A legal tug-of-war that’s engulfed the Missouri state auditor and tiny Putnam County Memorial Hospital in Unionville, Missouri, appeared to have ended yesterday but may drag on a bit longer.
On Monday, a judge dismissed part of a lawsuit filed by the hospital's former owners, David Byrns and Jorge Perez, Florida residents who ran a company called Hospital Partners Inc. They were seeking damages against the hospital's trustees and Missouri Auditor Nicole Galloway, whose scathing 2017 audit questioned the legality of a $90 million billing arrangement Hospital Partners had set up at the 15-bed hospital.
But even as the judge dismissed the case against Galloway, the hospital’s trustees filed a counterclaim against Byrns and Perez.
Echoing allegations in other litigation, the trustees accused the pair of “an overarching conspiracy” to use the critical access hospital’s identity to carry out an elaborate laboratory billing scheme.
“The Board had not authorized billing agreements allegedly entered into by Byrns or Perez with a number of labs who submitted bills on behalf of 'Putnam County Memorial Hospital' or 'Hospital Partners Inc,'” the counterclaim states.
The trustees also accused Byrns and Perez of trying to reassign the hospital’s Medicaid reimbursement number to Hospital Partners. All health care providers covered by the Health Insurance Portability and Accountability Act (HIPAA), including hospitals, are required to have the unique identifying number for their administrative and financial transactions.
The latest twist in the litigation comes just a day after Cole County Circuit Judge Patricia Joyce dismissed Galloway from the lawsuit because Hospital Partners had failed to pursue the case. Hospital Partners’ attorney of record, Anthony Dylan Gauldin, didn’t show up for Monday’s hearing.
The trustees’ attorney, Joe Bednar, said the trustees plan to seek dismissal of the lawsuit's claims against them but wanted to file the counterclaim first to establish jurisdiction in the court.
“We hope to get the claims against the board of trustees dismissed soon, and then we’ll want to pursue our counterclaims against these folks,” Bednar said.
The trustees hired Hospital Partners in September 2016 to manage the embattled hospital. Byrns, who was president of Hospital Partners, then hired an affiliated company, Hospital Lab Services, to provide lab services for the hospital.
Galloway’s audit uncovered what she described as $90 million in inappropriate lab billings by Hospital Lab Partners, using the hospital’s Medicaid reimbursement number. The vast majority of the billings, according to the audit, were for patients who had never set foot in the hospital, which Galloway said was used as a shell organization for other labs. In exchange for the use of its account, the hospital got a cut of the insurance payouts.
“We found that the hospital essentially acted as a shell company for questionable billings that were happening across the country,” Galloway told KCUR in a wide-ranging interview on Monday. “There are now lawsuits by insurance companies, federal investigations, because of the work that we did.”
Perez, through various corporate entities, has acquired ailing rural hospitals in Missouri, Kansas and other states over the last few years, claiming he had the know-how to turn them around. But as questions continue to surface over the lab billing arrangements, insurers have balked at paying. One result is that many of the hospitals in recent months have defaulted on their payments to employees and creditors.
More recently, at least eight of the hospitals once run by Perez have filed for Chapter 11 bankruptcy protection. They include three hospitals in Kansas and one in Missouri, although not Putnam Memorial, which now operates under different management.
Dan Margolies is a senior reporter and editor at KCUR. You can reach him on Twitter @DanMargolies.