State audit uncovers $90 million in inappropriate lab billings at cash-strapped hospital

(From State Auditor Nicole Galloway)

UNIONVILLE, Mo (August 9, 2017) Missouri State Auditor Nicole Galloway has released an audit of Putnam County Memorial Hospital, which uncovered $90 million in inappropriate lab billings by hospital leadership and associates. The investigation started after auditors identified serious concerns with the hospital's financial condition during a regularly scheduled audit of Putnam County.

"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," Auditor Galloway said.

In September 2016, the Putnam County Hospital Board hired David Byrns and his company, Hospital Partners, Inc., to take over day-to-day management of the embattled northeast Missouri hospital. Soon after, Byrns hired a partner organization, Hospital Lab Partners, LLC, to provide lab services. This is where most of the questionable activity is concentrated.

The audit uncovered a billing scheme, where the lab services company and its affiliates conduct lab work across the country, but Putnam County Memorial Hospital bills the insurance companies using the hospital account. In exchange, the hospital gets a cut of the insurance payouts.

Since November 2016, the hospital has received more than $90 million in insurance payments and passed most of it along to the lab company and its affiliates. However, during this time the vast majority of billings were for patients who had never been to or received services from Putnam County Memorial Hospital. Instead, the hospital submits the bills for their services to the insurance companies, funneling millions of dollars through the hospital and reducing it to what is essentially a shell organization for labs across the country.

Additionally, the hospital foots the bill for the salaries of 33 employees from around the country who conduct this lab work. These "employees" do not report to work at the hospital and most live out of state, some as far away as California, Georgia and Texas. The employees ship blood specimens to various labs for testing, while Putnam County Memorial Hospital submits the insurance claims for payment.

The hospital also paid out more than $10 million in lab management fees, with little explanation of the charges.

"It’s deeply disappointing that the Putnam County Memorial Hospital was in such a dire situation that, in order to stay operational, the hospital's board accepted these income sources without question," Auditor Galloway said. "The citizens that live and work in this area and the patients that depend on the hospital are ultimately going to be the ones who pay for those mistakes."

The audit also revealed that in the ten months since taking over, Byrns used his position as CEO to benefit himself and his management company. Byrns has paid more than $700,000 to his management company, and paid himself an additional $200,000 annual salary out of county hospital funds without board approval. He also received reimbursement from the hospital for at least $5,000 in questionable expenses, including alcohol, cigarettes, car washes and golf outings.

Auditor Galloway has turned records and information uncovered through the course of the audit to state and federal law enforcement authorities.

This is one in a series of county hospital audits initiated by Auditor Galloway. These rural health care audits focus on financial and operating best practices for acute care facilities that are critical to individuals who live and work in the surrounding communities.

The hospital received an overall performance rating of poor, which means auditors will return for a follow-up review. The complete audit report for Putnam County Hospital is available here.