let up and I sat in the deserted courtyard trying to decide which of Harutyunyan’s holdings to visit next, it occurred to me that this world of paper hospices — empty of patients, valued at six figures, watched over by virtual guards — might be the clearest expression of the industry’s untamed frontier that I was going to encounter.

Later that afternoon, Garcia told me that he’d begun to research whether he could open a hospice himself. The market was bigger and more lucrative than he’d realized. People in Montana and Texas and Tennessee, he said, were posting ads online for “turnkey-ready hospices” for as much as half a million dollars. He called an ex-cop he knew to see if he wanted in. “We can turn a profit and split it,” he said.

How banks and hospitals are cashing in when patients can’t pay for health care

https://www.npr.org/sections/health-shots/2022/11/17/1136201685/medical-debt-high-interest-credit-cards-hospitals-profit

Patients at North Carolina-based Atrium Health get what looks like an enticing pitch when they go to the nonprofit hospital system’s website: a payment plan from lender AccessOne. The plans offer “easy ways to make monthly payments” on medical bills, the website says. You don’t need good credit to get a loan. Everyone is approved. Nothing is reported to credit agencies.

In Minnesota, Allina Health encourages its patients to sign up for an account with MedCredit Financial Services to “consolidate your health expenses.” In Southern California, Chino Valley Medical Center, part of the Prime Healthcare chain, touts “promotional financing options with the CareCredit credit card to help you get the care you need, when you need it.”

As Americans are overwhelmed with medical bills, patient financing is now a multibillion-dollar business, with private equity and big banks lined up to cash in when patients and their families can’t pay for care. By one estimate from research firm IBISWorld, profit margins top 29% in the patient financing industry, seven times what is considered a solid hospital margin.

Hospitals and other providers, which historically put their patients in interest-free payment plans, have welcomed the financing, signing contracts with lenders and enrolling patients in financing plans with rosy promises about convenient bills and easy payments.

For patients, the payment plans often mean something more ominous: yet more debt.

Millions of people are paying interest on these plans, on top of what they owe for medical or dental care, an investigation by KHN and NPR shows. Even with lower rates than a traditional credit card, the interest can add hundreds, even thousands of dollars to medical bills and ratchet up financial strains when patients are most vulnerable.

Robin Milcowitz, a Florida woman who found herself enrolled in an AccessOne loan at a Tampa hospital in 2018 after having a hysterectomy for ovarian cancer, said she was appalled by the financing arrangements.

“Hospitals have found yet another way to monetize our illnesses and our need for medical help,” said Milcowitz, a graphic designer. She was charged 11.5% interest — almost three times what she paid for a separate bank loan. “It’s immoral,” she said.

MedCredit’s loans to Allina patients come with 8% interest. Patients enrolled in a CareCredit card from Synchrony, the nation’s leading medical lender, face a nearly 27% interest rate if they fail to pay off their loan during a zero-interest promotional period. The high rate hits about 1 in 5 borrowers, according to the company.

For many patients, financing arrangements can be confusing, resulting in missed payments or higher interest rates than they anticipated. The loans can also deepen inequalities. Lower-income patients without the means to make large monthly payments can face higher interest rates, while wealthier patients able to shoulder bigger monthly bills can secure lower rates.

More fundamentally, pushing people into loans that threaten their financial health runs against medical providers’ first obligation to not harm their patients, said patient advocate Mark Rukavina, program director at the nonprofit Community Catalyst.

“We’re dealing with sick people, scared people, vulnerable people,” Rukavina said. “Dangling a financial services product in front of them when they’re concerned about their care doesn’t seem appropriate.”

Debt upon debt for patients, as finance firms get a cut of payments

Nationwide, about 50 million people — or 1 in 5 adults — are on a financing plan to pay off a medical or dental bill, according to a KFF poll conducted for this project. About a quarter of those borrowers are paying interest, the poll found.

Increasingly, those interest payments are going to financing companies that promise hospitals they will collect more of their medical bills in exchange for a cut.

Hospital officials defend these arrangements, citing the need to offset the cost of offering financing options to patients. Alan Wolf, a spokesperson for the University of North Carolina’s hospital system, said that the system, which reported $5.8 billion in patient revenue last year, had a “responsibility to remain financially stable to assure we can provide care to all regardless of ability to pay.” UNC Health, as it is known, has contracted since 2019 with AccessOne, a private equity-backed company that finances loans for scores of hospital systems across the country.

This partnership has had a substantial impact on patient debt, according to a KHN analysis of billing and contracting records obtained through public records requests.

Most patients in 2019 were in no-interest payment plans

UNC Health, which as a public university system touts its commitment “to serve the people of North Carolina,” had long offered payment plans without interest. And when AccessOne took over the loans in September 2019, most patients were in no-interest plans.

That has steadily shifted as new patients enrolled in one of AccessOne’s plans, several of which have variable interest rates that now charge 13%.

In February 2020, records show, just 9% of UNC patients in an AccessOne plan were in a loan with the highest interest rate. Two years later, 46% were in such a plan. Overall, at any given time more than 100,000 UNC Health patients finance through AccessOne.

The interest can pile on debt. Someone with a $7,000 hospital bill, for example, who enrolls in a five-year financing plan at 13% interest will pay at least $2,500 more to settle that debt.

How a short-term solution ‘leads to longer-term problems’

Rukavina, the patient advocate, said adding this burden on patients makes little sense when medical debt is already creating so much hardship. “It may seem like a short-term solution, but it leads to longer-term problems,” he said. Health care debt has forced millions of Americans to cut back on food, give up their homes, and make other sacrifices, KHN found.

UNC Health disavowed responsibility for the additional debt, saying patients signed up for the higher-interest loans. “Any payment plans above zero-interest terms/conditions in place with AccessOne are in place at the request of the patient,” Wolf said in an email. UNC Health would only provide answers to written questions.

UNC Health’s patients aren’t the only ones getting routed into financing plans that require substantial interest payments.

At Atrium Health, a nonprofit system with roots as Charlotte’s public hospital that reported more than $7.5 billion in revenues last year, as many as half of patients enrolled in an AccessOne loan were in one of the company’s highest-interest plans, according to 2021 billing records analyzed by KHN.

At AU Health, Georgia’s main public university hospital system, billing records obtained by KHN show that two-thirds of patients on an AccessOne plan were paying the highest interest rate as of January.

A finance firm calls such loans ’empathetic patient financing’

AccessOne chief executive Mark Spinner, who in an interview called his firm a “compassionate, empathetic patient financing company,” said the range of interest rates gives patients and medical systems valuable options. “By offering AccessOne, you’re creating a much safer, more mission-aligned way for consumers to pay and help them stay out of medical debt,” he said. “It’s an alternative to lawsuits, legal action, and things like that.”

AccessOne, which doesn’t buy patient debt from hospitals, doesn’t run credit checks on patients to qualify them for loans. Nor will the company report patients who default to credit bureaus. The company also frequently markets the availability of zero-interest loans.

Some patients do qualify for no-interest plans, particularly if they have very low incomes. But the loans aren’t always as generous as company and hospital officials say.

AccessOne borrowers who miss payments can have their accounts returned to the hospital, which can sue them, report them to credit bureaus, or subject them to other collection actions. UNC Health refers unpaid bills to the state revenue department, which can garnish patients’ tax refunds. Atrium’s collections policy allows the hospital system to sue patients.

Because AccessOne borrowers can get low interest rates by making larger monthly payments, this financing system can also deepen inequalities. Someone who can pay $292 a month on a $7,000 hospital bill, for example, could qualify for a two-year, interest-free plan. But a patient who can pay only $159 a month would have to take a five-year plan with 13% interest, according to AccessOne.

“I see wealthier families benefiting,” said one former AccessOne employee, who asked not to be identified because she still works in the financing industry. “Lower-income families that have hardship are likely to end up with a higher overall balance due to the interest.”

Andy Talford, who oversees patient financial services at Moffitt Cancer Center in Tampa, said the hospital contracted with AccessOne to make it easier for patients to manage their medical bills. “Someone out there is helping them keep track of it,” he said.

But patients can get tripped up by the complexities of managing these plans, consumer advocates say. That’s what happened to Milcowitz, the graphic designer in Florida.

Milcowitz, 51, had set up a no-interest payment plan with Moffitt to pay off $3,000 she owed for her hysterectomy in 2017. When the medical center switched her account to AccessOne, however, she began receiving late notices, even as she kept making payments.

Only later did she figure out that AccessOne had set up two accounts, one for the cancer surgery and another for medical appointments. Her payments had been applied only to the surgery account, leaving the other past-due. She then got hit with higher interest rates. “It’s crazy,” she said.

Lenders see a growing business opportunity

While financing plans may mean more headaches and more debt for patients, they’re proving profitable for lenders.

That’s drawn the interest of private equity firms, which have bought several patient financing companies in recent years. Since 2017, AccessOne’s majority owner has been private equity investor Frontier Capital.

Synchrony, which historically marketed its CareCredit cards in patient waiting rooms, is now also inking deals with medical systems to enroll patients in loans when they go online to pay bills.

“They’re like pilot fish eating off the back of the shark,” said Jonathan Bush, a founder of Athenahealth, a health technology company that has developed electronic medical records and billing systems.

As patient bills skyrocket, hospitals face mounting pressure to collect more, which can make financing arrangements seem appealing, industry experts say. But as health systems go into business with lenders, many are reluctant to share details. Only a handful of hospitals contacted by KHN agreed to be interviewed about their contracts and what they mean for patients.

Several public systems, including Atrium and UNC Health, disclosed information only after KHN submitted public records requests. Even then, the two systems redacted key details, including how much they pay AccessOne.

AU Health, which did not redact its contract, pays AccessOne a 6% “servicing fee” on each patient loan the company administers. But like Atrium and UNC Health, AU Health refused to provide any on-the-record interviews.

Other hospital systems were even less transparent. Mercyhealth, a nonprofit with hospitals and clinics in Illinois and Wisconsin that routes its patients to CareCredit, would not discuss its lending practices. “We do not have anyone available for this,” spokesperson Therese Michels said. Allina Health and Prime Healthcare also wouldn’t talk about their patient financing deals.

Bush said there’s a reason so few hospitals want to discuss their financing deals: They’re embarrassed. “It’s like they quietly write someone’s name on a piece of paper and slide it across the table,” he said. “They don’t want to be a part of it because they have in their institutional memory that they are supposed to look after patients’ best interests.”

Some hospitals and banks still offer interest-free help

Not all hospitals expose their patients to extra costs to finance medical bills.

Lake Region Healthcare, a small nonprofit with hospitals and clinics in rural Minnesota that contracts with Missouri-based Commerce Bank, charges no interest or fees on payment plans. That’s a decision that spokesperson Katie Johnson said was made “for the benefit of our patients.”

Even some AccessOne clients such as the University of Kansas Health System shield patients from interest. But as providers look to boost their bottom lines, it’s unclear how long these protections will last. Colette Lasack, who oversees financing for the Kansas system, noted: “There’s a cost associated with that.”

Meanwhile, large national lenders such as Discover Financial Services are looking at the patient financing business.

“I’ve had to become more of a health care marketer,” said Matt Lattman, vice president for personal loans at Discover, which is pitching the loans to people with unexpected medical bills. “In a world where many people are ill prepared to cover their health care costs, the personal loan can provide an opportunity.”

Private equity’s power in healthcare continues to grow, raising concerns: KHN report

Private equity groups have invested about $1 trillion into nearly 8,000 healthcare transactions in the past decade, and some experts are pushing for more scrutiny of its increasing influence on the industry amid concern it may be causing higher medical bills and diminished quality of care, a Nov. 14 Kaiser Health News report said.

Because such investment groups typically invest less than $101 million, such transactions do not attract automatic antitrust reviews at the federal level, the report continued. That represents more than 90 percent of private equity investments in the industry.

Nevertheless, companies owned or managed by private equity groups have agreed to pay fines of more than $500 million since 2014 in over 30 lawsuits under the False Claims Act, which deals with false billing submissions, KHN’s investigation found.

The problem may be most acute in certain specialist fields and in certain metropolitan areas. While private equity, for example, plays a role in just 14 percent of gastroenterology practices nationwide, it controls about 75 percent of that market in at least five metropolitan areas across five states, including Texas and North Carolina, according to research from UC Berkeley’s Nicholas C. Petris Center. 

And private equity pockets may be getting deeper. In 2021 alone, over $206 billion was invested by such groups in healthcare, and there is plenty of “dry powder” around for more, KHN reported. The Healthcare Private Equity Association, for example, which boasts about 100 investment companies as members, says the firms have $3 trillion in assets awaiting allocation.

Private equity, like everything else, may have some poor performers but it doesn’t help to generalize as groups “vary tremendously” in how they operate their healthcare investments, Robert Homchick, a Seattle attorney, told KHN.

“Private equity has some bad actors, but so does the rest of the [healthcare] industry,” he said. “I think it’s wrong to paint them all with the same brush.”

Concerns remain, however, that, at least in some cases, private equity involvement is simply a vehicle for maximizing returns, often at the expense of patients. In addition to the $500 million fines, there is also evidence of some private equity groups pushing through additional testing and mandated patient numbers to boost returns, often in medically questionable scenarios, the report said, citing the example of National Spine and Pain Centers previously owned by private equity group Sentinel Partners.

In that case, National Spine paid $3.3 million in a whistleblower case related to allegations of unnecessary treatment and testing, KHN said.

The scope of such private equity dominance in some markets worries many industry observers, and much more needs to be done to help reel in such potential abuses, they say.

“We’re still at the stage of understanding the scope of the problem,” said Laura Alexander, former vice president of policy at the nonprofit American Antitrust Institute, which collaborated on the Petris Center research. “One thing is clear: Much more transparency and scrutiny of these deals is needed.”

Walgreens-backed VillageMD rumored to be exploring Summit Health purchase

https://mailchi.mp/46ca38d3d25e/the-weekly-gist-november-4-2022?e=d1e747d2d8

According to reporting from Bloomberg, primary care company VillageMD, which is majority-owned by Walgreens, is engaged in talks to merge with New Jersey-based Summit Health, a large medical group network and urgent care chain backed by private equity firm Warburg Pincus.

In 2019, Summit merged with CityMD, a New York City-based urgent care chain, and operates over 370 clinic locations based in and around New York City, as well as in central Oregon. The combined entity would be valued between $5B and $10B.

The Gist: Should this deal go through, it would epitomize recent trends in healthcare M&A: a well-established independent medical group using private equity funding to rapidly expand its operations before selling off to an industry giant. 

If that industry giant ends up being VillageMD, Walgreens would finally have a physician practice with deep experience in managing risk, on which they can anchor their larger ambitions in care provision. And if the deal with Walgreens falls through, Summit, with its combination of mostly suburban value-based care practices and largely urban urgent care chains, is sure to attract plenty of other suitors, including any of the major national insurers. 

The ethics and legality of private equity (PE) once again in the spotlight

https://mailchi.mp/46ca38d3d25e/the-weekly-gist-november-4-2022?e=d1e747d2d8

 In a recent STAT News article, reporters Tara Bannow and Bob Herman took an in-depth look at private-equity firm Welsh, Carson, Anderson & Stowe, examining the performance of four of its healthcare portfolio companies. They show how the firm’s A-list partners, clients, and board members have promoted controversial business practices—often at the expense of publicly funded healthcare programs—that conflict with its well-curated public image.

The Gist: This article emphasizes how the complex and opaque regulatory structure of American healthcare allows motivated parties like PE firms to find technically legal, though ethically suspect, business models, which can easily tip over into outright illegality.

It highlights the “revolving door” flow of executives between industry and government, which allows investment firms to play a long game by actively shaping the regulatory landscape and lobbying to create business opportunities where none previously existed. Justified backlash at “gotcha” business models and profit-seeking at the expense of vulnerable patients may swamp any positive contribution that PE investment and rollups may make to the business of healthcare.

Federal Trade Commission (FTC) probing large anesthesia group

https://mailchi.mp/b1e0aa55afe5/the-weekly-gist-october-7-2022?e=d1e747d2d8

The FTC is investigating US Anesthesia Providers (USAP), a private equity (PE)-backed group with 4.5K physicians working in nine states, over concerns of monopoly power in certain markets. The inquiry is focused on USAP’s acquisition history, which has followed the PE “playbook” of rolling up small anesthesiology groups into a single entity large enough to exert leverage in contract negotiations. USAP’s presence in Texas and Colorado is likely to be of particular interest, as it controls at least 30 percent of the anesthesiology market in both states. 

The Gist: Like many other PE-backed physician groups, USAP achieved market power mostly through myriad acquisitions too small to warrant regulatory attention on their own. The probe is in line with recent government scrutiny of private equity influence in the healthcare sector, and will no doubt be closely watched by investors and PE-backed groups.

If USAP is forced to divest from certain markets, the precedent could prove especially damaging to other rapidly growing investor-backed physician groups, particularly those staffing hospital functions, who are already being rocked by ramifications of the No Surprises Act

Inside the ‘wave’ of health care acquisitions

Amazon and several other major companies have made numerous attempts to “disrupt” health care over the years without much success. But new acquisitions in primary care, home health care, and more may allow them to more successfully expand into the industry, David Wainer writes for the Wall Street Journal.

Competition heats up in the health care industry

According to Wainer, the United States spends a greater proportion of its economy on medical services than any other developed nation, making health care “too big of an opportunity to ignore” for many companies, including those in technology, retail, and more. 

For example, Amazon has launched several forays into health care in recent years, although not all of them have been successful. Some of these health care efforts include its now defunct partnership with Berkshire Hathaway and JPMorgan Chase, as well as Amazon Care, the company’s primary care service that will shut down at the end of the year.

Amazon has also acquired several smaller health care companies in an effort to expand its reach. In 2018, Amazon purchased PillPack for $1 billion as a way to expand its online pharmacy business. Similarly, Amazon in July reached an agreement to acquire One Medical, a primary care company, for roughly $3.9 billion.

Several other companies, including retailers like Walmart and Walgreens and large insurers like UnitedHealth Group* (UHG) and CVS Health‘s Aetna, are also looking to expand their health care offerings. In fact, CVS announced last week that it had purchased home health care company Signify Health for roughly $8 billion—beating out several other competitors.

So far, “[s]hifting social attitudes and market conditions have helped fuel the wave” of health care acquisitions from major companies, Wainer writes, and more are likely to occur going forward.

What companies are targeting in health care

In contrast to the more traditional fee-for-service model, many health care startups are moving toward value-based care, which encourages providers to help prevent illnesses, rather than just treat them.

According to Wainer, UHG, which includes a pharmacy benefit manager, an insurance business, and 60,000 physicians, has made the most progress transitioning to value-based care so far. For example, many of the multi-specialty physician practices UHG has purchased through its medical provider arm Optum Care focus on proactively providing patients home, virtual, and on-site care to help them stay out of the hospital.

In addition, UHG and Walmart last week announced a partnership to provide services and “improve the patient experience” for certain Medicare Advantage enrollees. Through the partnership, UHG will use analytics to help Walmart clinics deliver value-based care to patients.

Aside from value-based care, many companies, including Amazon and CVS, are looking to expand their businesses into primary care. Currently, there is a nationwide shortage of primary care doctors, which has led to worse health outcomes for many Americans.

By providing primary care services directly to consumers, Amazon and other companies are hoping to use the relationship between patients and their providers to sell even more services, such as prescription drug deliveries and more.

Overall, “staying healthy probably will never be the sort of frictionless, one-click experience that Amazon pioneered,” Wainer writes, but the company’s current involvement in the health care industry “is a testament to the fact that there’s a lot of money to be made by fixing America’s broken system.” (Wainer, Wall Street Journal, 9/9)

*Advisory Board is a subsidiary of Optum, a division of UnitedHealth Group. All Advisory Board research, expert perspectives, and recommendations remain independent. 

Private equity (PE)-backed physician practices increase healthcare spending and utilization

https://mailchi.mp/6a3812741768/the-weekly-gist-september-9-2022?e=d1e747d2d8

A recent JAMA study of 578 US dermatology, gastroenterology, and ophthalmology practices acquired by PE firms from 2016 to 2020 found a steady rise in spending in the two years after acquisition, indicating that the average charge per commercial claim increased 20 percent, and the average allowed amount per claim rose 11 percent. It also found that, compared to a large control group with similar patient risk scores, PE-acquired practices saw new patient visits increase by 38 percent and total visit volume increase by 16 percent. 

The Gist: While the study’s authors note that these findings could be explained by changes in practice operations or management, they point out they could also be caused by an overutilization of profitable services not tied to an increase in value or benefit to the patient. 

We think the latter is likely the case here, and that this study provides evidence of PE-induced overutilization aimed at meeting aggressive growth targets.

But this is just the latest wave of ownership-induced overutilization: 20 years ago the same spotlight was on physician-owned imaging, cardiac, and other outpatient diagnostics, with several studies then documenting higher utilization in these facilities. Nonetheless, this latest trend is an important one to document and quantify, as the number of physicians working in PE-backed organizations continues to rise.

Is private equity health care’s bad guy?

Radio Advisory’s Rachel Woods sat down with Advisory Board’s Sarah Hostetter and Vidal Seegobin to discuss the good and bad elements of private equity and what leaders can do to make it a valuable partner to their practices.

Private equity (PE) tends to get a bad rap when it comes to health care. Some see it as a disruptive force that prioritizes profits over the patient experience, and that it’s hurting the industry by creating a more consolidated marketplace. Others, however, see it as an opportunity for innovation, growth, and more movement towards value-based care.

Radio Advisory’s Rachel Woods sat down with Advisory Board‘s Sarah Hostetter and Vidal Seegobin to discuss the good and bad elements of PE and what leaders can do to make it be a valuable partner to their practices.

Read a lightly edited excerpt from the interview below and download the episode for the full conversation. https://player.fireside.fm/v2/HO0EUJAe+KzkqmeWH?theme=dark

Rachel Woods: Clearly there are a lot of feelings about private equity. I’m frankly not that surprised, because the more we see PE get involved in the health care space, we hear more negative feelings about what that means for health care.

Frankly, this bad guy persona is even seen in mainstream media. I can think of several cable medical dramas that have made private equity, or maybe it’s specific investors, as the literal enemy, right? The enemy of the docs that are the saviors of their hospital or ER or medical practice. Is that the right way we should be thinking about private equity? Are they the bad guy?

Sarah Hostetter: The short answer is no. I think private equity is a scapegoat for a lot of the other problems we’re seeing in the industry. So the influx of money and where it’s going and the influence that that has on health care. I think private equity is a prime example of that.

I also think the horror stories all get lumped together. So we don’t think about who the PE firm is or what is being invested in. We put together physician practices and health systems and SNPs, and we lump every story all together, as opposed to considering those on their individual merits.

Woods: And feeds to this bad guy kind of persona that’s out there.

Hostetter: Yeah. And like you said, the media doesn’t help, right? If the average consumer is watching and seeing different portrayals or lumped portrayals, it’s not helping.

Vidal Seegobin: Private equity, as all actors in our complex ecosystem, is not a monolith, and no one has the monopoly on great decisions in health care, nor do they have a monopoly on the bad decisions in health care. And so if you attribute a bad case to private equity, then you also have to attribute the positive returns done from a private equity investment as well.

Hostetter: Agree with what Vidal’s saying, but bottom line is that every stakeholder is not going to have the same outcomes or ripple effects from a private equity deal. It really depends on the deal itself, the market, and the vantage points that you take.

Woods: I want to actually play out a scenario with the two of you and I want you to talk about the positive and the potentially negative consequences for different sectors or different stakeholders.

So let’s take the newest manifestation that Sarah, you talked to us through. Let’s say that there is a PE packed multi-specialty practice heavily in value-based care. That practice starts to get bigger. They acquire other practices, including maybe even some big practices in a market and they start employing all of the unaffiliated or loosely affiliated practices in the market.

I am guessing that every health system leader listening to this episode is already starting to sweat. What does this mean for the incumbent health system?

Seegobin: So I think one thing that’s going to be pretty clear is that size does confer clear advantages and health care is part and parcel that kind of benefit. What I think is challenging is when we’re entering into a moment where access to capital is challenging for health systems in particular and we’re going to need to scale up investments, health systems could see themselves falling further and further behind as private equity makes smart investments into these practices to both capture and retain volume. And as a consequence of that, reduces the amount of inpatient demand or the demand to their bread and butter services.

Hostetter: And I think it’s really important that you phrase the question, Rae, as health system. Because we so often equate health system and hospital.

But a health system includes lots of hospitals, it includes ambulatory facilities, a range of services. And so I think for systems to equate health system and hospital, it’s really hard when any type of super practice or large backed practice comes into the market.

Whether we are talking about a plan backed practice, a PE backed practice, or just a really large independent group. There are pressures on health systems who think of their job or their primary service as the hospital. And there is a moment where the power dynamics can shift in markets away from the health system, if they aren’t able to pivot their strategy beyond just the hospital.

Woods: Which is exactly why health systems see this scenario as, let’s just say it, threatening. Sarah, then how do the physicians feel? Do they have the opposite feelings as the incumbent health systems?

Hostetter: There’s a huge range. Private equity is incredibly polarizing in the physician practice world, the same way that it is in other parts of the industry. So I think there is a hope from some practices that private equity is a type of investor that is aligned with them.

Physicians who go into private practice historically tend to be more entrepreneurial. They are shareholders in their own practice, so there are some natural synergies between private equity, business minded folks, and these physicians.

Also, even though I go into a small business, it takes a lot to run a small business, so there are potentially welcome synergies and help that you can get from a PE firm. On the flip side of that, there are groups who would never in a million years consider taking a private equity investment and are unwilling to have these conversations.

Woods: There is a tendency, especially in the conversation that we’re having, for folks to think about private equity as being something that primarily impacts the provider space, at least when it comes to health care. But I’m not sure that that’s actually true. So what consequences, good or bad, might the payers feel? Might the life sciences companies feel?

Seegobin: So one common refrain when talking about private equity and their acquisition or partnering with traditional health care businesses like physician practices is that they are immediately focused on cutting costs. So they are going to consolidate all of the purchasing contracts, they are going to make pretty aggressive decisions about real estate, all the types of cost components that run the business.

Now, if you are a kind of life sciences or a diagnostic business for whom you would depend on being an incumbent in those contracting decisions, you’re worried that the private equity is either going to direct you to a lower cost provider, or in many cases, another business that the private equity firm owns as well, right?

They would love to keep synergies within the portfolio of businesses that they’ve acquired and they partner. So if you were relying on incumbent or historical purchasing practices with these physician practices, it can be disrupted, depending on the arrangement.

Hostetter: And then I think there’s a range of potential implications for payers. So you have some payers who themselves are aggregating independent practices, and they’re targeting the same type of practices that the PE firms that are betting on value-based care are targeting. They are targeting primary care groups who are big in Medicare Advantage. So there’s some inherent competition potentially for the physician practice landscape there.

Woods: Well, and I think they’re trying to offer the same thing, right? They’re trying to offer capital. They’re trying to do that with the promise of autonomy. And they’re coming up against a competitive partner that is saying, “I can do both of those things and I can do it better and faster.”

Hostetter: Yeah. And both of them are saying we can do it better and faster than hospitals. That’s the other thing, right?

Woods: Which, that part is probably true.

Hostetter: Yeah. Their goals are aligned and they believe they can get there different ways. And I think autonomy is a big sticking point here for me or a big bellwether for me, because I think whoever can get to value-based care while preserving autonomy is going to win. You have to have some level of standardization to do value-based care well. You can’t just let everyone do whatever they want. You need high quality results for lower cost. That inherently requires standardization. So who can thread the needle of getting that standardization while preserving a degree of autonomy?

It’s fascinating, as we’ve had this call, it was suggested multiple times that payers actually might be the end of the line for some of these PE deals. That there’s a lot of alignment between what payers are trying to do with their aggregation and what PE firms who are investing in primary care do, and hey, payers have a lot of money too. So could we actually see some of these PE deals end with a payer acquisition? Because they’re trying to achieve similar things, just differently.

Buy a rural hospital for $100? Investors pick up struggling institutions for pennies

Rural communities with struggling hospitals often turn to outside investors willing to take over their health care centers. Some are willing to sell the hospitals for next to nothing to companies that promise to keep them running.

ERIN, Tenn. — Kyle Kopec gets a kick out of leading tours through the run-down hospitals his boss is buying, pointing out what he calls relics of poor management left by a revolving door of operators.

For instance, at a hospital in this town of 1,700 about a 90-minute drive northwest from Nashville, the X-ray machine is beyond repair.

“This system is so old, it’s been using a floppy disk,” said Kopec, 23, marveling at the bendy black square that hardly has enough memory to hold a single digital photo. “I’ve never actually seen a floppy disk in use. I’ve seen them in the Smithsonian.”

There’s a point to exposing these rural hospitals’ state of disrepair — the company Kopec works for, Braden Health, is buying buildings worth millions of dollars for next to nothing with a promise to keep running them as health centers serving their communities. Braden for its part, thinks it can run them more effectively than the previous owners and turn a profit.

The hospitals Braden Health is taking over sit in one of the worst spots in one of the worst states for rural hospital closures. Tennessee has experienced 16 closures since 2010 — second only to the far more populous state of Texas, which has had at least 21 closures.

The local governments that own these facilities are finding that remarkably few companies — with any level of experience — are interested in buying them. And those that are willing don’t want to pay much, if anything.

Braden Health’s Kyle Kopec holds up a sample of diagnostic images left behind at an abandoned hospital they’re taking over. They have to figure out what to do with old medical records stacked in boxes.

“When you’re on the ropes or even got your head under water, it’s really difficult to negotiate with any terms of strength,” said Michael Topchik, director of the Chartis Center for Rural Health, which tracks distressed rural hospitals closely. “And so you, oftentimes, are choosing whoever is willing to choose you.”

At this point, large health systems have already acquired or affiliated with the hospitals that have the fewest problems, Topchik said. The hospitals that are left are those that other potential buyers passed on. Turning a profit on a small rural hospital with mostly older or low-income patients can be challenging. Some operators who take over rural hospitals have gotten in trouble with insurers and even law enforcement for shady billing practices.

“You can make it profitable,” Topchik said. “But it takes an awful lot to get there.”

Dr. Beau Braden, who runs Braden Health, used his savings and some inherited wealth to get into the hospital-buying business in 2020. An emergency room doctor and addiction specialist, he previously tried to build a hospital in southwestern Florida, where he owns the large rural clinic in Ave Maria. After running into regulatory roadblocks, he saw more opportunity in reopening hospitals — which brought him to Tennessee.

“A lot of people aren’t willing to put in the time, effort, energy, and work for a small hospital with less than 25 beds. But it needs just as much time, energy, and effort as a hospital with 300 beds,” Braden said. “I just see there’s a huge need in rural hospitals and not a lot of people who can focus their time doing it.”

Braden Health’s corporate headquarters has 40 employees, according to Kopec, who is Braden’s second in command as the company’s chief compliance officer. He had limited work experience in hospitals before helping lead a hospital-buying spree at Braden Health.

Braden Health is a limited liability company and privately held, so it doesn’t have to publicly share much about its financial figures. But in filings for a certificate of need that outlines why a health care facility should be allowed to operate, Braden revealed $2 million in monthly revenue from the one hospital it ran in Lexington, Tennessee, and its balance sheet showed more than $7.5 million cash on hand.

Dr. Beau Braden (left) and Kyle Kopec talk to staffers gathered at the nurse’s station inside Houston County Community Hospital in Erin, Tennessee. Braden Health bought the facility for $20,000 ― a price that is mostly paying for the one piece of medical equipment deemed to have any value, a 2016 ambulance with 180,000 miles.

Since buying that Lexington hospital in 2020, Braden Health has signed deals for three other failing or failed hospitals and has looked at acquiring at least 10 others, mostly in Tennessee and North Carolina. Braden Health’s strategy is to build mini-networks to share staff and supplies.

At the hospital in Erin, much of the facility’s equipment is older than Kopec. And he said using outdated technology has caused Medicare to penalize the hospital with reduced payments.

The attic houses a ham radio system that seemingly never got much use, Kopec said on his way out to the roof. He wanted to show how the giant HVAC system can be controlled only from a rusty side panel accessible by a ladder. Down below, an emergency room has never been used. During a recent renovation that predated Braden Health’s ownership, its doors were built too narrow for a gurney, among other design flaws.

An old operating room is temporarily housing the ER while Braden Health starts work on new renovations. The Tennessee attorney general, who must approve any sale of a public hospital to private investors, signed off in July.

To prevent this hospital’s closure in 2013, Houston County bought it for $2.4 million and raised taxes locally to subsidize operations. “We had no business being in the hospital business,” Mayor James Bridges said. “The majority of county governments do not have the expertise and the education and knowledge that it takes to run health care facilities in 2022.”

Those with the most experience, like big corporate hospital chains based in Nashville, have been getting out of the small hospital business, too.

Communities have seen unqualified managers come and go. In Decatur County, where Braden Health is also taking over the local hospital, the previous CEO was indicted on theft charges that remain pending. And the Tennessee comptroller determined the hospital helped endanger the finances of the entire county.

“You’re looking to someone who supposedly knows what to do, who can supposedly solve the issue. And you trust them, then you’re disappointed,” said Lori Brasher, a member of Decatur County’s economic development board. “And not disappointed once, but disappointed multiple times.”

Brasher expressed much more confidence in Braden Health, which she said has concrete plans to reopen, though the timing has been delayed by an unresolved insurance claim from a burst water line that flooded a wing of the hospital.

Local residents still have trouble stomaching the sticker price: $100 for a property valued at $1.4 million by the local tax assessor. In addition to that low price, Braden Health won tax breaks for committing to invest $2 million into the building.

The Houston County hospital is valued at $4.1 million by the property assessor. But the final sale price was just $20,000 — and that wasn’t for the land or the building. Kopec said the amount was for a 2016 ambulance with 180,000 miles — deemed the only equipment with any remaining value.

An agreement with Braden Health to take over the shuttered hospital in Haywood County, Tennessee, valued at $4.6 million, was a similarly symbolic payment. All told, Braden Health is getting more than $10 million worth of real estate for less than the price of an appendectomy.

Kopec contends the value for each property is essentially negative given that the hospitals require so much investment to comply with health care standards and — according to the company’s purchase agreements — must be run as hospitals. If not, the hospitals revert to the counties.

Most of the funding for restoring these facilities comes directly from Braden, who thinks people overestimate the value of hospitals his company is taking over.

“If you look honestly at a lot of transactions that take place with rural hospitals and how many liabilities are tied up with them, there’s really not a lot of value there,” he said. Braden recently paid off a $2.3 million debt with Medicare for the Houston County hospital.

He said there’s no secret sauce, in his mind, except that small hospitals require just as much diligence as big medical centers — especially since their profit margins are so thin and patient volume so low. He wants to improve technology in ways that health plans reward hospitals, limit nurse staffing when business is slow, and watch medical supply inventories to cut waste.

It’s a tall order. Braden said he can understand any skepticism, even from the hospitals’ employees. They’ve heard turnaround promises before, and even they can be wary of the care they’d get at such run-down facilities.

Still, as Kopec bounced through the Erin hospital’s halls, he greeted nurses and clerical staff by name with a confidence that belies his age and experience. He tells anyone who will listen that rural hospitals require specialized knowledge.

“They’re not the most complicated things in the world,” Kopec said. “But if you don’t know exactly how to run them, you’re just going to run them straight into the ground.”