National Medical’s Billings Probed : Health: Federal authorities are investigating some of its psychiatric care hospitals for fraudulent bills.
The share price of Santa Monica-based National Medical Enterprises plunged 20% Monday on reports that some of its psychiatric care hospitals are being investigated for excessive or fraudulent billing.
In heavy trading of 5.5 million shares on the New York Stock Exchange, investors sent the stock down $4.125 to close at $16.125--sharply lower than the all-time high of $25.75 earlier this year.
NME is the latest of many health-care providers hit by increasing scrutiny of their billing by employers, insurance companies and health maintenance organizations. As medical costs spiral far faster than the rate of inflation and outpace corporate profits, insurers and employers are looking hard for ways to eliminate unnecessary treatment.
Private psychiatric hospitals have been especially hard-hit. Laguna Hills-based Community Psychiatric Centers recently announced a 98% drop in third-quarter earnings in part because of an inability to collect millions of dollars in bills from insurance companies.
NME confirmed a report in the Newark (N.J.) Star-Ledger and the Wall Street Journal that its subsidiary, Psychiatric Institutes of America, is being investigated by federal authorities in Florida, Texas and New Jersey, and said PIA was cooperating fully. NME said it is also conducting “an exhaustive internal investigation.”
Richard Eamer, chairman and chief executive of NME, said he believes that there will be “no material impact on the company’s earnings or financial condition as a result of these investigations.”
The psychiatric hospital business boomed in the 1980s as for-profit corporations nearly doubled the number of facilities catering to employees of companies whose insurance would pay for psychiatric and drug or alcohol-abuse treatment. Psychiatric hospitals also enjoyed less restrictive Medicare payments than most other types of hospitals, analysts say.
But in recent years, employers and insurance companies have been finding that some hospitals will keep psychiatric patients in bed as long as their insurance holds out, regardless of their condition. Part of the problem in enforcing standards is that it is more difficult in psychiatric cases to determine when treatment is “complete” than with other medical problems.
In Houston, some psychiatric care hospitals have been charged with kidnaping people and admitting them to hospitals in order to milk their insurance.
“It shows how desperate some providers are. . . . For a long time there was a good supply of payers, but now a lot of employers and insurance companies have been cutting back on (psychiatric) benefits,” says Charles Harrison, who directs the health-care practice at accounting firm Arthur Andersen.
Debate on the issue has been heated, with some experts arguing that investing in mental health treatment is not only humane but cost-effective for business while others point out it is particularly vulnerable to fraud. But as companies continue attempts to cut back overall health-care spending, psychiatric care is one of the first areas to get squeezed.
The cost-cutting crunch is hitting other health-care stocks as well. Medical stocks were the darlings of Wall Street earlier this year, experiencing a steep run-up, but the industry began to cool off late in the summer, starting with weak earnings reports from HMOs.
Analysts say NME is in a relatively stronger position than other large psychiatric hospital chains because of its broader base. In addition to 73 psychiatric hospitals, 13 substance abuse treatment centers and 29 physical rehabilitation hospitals, NME owns 35 general acute-care hospitals.
