The U.S. Justice Department late last week closed its antitrust investigation of the proposed merger of Transitional Hospitals Corp. and Vencor, clearing the way for the marriage of the nation's two largest operators of long-term acute-care hospitals.
Las Vegas-based Transitional said the companies negotiated a firm merger agreement under which Louisville, Ky.-based Vencor would purchase its 40 million shares for $639 million.
Transitional earlier signed a merger agreement with Mechanicsburg, Pa.-based Select Medical Corp. that allowed it to pursue discussions with other interested buyers. Negotiations with Vencor began when the company topped Select's offer of $14.55 per share with a $16-per-share bid.
The agreement with Select also allowed Transitional to terminate the deal on five days' notice if it could secure a better offer. In return, the agreement called for Transitional to pay a $19.4 million breakup fee.
Transitional said Select has been notified of the company's intentions and has until June 18 to renegotiate the terms of its agreement or the merger with Vencor will proceed. Vencor has filed a lawsuit challenging the breakup fee. Select executives were unavailable for comment.
The merger approval came a few days after Transitional announced that it's the target of a federal grand jury investigation into the Medicare billing practices of its former dialysis business.
Transitional said the investigation concerns alleged Medicare fraud connected to certain laboratory tests performed under a now-defunct partnership between the company and Needham, Mass.-based Damon Clinical Laboratories. Damon's new owner, Corning, agreed last year to pay $119 million to settle fraudulent billing charges against its Damon subsidiary.
Transitional's partnership with Damon lasted from June 1987 to June 1992, and Transitional spun off its dialysis business, now called Vivra, in September 1989. Last week, Sweden-based Incentive purchased Vivra's renal-care unit (See story, p. 37).
Meanwhile, another post-acute provider said last week that it, too, is the subject of an investigation by the Justice Department.
Community Care Services, a Mount Vernon, N.Y.-based home-care provider, said the company and its chief executive and chief operating officers are targets of a criminal investigation. The company said investigators are looking into allegedly improper payments made under a contract to provide Medicare-related healthcare services outside New York state.
The company said executives "vehemently deny any wrongdoing."