Paracelsus Healthcare Corp. is off to a troubled start as a publicly traded hospital company, launching an internal investigation into its accounting and financial activities.
Less than two months after the completion of its merger with Champion Healthcare Corp., Paracelsus said last week it will report lower-than-expected quarterly earnings. The Houston-based company also appointed an internal committee and hired a law firm to examine the shortfall.
"The inquiry will explore accounting and financial reporting practices and procedures, including certain corporate reserve practices," a company statement said.
The company would not disclose the amount of what it termed an earnings shortfall.
With $700 million in 1995 revenues, the new Paracelsus in August became the nation's sixth-largest investor-owned hospital company. It owns and operates 31 hospitals in 11 states.
But by the middle of last week, Paracelsus was scrambling to calm investors. On Oct. 10, the company suspended the trading of its stock on the New York Stock Exchange for several hours.
Paracelsus, which had been privately held since it was founded in 1981, has been publicly traded since August (Aug. 29, p. 21).
Paracelsus said its board has appointed a special committee of non-management members and has hired an outside law firm, Wilmer, Cutler & Pickering of Washington, to look into the earnings shortfall and financial irregularities.
The lower-than-expected earnings for the quarter ended Sept. 30 are expected to be released in mid-November, the company said. Earnings for the quarter were originally projected at about 11 cents per share. The updated projection was unavailable.
Paracelsus stock was trading at about $10 a share last week.
The company blamed the downward earnings estimate on lower operating results from its facilities in Los Angeles. Paracelsus operates five acute-care hospitals and three psychiatric hospitals in the Los Angeles area.
"Because certain Los Angeles metropolitan area hospitals are not expected to improve in the short term, the company's post-merger strategy is to explore divesting these facilities," the company said. "The company expects to treat certain of these hospitals as discontinued operations for accounting purposes. In light of these factors, the company expects a significantly larger loss for the quarter than anticipated."
The company also announced that Angelo Mozilo, chairman and chief executive officer of Pasadena, Calif.-based Countrywide Home Loans, one of the nation's largest lenders, resigned from Paracelsus' board. No reason was given for the resignation.