Beverly Enterprises, the nation's largest nursing home chain, said it could pay as much as $225 million to settle federal criminal and civil investigations into its Medicare cost reports.
That sum would rank the settlement among the largest single healthcare fraud settlements on record.
Beverly announced the tentative agreement with the U.S. Justice Department last week. The Fort Smith, Ark.-based company first disclosed the investigations in July 1998, after it and its auditor received subpoenas for information in a civil investigation. Subsequently the U.S. attorney's office in San Francisco convened a grand jury targeting two former Beverly employees. As of April, five current Beverly employees had appeared as witnesses in the criminal case.
Under scrutiny in both investigations are Beverly's Medicare cost allocations for nursing labor from 1990 to 1997.
Nursing labor cost allocation is "one of those areas that can mean a lot of dollars to a facility," and audits calling those calculations into question are "very common," said Betsy Anderson, vice president of the healthcare management group at Skokie, Ill.-based consulting firm F R & R Consulting.
They are also difficult to disprove, because of the extensive documentation required to show exactly how much nursing care was provided to Medicare patients, Anderson said.
Beverly said it would record a pretax charge of between $175 million and $225 million on its second quarter earnings report in connection with the settlement.
Terms of the settlement were not disclosed pending the completion of settlement documents and court approval.
The Justice Department declined comment.
A Beverly spokesman said the company was not in any merger or acquisition discussions with any other companies. But two of the largest healthcare settlements this decade were followed by such transactions.
In 1994, Santa Monica, Calif.-based National Medical Enterprises settled a criminal and civil fraud case with a $379 million payment to the government. Shortly after the settlement, NME acquired Dallas-based American Medical International and changed its name to Tenet Healthcare Corp., now the country's second-largest for-profit hospital company.
And in 1996, Owings Mills, Md.-based Integrated Health Services agreed to settle billing fraud allegations as part of its acquisition of First American Health Care, Brunswick, Ga., a home health company. The settlement payment will eventually total $255 million.
For investors, the good news of Beverly's apparent success in averting a protracted investigation may be offset by the company's poor financial showing under Medicare's new prospective payment system for skilled-nursing facilities. Beverly said it was banking on improving occupancy at its facilities to improve its bottom line.
But analysts were not too optimistic.
"As we look across companies that have reported (earnings through June 30), clearly it's the case that occupancy is not improving yet," said Charles Lynch, a New York-based analyst for Schroder & Co.
Occupancy at Beverly's 563 nursing facilities fell in the second quarter ended June 30 to 86.5% from 88.5% in the year-ago quarter.