Officials at National Century Financial Enterprises, Dublin, Ohio, confirmed that a federal investigation of the company's business practices has expanded to involve other agencies. Meanwhile, some of the firm's indebted and bankrupt clients have found financing to keep their doors open at least temporarily.
NCFE, which filed for Chapter 11 bankruptcy protection itself earlier this month, hasn't paid clients since late October. The company purchases providers' accounts receivable at a discount, packages them into bond issues and then fronts providers money from the proceeds.
The government is following up on allegations that the company and its officers manipulated bond issue funds, committed fraud and looted company resources, sometimes extending loans to companies in which NCFE former Chairman Lance Poulsen had a stake. Officials at the FBI and HHS' inspector general's office declined to comment or were unavailable at deadline.
The investigation already had been a multistate effort, but sources confirmed that the probe has expanded to involve HHS, the Securities and Exchange Commission and the U.S. attorney's office in Louisville, Ky. Modern Healthcare previously reported an FBI raid on NCFE headquarters and an investigation into a Maryland nursing home by the U.S. attorney in Baltimore. Read this week's cover story on NCFE.
One of NCFE's bankrupt clients that has won a temporary reprieve is five-hospital Doctors Community Healthcare Corp., Scottsdale, Ariz., which filed for bankruptcy Nov. 20. Doctors Community received enough money to maintain operations for 18 days when a U.S. Bankruptcy Court judge in Washington released $17.1 million in accounts receivable held by NCFE. Doctors Community must replace the money from future receivables.
The company's hospitals generate about $900,000 daily, which should be adequate to repay NCFE, according to Doctors Community's lawyer, Peter Isakoff of Weil, Gotshal & Manges, Washington. Another hearing on the matter is set for Dec. 11, he said.
In addition, Thomas Scully, administrator of the Centers for Medicare and Medicaid Services, promised that the CMS would suspend monthly collection of debt payments from Doctors Community's 303-bed Greater Southeast Community Hospital in Washington. The debt payments amount to about $1 million annually.
Scully also directed Medicare to expedite $3 million in payments owed to the hospital and accelerate payments on future claims. "It is not a loan or bailout, but a streamlining of the process for payments that we owe Greater Southeast," Scully said. "Greater Southeast is a longtime Medicare partner hospital and we are trying to give them some breathing room while their financial situation stabilizes."
Meanwhile, bankrupt PhyAmerica Physician Group, Durham, N.C., also may have gained some time. The privately held company, which operates 200 hospital emergency rooms and 33 physician practices, and its owner, Steven Scott, M.D., reached a preliminary agreement for $100 million in debtor-in-possession financing from CapitalSource Financing, Chevy Chase, Md.
"This has to be backed up by extensive due diligence first," said Paul Wardour, marketing director at CapitalSource Financing.
PhyAmerica filed for Chapter 11 bankruptcy protection on Nov. 11. Soon after U.S. Bankruptcy Court in Baltimore, Md., allowed the company to circumvent NCFE and seek to collect accounts receivables on its own.
"We are obviously excited to have a new lender with the ability to quickly provide new working capital to us at this time," PhyAmerica CFO Jack Greenman said in a written statement. PhyAmerica had been receiving nearly $24 million per month from NCFE.
PhyAmerica Executive Vice President and General Counsel Eugene Dauchert Jr. said service hasn't been interrupted since the bankruptcy filing. "The court has recognized that PhyAmerica has the ability to continue its normal operations without hurting the collateral position of NCFE," Dauchert said.