Beverly Enterprises, Fort Smith, Ark., said it is voluntarily investigating past billing practices at a Fresno, Calif., home medical equipment subsidiary and has notified the appropriate government authorities.
The nursing home chain said it has been reviewing whether operating the subsidiary, MK Medical, fits with its long-term strategy and in the course of that review discovered potential billing discrepancies. It has hired Deloitte & Touche to continue the examination of MK Medical's billing of government healthcare programs, which represent about 75% of the subsidiary's $20 million in annual revenue.
In a written statement, Beverly said, "Until the results of this Beverly-initiated audit are known, the extent of potential overpayments, penalties or fines cannot be quantified, but they could have a material adverse effect on Beverly's results of operations."
Beverly acquired MK Medical in October 1998. The subsidiary generates less than 1% of Beverly's total revenue.
In a conference call on earnings yesterday, Beverly Chairman, President and CEO William Floyd said, "One of the things we've had to do across the board at Beverly is really take a hard look at all subsidiary operations. These are things that while they're smaller revenue can pose problems for the company, and if there's been a lesson learned it's that we need to scrutinize everything."
Executive Vice President and CFO Jeffrey Freimark called the situation a potential problem. "We don't know absolutely for a fact at this point in time. Truly at this point, we don't know the magnitude or if there are billing irregularities."
Beverly has faced two previous government investigations of possible Medicare and Medicaid fraud. Earlier this year, it offered to settle Medicare-billing disputes covering three years for $77.5 million. The case is pending. In 2000, the company agreed to a $175 million settlement to resolve charges it defrauded Medicare. Beverly said the disputes related to procedures and documentation.
In May, Beverly disclosed that California was conducting an investigation related to "possible criminal charges" against the company stemming from patient-care issues. Beverly said it was in discussions with the state to resolve the matter. At deadline, the status of the discussions wasn't known.
Beverly lost $14 million, or 13 cents per share, on revenue of $635 million in the second quarter. The loss reflects a $43.3 million increase in reserves for prior years' patient liability claims. Floyd said Beverly might be the subject of more patient liability claims than some of its competitors because of its past handling of claims, geographic concentration of nursing homes and size. "Those factors don't change the fundamental truth, which is this is a big and growing problem for the entire long-term-care industry," he said.
Beverly and its subsidiaries operate 462 skilled-nursing facilities, 29 assisted-living centers, 53 home care and hospice centers, and 153 outpatient therapy clinics in the U.S.