A federal economic relief package passed by Congress in March promised to provide a lifeline for hospitals, particularly those in rural communities where many facilities struggled to survive even before the coronavirus pandemic.
But over the past 10 months, the distribution of more than $100 billion in CARES Act funding for health care providers has been plagued by a dizzying rollout and, at times, contradictory guidelines for how to use the funding.The result has been a patchwork of problems for rural hospitals, which were already at far greater risk of closure than other health care facilities and in dire need of help, The Frontier and ProPublica found. The scope of those problems is clearly visible in Oklahoma, which tied for the third-highest number of hospital closures in the country in the nine years before the pandemic.
One hospital used more than $1 million in federal aid to pay off its years-old debt to a management company that left before Oklahoma’s first coronavirus case was diagnosed, a potential violation of federal guidelines that could require the hospital to return the money, according to experts.
Three Oklahoma hospitals that were purchased last year after filing for bankruptcy were unable to access more than $6 million in funds deposited by the Department of Health and Human Services, the agency in charge of the rollout for health care providers. The money was instead deposited into accounts tied to the previous owners, leaving the new owners with few options as they tried to keep the facilities from becoming insolvent.
And administrators at yet other hospitals have left millions in relief aid untouched, spiraling deeper into debt for fear that the wrong decision could force them to return money.
“Every day we have new rules, new guidelines, and it’s a struggle,” said Shelly Dunham, CEO of Okeene Municipal Hospital in western Oklahoma. Dunham said she used only $50,000 of the $3 million the hospital received in April and May because of concerns that the facility would have to return the money. “I can’t say we need more money right now. We just need to be able to keep what they’ve given us.”
Under the CARES Act, funding can be used to prevent, prepare for and respond to the coronavirus or to help with expenses or losses caused by COVID-19. The problem is in the details, which Congress left to HHS.
HHS has primarily managed concerns by publicly releasing responses to more than 100 frequently asked questions. Those responses have sometimes contradicted previous guidance from the agency, leaving health care providers confused about how money can be used and what the agency would seek to claw back. The whipsawing guidance has covered a range of topics, including how health care providers could calculate losses from the pandemic and whether they could use the money to pay for long-term capital improvement projects such as new heating, ventilating and air conditioning systems.
“Hospitals’ challenge right now is keeping their doors open and paying their debts,” said Carrie Cochran-McClain, vice president of government affairs and policy for the National Rural Health Association. “There is not enough flexibility to help providers really use the funds as Congress intended for the kinds of things that they need to address for COVID.”
Rural hospitals across Oklahoma and the country are disappearing at an alarming pace that could hasten without help from the federal government, Cochran-McClain said. In 2019, the year before the coronavirus pandemic, rural hospital closures reached a record high, with 18 nationwide. Texas led the country with three closures. Tennessee, Kansas and Oklahoma followed with two each.
Last year, despite the infusion of federal funding, another 17 rural hospitals shuttered, bringing the total number of closures since 2005 to 176.
Unlike larger, wealthier facilities, rural hospitals often have only a few weeks’ worth of cash on hand to operate with. Experts have warned that even with the federal relief aid, many hospitals would struggle. But without it, they would surely fail.
“There was a tussle between the desire early on to get funds out quickly into the hands of people and providers who need it first, and also a compelling need to have oversight of where the money is going,” said James Cosgrove, health care director for the Government Accountability Office. After the first distribution of $50 billion in April, the GAO found that the federal government had sent $558,000 to four closed hospitals that either declined or returned the money.
The Frontier and ProPublica found six other hospitals that closed in 2019 but received more than $3.2 million combined in federal relief payments. More than half of the money went to a hospital in Ellwood City, Pennsylvania, that closed in December 2019 after state inspectors found unsafe conditions for patients.
The relief money was being used for security and to respond to medical records requests until Ellwood City Medical Center could be sold, a bankruptcy trustee said in a December 2020 court filing. The trustee did not respond to requests for comment.
An HHS official said the agency is “in the process of recovering payments” from hospitals that permanently closed before Jan. 31, 2020, but would not say how much it was pursuing or identify any closed facilities that had received aid. Officials said they could not comment specifically on the six hospitals identified by The Frontier and ProPublica because the agency does not release information on individual facilities.
The distribution of funding for health care providers is just one example of complications with the sweeping $2 trillion CARES Act. More than $174 billion in temporary tax breaks benefited mostly wealthy people and large companies. The Paycheck Protection Program, another effort aimed at helping small businesses stay afloat, drew widespread criticism after large companies, including the restaurant chains Ruth’s Chris and Shake Shack, qualified for loans, while smaller struggling businesses were shut out. Ruth’s Chris and Shake Shack later agreed to return the money.
The hospital rescue program similarly helped wealthier facilities pad their bottom lines, while poorer hospitals struggled. In the first round of funding, wealthier hospitals received a larger share of the $50 billion than poor and rural hospitals, according to a report from the Kaiser Family Foundation, a health policy research organization. The report found that those hospitals with a larger share of revenue coming from private insurers received about $44,000 per bed, while poor, rural hospitals got about half that amount.
Subsequently, HHS set aside billions more for rural health care providers and for hospitals with a higher percentage of COVID-19 patients. But that wasn’t enough to make up for the inequities, said Karyn Schwartz, a senior fellow for Kaiser.
“I think they (HHS) were under a lot of pressure to do it quickly, and so they prioritized a quick and simple formula over really targeting the money towards the providers who might be most vulnerable,” Schwartz said.
HHS officials said they have repeatedly made improvements to the system in response to feedback from Congress and health care providers. The agency has changed the way it distributes money, seeking a formal application instead of releasing funding to all hospitals. A new $900 billion pandemic relief package passed in December also gave hospitals more flexibility in calculating revenue losses from the pandemic.
“HHS has balanced the need for flexibility in use of funds to stabilize the health care system with program integrity requirements and the responsible use of taxpayer dollars,” the agency said in a statement released before President Joe Biden took office.
As rural communities across Oklahoma began experiencing an uptick in COVID-19 cases, the new owner of the only hospital in the small Oklahoma town of Prague fought for access to part of $3.2 million in federal relief aid.
The Prague Community Hospital was one of three that in June asked U.S. Bankruptcy Court Judge Joseph Callaway to help them solve what appeared to be an intractable problem.
The facilities, which included the Fairfax Community Hospital and the Haskell County Community Hospital, were among 11 that entered bankruptcy in 2019 amid accusations that the company that owned them, EmpowerHMS, had engaged in fraud. In a federal indictment unsealed in June, prosecutors accused the company’s owner, Jorge Perez, and nine others of a scheme that allowed rural hospitals to bill at higher rates for blood and urine tests performed elsewhere. The case is set to go to trial in September 2021. Perez and eight other defendants have pleaded not guilty. A tenth defendant has not yet appeared in court.
The CDC says health facilities should report unused and spoiled COVID-19 vaccines, but many are failing to do so. At a time when there aren’t enough shots to meet demand, significant numbers may be going in the trash.
Each Oklahoma hospital owned by the company was auctioned off by a bankruptcy trustee in charge of settling financial debts incurred under EmpowerHMS.
After unexpected revenue losses from the pandemic, the new owners banked on federal funding from the hospital relief package. But when the money was dispersed, they got nothing.
HHS had instead deposited a total of $6.4 million into accounts connected to the hospitals’ previous owners and managed by bankruptcy trustee Thomas Waldrep.
Since federal rules prevented the money from being transferred, it had to be returned to HHS, Department of Justice attorney Michael Quinn said during a June bankruptcy court hearing.
The new owners would have to wait for another round of relief, Quinn said. Even then, they may not qualify because the money was distributed using the hospitals’ 2019 tax identification numbers and none of the current owners controlled the facilities at the time.
“This is not specific to this case, this is a response to an enormous program of unprecedented size that rolled out billions of dollars on an emergency basis to provide relief and used estimated data to get the money out the door as fast as possible,” Quinn said during the court hearing. “As soon as that happens though, that creates an expectation that, in some cases, the money will not go and land in the correct place. And here, it happened to land in the middle of a corporate sale of an asset.”
Waldrep, the bankruptcy trustee, later said in an interview that he believed the new owners should get a portion of the relief aid but he was hamstrung by the federal rules. The trustee also wanted to use a portion of the money to pay some of the hospitals’ debts from before the sale, including his fee and charges from the management company that operated the facilities during the transition.
“This puts our clients in a very bad position in terms of the continued delivery of care in these very critical needed areas,” Hugh Robert, an attorney for Transcendental Union with Love and Spiritual Advancement, said during the hearing. The Tulsa-based nonprofit that purchased the Prague Community Hospital in May.
Attorneys for the new owners of the three hospitals and for Waldrep asked the judge to allow them to use the money despite objections from the federal government. During the hearing, Callaway grew increasingly irritated at what he viewed as the federal government’s failure to help the clearly struggling hospitals.
The lack of guidance and flexibility from the federal government endangered hospitals instead of helping communities keep them open, Callaway said.
“We don’t do things like this around here,” he said. “All I hear are reasons from the government of why it can’t be done, instead of reasons why it can be done.”
The judge eventually allowed Waldrep to reach agreements with the hospitals. As part of the final plan, Waldrep could use about $750,000 to pay his fees and expenses for overseeing the bankruptcy cases. He would use another $1.4 million to pay Cohesive Healthcare Management and Consulting, which operated the hospitals in bankruptcy.
Some of the money would also go to expenses that were incurred before the sale but were directly related to COVID-19.
The Fairfax and Prague hospitals would each then receive a portion of the remaining $4 million. But because the federal government threatened to later take back money it determined was misused, the hospitals would have to obtain a line of credit that would protect the previous owner from any collection attempts.
Dr. Vishal Aggarwal, who founded the nonprofit that purchased the Prague hospital, said he was never able to secure the financing that would serve as collateral because of the facility’s poor financial state.
“If a second wave hits us, we are doomed,” Aggarwal said in an interview.