Unfavorable Medicare cost report settlements and legal bills are part of what Quorum Health Group Chief Executive Officer James Dalton Jr. termed "a remarkable confluence of events" that sank the second-quarter earnings of the Brentwood, Tenn.-based hospital chain.
Quorum last week reported a net loss of $18.7 million for the quarter ended Dec. 31, 1998, compared with a profit of $24.4 million for the year-ago period. Net operating revenues dipped 6% to $386.1 million.
The unfavorable settlements with Medicare fiscal intermediaries were not related to a whistleblower fraud lawsuit against the company, Quorum officials said.
The 1993 lawsuit is pending in U.S. District Court in Tampa, Fla. It alleges that Quorum prepared and kept "reserve cost reports" and support documents that identified questionable claims on padded cost reports that the company had filed with fiscal intermediaries. The lawsuit also names Columbia/HCA Healthcare Corp. as a defendant.
Quorum last month filed a motion to separate the whistleblower's civil case against it from the joint complaint that includes Columbia. Columbia faces similar civil whistleblower charges and a separate criminal investigation.
The Justice Department is expected to file an amended whistleblower complaint this week. Last fall the department joined the 1993 complaint of James Alderson, a former chief financial officer at a Quorum-managed hospital in Whitefish, Mont. (Oct. 12, 1998, p. 2).
Regarding the unfavorable settlements, Quorum spokeswoman Shea Davis said, "We have settlements with payers every quarter. We've just never had settlements this negative all at the same time."
Facilities serving Medicare patients must file cost reports, which are final claims for services rendered in a given year. Fiscal intermediaries use those reports to determine whether Medicare overpaid or underpaid the providers and to settle the differences.
Quorum will likely appeal the unfavorable settlements to the fiscal intermediaries, Davis said. Combined, those settlements compressed Quorum's quarterly revenues by $10.6 million, she said.
Quorum has also experienced operational troubles. Company officials cited problems in two markets. In Spartanburg, S.C., Quorum has had difficulty recruiting and retaining physicians for its Mary Black Health System. And in Vicksburg, Miss., the company has lost money on a recently completed hospital joint venture with Columbia.
Analysts were surprised to learn about losses on the Vicksburg deal-especially since the joint venture controls both of the city's acute-care facilities (Jan. 4, p. 2). The company did not release an exact figure, but analysts estimate the loss to be millions of dollars.
"A number of hospitals they own are significantly underperforming," said Jeff Villwock, a healthcare analyst at Atlanta-based Robinson-Humphrey Co.
Some in the financial world are suggesting that Quorum's low stock price makes it an attractive acquisition target. The company's stock closed at $8 on Jan. 28, a 52-week low.
Davis said she knew of no one who was interested in buying the company.
New American Healthcare Corp., a small Brentwood-based chain of 11 hospitals, is rumored to be a suitor. But New American Senior Vice President Dana McLendon Jr. dismissed the idea of acquiring the much-larger Quorum, which owns 21 hospitals and manages about 240.
Separately, Quorum is selling its 165-bed Park Medical Center in Columbus, Ohio. The sale is rare for a company that has steadily acquired facilities for most of the decade.