A sealed whistleblower lawsuit accuses Paracelsus Healthcare Corp., Houston, of civil Medicare fraud, including physician kickbacks and charging for unnecessary services.
The complaint has prompted 10-hospital Paracelsus to delay a hearing on its bankruptcy reorganization plan to Feb. 9, 2001, from Dec. 8.
The disclosure of the sealed lawsuit was made in a $95 million claim filed with the bankruptcy court earlier this month and disclosed last week.
After defaulting on several interest payments, Paracelsus filed for bankruptcy protection under Chapter 11 Sept. 15 in U.S. Bankruptcy Court in Houston, listing assets of $502.5 million and liabilities of $473.3 million (Sept. 25, p. 2).
At the time, the company also filed a voluntary reorganization plan under which holders of the company's $325 million bonds would exchange the debt for a new bond issue of $130 million and 95% of the company's common stock. The company has not suggested liquidating its hospitals as part of its reorganization, and none of its subsidiary corporations that own the hospitals have filed for bankruptcy protection.
The unidentified whistleblower has filed two claims totaling $95 million with the bankruptcy court on behalf of the federal government and the state of California. The government has not joined the lawsuit, which names Paracelsus, one of its former hospitals and four unrelated organizations.
Paracelsus said it will object to the claims and contest the allegations, which it first discovered at the time of the filing with the bankruptcy court.
One of the company's objections is that the claim was filed after an Oct. 31 bankruptcy court deadline had passed.
"We did not receive this proof of claim until Dec. 5," said Deborah Frankovich, senior vice president and treasurer of Paracelsus. "It's clearly significantly past the bar date."
Frankovich said that before this filing, Paracelsus had done a preliminary tally of votes of its creditors and stockholders, which showed "substantial support" for the reorganization plan.