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Court Tosses Lawsuit Against Missouri Auditor Nicole Galloway Over Her Audit Of A Hospital

Dan Margolies
KCUR 89.3
Hospital Partners sued Galloway over her audit of Putnam County Memorial Hospital in Unionville, Missouri. The audit eventually led to the cancelation of Hospital Partners' contract to manage the hospital.

A state court judge has thrown out a lawsuit seeking damages against the board of trustees of tiny Putnam County Memorial Hospital in Unionville, Missouri, and Missouri Auditor Nicole Galloway.

The lawsuit was filed by the owner of the hospital, Hospital Partners Inc., in Putnam County in April 2018, but the company had taken no action since then. The case was later moved to Cole County, where it continued to languish and was dismissed on Monday.

In mid-2017, Galloway’s office released a scathing audit that questioned the legality of a $90 million billing arrangement Hospital Partners had set up at the 15-bed hospital.

The audit found that the vast majority of billings were for patients who had not been treated there. Instead, the audit said the hospital essentially acted as a shell company for other labs by submitting bills for their services and funneling the insurance payments through the hospital.

Principals of Hospital Partners, including Miami, Florida, resident Jorge Perez, acquired the financially ailing hospital in September 2016, pledging to turn it around.

Not long after Galloway’s audit was released, the hospital’s board of trustees ousted Hospital Partners, triggering the company’s lawsuit. The suit accused the hospital board of illegally terminating Hospital Partners’ management contract and accused Galloway of exceeding her authority by auditing a privately owned hospital.  

Galloway said she was authorized to audit the hospital because Putnam County taxpayers approved more than $7.6 million in bonds in 2012 to refinance earlier bonds issued to pay for improvements at the hospital.

“My audit revealed a $90 million billing scheme being perpetrated by Hospital Partners Inc. at Putnam County Memorial Hospital,” Galloway said in a statement Monday. “In response, they tried to use the legal system to block me from exposing the truth to Missourians.”

Hospital Partners was originally represented in its lawsuit by Kansas City attorney Anthony Dylan Gauldin, who no longer appears to practice here. He could not be reached for comment.

Perez and companies controlled by him have acquired struggling rural hospitals throughout the country and, in some cases, instituted the same questionable billing arrangements at those hospitals.  

Some of the hospitals have since closed, and at least eight have filed for Chapter 11 bankruptcy protection in recent months. They include Hillsboro Community Hospital, Horton Community Hospital and Oswego Community Hospital in Kansas; and I-70 Community Hospital in Sweet Springs, Kansas.

A recent court filing in Hillsboro’s bankruptcy case stated that the owners of the hospital are under criminal investigation by the Department of Justice, but provided no additional details.

Perez earlier this year entered into agreements with a Miami company called iHealthcare to take over management of the hospitals. Officials of the company could not be reached for comment.  

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

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.
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