Community frets as buyer for cherished rural hospital slips from view

Jul 27 2018

Confusion is growing in the remote Surprise Valley region of northeastern California as locals wonder whether a Denver entrepreneur will make good on his pledge to save their bankrupt rural hospital.

Surprise Valley Community Hospital, located in Cedarville, Calif., was featured in a June 6 California Healthline story illustrating the plight of strapped rural hospitals and controversial efforts by some to stay solvent through laboratory billing for patients never treated on-site.

Beau Gertz, who owns Denver-based Cadira Labs and other health-related businesses, proposed such a plan, saying faraway patients could be treated through telemedicine. Hospital district residents voted in June to approve his purchase of the 26-bed public hospital for $4 million.

But Gertz hasn't been seen around town since late spring and websites for his Denver businesses have been shut down, including those for his labs that would presumably do the billing. Four ex-employees, who spoke on condition of anonymity for fear of retaliation, said they and the rest of his Colorado-based staff were laid off.

The entrepreneur's landlord, David North, said earlier this month that Gertz's Denver office building has been empty for weeks. Gertz did not respond to emails, texts or phone calls.

Gertz's low profile in recent weeks has perplexed residents, some of whom struggled over the decision to sell the hospital to an outsider. Some had been suspicious because plans by a previous "white knight" — and former business associate of Gertz's — to save the hospital through remote lab billing fell through last summer. Also, some were frustrated when Gertz said in a public meeting that he was under no obligation to provide the community with his “financials.”

“I've never met a businessman who operated the way he would, investing in something that’s losing money," said Amy Beller, 63, a retired graphic designer who lives in Cedarville and had talked with Gertz at a town hall meeting. “There was nothing there to make me think he was there to help Surprise Valley. I thought he was disingenuous.”

Members of the hospital district board, which planned to meet Wednesday, have declined to comment on the status of the sale. Hospital administrator Bill Bostic said he had spoken to Gertz several times and that the sale is "on track," but would not elaborate on the timetable or Gertz's whereabouts.

"We're going through a process. It's complicated, it's legitimate," Bostic said. "We're just trying to keep open, we're not doing anything underhanded. All we're trying to do is save our hospital."

State officials said they have received no application from Surprise Valley to transfer ownership or management of the hospital. The state Department of Public Health must approve all such changes, a process that can take months.

Enticed by out-of-town investors, Surprise Valley and other struggling rural hospitals around the country have embraced lab billing for faraway patients as a rescue plan. That's because Medicare and commercial insurers tend to pay more for tests to sustain endangered rural hospitals, compared with how much they pay urban hospitals and especially outpatient labs.

In general, this kind of remote billing is controversial and legally murky, and it recently has resulted in allegations of fraud in several states, according to government documents and media reports.

In the run-up to the vote, Gertz described his plan as perfectly legal. He said the hospital, after taking over one of his Denver labs, could legitimately bill for patients treated remotely through video and other telemedicine technology. The idea appealed to many Surprise Valley residents, desperate to save a facility facing imminent closure. Without a buyer, experts said, property owners in the district could have been responsible for repaying the hospital's mounting debts — estimated at up to $4 million.

The hospital is considered crucial by many residents, largely because of its 24-hour emergency room. These days, all but two of its beds are dedicated to nursing home patients. The next nearest hospital with an ER is about 25 miles away over a mountain pass.

Janna Bennett, 61, a public health nurse who once worked for the hospital, said she still hopes Gertz will deliver on his ideas for a world-class "destination hospital" that he had promised in community meetings.

"If the deal falls through, I'll be disappointed. I'll be angry," she said.

It is not clear whether one of Gertz's investors, the Knights Genesis Group with offices in New York City, Shanghai and Beijing, continues to back him financially. Eric Cho, who answered the telephone at the firm's New York office in late June, confirmed that Knights Genesis was working with Gertz but declined to elaborate. No one else from the company since has responded to calls or emails.

If the deal collapses and the hospital cannot find another buyer, residents say it will be a sad end for a facility that opened in 1952 and once was the pride of the community, according to Jim Laacke, a retired forester from Cedarville who once served on the hospital's board.

"This hospital is an idea, generated by the people who were here and a doctor who was much-loved. It is a thing the community created," Laacke said. "It's hard to think about it just disappearing."

This story was produced by Kaiser Health News, which publishes California Healthline, a service of the California Health Care Foundation.