Real estate investment trust HCP has been sued for allegedly hiding Medicare kickback allegations against its skilled-nursing provider ManorCare from investors.
In a proposed class action lawsuit filed in an Ohio federal court Monday, HCP shareholder Scott Weldon accused the Irvine, Calif.-based company of violating the Securities Exchange Act by hiding from investors that ManorCare, an HCP-acquired skilled nursing facility operator, was repeatedly accused of fraudulently billing Medicare for more than $6 billion.
Before it was acquired by HCP in 2011, ManorCare was sued three times for insurance fraud. The Department of Justice joined the suits in 2015 after it investigated the company. That information was not disclosed to shareholders, the suit alleges.
ManorCare operates 281 skilled nursing facilities in 30 states.
When investors raised concerns about the DOJ investigation, Weldon claims HCP defended ManorCare and that the deal wouldn't negatively impact the company's financial health.
But HCP eventually disclosed in a filing to investors that it had zero equity in ManorCare and it had written-off $836 million in assets as a result.
"(HCP's) shareholders and the investing public in general were under a false impression of the company's business prospects due to the false and misleading information disseminated," the complaint said.
Real estate investment trusts are increasingly looked to by hospital chains as a smart way to finance growth. Instead of selling bonds for expansion, hospitals that partner with REITs can use the cash immediately and pay rent in long-term leases.
ManorCare did not immediately respond to a request for comment Wednesday.
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