15-bed Missouri hospital's 2,353% revenue increase raises red flags with regulators

Rural hospitals across the nation are facing financial challenges, causing some facilities to file for bankruptcy or close their doors for good. While many community hospitals are struggling to stay afloat, Putnam County Memorial Hospital, a 15-bed critical access hospital in Unionville, Mo., is more profitable than ever.

Hospital Partners, a Florida-based management company, took over operations of Putnam County Memorial Hospital in September 2016. The management company is co-owned by Jorge Perez and David Byrns, who became the hospital's CEO. Within days of the takeover, another company, called Hospital Laboratory Partners, which also has ties to Mr. Perez, was incorporated in Florida and began billing health insurers for laboratory work through Putnam County Memorial Hospital, including some tests that were not performed at the facility, according to an investigation by Side Effects Public Media, KCUR and KBIA.

According to a report released in August by Missouri State Auditor Nicole Galloway, Putnam County Memorial Hospital generated $92 million in revenue in the six months after the new laboratory billing arrangement was implemented. This represented an increase of approximately 2,353 percent when compared to the previous six-month period, as the hospital's revenue for the year before totaled $7.5 million.

The auditor claimed Putnam County Memorial Hospital acted as a shell company by submitting claims for other labs and funneling the insurance payments through the hospital.

"Based on our review of hospital accounts, the vast majority of laboratory billings are for out-of-state lab activity for individuals who are not patients of hospital physicians," stated the auditor's report.

The auditor's report noted 80 percent of the revenue went to various lab companies, some of which had ties to Mr. Perez. A public records request of the hospital by Side Effects Media revealed the hospital paid more than $26 million to Hospital Laboratory Partners between November 2016 and March 2017.

The auditor's report showed 6 percent of the hospital's revenue from the lab program went to a company that handled the hospital's billing, and the public records request revealed the billing company was registered by Mr. Perez in 2014.

Ms. Galloway has turned her findings over to the Missouri attorney general, the FBI and the Putnam County prosecuting attorney.

Mr. Perez defended the lab billing practices. He said the billing program at Putnam County Memorial Hospital is legal and a necessary lifeline for struggling community hospitals, according to KBIA.

Marc Hartstein, a former Medicare official with expertise in government billing and payment regulations, told KBIA the situation at Putnam County Memorial Hospital raises a lot of questions because of the drastic change in laboratory referrals after the change in ownership.

Brian Bauer, a shareholder with the health care law firm Hall Render, told KBIA the billing arrangement could cause financial troubles for Putnam County Memorial Hospital. According to Mr. Bauer, when insurance companies strike agreements with rural hospitals, they aren't expecting the hospital to have a lab program that generates tens of millions of dollars annually. The high-volume lab referral program at Putnam County Memorial Hospital may cause insurers to try to recoup their money, leaving the hospital on the hook with no way to repay the funds.  

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