Why a Missouri hospital can't afford accounting help after a 2,353% spike in revenue

Putnam County Memorial Hospital, a 15-bed critical access hospital in Unionville, Mo., is on shaky financial footing after ending questionable lab billings that landed it at the center of a $90 million fraud scheme.

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 Putnam County Memorial Hospital's CEO. Within days of the takeover, another company, 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 not performed at the facility, according to an investigation by Side Effects Public Media, KCUR and KBIA.

According to a report released in August 2017 by Missouri State Auditor Nicole Galloway, Putnam County Memorial Hospital generated $92 million in revenue in the six months after the new lab 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.

Although the hospital saw a significant increase in revenue due to the lab billings, the hospital did not keep most of the additional funds. 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.

Ms. Galloway turned her findings over to the Missouri attorney general and the FBI, and Sen. Claire McCaskill, D-Mo., subsequently called for a federal investigation.

Mr. Perez defended the lab billing practices after the audit report was released, arguing the billing program at Putnam County Memorial Hospital was legal.

Earlier this month, Ms. Galloway's office released a follow-up audit report that revealed Putnam County Memorial Hospital terminated the management agreement with Hospital Partners in February. The follow-up report also showed the significant increase in lab billings did not improve the hospital's financial position.

"This scheme was presented as a way to address the financial condition of the hospital, but today, the revenues and the cash balance of Putnam County Memorial Hospital remain the same as before the hospital started serving as a shell company for these billings," Ms. Galloway said.

Putnam County Memorial Hospital has operated at a deficit for several years, and its annual operating losses have grown over time, according to the follow-up report. The hospital's operating loss was $3.6 million for the year ended June 30, 2016, which is more than four times its operating loss of approximately $900,000 in fiscal year 2013.

Putnam County Memorial has implemented changes recommended in the original audit, but it cannot afford to hire an accounting firm to work with the hospital, according to the follow-up report.

"The board is working to prioritize responsible oversight of hospital operations and continues to search for a long-term solution, but faces a lot of unknowns," Ms. Galloway said.

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