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A Year After Audit, Tiny Rural Hospital In Missouri Still Facing Financial Woes

Dan Margolies
KCUR 89.3
Putnam County Memorial Hospital is now exploring the possibility of becoming a detox unit to treat patients addicted to opioids.

Nearly a year after Missouri state Auditor Nicole Galloway released a scathing audit of Putnam County Memorial Hospital in Unionville, Missouri, the tiny hospital is still struggling to recover from a lab billing scheme that's now the subject of criminal investigations. 

That’s one of the takeaways from a follow-up report released Wednesday on the hospital, which was in dire financial straits when the audit was conducted and remains in poor financial condition today.

Read the follow-up report here

In February, the critical access hospital ended its management agreement with Hospital Partners Inc., the company that took over its operations in September 2016 and then ran $90 million in questionable lab billings through the hospital in a matter of months.  

But Galloway’s follow-up audit finds that between July 2017 and April, the hospital still wound up paying more than $20 million to Hospital Partners and its affiliates for their lab billing services.

Hospital Partners has since sued Putnam County Memorial Hospital’s board of trustees and Galloway, alleging its management contract was illegally terminated. The lawsuit claims that Galloway had no authority to audit the hospital and demands that she retract her prior audits “and publish an update and retraction, accordingly.”

Galloway said in a telephone interview Wednesday that it was clear Hospital Partners was unhappy “with shining a light and holding the hospital accountable for these activities.”

“But that is not going to deter me from doing my job,” she said. “We have referred our audit to law enforcement at the state and local level, and we’ll continue to work with them to pursue that accountability.”

She added: “I think the lawsuit has more to do with the management contract between the hospital board and the management company rather than my office or this audit.”

In May, U.S. Sen. Claire McCaskill called for a federal investigation of billing practices at Putnam County Memorial Hospital. The Democrat asked the inspector general of the U.S. Department of Health and Human Services to investigate whether Hospital Partners defrauded taxpayers by using the hospital as a pass-through vehicle for out-of-state laboratory services.

Hospital Partners is one of many companies controlled by Florida resident Jorge Perez, who has proclaimed it his mission to save endangered rural hospitals.

Perez could not be reached for comment. An associate of Perez's, Mike Murtha, did not return phone calls and an email seeking comment. 

An investigation by KCUR, KBIA and Side Effects Public Media found that businesses linked to Perez have bought or acquired management rights to about 20 struggling rural hospitals across the country and pursued the same controversial lab billing arrangements to salvage them.

Insurers have increasingly questioned the legality of the arrangements and in some cases have sued to recover their money.

Many hospitals have in-house laboratories to test specimens, such as blood or urine samples. But some tests are sent to specialized reference laboratories. The reference lab bills the hospital at a negotiated rate, and then the hospital turns around and bills the patient's insurance.

In Putnam County’s case, Galloway’s August audit found that few if any of the lab patients had ever set foot in the hospital. And it found that the hospital began billing for lab services immediately after Hospital Partners took it over in September 2016, even though the lab did not begin processing tests until months later.

Galloway’s follow-up audit notes that although the hospital’s finances improved while Hospital Partners ran it, its balances have since returned to their original level.

“And what that shows us is that the hospital did act as a shell company and a pass-through for all of this questionable activity and cash flowing through the hospital,” Galloway said.

“The hospital did not retain a significant portion of this money and it went back to the management company, to billing companies, to labs across the country," she said. "And the hospital board still needs to fight for a solution to the financial position that they had even before all this activity occurred.”

The follow-up report notes that the hospital was repeatedly told by David Byrns, who formerly owned Hospital Partners and installed himself as the hospital’s CEO, to "not to ask any questions about the laboratory billings.”

As a result, the report said, the hospital’s board had little assurance that it was retaining 14 percent of the lab revenues it was supposed to get after paying 80 percent of the revenues for lab management fees and 6 percent to a billing company controlled by Perez called Empower H.I.S. LLC.

Galloway’s August audit found that the hospital’s board provided little oversight of Hospital Partners, allowing Byrns to dictate his own salary; pay unapproved management and accounting fees to Hospital Partners; enter into the questionable laboratory contracts and billing arrangements; and pay the salaries of 33 phlebotomists around the country to perform the lab work.

The phlebotomists have since been removed from the hospital’s payroll and the questionable lab billings are no longer occurring at the hospital, according to the follow-up report. It says the hospital is now processing about 20 lab specimens a day for a small hospital in Arkansas as well as lab specimens for its own patients.  

“The hospital board has a done a lot of work to implement the recommendations to address the findings we had in our original audit reports,” Galloway said. “They have terminated the relationship with the management company. They are looking for a legitimate sources of revenue that can improve long-term financial condition of the hospital.”

The hospital’s financial condition has steadily declined since a December 2011 audit. The hospital’s board is now exploring the possibility of marketing the hospital as a detox facility to treat patients addicted to opioids.

“Due to the ongoing opioid crisis at the local, state, and national level,” the follow-up report states, “Board members indicate they feel very strongly about the need for this service because they have noted an extreme shortage of doctors in the northern half of Missouri with credentials to prescribe the most commonly used prescription medication for treating opioid withdrawals (Suboxone).”

Dan Margolies is a senior reporter and editor at KCUR. You can reach him on Twitter @DanMargolies

Bram Sable-Smith reports on health for KBIA in Columbia, Missouri, and for Side Effects Public Media. 

Dan Margolies has been a reporter for the Kansas City Business Journal, The Kansas City Star, and KCUR Public Radio. He retired as a reporter in December 2022 after a 37-year journalism career.
Bram Sable-Smith is the Midwest correspondent for KFF Health News. Email him at brams@kff.org.
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