Play Live Radio
Next Up:
0:00
0:00
0:00 0:00
Available On Air Stations

Mission Hills Couple Sues Over Alleged Lab Billing Scheme At 10 Rural Hospitals

Jorge Perez, who is named as a defendant in the lawsuit, at the Kansas City office of Empower HMIS, one of many companies he runs.
Dan Margolies
/
KCUR 89.3
Jorge Perez, who is named as a defendant in the lawsuit, at the Kansas City office of Empower HMIS, one of many companies he runs.

In the latest in an ever growing pile of legal challenges, the principals behind a questionable lab billing scheme at 10 small rural hospitals in Missouri, Kansas, and three other states have been sued by a Mission Hills couple for fraud and conspiracy.

The couple, James and Phyllis Shaffer, allege the defendants fraudulently took majority control of a company, HMC Hospitals, that owns the hospitals and used them as “instrumentalities in the operation of an illegal billing scheme.”

The Shaffers’ are minority shareholders of HMC, whose holdings include Oswego Community Hospital in Oswego, Kansas; Horton Community Hospital in Horton, Kansas; Hillsboro Community Hospital in Hillsboro, Kansas; and I-70 Community Hospital in Sweet Springs, Missouri.

In their lawsuit, the Shaffers say that Health Acquisition Company, or HAC, a company controlled by the defendants, took over the hospitals after converting a $6 million loan it made to HMC into an 80 percent equity interest. 

The defendants then put in place the allegedly illegal billing arrangements at the hospitals, according to the lawsuit. That scheme “was substantially similar” to a scheme at Putnam County Memorial Hospital in Unionville, Missouri, which was the subject of a highly critical audit in August 2017 by Missouri Auditor Nicole Galloway.

The audit of the tiny 15-bed hospital revealed it had billed out more than $90 million for lab tests in a matter of months after the defendants took it over in late 2016.

The scheme took advantage of the more favorable reimbursement rates for critical access hospitals, a federal designation intended to bolster the finances of small rural hospitals like Putnam Memorial and the hospitals owned by HMC.

The Shaffers did not return a phone call seeking comment. Their attorney, C. Brooks Wood, declined to comment, saying the lawsuit spoke for itself.

The defendants, a group led by Florida resident Jorge Perez, have acquired a couple dozen troubled rural hospitals around the country and used the lab billing arrangements to turn them around. Perez, in an interview last year at the Kansas City office of Empower HMS, one of many companies he runs, insisted the arrangements were perfectly legal, but other health care experts have questioned their legality.

According to the Shaffers’ lawsuit and previous reporting by KCUR, KBIA and Side Effects Media, the hospitals billed patients for urine and drug tests even though those patients had never set foot in the hospitals. Instead, the hospitals contracted with outside labs to perform the tests. The defendants then used the hospitals’ billing numbers to bill insurance companies for the tests.

Insurance companies have increasingly balked at paying the lab bills and have sued Perez and his companies to recover money they’ve paid to hospitals run by him and his associates.

The Shaffers’ lawsuit says the defendants relied on a network of referring health care providers, including pain clinics and drug detox facilities, that ordered large volumes of lab testing. Their suit says the providers were paid kickbacks to ensure the continuous flow of lab specimens.

Galloway has referred her findings to criminal authorities, including the FBI. So far, no criminal charges have resulted from any of the investigations.

Perez's companies include Empower H.I.S., which provides billing services to the hospitals he runs and submits their reimbursement claims to insurance companies. Empower H.I.S. oversaw the lab billings at Putnam County Memorial Hospital, which paid Empower $11.8 million in fees over a five-month period – or  nearly as much as the hospital had grossed in any given year before Perez took it over.

Putnam County has since sought to oust Perez and another company he runs, Hospital Partners, which was set up to acquire Putnam County Memorial in late 2016. Hospital Partners, in turn, has suedthe hospital’s board of trustees and Galloway, claiming the board’s move was illegal and Galloway’s audit outside the scope of her authority.  

The board and Galloway have denied the allegations.

Dan Margolies is a senior reporter and editor at KCUR. You can reach him on Twitter @DanMargolies

Copyright 2018 KCUR 89.3

Dan was born in Brooklyn, N.Y. and moved to Kansas City with his family when he was eight years old. He majored in philosophy at Washington University in St. Louis and holds law and journalism degrees from Boston University. He has been an avid public radio listener for as long as he can remember – which these days isn’t very long… Dan has been a two-time finalist in The Gerald Loeb Awards for Distinguished Business and Financial Journalism, and has won multiple regional awards for his legal and health care coverage. Dan doesn't have any hobbies as such, but devours one to three books a week, assiduously works The New York Times Crossword puzzle Thursdays through Sundays and, for physical exercise, tries to get in a couple of rounds of racquetball per week.