- The U.S. Department of Justice is charging 10 defendants for an "elaborate" pass-through billing scheme that used small rural hospitals across three states as shells to submit fraudulent claims for laboratory testing to commercial insurers, jacking up reimbursement.
- The defendants, including hospital executives, lab owners and recruiters, billed private payers roughly $1.4 billion from November 2015 to February 2018 for pricey lab testing, reaping $400 million.
- The four rural hospitals used in the scheme are: Cambellton-Graceville Hospital, a 25-bed rural facility in Florida; Regional General Hospital of Williston, a 40-bed hospital in Florida; Chestatee Regional Hospital, a 49-bed facility in Georgia; and Putnam County Memorial Hospital, a 25-bed hospital in Missouri. Only Putnam emerged from the scheme relatively unscathed: Chestatee was sold to a health system that plans to replace it with a newer facility, Cambellton-Graceville closed in 2017 and RGH of Williston was sold for $100 to an accounting firm earlier this month.
The indictment, filed in the Middle District of Florida and unsealed Monday, alleges the 10 defendants, using management companies they owned, would take over rural hospitals often struggling financially. They would then bill commercial payers for millions of dollars for pricey urine analysis drug tests and blood tests through the rural hospitals, though the tests were normally conducted at outside labs, and launder the money to hide their trail and distribute proceeds.
The rural hospitals had negotiated rates with commercial insurers for higher reimbursement for tests than if they'd been run at an outside labs, so the facilities were used as a shell for fraudulent billing for often medically unnecessary tests, the indictment alleges.
The defendants, aged 34 to 60, would get urine and other samples by paying kickbacks to recruiters and healthcare providers, like sober homes and substance abuse treatment centers.
Screening urine tests, to determine the presence or absence of a substance in a patient's system, is generally inexpensive and simple — it can be done at a substance abuse facility, a doctor's office or a lab. But confirmatory tests, to identify concentration of a drug, are more precise and sensitive and have to be done at a sophisticated lab.
As such they're more expensive and are typically reimbursed at higher rates than screening urine tests. None of the rural hospitals had the capacity to conduct confirmatory tests, or blood tests, on a large scale, but frequently billed in-network insurers, including CVS Health-owned Aetna, Florida Blue and Blue Cross Blue Shield of Georgia, for the service from 2015 to 2018, the indictment says.
Rural hospitals are facing unprecedented financial stress amid the pandemic, but have been fighting to keep their doors open for years against shrinking reimbursement and lowering patient volume. That can give bad actors an opportunity to come in and assume control.
One of the defendants, Jorge Perez, 60, owns a Miami-based hospital operator called Empower, which has seen many of its facilities fail after insurers refused to pay for suspect billing. Half of rural hospital bankruptcies last year were affiliated with Empower, which controlled 18 hospitals across eight states at the height of the operation. Over the past two years, 12 of the hospitals have declared bankruptcy. Eight have closed, leaving their rural communities without healthcare and a source of jobs.
"Schemes that exploit rural hospitals are particularly egregious as they can undermine access to care in underserved communities," Thomas South, a deputy assistant inspector general in the Office of Personnel Management Office of Inspector General, said in a statement.