Nursing home giant set to settle fraud case

Beverly facing payout of up to $225 million


July 28, 1999|By BLOOMBERG NEWS

FORT SMITH, Ark. -- Beverly Enterprises Inc., the largest U.S. nursing home chain, said yesterday that it will take a second-quarter pretax charge of $175 million to $225 million in anticipation of settling a U.S. Justice Department Medicare fraud investigation.

The charge indicates that the company expects to pay the largest financial penalty ever against a nursing home company for health fraud.

Beverly is the subject of a criminal grand jury probe -- part of a nationwide crackdown on Medicare fraud at nursing homes and hospitals -- into whether it inflated bills for nurses' pay. A settlement could ease investor uncertainty about the company, whose shares have declined nearly 60 percent since April 1998 as a result of the probe and slowing growth in Medicare payments.

"This is good. This is more probably than they would have liked to pay, but it's over," said Nancy Weaver, a Stephens analyst with a "buy" rating on Beverly. "It's close to finished."

Beverly shares fell 43.75 cents to close at $6.25.

A company or individual found guilty of a felony in a criminal health care fraud case can be suspended from Medicare and Medicaid for at least five years.

The financial penalties alone would be a major hit to Beverly. The company "earns $60 million in a good year," and thus a fine of $225 million is a major blow, Sean Egan, president of the Egan Jones debt rating service, wrote in a report.

He said he does not think the government will demand an agreement that will force Beverly out of Medicare. "This is bad enough," Egan said. "Eating up four years of profit is fairly large."

Beverly, of Fort Smith, Ark., would not comment further on the potential settlement, including whether it involved criminal or civil fraud.

"We hope to put the government investigation behind us and are studying the impact the potential settlement will have on our ongoing operations," said David Banks, Beverly's chairman and chief executive, in a statement.

The company announced that it would delay the release of its second-quarter earnings until no later than Aug. 20.

Beverly said preliminary results show it had profit from operations of 13 cents per share in the quarter before costs from the investigation and for fixes to avoid the year 2000 computer bug. The company had net income of 20 cents per share in the comparable period a year ago.

The company also said its nursing home occupancy level fell more than 1 percentage point from the first quarter to an average of 86.5 percent.

The company, which generated almost $3 billion in revenue last year, runs about 560 nursing facilities in 29 states and the District of Columbia. The company also runs assisted-living facilities, outpatient clinics and home-care centers.

Pub Date: 7/28/99

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