A host of legal and financial concerns are dogging Horizon/CMS Healthcare Corp. as it struggles to complete its $1.6 billion sale to HealthSouth Corp., a filing with the Securities and Exchange Commission shows.
The filing, made Aug. 29, said Birmingham, Ala.-based HealthSouth and Albuquerque-based Horizon/CMS plan to enter a consent agreement with the Federal Trade Commission to settle the agency's antitrust concerns about the sale.
The forthcoming agreement would require Horizon/CMS to sell its interest in Northeast Tennessee Rehabilitation Hospital in Johnson City. HealthSouth already owns a hospital in nearby Kingsport, Tenn.
In June, the FTC raised concerns about the companies' presence in the market. To date, however, Horizon/CMS has been unable to find a buyer for its stake in the Johnson City rehab facility (June 16, p. 2).
HealthSouth and Horizon/CMS had hoped to complete their deal by June 30, but the antitrust snag has pushed that date back to October.
HealthSouth executives referred questions to Chairman and Chief Executive Officer Richard Scrushy, but he was unavailable for comment at deadline. Horizon/CMS executives did not return calls seeking comment.
It is unclear how Horizon/CMS' mounting legal problems will affect the proposed sale to HealthSouth.
In the weeks preceding the February announcement of the deal, Horizon paid more than $20 million to settle federal investigations into allegations of fraudulent billing practices and securities violations.
But in its latest SEC filing, Horizon/CMS reveals that a number of ongoing investigations have yet to be resolved.
The company said in April the U.S. attorney's office for the western district of Louisiana stepped up its ongoing investigation into the Medicare billing practices of Horizon/CMS' North Louisiana Rehabilitation Hospital in Ruston. Denying any wrongdoing, the company said it has offered to settle the government's allegations of overbilling for some $4.1 million.
Also pending is Horizon/CMS' lawsuit against Santa Barbara, Calif.-based Tenet Healthcare Corp. In March 1996, Horizon/CMS charged in U.S. District Court in Las Vegas that Tenet owes it $14.5 million in connection with an agreement that was in place when Horizon/CMS unsuccessfully attempted to buy Hillhaven Corp., a nursing home chain in which Tenet had an equity stake (March 11, 1996, p. 16).
The company is also litigating numerous shareholder lawsuits and a complaint by the Equal Employment Opportunity Commission, which alleges the company didn't provide pregnant employees with appropriate light-duty assignments. In addition, the SEC and the New York Stock Exchange are separately investigating the company's trading practices, Horizon/CMS said.
The barrage of investigations has taken a financial toll. The rehabilitation and long-term-care company reported a net loss of $35.9 million, or 69 cents per share, for the year ended May 31, compared with a net loss of $22.7 million, or 44 cents per share, in the year-ago period. Revenues rose 2% to $1.8 billion from $1.76 billion.