By Joe Barnett
A health insurance scam that targeted rural hospitals in several states fraudulently billed health insurers for $1.4 billion in lab tests, states a federal grand jury indictment in Florida.
Jorge A. Perez, owner of Empower H.I.S., LLC, a Florida medical billing and software company, and related companies, along with nine other individuals, was indicted by the grand jury on conspiracy, fraud, and money laundering charges.
The indictment, unsealed June 30, states the accused acquired or managed small rural hospitals in Florida, Georgia, and Missouri; owned or controlled laboratory testing companies headquartered in Florida, Georgia, and Illinois; and ran a Florida substance abuse treatment center.
Using a practice known as “pass-through” billing, the defendants used these facilities to bill numerous insurers for expensive—and often medically unnecessary—blood and urine tests to take advantage of higher reimbursement rates rural health care providers are allowed for tests on patients. The tests were performed by remote labs far distant from the hospitals. The conspirators profited $400 million from the excessive charges.
Tip of the Iceberg
The case is only the tip of the iceberg when it comes to the use of rural hospitals to commit health care fraud, says health economist Devon Herrick, a policy advisor to The Heartland Institute, which co-publishes Health Care News.
“This is the third major federal case related to this billing scheme,” Herrick said. “Of the 22 hospitals that declared bankruptcy in 2019, nearly half were hospitals owned or managed by the companies and individuals named in the Florida fraud indictment.”
Perez owned or managed 18 hospitals in eight states before insurers ceased paying suspect claims, Kaiser Health News reported on August 20, 2019, stating that “12 of the hospitals have entered bankruptcy and eight have closed their doors.” In addition to the hospitals named in the indictment, Perez owned or controlled rural hospitals in Arizona, Kansas, North Carolina, Oklahoma, and Tennessee.
Several major insurance companies are suing rural hospitals and companies that marketed such fraudulent or abusive schemes, Herrick says.
“In recent years, unethical medical marketing companies have sold rural hospitals across Texas on the idea that they could enhance their revenues by allowing the companies to take over their billing,” Herrick said.
“For example, insurance claims for lab tests by Stamford (TX) Memorial Hospital rose from less than one million dollars one year to more than $70 million the next, though the hospital has only 12 patient beds,” Herrick said.
Saving Rural Hospitals
Rural hospitals have struggled for years, Herrick says. The Coronavirus Aid, Relief, and Economic Security (CARES) Act signed into law March 27, 2020, included $10 billion for rural hospitals to treat COVID-19 patients and cover revenue shortfalls from the loss of normal business, but the pandemic has only exacerbated existing problems, Herrick says.
“The financial problems of rural hospitals are multifaceted and longstanding,” Herrick said. “The Chartis Center for Rural Health estimates 450 rural hospitals are financially on the ropes and in danger of closure.”
Rural hospitals can avoid falling into such billing schemes through better management, says David Balat, director of the Right on Healthcare initiative at the Texas Public Policy Foundation.
“Hospitals would do better to adopt best practices and fiscal discipline to meet the needs of their community and beyond,” Balat said. “In my work as a hospital administrator that turned hospitals around financially, we were often able to get the facilities on sound financial footing with our lowest paying contracts.”
Access to health care in rural counties losing population can be preserved, Balat says.
“Many of the hospital closures have occurred in counties with populations of 20,000 or less that are experiencing population out-migration,” Balat said. “Policymakers should look to the needs of the community with an eye to right-sizing health care for the people within their community. There are many examples but one that stands out is from Fort Scott, Kansas where the community determined they didn’t need a hospital when they got better/more services with a stand-alone ER and a community health clinic.”
The COVID-19 crisis has led to changes in federal and state regulations that will improve access to health care, Balat says.
“We’ve seen monumental strides in the delivery and acceptance of telemedicine as a viable option,” Balat said. “Many states are also looking to eliminate barriers for physician licensure reciprocity which will increase the supply of physicians and other medical professionals.”
Joe Barnett (firstname.lastname@example.org) is a former managing editor of Budget & Tax News.