Quorum Health Group's recently announced $95.5 million settlement with the federal government sent the company's first-quarter earnings plunging into the red.
The Brentwood, Tenn.-based hospital chain reported last week that it lost $52.2 million, or 73 cents per share, for the quarter ended Sept. 30, compared with net income of $10.6 million, or 14 cents per share, in the year-ago quarter.
Included this first quarter was a $95.5 million charge for the company's pending settlement of two federal whistleblower fraud lawsuits, $614,000 in litigation and investigation-related costs, and $450,000 related to the company's search for a buyer. Net operating revenue rose 5.3% to $454 million.
Without the one-time charges, Quorum would have recorded a profit of $14.1 million, or 18 cents per share.
The earnings news came a week after Triad Hospitals, a company spun off from HCA-The Healthcare Co. in May 1999, announced it had signed a definitive agreement to buy Quorum for $2.4 billion in cash, stock and assumption of debt. Merrill Lynch & Co. is underwriting the deal, which is expected to close sometime in the first half of next year (Oct. 23, p. 2).
"Our goal is to deliver to Mr. (James) Shelton (Triad's chairman and chief executive officer) and his outstanding team a Quorum that is the best it can be," James Dalton, Quorum's current president and CEO, told Wall Street analysts during a conference call late last week.
Dalton said that in the coming months the company will focus on its operations and on communicating to employees what the transition to Triad will mean for them. He did not provide details.
New details were offered Friday by the U.S. Justice Department in terms of Quorum's pending settlement. Of Quorum's $95.5 million settlement, $18 million will settle allegations that the company charged Medicare for unallowable costs at 215-bed Flowers Hospital, Dothan, Ala., through cost reports of the hospital's home health agency.
The remainder of the settlement, $77.5 million, is to settle allegations stemming from a lawsuit brought by James Alderson, a former chief financial officer at a Quorum-managed hospital. Alderson alleged that Quorum submitted fraudulent cost reports resulting in Medicare overpayments at 250 hospitals it owned or managed (Oct. 9, p. 2).
Although Alderson may receive 15% to 25% as his portion of the $77.5 million recovery, the whistleblower in the Alabama lawsuit that sparked the government investigation won't be getting any money.
William Menke, the former chief operating officer and executive vice president for external activities at Flowers, filed the original lawsuit in 1996. Not only will he not get any share of the settlement, but he has agreed to plead guilty to a felony charge as part of a separate investigation. The charge arose from alleged income tax evasions stemming from his receipt of kickback payments from a computer services vendor. Menke has also agreed to be excluded from being a Medicare provider for eight years.