A $90 million billing scheme reached a 10-hospital group, lawsuit says
The $90 million billing scheme blasted in a state audit of a rural Missouri hospital spread to as many as 10 other hospitals, including four in Kansas and Missouri, a Mission Hills couple has alleged in federal court.
James and Phyllis Shaffer sued Miami resident Jorge A. Perez, a central figure in controversial billing practices at hospitals in Georgia, Florida and elsewhere, and his partners over what the couple says were replays of the scheme found at Putnam County Memorial Hospital in Unionville, Mo.
An investigation by Missouri Auditor Nicole Galloway a year ago led to a call for a federal investigation into what she said were “questionable laboratory billing practices.”
The audit did not name Perez, but records show he is the vice president of Florida-based Hospital Partners Inc., which figured prominently in the audit report, and a published report said he is an owner of the company.
Perez also is listed as CEO of North Kansas City-based EmpowerHMS, which the couple’s lawsuit said was hired to manage the hospitals after Perez’s group took control. Perez is president of Empower H.I.S. LLC, a Florida company that, like him, is a defendant in the lawsuit.
Perez and other defendants could not be reached but a spokesman saying he represented Empower H.I.S. provided a statement.
“Empower H.I.S. and all respondents are represented by counsel and firmly contend that this suit is frivolous and they are highly confident that the facts will bear out that all contentions made by the plaintiff will be found to be without merit,” said an emailed statement from Michael P. Murtha, president of the National Alliance of Rural Hospitals, based in Florida.
An attorney for the couple, who are shareholders in a company that owns 20 percent of each of the 10 hospitals, declined to comment on the lawsuit, which was filed in U.S. District Court in Kansas City.
The Shaffers’ lawsuit claims Perez and others seized control of the 10-hospital group, called HMC Hospitals, during a meeting in Kansas City last year. It said they took control after the board of HMC Hospitals failed to immediately accept their proposed laboratory testing program.
Perez’s group, the lawsuit said, “intended to implement at the HMC Hospitals and did implement in at least some of them” an “illegal billing scheme” that was “substantially similar to the scheme then being operated” at Putnam County Memorial by Perez, Empower H.I.S. and others.
In 31 pages, the couple also charged that Perez’s group misappropriated $2 million from the 10 small hospitals, pushed four of the hospitals into default on $29.3 million in loans, submitted false hospital reports to Medicare and Medicaid, and rendered “essentially valueless” the $3 million of value other owners of the hospital group held when the Perez group took control.
The lawsuit names as defendants Jorge A. Perez of Miami; Paul L. Nusbaum of Charleston, W.Va.; Steven F. White of South Charleston, W.Va.; Empower H.I.S. LLC; and Health Acquisition Company LLC, a West Virginia company.
In the Shaffers’ lawsuit, the couple claims to be suing on behalf of themselves and other shareholders in HMC/CAH Consolidated Inc., which owned the 10 HMC Hospitals. The group had borrowed $6 million from Health Acquisition Co. in a 2013 deal that allowed Health Acquisition to convert the debt to 80 percent ownership of the HMC Hospitals, according to the lawsuit.
Perez’s group executed that option at the meeting in Kansas City, the lawsuit said, and then gave Perez sole discretion over “all matters relating to bank accounts and lending matters, including relationship with all banks and governmental entities.”
Murtha said the two sides have been in litigation in Kanawha County Circuit Court in West Virginia and presented a petition against James Shaffer and others including Rural Hospital Group LLC of Kansas City.
That lawsuit sought damages on claims that Shaffer and the others set up Rural Hospital Group to compete with Nusbaum and White’s company though some of them were its employees.
The West Virginia lawsuit also provided a different version of the March 2017 meeting that led Health Acquisition to convert the debt to 80 percent ownership of the HMC Hospitals. It said the $6 million loan was in default and had Shaffer’s and the others’ actions been known, then Health Acquisition would have foreclosed and gained 100 percent ownership of the HMC Hospitals instead of only 80 percent.
According to the couple’s lawsuit, the billing scheme used the hospitals to submit claims for reimbursement for laboratory work performed mostly for drug detoxification and pain clinics.
None of the lab work, however, was done at the hospitals or by care providers at the hospitals, and none of the individuals whose specimens were tested had been to the hospitals, the suit charged. Instead, the lab work had been done at other laboratories.
The scheme, as described in the lawsuit, took advantage of the 10 rural hospitals’ status as critical access rural hospitals under designations by Medicare and Medicaid. That allowed the hospitals to claim substantially higher reimbursements for the lab work than the other labs that did the work would be able to claim, the suit said.
It also said the scheme relied on Empower H.I.S. to prepare the bills to make it appear the work had been done at the hospitals rather than the other labs. The suit said the drug detoxification and pain clinic received part of the higher reimbursements as a “kickback” under the scheme.
Another claim in the lawsuit was that Perez and others named as defendants control five entities that provided services or supplies to the 10 hospitals at “excessive and unreasonable charges.” Four of the five — Empower H.I.S., The National Alliance of Rural Hospitals, HIPPA Guard and Reboot — are listed as partners on EmpowerHMS’s website.
All 10 HMC Hospitals also are listed as partners: Oswego (Kan.) Community Hospital; Horton (Kan.) Community Hospital; Hillsboro (Kan.) Community Hospital; I-70 Community Hospital, Sweet Springs, Mo.; Drumright (Okla.) Regional Medical Center; Prague (Okla.) Community Hospital; Fairfax (Okla.) Community Hospital; Haskell County Community Hospital, Stigler, Okla.; Washington County Hospital, Plymouth, N.C.; and Lauderdale Community Hospital, Ripley, Tenn.
None of the hospitals is named as a defendant in the lawsuit.