A federal jury on Monday convicted Jorge Perez, a Miami businessman who masterminded the takeovers of rural hospitals in Missouri, Kansas and other states, of conspiracy to commit health care fraud following a 24-day trial in Jacksonville, Florida.
The government charged that Perez and his brother, Ricardo Perez, fraudulently billed insurance companies $1.4 billion, using the hospitals they acquired or managed, for laboratory testing services that were mostly performed by outside laboratories.
Perez, 62, and his associates targeted financially-ailing hospitals whose insurance contracts provided for higher reimbursement rates for laboratory testing, according to the government. The scheme was designed to make it appear the hospitals themselves did the testing when, in the majority of cases, the testing was done by labs controlled by Perez or his business associates.
“These defendants preyed on and exploited the vulnerable — vulnerable hospitals, vulnerable underserved communities, and vulnerable patients seeking treatment for addiction — to line their own pockets,” said Assistant Attorney General Kenneth A. Polite, Jr., of the Justice Department’s criminal division, in a statement.
The hospitals Perez employed in his scheme included Putnam County Memorial Hospital, a 25-bed facility in Unionville, Missouri. Questions about the scheme were first raised in a 2017 audit by Missouri Auditor Nicole Galloway, who found that, over a 10-month period, the hospital received more than $90 million in insurance payments for lab work that was conducted at other hospitals around the country.
The vast majority of billings were for patients who had not been treated at the hospital. Instead, the hospital acted as a shell company for other labs by submitting bills for their services and funneling the insurance payments through the hospital.
A company with ties to Perez, Hospital Partners Inc., took over management of Putnam County Memorial Hospital in September 2016, a time when the hospital was in dire financial straits and looking for a financial savior.
A follow-up audit by Galloway found that between July 2017 and April 2018, the hospital paid more than $20 million to Hospital Partners and its affiliates for their lab billing services.
Putnam County Memorial Hospital ultimately severed its relationship with Hospital Partners, prompting Hospital Partners to sue the hospital’s board of trustees and Galloway. Hospital Partners claimed the trustees had illegally terminated its management contract and Galloway had no authority to audit the hospital.
The hospital’s trustees fired back with a countersuitof their own, accusing Perez and the president of Hospital Partners, David Byrns, of an “overarching conspiracy” to use the hospital’s identity to carry out an elaborate laboratory billing scheme.
A judge dismissed Hospital Partners’ case, and the board of trustees voluntarily dismissed its countersuit last year after Hospital Partners dissolved.
“That’s the danger of the rural hospital space: You’ve got regular citizens trying to contribute to the community, and they can get taken advantage of just because of the sophistication of people like Jorge Perez,” said Joe Bednar, an attorney who represented Putnam County Memorial Hospital's board of trustees in the litigation.
Byrns pleaded guilty in October 2019 to conspiracy to commit health care fraud at Putnam County Memorial Hospital and is still awaiting sentencing. He was ordered to forfeit $5.1 million in illegally obtained funds.
Perez, who proclaimed it his "life’s mission to preserve and protect rural health care," oversaw 18 rural hospitals in eight states through his management company, EmpowerHMS, which at one time was based in North Kansas City.
In Missouri, the hospitals included Putnam County Memorial Hospital, Fulton Medical Center in Fulton and I-70 Community Hospital in Sweet Springs. In Kansas, they included Hillsboro Community Hospital in Hillsboro, Horton Community Hospital in Horton and Oswego Community Hospital in Oswego.
In an interview with Kaiser Health News in 2019, Perez said he had operated in the best interests of the communities he sought to serve. If anything, he said, townspeople should thank him because he gave their hospitals "two to three years of life."
Perez owned or co-owned 11 of the hospitals and ran the companies that provided their management and billing services. Twelve of the hospitals ended up filing for bankruptcy and eight closed, leaving many small towns without their only hospital and hundreds of employees without jobs.
In its criminal case against Perez, the government showed that many of the lab tests performed through the hospitals were medically unnecessary and secured through kickbacks to recruiters and health care providers.
In addition to conspiracy to commit health care and wire fraud, Perez and his brother were found guilty of five counts of health care fraud and conspiracy to commit money laundering of proceeds exceeding $10,000. Both face up to 20 years in prison on the conspiracy counts and up to 10 years in prison on the other counts.
