As Gallup hospital tries to mend financial wounds, it faces a $68 million judgment

A screenshot from a video of a February 2022 protest in Gallup by residents concerned about management at Rehoboth McKinley Christian Hospital. (Screenshot via protest livestream )

State lawmakers seeking to help rural hospitals stay afloat heard a cautionary tale Wednesday of a Gallup hospital that is millions of dollars in debt, unable to pay its employees, and staring down a massive malpractice judgment.

Bill Patten, interim CEO of Rehoboth-McKinley Christian Hospital, told members of the Legislative Finance Committee that he believes the hospital is finally heading toward solvency after years of scandal and financial shortfalls. Doing so required cash infusions from city and county governments to make payroll, plus a special earmark in the state budget passed this year.

But one wildcard is whether the hospital will be on the hook for a 2019 medical malpractice lawsuit, he said, given that the hospital’s insurance only covers about half of the $68 million judgment a jury awarded earlier this year. 

“One of the things that I can’t talk very much about, but I don’t want to leave the elephant in the room, is the big lawsuit,” Patten told lawmakers. “We’re working closely with our attorney to try and get this resolved within the limits of our insurance.”

The judgment is one of the biggest in state history, the plaintiff’s lawyer Ray Vargas Jr. said in a recent interview. It comes as the hospital racked up operating losses averaging about $15 million the last three fiscal years, according to Bitten’s testimony. 

Meanwhile, the hospital owes $4 million to McKinley County for rent on the hospital it leases, plus about $1.7 million to the city for utilities, $5 million to a staffing company and $2.5 million to a computer vendor, Bitten said. That’s not to mention “several other companies” the hospital owes more than $1 million to, he said. 

“So, that’s sort of the financial situation,” Bitten said to sum up the difficulties the hospital faces as part of his presentation to the LFC, which was meeting in Gallup to hear testimony on rural hospital challenges and oversight. 

Bitten said the hospital and legal team will meet today to discuss its options for appeal in the malpractice case. 

Apart from Gallup Indian Medical Center, RMCH is the only medical provider for the town of 20,000 people and others within a 60-mile radius in northwestern New Mexico.

A historic judgment

A jury awarded the judgment — which has received little publicity — after a Gallup man who is the caretaker of three children sought treatment for a hernia at RMCH and suffered complications in 2018, according to court records. 

Vargas said a doctor convinced his client he could perform a hernia surgery there at the small hospital, instead of referring him to Albuquerque or a bigger hospital elsewhere. A complication during surgery resulted in an infection that led to the patient getting sicker and sicker for days as medical staff did nothing, Vargas said. 

By the time the patient was rushed to Albuquerque, he was almost dead from septic shock, Vargas said. The patient survived but his health still suffers today, his lawyer said. 

In its verdict, the jury awarded the patient and his family $50 million in punitive damages, $15 million in compensatory damages and $1 million apiece for the three children dependent on the patient, according to court records 

Vargas said the judgment is, to his knowledge as a longtime medical malpractice lawyer in New Mexico, the second-biggest in state history. 

In the legislative session that wrapped up in mid-February, lawmakers did not consider a bill that would have capped the amount available to those who died or suffered injuries due to medical malpractice by hospitals, or outpatient facilities overseen by hospitals. 

A long struggle for care

RMCH has been struggling financially since before the coronavirus pandemic, when the Navajo Nation was the epicenter of the virus for several months in mid-2020 and the hospital was flooded with patients. Then-CEO David Conejo, was fired in June 2020, and an audit by State Auditor Brian Colón raised questions about his compensation and a no-bid contract awarded to a board trustee. 

In August 2020, the hospital board hired Community Hospital Consulting, a company based out of Plano, Texas, to take over management and placed a senior vice president there, Don Smithburg, as interim CEO the following month. He said at the time he inherited a “perilous” financial situation due to previous mismanagement and suspension of elective procedures during the height of the pandemic. 

In October, doctors formed a union at the hospital, citing what they said was a culture of fear and intimidation that resulted in firings or resignations of long-time employees and the closure of the hospital’s labor and delivery unit. 

Since then, the hospital has replaced Smithburg with Patten, who came out of retirement after running the hospital in Taos, and, earlier this month, replaced CHC with a new company, Ovation, Patten said. 

To make ends meet, the hospital also received at least $6 million from the county and city to pay employees since last year. Still, the hospital was on the “verge of collapse” in December, said Sen. George Muñoz (D-Gallup), chair of the Senate Finance Committee. 

Muñoz said he convinced lawmakers and Gov. Michelle Lujan Grisham to approve $12 million earlier this year in the state budget to cover “shortfalls” at the hospital. 

The investment put “money back in to get you out of debt so these numbers turn from red to black,” he told Patten on Wednesday. “They may not be large, black numbers, but they’ll be in the black.”

Patten noted a few bright spots for the hospital in an otherwise bleak picture: It has recently increased hiring, including of former employees, and it is increasing revenue by offering more elective procedures. The hospital will begin offering cataract surgery today, for example. 

Not just a rural problem

While RMCH might be an extreme case, a report by the LFC found that government spending will comprise nearly three-quarters of hospital revenues in 2025. The reliance on taxpayer money raises questions about their “financial viability,” according to an LFC report, while also affording the state more opportunity to hold them accountable for mismanagement or poor patient care. 

The report also found that rural hospitals across New Mexico were worse off financially than those in urban areas. A majority of statewide hospitals that suffered net losses in 2022 were nonurban, according to the report. 

Lawmakers this session passed several bills aimed at improving operations at rural hospitals and protecting them from being mined for profit. The Health Care Consolidation Oversight Act, for example, gives the state oversight of hospital acquisitions, and the Health Care Delivery and Access Act structures Medicaid payments to provide greater benefits to rural hospitals.

Muñoz thanked his colleagues for bailing out RMCH but also stressed the importance of maintaining viable health care options across the state for the benefit of rural and urban residents alike. 

“If we don’t get the rural hospitals fixed, we’re going to be at your hospitals knocking at your front door,” he said, referring to urban hospitals, “taking the services out of your community, either by a $70,000 airplane flight, or a two-hour trip to Albuquerque, or wherever it is across the state to try to get those services.” 

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