The charmed life is over for Pediatrix Medical Group.
Pediatrix's stock, worth significantly more than any other physician practice manager's, crashed Friday, Feb. 12, when the company warned it might have to restate past earnings because of accounting problems.
The Fort Lauderdale, Fla.-based PPM lost 48% of its stock value, closing at $28 per share, down $25.63 from the day's start at $53.63.
On Tuesday, Feb. 16, as the first shareholder lawsuits against Pediatrix started piling up, the company's stock value fell another 6% to $26.38 on record trading of 4.2 million of its 15.2 million shares.
While Pediatrix's stock price on Feb. 16 was almost twice that of any other PPM, the company's fall fit a disturbing pattern familiar to PPM investors: a company riding high announces unexpected bad news, its stock price falls, and lawsuits multiply.
However, Pediatrix believes it won't experience the rest of the PPM story: the company fails to acquire more practices, physicians leave, and its stock spirals further downward.
"These events have called into question our credibility," Roger Medel, M.D., Pediatrix's founder and chief executive officer, told investors during a Feb. 16 conference call. But, he says, "we have lost no hospital contracts, we have lost no managed-care contracts, and we have lost no acquisition candidates." Pediatrix, a neonatology and perinatology PPM, has 345 doctors.
In late November 1998, Medel says, Pediatrix's auditor, PricewaterhouseCoopers, informed the company that it had found a Securities and Exchange Commission violation related to a tax audit of the PPM's 1996 books. Then, on Jan. 14, the SEC cited PricewaterhouseCoopers for the violation, in which an associate in Tampa, Fla., illegally owned 165 shares of Pediatrix stock as he audited the company.
Pediatrix spokesman Bob Kneeley says the SEC and the company agreed in January to bring in a second auditor, KPMG, to ensure Pediatrix's 1998 numbers were clean. Normally, a new auditor would come in at the start of the fiscal year, not after its completion.
On Feb. 10, the company announced it would delay its earnings report for one week because of the new auditor but said it still expected to beat Wall Street estimates. Two days later, Pediatrix said it might not exceed those estimates and that it might have to restate past earnings.
KPMG told Pediatrix it needs to further analyze its accounts receivable and questioned the company's accounting of bonuses paid to development staff after signing up new doctors.