The scheme works like this: a company that owns a laboratory service (such as Hospital Partners) buys a struggling rural hospital, then issues bills for laboratory work from all over the country through the rural hospital. This means more profit, because insurance companies reimburse rural hospitals at higher rates to help keep health care in those areas. The labs sometimes plump their bottom lines by paying kickbacks to health-care providers for specimens they could then bill at the higher rates, Axelrod reports. "Essentially the hospital appeared to act as a shell company for these questionable lab billings," Missouri Auditor Galloway said. "In a six-month period, [Putnam] funneled through about $92 million in revenues. To put that in perspective, the previous year their total revenues were $7.5 million."
Jason Mehta, a former federal prosecutor who specialized in health-care fraud cases, told Axelrod that defining the scheme as fraud requires specific parameters: "The question's gonna be, did the laboratories intend to cheat? Did they intend to trick? Did they mislead the insurance companies? Because simply making extra money isn't a crime in and of itself. It's the question of, was someone tricked? Was some deceived?" The situation also has implications for Medicare and Medicaid, which provide a larger share of revenue for rural hospitals than for others.