NME to Tighten Reins on 2 Units : Health: The Santa Monica hospital chain has had revenue and other troubles.


National Medical Enterprises said Monday that it is pulling control of two subsidiaries back to its Santa Monica headquarters in the wake of flagging revenue and investigations of alleged billing fraud and inappropriate care at some of its psychiatric hospitals.

In October, after press coverage of investigations by the Texas attorney general and other authorities of some of its facilities, NME replaced the director of its 73-hospital Psychiatric Institutes of America chain, saying the company needed “a new start.”

NME is one of the country’s largest hospital chains, with 152 facilities employing 48,500 people and annual revenue of $3.8 billion. Under the reorganization plan, NME subsidiaries Psychiatric Institutes of America and Rehab Hospital Services Corp. will become divisions of the parent company. Their headquarters will be moved from Washington, D.C., to Santa Monica.

“This realignment will provide senior management with improved control as NME continues to grow and will give us the opportunity to achieve significant reductions in overhead costs,” Richard K. Eamer, NME’s chairman and chief executive, said in a press release.


Kenneth Abramowitz, an analyst with Sanford Bernstein, said the restructuring was not surprising given declining earnings in the psychiatric hospital industry as a whole. Abramowitz said he expected that any problems in billing or patient care discovered in investigations would be corrected by NME, but that a greater problem for the company is “the changing practice patterns of psychiatrists.”

Doctors are hospitalizing patients less often now as insurers cut back on payments for inpatient care. That has left more hospital beds empty.

In recent years, NME’s PIA subsidiary has outperformed most of the struggling psychiatric hospital industry, which has been hard-hit by employer attempts to cut health care costs. NME was a favorite of Wall Street until reports of investigations of alleged kidnaping or misdiagnosing of patients to increase insurance payments sent its stock plunging and patient admissions declining.

The company is continuing an internal investigation into practices at its psychiatric hospitals, and spokesman David Olsen said it is “too early to say” whether problems at some hospitals were the result of a management structure that had become too decentralized.


He did say that in pulling control back to headquarters, “the problems and challenges psychiatric hospitals face were a consideration.”

The newly organized Psychiatric Hospitals division will be headed by Dr. John P. Docherty, a psychiatrist who has been medical director of PIA’s Brookside Hospital in Nashua, N.H. His title will be senior vice president and medical director.

In another personnel change, NME announced that Raymond Mathiasen, senior vice president for corporate finance and accounting, will become chief operating financial officer, a new position.