A photo of a building that's home to Washington Regional Medical Center
Photo credit: Washington Regional Medical Center.

By Liora Engel-Smith

An Eastern North Carolina hospital in bankruptcy may soon have a new owner. The Texas-based Affinity Health Partners, a consulting firm that has been charged with managing Washington Regional Medical Center throughout the bankruptcy proceedings, said it will buy the hospital from current owner HMC/CAH at the end of January.

But as of last week, Affinity has yet to prove that it has the necessary funds to do so. At a court hearing in Raleigh last week, Affinity CEO Frank Avignone said that he will have the money before the Jan. 31 deadline but said his investors declined to provide written proof of their intent to finance the sale.

A first-time hospital buyer, Affinity wants to turn the for-profit facility into a referral hub and has promised to construct a new hospital building in the process.

“There are no guarantees in this business but I have motivated high net worth individuals who are ready and able to fund our projects,” Avignone wrote in an email Friday.

A bankruptcy judge on Thursday approved the sale pending review of a document that outlines the purchase and its terms.

In a challenging health care environment where rural hospitals struggle to stay afloat, Affinity —

the only company that bid on Washington Regional at auction — is shaping up to be a last resort to keep the hospital solvent.

But without proof of funding, questions about the hospital’s immediate future remain.

“I’m cautiously optimistic,” said County Manager Curtis Potter. “I certainly hope that they are able to pull the money together to continue and improve operations. If they are not able to do that, then I think it’s going to be a case of trying to look at what’s the next best thing.”

Old and new challenges

By Avignone’s telling, purchasing Washington Regional is a sound investment. Located within driving distance of the Outer Banks, a popular tourist destination, the hospital could care for visitors on their way home from vacation at the popular barrier islands, he said. Avignone said the hospital could also become a destination for the region’s aging population, and perhaps even a referral hub to larger area hospitals.

The 25-bed facility in Plymouth has had a series of hardships in recent months, including a temporary closure in February and two missed payroll payments to its more than 90 employees at the end of last year.

The current bankruptcy case is the second since Washington County, which originally owned the hospital, sold it to rural hospital chain HMC/CAH in 2007, a company that managed and eventually closed another hospital in North Carolina. Court filings show that HMC/CAH owns several other rural hospitals in Missouri, Kansas, Oklahoma, Arkansas and Florida, most of them either closed or in bankruptcy. 

A major employer in Washington County, the state’s fastest shrinking county, Washington Regional appeared to have been headed for closure too.

When Washington Regional began diverting patients elsewhere for lack of funds last February, residents shared their worries on the hospital’s Facebook page.

“Lord knows we need this hospital,” wrote one of them. “My elderly mother as well as other elderly citizens of this country need this hospital! I can not imagine having to drive my mother upwards of 30 minutes to an hour for an urgent situation!!”

But the trouble didn’t end even after the hospital reopened its doors under the management of Affinity a few months later. Right before the holiday season, the hospital couldn’t pay employees for lack of funds.

Avignone blamed the cash flow issues on a lag in Medicare payments. By Thursday afternoon’s bankruptcy hearing, Avignone said he had righted the ship. Employees were paid and the hospital made subsequent payroll payments on time.

In a December press conference about the payroll problems, Avignone said he did not know why claims stalled but later said Affinity is working with the Centers for Medicare and Medicaid Services and the U.S. Department of Justice to resolve these issues.

“All of us are scratching our heads trying to figure out why this is where it is,” he said.

‘Questionable lab billing practices’

Court documents and other media accounts hint there may have been another reason for the Medicare payment delay. The North Carolina Department of Health and Human Services commissioned a consultant’s report that found that a jump in the hospital’s operating revenues in 2017 due to “questionable lab billing practices,” according to a Feb. 20, 2019 court filing.

Billing for lab services jumped from roughly $11 million in 2016 to $32 million a year later, according to a report published last year by USA Today. Other hospitals in the HMC/CAH chain have seen similar jumps, which were later attributed to billing for lab tests they did not perform on-site.

The U.S. Department of Justice declined to comment on the matter last week, and CMS did not respond to an inquiry seeking comment.

Avignone said that he cannot comment on active litigation, but said that Affinity isn’t liable for actions that took place before his company took charge of the hospital.

“It is my understanding that due to my full cooperation with the DOJ, CMS and the State we have everything agreed to in principle and now we just need to memorialize it in an agreement and move forward with the sale,” he wrote in an email.

Still, he reiterated, Affinity wants to revive Washington Regional out of a sense of duty.

“I have invested and risked everything I have because I have looked into the eyes of those who have visited my emergency room who have nowhere else to go!” he wrote. “Go to my hospital, sit in the emergency room, visit my patients on the floor and you tell me after if I have a choice! Issues with the DOJ? That’s a negotiation and a visit to Washington DC to work that out. One of my [patients’] lives … No choice there.”

How we reported this story:

  • Reviewed court documents and previous coverage on the topic
  • Attended a bankruptcy court case in Raleigh
  • Reached out to government agencies
  • Sought comment from parties involved in the case

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Liora Engel-Smith joined NC Health News in July 2019 and covers policies, programs and issues that affect rural areas. She has previously worked for the The Keene Sentinel in New Hampshire and the Muscatine...