State auditor's investigation finds rural Missouri hospital used as shell for $90M fraud scheme

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The auditor said the hospital's board gave up too much oversight, as well. (Getty/Devonyu)

A Missouri state audit uncovered a $90 million fraud scheme at a rural hospital in the small town of Unionville, according to a new report.

Missouri State Auditor Nicole Galloway found (PDF) that a private company hired to take over the 25-bed Putnam County Memorial Hospital when it hit a financial skid used it as a shell company to make fraudulent medical claims.

In the 10-month period covered by the audit, which ended in May, the hospital received more than $90 million in payouts for lab work and treatments that occurred at other facilities across the country, according to the report. Payments for outside laboratories were instead funneled through the hospital.

In a statement, Galloway blasted the hospital’s board, saying its members failed to review management contracts and relinquished oversight power.

"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," she said.

Representatives of Hospital Partners Inc., which runs the hospital, however, say that the payments are legal and help offset some of the costs it has incurred as a rural hospital. The auditor's conclusion is a "gross mischaracterization," according to a statement the company emailed to FierceHealthcare.

“The assignment of non-patient lab specimens has been standard practice for rural and critical access hospitals for many years," said Mark Thomas, an attorney specializing in healthcare compliance. "The purpose of the rural/critical access exceptions is to give rural healthcare facilities a fighting chance to survive and serve their local communities."

Thomas said the company will be reviewing the auditor's report in full, and that it has reached out to the state attorney general to clarify its contents.

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Galloway turned her findings over to local, state and federal authorities. A Putnam County prosecutor told KCUR that his office is investigating the case, while a spokeswoman for the state attorney general confirmed he is reviewing the audit report.

In addition to the insurance payouts, the audit found that Putnam County Memorial Hospital also foots the bill for 33 employees at the labs receiving the improper payments and paid $10 million in unexplained “lab management fees.”

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Galloway is conducting audits at rural facilities across the state to assess their financial and operating best practices. Many rural hospitals are cash-strapped and at risk for closure; the goal of Galloway’s reports is to bolster facilities that are crucial to smaller communities.

Because the Putnam County hospital received a failing grade, it will receive a follow-up review.

Editor's note: This story was updated at 4:15 p.m. on Aug. 10 to include a response from Putnam County Memorial Hospital.