Some Rural Hospitals Are in Such Bad Shape, Local Governments Are Practically Giving Them Away

John here. This article provides an interesting view of the economics of rural hospitals, which are closing at an alarming rate. In particular, it highlights how counties often negotiate from desperately weak positions, even when they have invested in the infrastructure. Another recent KHN article reported on the start-up Noble Health, which took over two rural hospitals in Missouri and ran them into the ground, eventually leaving stuff underpaid and uninsured. Counties have few options that don’t result in both deteriorating health care and increased cost.

By Blake Farmer, a healthcare journalist with Nashville Public Radio. Originally published at Kaiser Health News

ERIN, Tenn. — Kyle Kopec gets a kick out of leading tours through the run-down hospitals his boss is snapping up, pointing out what he calls relics of poor management left by a revolving door of operators. But there’s a point to exposing their state of disrepair — the company he works for, Braden Health, is buying buildings worth millions of dollars for next to nothing.

At a hospital in this rural community 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.”

Not only is Kopec young, he had limited work experience in hospitals before helping lead a buying spree by Braden Health. His prior work experience includes a three-month stint as an intern in the Trump White House, on assignment through his volunteer position in the U.S. Coast Guard Auxiliary. He worked his way through college at Braden Health’s clinic in Ave Maria, Florida, and became a protégé of Dr. Beau Braden, the company’s founder. Now Kopec’s official title is chief compliance officer, second in command to Braden.

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.

“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 acquired or affiliated with the hospitals that have the fewest problems, Topchik said. And what’s left has been picked over by operators, some of which 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.”

Braden, an emergency room doctor and addiction specialist, used his savings and inherited wealth to get into the hospital-buying business in 2020. Previously, he 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.

Braden Health’s corporate headquarters has 40 employees, according to Kopec. It’s 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.

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.

“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.”

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.”

This story is part of a partnership that includes Nashville Public RadioNPR, and KHN.

Print Friendly, PDF & Email


    1. KLG

      Facilities are often a county responsibility. Public hospitals across the country have traditionally been run by a local Hospital Authority, which is a quasi-public entity. The chairman and members are generally local professionals and business, religious, and civic leaders, supposedly with the good of the community in mind at all times.The model has worked and still works in many places, although large hospital chains seem to have the upper hand at the moment. The vulture can be big or little, depending on the size of the hospital and community. Our local “public” hospital is owned by a hospital chain based in an adjacent state. This is a very large tertiary care facility that takes patients from a 100-mile radius. According to local lore the new Hospital Administrator has a salary in the high seven figures. But his title has a “C” in it, so all is good. The Hospital Authority seems to still exist on paper, but it is apparently a paper tiger.

    2. Spicer

      In Texas, counties can create Hospital Districts which levy property taxes to pay for their operations. The county hospital is where you go if you’re uninsured. Many of the lightly populated counties can’t raise enough property tax to support a hospital.

    3. Carla

      The county I live in encompasses 59 municipalities. Each used to maintain its own public health department, and the county had various public health responsibilities as well, including ownership and operation of a large public hospital. As the federal government and the state of Ohio have constantly cut funding of all kinds to cities, one by one, the local health departments have closed, leaving the county health department the only one standing to my knowledge. The public hospital survives and actually thrives, thanks to constant charitable fundraising as well as substantial tax revenue. It’s very difficult to see how any small rural hospitals survive in neoliberal land.

    4. scott s.

      Well, where I grew up Milwaukee County General Hospital was created in 1860 at the County Poor Farm to care for the indigent. Also familiar with New Orleans (parish) , Charity Hospital was founded in 1736. So I would guess the answer is “a long time”.

      But here in Hawaii the state DoH runs them, and contracted out Maui County Memorial hospital to Kaiser. That hospital had been established as Malulani Hospital in 1884 by the Queen. The Kingdom DoH also operated a “county” hospital at Kalawao County (as it was designated when Hawaii became a territory) at what was referred to then as a “leper colony”.

  1. LAS

    This is part of a larger discussion, about how infrastructure disappears and how spatial inequality grows wider and wider. For those living in the wrong place at the wrong time, opportunities decline over time. Health access is one manifestation of it, but not the only one. Policy makers refer to it as practicing “benign neglect” only it is actually not always so very benign.

  2. Jeremy Grimm

    Braden Health sounds like quite an angel in this little NPR report. I hope things work out that way and I wonder how many of the other parties snapping up rural hospitals are similarly angelic. Do some angels have a dark side. As I recall that was a problem with one of heaven’s most brightly shining angels …

    Some of the details do not entirely add up for me:
    “Braden Health’s corporate headquarters has 40 employees … $2 million in monthly revenue from the one hospital it ran in Lexington, Tennessee … $7.5 million cash on hand … Braden Health has signed deals for three other failing or failed hospitals and has looked at acquiring at least 10 others”
    Given that buying these run down hospitals where only an old ambulance might have recoverable value and the purchase is contingent on commitments to invest in getting the hospital medical equipment replaced, building repaired and building facilities updated, and even accepting that the true value of these buildings and real estate are the assessed value of next to nothing, I think there need to be a few more angels dancing on the head of this pin to balance the books.

    This story suggests that poor management lead rural hospitals into failure and county government officials lacked the know-how but were unable to locate and hire or contract for effective hospital management. Somehow, in spite of tax support from the county — in hard to gauge amounts based on this report — the exemplar rural hospital was unable to break even or invest in new equipment, not even a decent HVAC system. What kind of magical expertise does Braden Health bring that can turn things around?

    “Braden, an emergency room doctor and addiction specialist…” An E.R. doctor and addition specialist with the special know-how to save rural hospitals. I wonder what kind services the refurbished rural hospital will provide and who will foot the bill. I wonder what the fine print in the purchase agreement has to say. Even though Braden Health is a limited partnership is there some way to find out how many of the limited partners are or were in the county government?

    1. JG

      I’d be interested to find out how taxes figure into the mix. It would seem that with corporations supplanting Mom and Pop establishments in every hamlet across the land would pull needed tax monies from local coffers as well as the not so ubiquitous 501c3’s of which there seems to be an increasing number littered amongst all communities.

      1. Jeremy Grimm

        When I was going to college, I worked for a while as a night guard/switchboard operator at a small private hospital in a large urban city. One doctor with admitting privileges at that hospital was one of the biggest money makers for the hospital. He specialized in serving patients on state Medicaid. Various members of the graveyard nursing staff told me he typically saw on the order of two hundred patients a day in his practice. Many of his patients were admitted to the hospital for de-tox treatment for alcohol and or drug abuse. His patients were typically the largest proportion of patients in the hospital at any given time. The nurses also said the good doctor was pulling in on the order of $2 million/year as a General Practitioner way back in the 1970s — although I am not sure whether that was his gross or net billing.

        I have no inside information on what areas of medical practice net the greatest profits, but Medicaid de-tox, especially these days seems a likely possibility. I imagine E.R. also does very well, and Medicare med-checks and routine physicals would also seem promising. I suspect Braden’s hospitals will focus their attentions on providing those medical services which are most lucrative and require the least investment in physical capital. This is one way of suggesting the Braden Health network may not provide the same kind of medical services that the dead and dying rural hospitals they are taking over, once strove to provide. I believe this is a story of hubris replaced by a fixation on maximizing profits. I think one could say that in Neoliberal terms, the Market is working to provide pareto-optimal medical services to the rural population.

        After seeing a very small amount of what goes on behind the wizard-curtain in local government — I also wonder how many local oligarchs profited from pillaging the real estate, contracting, and supply opportunities a local hospital can provide. I also wonder how hospital management is so difficult with so few managers effective at managing the provision of high quality medical Care, as opposed to providing profitable or prestigious medical services. I am pessimistic that the wonders of the Market will cobble together an effective medical care system from the ruins of the old system.

  3. Dave in Austin

    The key fact is ““Braden Health’s corporate headquarters has 40 employees”. No small hospital can afford the software and staff used by the big ones to (legally) code the procedures and hospital stays in a way that meets Medicare regulations and yet at the same time maximizes the income stream. And 40 employees implies a lot of startup capital.

    There is a constant war being fought between Medicare trying to keep costs down and the providers trying to get the allowable costs up. Both sides have to “bulk up” and use the latest software. That’s why your hospital bill is so long and filled with minutia. If a code slides through use it again; if not try a new one. “2 cotton swabs and packaging: $2.55”. Ask any doctor you know personally how the coding game is played. They may hate it and think it is absurd but they- or more exactly the groups they work for- all have to do it.

    The “old X-ray machine versus new one” cited is the perfect example. The hospital has an old one and gets little money from Medicare. Braden either has a master leasing agreement or even better, a financially sound affiliate which has a good credit rating and bills for service. And the affiliate may even be managed by the 40-person Braden staff under a contract.

    This is the hardware version of “the new insulin costs 20 times what the old one does.” The difference in this case is that Braden has spotted a real niche and apparently provides a real service. Apparently.

    Finally, about young Kyle: “His prior work experience includes a three-month stint as an intern in the Trump White House, on assignment through his volunteer position in the U.S. Coast Guard Auxiliary. He worked his way through college at Braden Health’s clinic in Ave Maria, Florida, and became a protégé of Dr. Beau Braden, the company’s founder.” What an interesting and unusual Lewinskyish path to a White House intern job.

    A quick Goggle says Kyle T. Kopec seems to have some roots and spends time in Maine, apparently belongs to a yacht club near Annapolis, MD, is connected to a manufacturer of marine diesel equipment in California and in his spare time occasionally fliesa light plane more than a 1,000 miles for enjoyment and has traveled around Poland. Nothing illegal or unseemly, but he has all of the signs of money- and such an interesting position for a 23-year old.

    So who’s your daddy, Kyle? Anybody with more research skills have any information?

  4. Glen

    Even the people that “know” how to run them are running hospitals into the ground. How else do you explain Obamacare except as a massive bailout of a failing system?

    1. Jeremy Grimm

      Obamacare was a massive package of government giveaways to the Medical Industrial Complex. It was no bailout for a failing system. It was a massive aid and incentive to fully privatize and maximize profits for providing medical services.

      I do not know the background of the decline of the old hospital systems. I strongly suspect that the old systems did not fail in the usual sense of the word. Rather, the old systems were greatly helped into failure much as the U.S. Post Office is being helped into failure. I do agree that the old system of providing medical care was deeply flawed. Obamacare was no balm for those flaws … I believe it is quite the contrary.

Comments are closed.