Auditor Galloway's follow-up review of Putnam County Memorial Hospital reveals an end to questionable lab billings

Board working to implement recommendations, but hospital remains in poor financial condition
July 11, 2018

JEFFERSON CITY, Mo. (July 11, 2018) State Auditor Nicole Galloway today issued a follow-up report of Putnam County Memorial Hospital in northern Missouri. Her report last year uncovered $90 million in inappropriate lab billings. The findings of the audit were covered by national news outlets and resulted in calls for a federal investigation into hospital billing schemes.

"Our audit revealed a billing scheme that we now know extends well beyond Putnam County Memorial Hospital and could impact healthcare costs for all of us," Auditor Galloway said. "I'm pleased to see that action has been taken to end this questionable activity in Putnam County. The citizens that rely on this hospital deserve legitimate solutions that ensure the ongoing availability of acute care." 

The 2017 audit uncovered a billing scheme in which Putnam County Memorial Hospital billed insurance companies for lab services conducted across the country. The questionable activity began in September 2016, after the Putnam County Hospital Board hired David Byrns and his company, Hospital Partners, Inc., to take over day-to-day management of the hospital.

The follow-up report revealed the board terminated the management agreement with Hospital Partners, Inc. as of February 2018. The board continued to pay a company affiliated with Hospital Partners, Inc. for billing services, and paid at least 10 other labs for billing and lab management fees through April 2018. More than $20 million went to these companies and their affiliates between July 2017 and the termination of the billing agreement.

The 2017 audit also found the hospital was paying the salaries of 33 employees from around the country to conduct lab work. These "employees" were removed from the hospital payroll in October 2017. The board is working with legal counsel to review these payments and determine whether any money can be recovered. 

"This scheme was presented as a way to address the financial condition of the hospital, but today, the revenues and the cash balance of Putnam County Memorial Hospital remain the same as before the hospital started serving as a shell company for these billings," Auditor Galloway said. "The board is working to prioritize responsible oversight of hospital operations and continues to search for a long-term solution, but faces a lot of unknowns."

Putnam County Memorial Hospital remains in poor financial condition. The board is working to increase revenues through legitimate lab activity, which includes processing lab specimens for a small hospital in Arkansas. The hospital does not bill insurers directly, but generates revenue through billing the other hospital for services rendered. The board is working with a consulting firm to review finances and management options, and expressed interest in offering substance abuse services to address an ongoing need in the area. 

After the audit, the board obtained legal representation to ensure adequate review of future contracts. A long-term hospital employee is now serving as the CEO to ensure proper oversight of management activities. 

A copy of the progress report is available online here.

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