The roughly 3,000 residents of Stamford, Texas, appeared to be on the verge of losing their hospital in 2015, another casualty of the financial crisis facing rural hospitals.
But then Stamford Memorial Hospital seemed to have turned a corner based on an announcement from the hospital's CEO, Rick DeFoore, who told local media that the facility would stay open, thanks in part to "consulting help."
By the next year, lab charges would soar. Between 2015 and 2016, the hospital's outpatient lab test charges grew by an eye-popping 10,926% to nearly $70 million in 2016, from about $632,000 in 2015, the latest year for which Medicare cost report data are available. In 2016, the hospital's outpatient lab charges accounted for 93% of its total charges, compared with 11% in 2015.
Cary Davis, secretary of Stamford Hospital District's board of directors, said the hospital had a contract with an outside consultant in which it billed for "very expensive" cardiac tests that were sometimes performed elsewhere.
"These labs came to us and said, 'Would you do them? You could make some money on it,' " Davis said. "If somebody's going to do it, it might as well be us." DeFoore declined to comment on the lab contract.
The situation fits a trend that's cropped up in recent years: exploding lab charges by some rural hospitals. Insurers have accused them of breaching contracts by billing for tests performed elsewhere and on out-of-state patients. The issue is now the subject of lawsuits and a congressional inquiry. The Stamford hospital has not been the target of such accusations, at least not publicly.
An analysis of Medicare cost report data identified 21 hospitals whose outpatient lab charges exceeded 30% of the hospital's total charges in their most recent reports, either 2016 or 2017. In some cases, lab charges—billed mostly to private insurers but also to government payers—accounted for more than 80% of hospitals' total charges in a single year, according to an analysis by Modern Healthcare Metrics and the analytics firm Franklin Trust Ratings. Insurers typically pay only a portion of charges.
For comparison, the average outpatient lab-to-total charges ratio among all of the nearly 5,000 hospitals that filed cost reports was less than 9% in 2016 and about 12% so far for 2017.
Rural hospitals are being invited into such arrangements by what are usually out-of-state management companies seeking a way to tap into the typically higher rural hospital lab reimbursement rates. The hospitals agree to bill insurers for lab tests that in some cases were performed at outside labs and on patients with no connection to the hospitals. Such deals can be lucrative for the companies because insurers frequently pay rural hospitals much more for the tests than they do large labs like Quest Diagnostics or LabCorp.
People familiar with the deals say the hospitals keep between 30% and 40% of the revenue from the lab tests, which include blood and urine screenings.
Davis said Stamford Memorial is no longer participating in the lab test billing arrangement, because it ultimately wasn't making the hospital money. DeFoore announced June 19 the hospital was laying off lab techs, phlebotomists and other laboratory staff because insurers were refusing to pay for lab services. In an email, he said the lab services were provided to physician offices across the state.
John Morrow, managing director of the business intelligence firm Franklin Trust Ratings, said the issue is more widespread than he realized. "It's alarming that there's not more outrage about it," he said.