It's the first ruling to hold a pharmaceutical company responsible for one of the worst drug epidemics in American history.  

This article was first published on Monday, August 26, 2019 in Kaiser Health News.

By Jackie Fortier, StateImpact Oklahoma and Brian Mann, North Country Public Radio

An Oklahoma judge has ruled that drugmaker Johnson & Johnson helped ignite the state's opioid crisis by deceptively marketing painkillers and must pay $572 million to the state.

Oklahoma sought $17 billion, blaming Johnson & Johnson's marketing practices for fueling the crisis that has claimed the lives of 6,000 people in the state.

It's the first ruling to hold a pharmaceutical company responsible for one of the worst drug epidemics in American history.

Judge Thad Balkman delivered his decision from the bench after presiding over an eight-week civil trial in the college town of Norman, Okla.

"Defendants caused an opioid crisis that is evidenced by increased rates of addiction, overdose deaths and neonatal abstinence syndrome in Oklahoma," Balkman said in the ruling.

Johnson & Johnson immediately released a statement saying that the company "plans to appeal the opioid judgment in Oklahoma."

Oklahoma Attorney General Mike Hunter's suit alleged that Johnson & Johnson, through its pharmaceutical subsidiary Janssen, helped ignite a public health crisis that has killed thousands of state residents.

Balkman, in the ruling, said the state made its case that Johnson & Johnson contributed to the state's opioid crisis.

"The opioid crisis is an imminent danger and menace to Oklahomans," Balkman said. "The state met its burden," proving the company acted improperly with its "misleading marketing and promotion of opioids."

The case is being closely watched by plaintiffs in other opioid lawsuits, particularly the roughly 2,000 cases pending before a federal judge in Ohio.

Initially, Hunter's lawsuit included Purdue Pharma, the maker of OxyContin. In March, Purdue Pharma settled with the state for $270 million, about $200 million of which will fund an addiction research and treatment center at Oklahoma State University in Tulsa. Soon afterward, Hunter dropped all but one of the civil claims, including fraud, against the two remaining defendants.

Just two days before the trial began, one of those two defendants, Teva Pharmaceuticals, based in Israel, announced an $85 million settlement with the state.

Both companies deny any wrongdoing.

Johnson & Johnson marketed the opioid painkillers Duragesic and Nucynta. Lawyers for the company say that its products were highly regulated by the Food and Drug Administration, among other agencies, and that the state did not provide any evidence showing that the company's sales practices helped fuel the crisis.

This story is part of a reporting partnership that includes NPR, StateImpact Oklahoma and other member stations. 

The Cowboy State hopes to undercut the free market by using Medicaid to treat air ambulances like a public utility.

This article was first published on Monday, August 26, 2019 in Kaiser Health News.

By Markian Hawryluk

Wyoming, the reddest of Republican states and a bastion of free enterprise, thinks it may have found a way to end crippling air ambulance bills that can top $100,000 per flight.

The state's unexpected solution? Undercut the free market by using Medicaid to treat air ambulances like a public utility.

The issue has come to a head in Wyoming, where rugged terrain and long distances between hospitals forces reliance on these ambulance flights. Costs for such emergency transports have been soaring, with some patients facing massive unexpected bills as the free-flying air ambulance industry expands with cash from profit-seeking private-equity investors.

Other states dealing with the same dynamic have tried to rein in the industry but have continually run up against the Airline Deregulation Act, a federal law that preempts states from regulating any part of the air industry.

So, Wyoming officials are instead seeking federal approval to funnel all medical air transportation in the state through Medicaid, a joint federal-state program for residents with lower incomes. The state officials plan to submit their proposal in late September to Medicaid's parent agency, the Centers for Medicare & Medicaid Services; the plan will still face significant hurdles there.

If successful, however, the Wyoming approach could be a model for the nation, protecting patients in need of a lifesaving service from being devastated by a life-altering debt.

"The free market has sort of broken down. It's not really working effectively to balance cost against access," said Franz Fuchs, a policy analyst for the Wyoming Department of Health. "Patients and consumers really can't make informed decisions and vote with their dollars on price and quality."

Freewheeling Free-Market System
 

The air ambulance industry has grown steadily in the U.S. from about 1,100 aircraft in 2007 to more than 1,400 in 2018. During that same time, the fleet in Wyoming has grown from three aircraft to 14. State officials said an oversupply of helicopters and planes is driving up prices because air bases have high fixed overhead costs. Fuchs said companies must pay for aircraft, staffing and technology such as night-vision goggles and flight simulators, incurring 85% of their total costs before they fly a single patient.

But with the supply of aircraft outpacing demand, each air ambulance is flying fewer patients. Nationally, air ambulances have gone from an average of 688 flights per aircraft in 1990, as reported by Bloomberg, to 352 in 2016. So, companies have raised their prices to cover their fixed costs and to seek healthy returns for their investors.

A 2017 report from the federal Government Accountability Office notes that the three largest air ambulance operators are for-profit companies with a growing private equity investment. "The presence of private equity in the air ambulance industry," the report said, "indicates that investors see profit opportunities in the industry."

While precise data on air ambulance costs is sparse, a 2017 industry report said air ambulance companies spend an average of $11,000 per flight. In Wyoming, Medicare pays an average of $6,000 per flight, and Medicaid pays even less. So air ambulance companies shift the remaining costs — and then some — to patients who have private insurance or are paying out-of-pocket.

As that cost-shifting increases, insurers and air ambulance companies haven't been able to agree on in-network rates. So the services are left out of insurance plans. When a consumer needs a flight, it's billed as an out-of-network service. Air ambulance companies then can charge whatever they want. If the insurer pays part of the bill, the air ambulance company can still bill the patient for the rest — a practice known as balance billing.

"We have a system that allows providers to set their own prices," said Dr. Kevin Schulman, a Stanford University professor of medicine and economics. "In a world where there are no price constraints, there's no reason to limit capacity, and that's exactly what we're seeing."

Nationally, the average helicopter bill has now reached $40,000, according to a 2019 GAO report, more than twice what it was in 2010. State officials say Wyoming patients have received bills as high as $130,000.

Because consumers don't know what an air ambulance flight will cost them — and because their medical condition may be an emergency — they can't choose to go with a lower-cost alternative, either another air ambulance company or a ground ambulance.

A Different Way of Doing Things
 

Wyoming officials propose to reduce the number of air ambulance bases and strategically locate them to even out access. The state would then seek bids from air ambulance companies to operate those bases at a fixed yearly cost, under a sort of Netflix model. It's a regulated monopoly approach similar to the way public utilities are run.

"You don't have local privatized fire departments springing up and putting out fires and billing people," Fuchs said. "The town plans for a few fire stations, decides where they should be strategically, and they pay for that fire coverage capacity."

Medicaid would cover all the air ambulance flights in Wyoming and then recoup those costs by billing patients' insurance plans for those flights. A patient's out-of-pocket costs would be capped at 2% of the person's income or $5,000, whichever is less, so patients could easily figure out how much they would owe. Officials estimate they could lower private insurers' average cost per flight from $36,000 to $22,000 under their plan.

State Rep. Eric Barlow, who co-sponsored the legislation, recognizes the irony of a GOP-controlled, right-leaning legislature taking steps to circumvent market forces. But the Republican said that sometimes government needs to make sure its citizens are not being abused.

"There were certainly some folks with reservations," he said. "But folks were also hearing from their constituents about these incredible bills."

Industry Pushback
 

Air ambulance companies have opposed the plan. They say the surprise-billing problem could be eliminated if Medicare and Medicaid covered the cost of flights and the companies wouldn't have to shift costs to other patients. They question whether the state truly has an oversupply of aircraft and warn that reducing the number of bases would increase response times and cut access to the lifesaving service.

Richard Mincer, an attorney who represents the for-profit Air Medical Group Holdings in Wyoming, said that while 4,000 patients are flown by air ambulance each year in the state, it's not clear how many more people have needed flights when no aircraft was available.

"How many of these 4,000 people a year are you willing to tell, 'Sorry, we decided as a legislature you're going to have to take ground ambulance?'" Mincer said during a June hearing on the proposal.

But Wyoming officials say it indeed might be more appropriate for some patients to take ground ambulances. The vast majority of air ambulance flights in the state, the state officials say, are transfers from one hospital to another, rather than on-scene trauma responses. The officials say they've also heard of patients being flown for nonemergency reasons such as a broken wrist or impending gallbladder surgery.

Air ambulance providers say such decisions are out of their control: They fly when a doctor or a first responder calls.

But those companies have ways of drumming up business. Air ambulance companies heavily market memberships that cover a patient's out-of-pocket costs, eliminating any disincentive for the patient to fly. Companies also build relationships with doctors and hospitals that can influence the decision to fly a patient. Some have been reported to deliver pizzas to hospitals by helicopter to introduce themselves.

Mincer, the Air Medical Group Holdings attorney, said the headline-grabbing large air ambulance bills don't reflect what patients end up paying directly. The average out-of-pocket cost for an air ambulance flight, he said, is about $300.

The industry also has tried to shift blame onto insurance plans, which the transporters say refuse to pay their fair share for air ambulance flights and refuse to negotiate in-network rates.

Doug Flanders, director of communications and government affairs for the medical transport company Air Methods, said the Wyoming plan "does nothing to compel Wyoming's health insurers to include emergency air medical services as part of their in-network coverage."

The Profit Model
 

Other critics of the status quo maintain that air ambulance companies don't want to change, because the industry has seen investments from Wall Street hedge funds that rely on the balance-billing business model to maximize profits.

"It's the same people who have bought out all the emergency room practices, who've bought out all the anesthesiology practices," said James Gelfand, senior vice president of health policy for the ERISA Industry Committee, a trade group representing large employers. "They have a business strategy of finding medical providers who have all the leverage, taking them out of network and essentially putting a gun to the patient's head."

The Association of Air Medical Services counters that the industry is not as lucrative as it's made out to be, pointing to the recent bankruptcy of PHI Inc., the nation's third-largest air ambulance provider.

Meanwhile, Blue Cross Blue Shield of Wyoming is supportive of the state's proposal and looks forward to further discussion about the details if approved, according to Wendy Curran, a vice president at the health insurance firm. "We are on record," Curran said, "as supporting any effort at the state level to address the tremendous financial impacts to our [Wyoming] members when air ambulance service is provided by an out-of-network provider."

The Wyoming proposal also has been well received by employers, who like the ability to buy into the program at a fixed cost for their employees, providing a predictable annual cost for air ambulance services.

"It is one of the first times we've actually seen a proposal where the cost of health care might actually go down," said Anne Ladd, CEO of the Wyoming Business Coalition on Health.

The real challenge, said Fuchs, will be convincing federal officials to go along with it.

Markian Hawryluk: MarkianH@kff.org, @MarkianHawryluk

This year's political spending is aimed at killing a bill in the California legislature that would disrupt the industry's business model — and likely reduce its profits.

This article was first published on Friday, August 23, 2019 in Kaiser Health News.

By Harriet Blair Rowan

The dialysis industry spent about $2.5 million in California on lobbying and campaign contributions in the first half of this year in its ongoing battle to thwart regulation, according to a California Healthline analysis of campaign finance reports filed with the state.

Last year, dialysis companies poured a record-breaking $111 million into a campaign to defeat a ballot initiative that would have capped their profits.

This year's political spending, which includes an online and broadcast advertising blitz, is aimed at killing a bill in the state legislature that would disrupt the industry's business model — and likely reduce its profits. The dialysis industry counters that the bill would threaten some low-income patients' access to the lifesaving treatment.

"Nobody is spending $2.5 million out of the goodness of their hearts," said David Vance, a spokesman for Common Cause, a nonprofit group that advocates for campaign finance reform. "That kind of money is spent to get the attention of legislators and to get results."

And the spending doesn't appear to be slowing. Since the most recent campaign finance reporting deadline, which showed a total of $2.5 million spent through June, a campaign committee backed by the industry has spent at least $470,000 more since then.

Dialysis filters the blood of people whose kidneys are no longer doing the job. People on dialysis, who typically need three treatments a week, usually qualify for Medicare, the federal health insurance program for people 65 and older, and those with kidney failure and certain disabilities.

But dialysis companies can get higher reimbursements from private insurers than from Medicare. One way dialysis patients remain on private insurance is by getting financial assistance from the American Kidney Fund, which helps nearly 75,000 low-income dialysis patients, including about 3,700 in California.

The American Kidney Fund receives most of its donations from DaVita Inc. and Fresenius Medical Care, the two largest dialysis companies. The fund does not disclose its donors, but an audit of its finances reveals that 82% of its annual funding in 2018 — nearly $250 million — came from two companies.

Critics of this system, including some California lawmakers, insurance companies and a powerful nurses union, say it's a way for the dialysis industry to inflate profits by steering patients away from Medicare and other public insurance coverage to private insurance, which pays higher rates.

The measure under consideration in the legislature, AB-290 by state Assemblyman Jim Wood (D-Santa Rosa), would limit the private-insurance reimbursement rate that dialysis companies receive for patients who get assistance from groups such as the American Kidney Fund. The bill would also address a similar dynamic in drug treatment programs.

"The minute you try to close one of those loopholes, the folks involved spend millions and millions to fight you," Wood said.

The state Assembly approved the bill in May, and the state Senate is now considering it. The legislature passed a similar measure last year that former Gov. Jerry Brown vetoed, saying the language was too broad and the move would have allowed providers to refuse care to some patients.

DaVita and Fresenius declined to comment and directed questions to Kathy Fairbanks, spokeswoman for the "Dialysis is Life Support" coalition, which includes dialysis providers, industry groups, patients and caregivers. She said the dialysis industry isn't the only stakeholder trying to influence the political process.

Groups supporting the measure, including large insurance companies and labor unions, also are spending big, she said. For instance, a committee formed and funded by the Service Employees International Union-United Healthcare Workers West to support last year's initiative — and challenge the dialysis industry and its profits — spent $580,000 in the first half of this year.

The $2.5 million in political spending by the dialysis industry between January and June falls into two categories: lobbying the legislature, and campaign contributions to support candidates and influence public opinion. Campaign spending made up about $1.3 million of the total.

DaVita accounted for the biggest chunk of the campaign spending: $580,000. Fresenius spent $270,000.

These contributions went to 48 of the state's 80 Assembly members and 21 of the state's 40 senators, primarily to their prospective 2020 or 2022 campaigns.

Of the 69 legislators who received money from DaVita and Fresenius, Assemblyman James Ramos (D-Highland) got the most: $16,800 in the first half of the year. Ramos did not respond to requests for comment.

Nine other Assembly members and two senators each also received more than $10,000 in contributions from DaVita and Fresenius.

The rest of the $1.3 million in campaign spending was doled out by the campaign committee formed and funded by the industry to defeat Proposition 8 last year. The "Patients and Caregivers to protect dialysis patients" committee spent $440,000 in the first half of 2019, mostly on an advertising campaign to sway public opinion against Wood's measure.

The media campaign began by promoting the message "Dialysis is Life Support" via social media accounts and a slick website, which emphasized the importance of dialysis to people with kidney failure. But the messaging has shifted and is now urging people to contact their legislators to oppose the bill. The committee spent $33,000 on advertising with Politico and $26,000 with The Sacramento Bee, among others, according to campaign finance reports.

The coalition and the patients featured in the ads argue the measure will threaten the health care and possibly survival of the California patients who get assistance from the American Kidney Fund, which has said it would cease operations in the state if the bill is adopted.

This KHN story first published on California Healthline, a service of the California Health Care Foundation.

Harriet Blair Rowan: hrowan@kff.org, @HattieRowan

How companies like EmpowerHMS were able to drive so many hospitals into the ground so quickly is a story about the fragility of health care in rural America.

This article was first published on Tuesday, August 20, 2019 in Kaiser Health News.

By Barbara Feder Ostrov and Lauren Weber

SWEET SPRINGS, Mo. — The money was so good in the beginning, and it seemed it might gush forever, right through tiny country hospitals in Missouri, Oklahoma, Tennessee and into the coffers of companies controlled by Jorge A. Perez, his family and business partners.

It was his "secret sauce," the rotund Miami entrepreneur would smilingly tell people in their no-stoplight towns. The money-making ventures he proposed sounded complicated, sure, but he said they would bring in enough cash to save their hospital and dozens, even hundreds, of good jobs in rural towns where gainful employment is hard to come by.

And, in town after town, the people believed him. He offered what they could not resist: hope, and the promise of survival.

Then a few major health insurance companies got suspicious, as did some government officials. How could Unionville, Mo. — a town of 1,790 — generate $92 million in hospital lab fees for blood and urine samples in just six months? Why had lab billings at a 25-bed hospital in Plymouth, N.C., nearly tripled to $32 million in the year after Perez's company took control?

The lab billings, insurers alleged, were simply fraudulent. Blue Cross Blue Shield and other insurers started filing lawsuits, stopped making reimbursements and shut off the spigot.

At the height of his operation, Perez and his Miami-based management company, EmpowerHMS, helped oversee a rural empire encompassing 18 hospitals across eight states. Perez owned or co-owned 11 of those hospitals and was CEO of the companies that provided their management and billing services. He was affiliated with companies that owned or managed the rest.

Now, with funding from the lab-billing venture dried up, 12 of the hospitals have entered bankruptcy and eight have closed their doors.

The staggering collapse left hundreds of employees without jobs and many more owed months of back pay. Only in recent months did they learn that their medical coverage had been terminated because EmpowerHMS had stopped making payments, according to interviews and bankruptcy documents.

At some of the hospitals, EmpowerHMS stopped paying employee payroll taxes, Perez acknowledged in an interview. Some of the shuttered hospitals owe hundreds of thousands in property taxes, according to local officials.

How companies run by this Miami businessman and his associates were able to drive so many hospitals into the ground so quickly, devastating their communities, is a story about the fragility of health care in rural America and the types of money-making ventures that have flourished in legal gray areas of America's complicated medical system.

Perez styled himself as a savior of rural hospitals. "My only fault is I tried everything in the world to save them," he told Kaiser Health News.

But for the townspeople left in the wreckage, the reality feels more sinister.

EmpowerHMS "is like a curse word," said Tara Brewer, head of the Chamber of Commerce in Sweet Springs, Mo., where the I-70 Community Hospital closed in February, taking with it dozens of jobs and emergency care.

The town's mayor, Francis Vaught, put it more simply: "We were robbed."

Building An Empire On Promises
 

Jorge Perez's company jet never seemed to take off on time.

Whether he was headed to Kansas, Missouri or Arkansas, Perez always was running late, said Scottie Collins, who joined the Empower team in 2017 with the expectation his Florida-based drug rehab program would be integrated into the burgeoning hospital group. It struck Collins as a luxury, given the flight crew charged by the hour, but neither Perez nor his entourage seemed concerned.

In September 2017, Perez and his team swooped into Fulton, Mo., days before the town's nearly 100-year-old hospital was set to close. Fulton Medical Center, with 140 staffers, was a major employer and the only hospital in Callaway County. The hospital had struggled for a quarter-century, escaping closure at least three times as the economic forces battering rural hospitals across America took their toll.

At what was supposed to have been a farewell potluck for the facility's staff, Perez appeared, announcing that he'd just bought the hospital and was keeping it open, according to media reports. From the podium, he delivered what had become his standard pitch in small towns across the Midwest: He saw a community desperately fighting to keep its hospital, and he would help them win.

"He seemed to be a nice enough guy," said LeRoy Benton, Fulton's mayor at the time, "and seemed to say the right things."

If the communities he wooed had the time or capacity to look deeper, they might have seen a red flag: Perez had no experience managing hospitals. Trained as an electrical engineer, Perez helped his father run a medical billing company in Miami that served doctors and hospitals. He repeatedly saw rural hospitals closing, he said, and felt moved to save them.

In 2015, Perez partnered with a company run by a Chicago-based emergency room physician, Dr. Seth Guterman, to take over the Campbellton-Graceville Hospital in Graceville, a town of 2,200 people in the Florida Panhandle.

Perez told the local paper the new ownership group would invest $2 million and reduce costs by 30%. "Consider Campbellton-Graceville Hospital SAVED," enthused the Jackson County Times.

A year later, he invested in a struggling hospital in Williston, Fla., and with partner David Byrns landed a management contract for Putnam County Memorial in Unionville, Mo. In 2017, Perez formed a partnership with Paul Nusbaum, a former secretary of health and human resources in West Virginia, and acquired controlling interest in 10 hospitals in Oklahoma, Kansas, Missouri, Tennessee and North Carolina, swallowing them whole.

"When you rescue a hospital, you rescue a community" was his mantra on social media.

People describe Perez as genial and courteous — "Everybody that knows me says I have a big heart," he said of himself. But his inner circle included some people with questionable backgrounds.

One of Empower's top executives, J.T. Lander, had done time in federal prison after being convicted in 2009 of mail fraud and money laundering while serving as county attorney for Florida's Dixie County. Byrns' criminal record includes an arrest for check forgery at a Louisiana hospital he managed. (Byrns returned the money, and criminal charges were dropped.)

Neither Byrns nor Lander responded to a request for comment; a woman who answered Nusbaum's phone said he was unavailable for comment.

Fernando Barroso, who worked as an assistant controller for EmpowerHMS in 2018, said the company's financial systems were a mess, even as it wrestled with massive debt accumulated through rapid-fire hospital acquisitions.

"I've been an accountant for a long time and I thought I'd seen everything, but I'd never seen anything like this," Barroso said. "It was total disorder."

A Lucrative Venture
 

To generate income for foundering hospitals, Jorge Perez took advantage of federal health care regulations that allow some rural hospitals to bill for laboratory tests at substantially higher rates than other providers. The goal is to keep hospitals that provide vital care in remote areas afloat, by paying generously for the relatively small number of tests needed in such locations.

But several of the Perez-affiliated hospitals established lab programs that reached well beyond the hospital doors. They contracted with outside labs, in other cities and states, to draw and process blood and urine tests for thousands of people who never set foot in the hospital. Insurers were billed using the higher rates afforded the rural hospitals, and the contractors got a portion of the proceeds.

In recent years, Perez and a handful of other rural hospital owners who have established similar operations have defended the billing setup as in alignment with federal regulations. But among some medical finance experts, it's considered legally murky and has resulted in allegations of fraud involving owners in several states.

What is not in dispute is that the strategy can be lucrative. At 14-bed Putnam County Memorial alone, the lab-billing operation generated nearly $120 million in payments to outside vendors in the first six months of 2017, according to internal documents obtained by Kaiser Health News. And a chunk of those payments — nearly $80 million in lab-related charges — went to Perez-affiliated companies, according to the documents.

In interviews, multiple employees said they had no idea what Empower did with the money their hospitals earned, since the facilities seemed perpetually starved for cash.

Melva Price Lilley, an X-ray technician at Washington County Hospital in Plymouth, N.C., recalled regularly being short of supplies. "Sometimes we wouldn't have soap to bathe patients," Lilley said. "We didn't have any crackers, orange juice. We didn't have enough staff at night to run a code."

"They never invested any money in our hospital," she said. "You have to go on top of the roof to adjust the heat or air conditioning with a broomstick."

Perez had taken control of the regional hospital in Drumright, Okla., in 2017 promising brighter days, said Tracy Byers, hospital CEO at the time. Instead, he said, the bills quickly piled up.

"I would dread Mondays as that's when all the certified letters would start showing up in the mail," Byers said. "Typically, by Thursday and Friday, you'd have an idea of what bills you could pay, if any."

Even as the hospitals struggled, Perez, on his own and through Empower-affiliated companies, was investing in real estate in 2016 and 2017, buying up nine South Florida properties that totaled more than $3.7 million, including three condos on Key Largo, according to property records.

In an interview, Perez maintained that the Florida properties were bought with earnings from unrelated software companies. He declined to get into details about his finances. "The little I have left I need to preserve and protect," he said. "I'm as broke today as anybody out there."

A Damning Report
 

In August 2017, Missouri State Auditor Nicole Galloway delivered a stunning blow.

A routine audit of Putnam County Memorial had uncovered questionable financial dealings. From December 2016 to May 2017, Perez and Byrns' company, Hospital Partners, had managed to generate $92 million from lab tests run through Putnam. By comparison, hospital revenue totaled $7.5 million in fiscal year 2016, according to the audit.

The analysis found 80% of that money was flowing to laboratory companies, including some in which Byrns had a financial stake; another 6% to a Perez-controlled billing company; and a major portion to 33 out-of-state phlebotomists — blood draw specialists — they had put on the hospital payroll.

"What was astounding to me was that the hospital was not better off during and after this lab activity," Galloway told KHN.

The reaction was explosive. Dozens of major insurers banded together to file lawsuits against Perez-affiliated hospitals in Missouri and other states, demanding hundreds of millions in restitution. The lawsuits, still ongoing, describe the lab-billing operation as a "widespread fraudulent scheme" that aimed to enrich Perez, some of his associates and affiliated companies, as well as participating labs.

In court documents, Perez has denied wrongdoing and asked for dismissal based on questions of jurisdiction, among other issues. In an interview, he said his billing setup was "done according to Medicare and state guidelines." He added: "I'm still waiting [to see] where we've done anything wrong."

Legal or not, as public scrutiny intensified, the revenue generated by lab tests slowed to a trickle. Blue Cross Blue Shield of Oklahoma dropped four Perez-affiliated hospitals from its network, cutting off a crucial source of funding. Lenders took Perez and his partners to court to force them out of other hospitals.

Across the Midwest, employees were living the fallout. In hospital after hospital, paychecks came late — and then not at all, according to employee interviews and bankruptcy court documents. Doctors quit. Vendors stopped delivering vital supplies.

At Haskell County Community Hospital in Stigler, Okla., former laboratory supervisor Shawna Smith recalled an alarming shortage of antibiotics and IV catheters as early as October 2018. By January 2019, she said, employees weren't getting paid. The Ladies Auxiliary set up a fund for employees who couldn't pay their utility bills. One resident brought packages of hamburger and bison for every employee.

About two hours west, the local middle school in Prague, Okla., held a drive to collect toilet paper and cleaning supplies for Prague Community Hospital. A veterinary clinic delivered medical essentials. Still, supplies fell so low, said City Manager Jim Greff, that the hospital had to stop admitting patients.

At Drumright Regional Hospital, Human Resources Director Allyson Lunsford said they ran out of oxygen and blood. By December, she said, they were so far behind on bills that the company that rented them hospital beds came to repossess them — despite patients still using them.

A Sense of Betrayal
 

By March 2019, seven Perez-affiliated hospitals had closed. And as bankruptcy proceedings unfolded at those and others, employees got more devastating news, according to interviews and trustee reports: Along with missing paychecks, the company had stopped funding their health insurance; their medical and dental policies had been discontinued.

Perez said in an interview that the hospitals were not making enough money to cover their expenses and debt. He said he faced constant pressure about which bills to pay.

"I had a whole executive team of experts, and they made decisions — we all made decisions — of what needed to be paid so we can live another day," Perez said. "Do we pay the medication? Do we pay the pharmacy stuff? Do we pay the doctors? Do we pay the nurse?"

"We felt at that moment we were going to be able to pull out of it in a month or two," he said of the missed payroll taxes. "Hindsight on that looks bad."

In February, the I-70 Community Hospital in Sweet Springs became one of the latest Empower hospitals to shut its doors, leaving its red-lettered "Emergency" sign shrouded in a white sheet. It marks a searing loss for a town where the last dentist recently closed shop and multiple storefronts sit abandoned.

The closure left $300,000 in unpaid property taxes that could have been spent on schools, according to the county assessor. Mayor Vaught said the town lost dozens of jobs. Medical equipment bought with money raised at hot dog fundraisers sits unused.

Brewer, the Chamber of Commerce head, worries Sweet Springs won't survive the hit. "What is it that we're going to have for our kids?" she asked.

It's not clear what recourse the towns have. Bankruptcy court documents indicate the Department of Justice is investigating Perez's companies, though DOJ officials would not comment. Perez has not been criminally charged, but federal prosecutors recently indicted one of his associates.

On July 9, Kyle Marcotte, owner of a Jacksonville Beach, Fla., addiction treatment center pleaded guilty for his part in a $57 million lab-billing scheme involving two Perez-affiliated hospitals, including Campbellton-Graceville. Marcotte admitted cooperating with unnamed hospital managers to provide urine samples from his patients for lab testing that was billed through the rural hospitals and, in exchange, getting a cut of the proceeds. His sentencing has yet to be scheduled.

Perez, who still lives in Miami, said the company jet has been sold and he is turning his attention to software development. He told KHN he is losing sleep over the possibility he could go to jail but was adamant he has operated in the best interests of the communities he sought to serve. If anything, he said, the townspeople should thank him, because he gave their dying hospitals "two to three years of life."

"I wanted to see if I could save these rural hospitals in America," Perez said. "I'm that kind of person."

This KHN story first published on California Healthline, a service of the California Health Care Foundation.

Barbara Feder Ostrov: barbarao@kff.org, @barbfederostrov

Lauren Weber: LaurenW@kff.org, @LaurenWeberHP