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Galloway: Nationwide billing scheme at Putnam hospital, 'astounding irresponsibility'

State Auditor Nicole Galloway said Wednesday that Putnam County Memorial Hospital in Unionville is the center of a nationwide billing scheme, calling hospital leaders "astounding in their irresponsibility" (Photo: KTVO)

An explosive and damning new audit of Putnam County Memorial Hospital shows years of mismanagement by the Board of Trustees, uncovers the hospital’s central role in a nationwide insurance billing scheme and could trigger other state and federal investigations.

“The decisions made by hospital management and the board are astounding in their irresponsibility and have the potential to negatively impact the hospital and the residents of Putnam County for years to come,” said State Auditor Nicole Galloway in a statement Wednesday.

Nearly two years ago, Putnam County hospital’s financial crisis spilled out into the public after its husband-and-wife COO/CEO team resigned, the first outward sign of the publicly owned medical center’s deep debts. After a months-long process of gutting services and losing or laying off personnel from top to bottom, the hospital’s board brought in a company that billed itself as well-versed in resuscitating hospitals from critical financial condition: Hospital Partners Inc.

“We can all breathe a little easier I think,” Board President Howard Luscan told KTVO at the time.

Instead, yet again, the hospital finds itself in dire straits trying to keep its head above water after an audit report says another CEO has abused the facility’s coffers. During the audit initiated by Galloway’s office last year, investigators found a nationwide insurance billing scheme that they say set up Putnam County Memorial as a “shell organization” that funneled millions of dollars for medical testing labs across the country. Shockingly, Galloway told KTVO that there is no indication the scheme has ceased.

"This is all a surprise to us," Luscan said Wednesday.

The auditor’s team says that Hospital Partners President David Byrns, who became CEO of the hospital when his company agreed to take on operations last year, hired another organization -- Hospital Laboratory Partners, LLC -- to provide lab services on October 20, a month after Byrns took over in September 2016. Hospital Lab Partners had been incorporated in Florida on October 13, just a week earlier.

The scheme worked like this: Hospital Lab Partners would conduct lab work, taking in blood samples at different locations across the country for testing. Typically, the cost for lab work should be billed to the patient’s insurance directly by the lab. Instead, all lab work from all of Hospital Lab Partners’ locations nationwide was billed to insurance through Putnam County Memorial Hospital, funneling more than $90 million in insurance payments since November 2016, the audit found.

Most of that money was then passed along to Hospital Lab Partners, leaving about 20 percent with the hospital. In addition, Putnam County Memorial was footing the bill for the salaries of nearly three dozen lab employees who worked in 11 different states, testing specimens from patients who had never been to the hospital.

Such schemes are called “pass-through billing,” setups in which a doctor or hospital could significantly mark up the cost of third-party lab tests when billing patients’ insurance themselves instead of the lab that did the testing.

The Office of the Inspector General issued an alert in 2014 reminding labs and physicians that pass-through billing could violate federal statutes relating to Medicaid and Medicare payments. Because of its potential for fraud, the practice is a red flag for insurance companies.

Two such companies have already deemed the hospital’s billings to be possibly fraudulent, the report notes. One large carrier has decided not to pay out any more claims to Putnam County Memorial after shelling out what the company considered up to $4.3 million in fraudulent claim payments, while another was investigating $700,000 in suspect claims of its own.

"David [Byrns] explained it -- it sounded legitimate to us," Luscan told KTVO over the phone.

Galloway’s office also took notice of a precipitous drop in Medicare revenues since 2013 when compared to similar hospitals statewide, saying it “warranted additional investigation.” Because the hospital hasn’t had an audit of its financials since 2015 and has not submitted proper paperwork to the federal government, there is no way to know for sure if the hospital is receiving the right amount of state and federal reimbursements from the program.

But perhaps most concerning to auditors was a clause in the contract between the hospital and Byrns’ company that shifts all liability for any fraudulent activities from Hospital Partners to Putnam County hospital.

Auditors, who called the indemnity clause “unusual for a contract of this nature,” placed the blame for the potentially disastrous oversight squarely on the board’s shoulders. The board, the report said, had not hired an attorney to act on its behalf, despite the Putnam County Commission offering to pay for legal services. Instead, a local lawyer told investigators he had read over the agreement at the behest of the board, but was not paid and could not answer what services in particular the board had asked him to provide. In addition, the county commission’s attorney indicated that he had also reviewed the agreement in his capacity with the county.

The contract was only one of the latest in a long line of oversights detailed by the report, beginning with the hiring of the Practice Plus management company in 2012 that brought in Cindy and Jerry Cummings as CEO and COO respectively. The husband and wife were welcomed with open arms that year, helping to push through a bond issue to deal with mounting debt and restore confidence in the hospital after it nearly closed its doors.

But that hire, the audit found, had also been done without due diligence: the board had no documentation of soliciting bids from any other companies, and kept no records of any background or reference checks that investigators suspected “may have been basic internet searches.” The report noted that the board had spent a total of just eight hours across two months discussing the decision to hire Cindy and Jerry Cummings, a ratio the board doubled to three hours over 11 days before agreeing to hire Byrns and Hospital Partners in 2016.

Again and again, auditors pointed to a lack of oversight by the board that allowed hospital leaders to bilk taxpayers repeatedly:

  • Without approval of the board, Byrns paid his company $700,000 out of hospital funds, himself another $200,000 in annual salary, and at least another $5,000 in “questionable expenses” that include alcohol, cigarettes, car washes and golf outings while in Florida.
  • Byrns had the hospital take out a $500,000 loan without the board’s knowledge.
  • The hospital paid $10.6 million in “lab management fees” that auditors say were supported only by “email messages from a business associate of the CEO stating the amount to be paid to the entity.” Board members indicated they did not know anything about the payments.
  • The board approved hundreds of thousands of dollars in raises for the Cummingses and Byrns without performance evaluations, goals or standards.
  • A psychiatric ward touted by the Cummingses was never approved by the board but cost the hospital at least $2.5 million annually before it was shut down in January 2016.
  • The board did not approve the partnership contract with Hospital Lab Partners entered into by Byrns.
  • The board signed off on the $68,000 per month paid to 33 lab workers. The board neither approved these positions, nor noted that the agreement with Hospital Lab Partners promised to pay for all lab personnel, not the hospital.


“Board members indicated they were not aware the hospital was making these payments,” the report states. “The board approves the check register, which includes these expenditures, at each monthly Board meeting; however, Board members do not review these expenditures in detail during their approval process.”

"A lot of months we don't even get one," Luscan said over the phone. "They [Hospital Partners] run the hospital, we don't have a say-so."

In a set of responses from the board included with the audit report that appear bizarre, sometimes unrelated and consistently hostile, members defended some of their actions by saying that no statute prevented them from operating as they did, and demanded that some of the findings be “deleted” from the report. Luscan told KTVO the responses were written by Byrns.

In defense of its lack of legal representation, for example, the board accused the auditor’s office of “inappropriate conduct” and “seeking to force or intimidate the Board or the County to waive their Attorney Client Confidentiality and Privilege” because it had confirmed with a local attorney “that he read the proposed agreement around September 2016.”

Overall, the responses appeared to question the legality and legitimacy of the audit itself, even appearing to go so far as to challenge the auditor’s authority to audit the hospital’s operations at all. Repeatedly, the board answered findings with language that seemed to talk past the problems found in the report with phrases like “such allegations are made without reference to any legal authority,” and demanding that the auditor’s office produce statutory evidence and relevant case law.

But the board’s rebuttals did not respond to each finding, instead saying it needed more time after hiring Jefferson City lobbyist Joe Bednar as a new attorney. After the board withdrew a set of responses and secured three more extensions across more than 60 days to submit new ones, the auditor’s office released the report with the most recent, incomplete responses.

The State Auditor’s Office is not a law enforcement agency, and any potential criminal investigations would not be carried out by the auditor’s office. However, Galloway said in a statement that she has forwarded relevant materials to state and federal law enforcement for further review.

“The responses show further a lack of understanding of government auditing standards and demonstrate the Board’s clear lack of understanding of its oversight responsibility regarding the hospital,” Galloway commented in the report.

Wednesday, Board President Howard Luscan provided KTVO with a letter dated June 16 and addressed to Galloway. In it, Luscan accuses the report of being “highly concerning and disturbing.”

“It is unconscionable that a public servant would allow their office to be commandeered in a manner that would do irreparable damage to the viability of a community’s hospital,” Luscan wrote.

In the accusatory letter, Luscan lambasts the audit for including the actions of an insurance investigator “as though this individual was an oracle.” Instead, Luscan said that the insurance companies were simply trying to keep from paying the hospital.

“It is a novel strategy on the part of private insurers to collude with the Office of the Missouri State Auditor to knock out their competition,” Luscan said.

Repeatedly, Luscan proposed a scheme by insurance companies to use the auditor’s office to avoid paying bills.

“This audit, conducted by your office,” Luscan told Galloway in the letter, “was indefensible and reads more as though it was conducted as the fulfillment of a vendetta. There is no place for such arrogance amongst public servants and elected officials; we are committed to using every tool at our disposal to safeguard individuals from such treatment in the future.

“Let’s stick to the facts, nothing more, nothing less.”

Galloway’s office gave the hospital a “poor” rating -- the lowest on the scale -- meaning that auditors will return for a follow-up review.

In a phone conversation Wednesday, Luscan did not say he would do anything differently after seeing the final draft of the audit, saying only that he wished "we'd had more time." He also touted the results that Hospital Partners had brought to Putnam County.

"They've expanded services, they've paid off debts," Luscan said. "I believe everyone is satisfied. This is a huge shock."

Byrns has not responded to any requests for comment in his time as CEO, including multiple attempts to get in contact this week.

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