National Medical Enterprises last week moved to resolve financial and legal difficulties, announcing layoffs and the settlement of charges that it misled investors about the condition of the company.
But while NME announced it would dismiss 200 executives and other employees, it confirmed the company will retain an expensive corporate jet. The layoffs were estimated to save the company $32 million annually, yet the budget ax spared NME's jet, a Gulfstream IV, which has a list price of $27 million.
When asked about the airplane, Christi Sulzbach, NME's senior vice president of public affairs, said one of the two corporate aircraft will be sold as part of the cost-cutting evaluation. However, NME opted to get rid of the Falcon 50, an older, smaller plane that might be easier to sell, she said. The price of that aircraft wasn't known.
The elite, 12-passenger Gulfstream IV is referred to as a "G-4" and was the subject of a May 30 Fortune magazine article, "The Absolute Best Way to Fly." Fortune reported that 239 of the G-4s are now in service, most of them owned by big companies. The airplanes cost about $2,500 an hour to operate.
Ms. Sulzbach said the G-4 was valuable for executives who travel internationally. "We do a lot of international work," she said. The Santa Monica, Calif.-based NME has healthcare ventures in Australia, Malaysia, Spain, and the United Kingdom.
Sulzbach said NME bought the airplane two or three years ago when the company was led by then-Chairman and Chief Executive Officer Richard Eamer. Mr. Eamer resigned last year as the company was fighting growing legal and financial woes surrounding its psychiatric hospital operations.
The corporate layoffs had been expected after the hospital chain brought in McKinsey & Co. three months ago to review its operations. The New York-based management consulting firm's work for NME was dubbed "Design '95," and was billed as an effort to cut costs and lead NME into a "nimble, cost-effective" structure, according to company officials.
NME has not disclosed how much it is paying McKinsey for the study.
Because the company has sold its rehabilitation hospitals and is in the process of divesting its psychiatric operations, the 900-member corporate staff was viewed as too costly for a chain of 35 U.S. hospitals.
On July 11, 200 NME employees-16 at the vice presidential level and above-were laid off immediately. In addition, NME said it wouldn't hire replacements for 40 unfilled positions.
Cost-cutting apparently isn't over at the hospital chain, which now has a corporate staff of about 700. For example, McKinsey didn't evaluate the information systems department, which employs about 150. Ms. Sulzbach said that analysis by McKinsey will be done in the coming weeks.
In addition, a decision on whether to move the corporate headquarters is expected at the end of August. NME spokeswoman Diana Takvam said the company likely will stay in California.
In a related development, NME last week settled charges brought by the Securities and Exchange Commission that the company falsely described the business of its psychiatric and substance abuse subsidiary and failed to disclose that those operations were "subject to material risks." The SEC action was related to a federal fraud investigation of the company's psychiatric hospitals. NME settled that case last month with the U.S. Justice Department by paying a record $379 million in fines (July 4, p. 2).
The SEC in its charges also said NME reported financial revenues and profits generated by "improper practices."
Under the settlement, NME agreed to a permanent injunction against future violations and did not admit or deny the SEC allegations.