Provider with ties to lab billing scheme may close

(Story updated Dec. 2)

Two rural Texas towns are poised to lose their only hospitals and related clinics next week after their bankrupt owner likely was involved in a lab test billing scheme and has not signed on a new operator.

Rockdale, Texas-based Little River Healthcare, which employs more than 600 people, says it can no longer pay its bills under its bankruptcy proceedings and is unable to find a buyer for its facilities. It is seeking to convert its bankruptcy case to Chapter 7, under which a trustee would liquidate its assets and shut down. Little River would shutter on Dec. 7.

Little River announced the potential closures in a Nov. 30 letter to employees from the company's chief restructuring officer, Ronald Winters. Winters did not return a request for comment.

"We are doing everything we can to keep that from happening, including working with a strategic partner to help facilitate a smooth transition in ownership," the letter said. "We thank you for all of your efforts on behalf of the Company."

Since the company originally filed for Chapter 11 bankruptcy in July, it has not been able to make necessary payments, including payroll for the week ended Friday, Nov. 30. Records show the company already owed more than $1 million in unpaid wages.

In a Nov. 30 filing, Little River said its lender, Chicago-based Monroe Capital Management, has refused to fund numerous budget requests from the company, including $700,000 for the week ended Nov. 30.

Monroe "asserts it has been unable to obtain the necessary internal approvals to provide such financing and insists the Debtors make due solely through the use of cash collateral," the court document stated.

Court records show Monroe is also Little River's largest creditor. Little River owes Monroe about $53 million. Representatives for Little River, including its attorney, and Monroe could not be reached Saturday for comment.

Several Facebook users whose profiles identified them as Little River employees posted on the social media site that losing the hospitals and related physician practices would devastate their communities. Some wrote that they were praying for a new owner to step in. Little River operates the only acute-care hospitals in Rockdale, whose population is roughly 5,600, and Cameron, with a population of roughly 5,500, according to the Texas Hospital Association.

Little River's flagship critical-access hospital in Rockdale, Little River Healthcare–Rockdale Hospital, reported 182 acute inpatient discharges and an average daily census of three last year, according to Modern Healthcare Metrics. The Cameron hospital reported 28 acute inpatient discharges last year and an average daily census of zero, according to Metrics data.

Little River's associated physician practices employ 63 doctors, but records show it has not managed to keep up with payroll. The company operates imaging centers, surgery centers, rehabilitation centers and physician practices, mostly in central Texas.

In recent years, struggling rural hospitals have struck deals with lab test companies under which they bill insurers for high volumes of lab tests for out-of-state patients that in some cases were not performed in those facilities. But a problem arises when commercial insurers stop paying or try to recoup money they determine violated their contracts. In several cases, the hospitals at the center of the schemes have had to close.

In Little River's case, court records show commercial insurers are either refusing to pay Little River's lab claims or trying to claw back money they paid for lab services.

A Modern Healthcare investigation found the company's flagship Rockdale hospital reported extremely high lab outpatient lab charges in 2015 and 2016: $213.6 million and $372.2 million, respectively. Outpatient labs accounted for 62% of the hospital's total charges in 2015 and 86% in 2016. Other hospitals Little River previously managed showed similar spikes.

UnitedHealthcare is Little River's second-largest creditor, at about $39 million, according to court records. Aetna says Little River owes it more than $27 million. Blue Cross and Blue Shield of Texas claims the company owes it about $26 million.

Ryan Downton, formerly Little River's chief legal officer, says the company owes him nearly $2.7 million. Dozens of service providers, physicians and other insurers are also listed as creditors.