Probe sends Grace stock tumbling Medicare billing review could impede spinoff

shares fall $8.50, or 13%

October 19, 1995|By BLOOMBERG BUSINESS NEWS

WALTHAM, Mass. -- W. R. Grace & Co.'s stock fell 13.1 percent yesterday after the company disclosed that it is under federal investigation over its "health care payments and reimbursements."

Virtually all the specialty chemical and health care company's Medicare billings are under scrutiny as part of a broad inquiry that could delay the planned spinoff of Grace's health care unit, two institutional shareholders said.

The investigation includes admitted Medicare overbilling by a Grace kidney dialysis laboratory that led the company to reimburse $4.9 million to the government last month, the two shareholders said.

Boca Raton, Fla.-based Grace has said that the overbilling, which occurred between 1989 and 1993, was "inadvertent and not caused by fraudulent activity."

Investigators for the Justice and Health and Human Services departments issued five criminal subpoenas in Boston for documents from Grace's National Medical Care Inc. unit in Waltham, said Judy Holtz, a spokeswoman for the HHS inspector general.

Grace's stock closed at $56.625, down $8.50. Trading was held up in the morning pending the company's announcement.

Institutional shareholders owning the majority of the company's stock have long favored the spinoff in the belief that it would increase the combined share value of the companies.

The National Medical Care Inc. unit, the nation's biggest kidney dialysis provider, has previously said it is under federal criminal investigation in New Jersey and Virginia.

"We don't know yet if the investigations are related, and at this time Grace is proceeding with the spinoff," said Grace spokeswoman Mary Lou Kromer.

The spinoff of National Medical, which accounted for 37 percent of Grace's $5.1 billion in revenue last year, is due for completion ,, next month, Ms. Kromer has said. Medicare billings account for well over half the revenue at National Medical, which provides kidney dialysis services and products, home health care and infusion therapy.

Ms. Kromer, contradicting Ms. Holtz, said she had been told that the investigation is civil, rather than criminal, in nature. National Medical spokesman Ed Berger said it isn't aware of any grand jury that has been empaneled in the Massachusetts inquiry.

National Medical said in an announcement yesterday that it is under investigation "concerning possible violations of federal laws relating to health care payments and reimbursements."

"NMC's management believes it is in material compliance with laws and regulations under which it operates," it said.

Grace shareholders said the spinoff could be delayed if the Securities and Exchange Commission requests an amendment to the spinoff report filed by the company last month, or the company's provision of subpoenaed documents is time-consuming.

"This certainly calls into question whether the spinoff will take place on schedule," said Joseph Cappello, a New Vernon Associates analyst. The SEC declined comment.

The grand jury in New Jersey is examining whether the company sold defective products, how it handled customer complaints and "matters relating to the development of a new dialyzer product line," Grace said in its Form 10 spinoff filing last month. The company said it has received "multiple subpoenas" from this grand jury.

Grand jurors in Alexandria, Va., are investigating contracts between the company's kidney dialysis service business and third parties providing "medical directorship" and other services to those units, the company said in its filing. The company said it has received a single subpoena in this matter.

Grace has said that neither investigation is expected to affect the company's financial performance significantly.

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