Last February Anthem Blue Cross sent a letter to Sonoma West Medical Center and Palm Drive Healthcare District, demanding repayment and threatening legal action. According to Anthem, the hospital “appears to have conspired with several third parties to fabricate or misrepresent claims for toxicology testing services that were improperly billed to Anthem.”
According to Anthem, the fraudulent billing began after the hospital partnered with Durall Capital Holdings, a Florida company, and Durall’s testing laboratory, Reliance Laboratory Testing. In exchange for more than $2 million, the cash-strapped hospital agreed to conduct toxicology testing for Durall.
Sonoma West denied that they did anything wrong. However they discontinued the practice nonetheless. The Palm Drive Health Care District is now seeking bids for the purchase of its Sebastopol hospital, a move brought on by ongoing financial struggles and debt,. Alanna Brogan, executive director of the district, said the need to sell the hospital became clear after the hospital’s lucrative but controversial lab services were suspended.
The Sonoma West story may be just the tip of a large iceberg of fraud rings that infect rural hospitals.
In March, CBS News investigated questionable billing at rural hospitals in Georgia and Florida. It found that some rural hospitals have become hugely profitable because insurance providers reimburse them at much higher rates. These out-of-the-way hospitals have become gold mines for enterprising health care executives looking for a way to quietly make a quick buck.
Records showed the money was being paid out for drug screens – toxicology tests on urine samples collected from all over the country. Some of the testing was conducted at Durall’s lab, Reliance, in Sunrise, Florida, but everything was billed through Chestatee Regional Hospital, a 49-bed hospital, has been operating for more than 40 years in rural north Georgia. As a rural hospital, it can bill at a higher rate than other facilities.
Documents show Durall’s lab made $67 million billing tests through another rural hospital in Graceville, Florida. A similar deal Durall made with Sonoma West Medical Center in northern California has generated more than $31 million in the last eight months. Last year, Durall bought two more rural hospitals in Georgia and Alabama.
CBS News now reports that in 2016, Missouri state auditor Nicole Galloway began examining the finances of several rural hospitals in her state. One was Putnam County Memorial, a 15-bed hospital in Unionville, Missouri, struggling to keep its doors open.
Her team discovered a management company called Hospital Partners had swooped in weeks before Putnam was about to close, promising to turn it around. They made deals with labs around the country to funnel billing for blood tests and drug screens through Putnam, which collects higher reimbursement rates as a rural hospital. Putnam kept about 15 percent; most of the money was wired back to the labs and the management company.
“Essentially the hospital appeared to act as a shell company for these questionable lab billings,” Galloway explained. “In a six-month period, the hospital funneled through about $92 million in revenues. To put that in perspective, the previous year their total revenues were $7.5 million.”