NME, Texas Attorney General Settle Suit : Health care: The psychiatry chain will pay $9 million to get the case behind it. It was accused of fraud in filling beds.

In a significant development for the troubled for-profit psychiatric hospital industry, National Medical Enterprises on Wednesday agreed to a $9-million settlement and a series of reforms at its Texas hospitals, ending a suit brought by the Texas attorney general.

Without admitting wrongdoing, Santa Monica-based NME agreed to court-mandated rules for recruiting and admitting patients to its facilities and agreed to pay certain state legal expenses and to provide some patient financial aid.

“The problems we close the book on today arose in the last two years as Texas psychiatric markets became over-bedded and competition for patients went beyond the bounds of propriety,” said Robert Constantine, senior vice president of NME’s Texas psychiatric operations.

Atty. Gen. Dan Morales sued NME last September after an investigation of allegations of illegal kickbacks to fill beds in the Texas hospitals and other fraudulent behavior, including hospitalizing patients longer than necessary to milk their insurance.

After the investigation began, NME restructured its national psychiatric division, closed two psychiatric hospitals in Texas, converted one to a physical rehabilitation facility and merged a fourth into a sister facility.

“NME has confronted the issues (and) taken all appropriate steps,” Constantine said.

Morales has over the past year conducted large-scale investigations of for-profit psychiatric hospitals, including two California-based national chains--NME and Laguna Hills-based Community Psychiatric Centers. He is still investigating CPC, Charter Medical Corp. and Hospital Corp. of America, a spokesman said.

The Texas investigations, as well as others in Florida and New Jersey, have hurt profit and share prices at for-profit chains, which suffer from excess beds and declining insurance payments.

The NME settlement did not include any fines, but NME agreed to pay $1.1 million in state legal fees, provide $2.6 million in charity care and put up $500,000 to help patients get insurance if they are denied coverage because of a history of psychiatric hospitalization.

NME also agreed to waive between $3.4 million and $4.9 million in fees it had billed to a state fund to provide psychiatric care to victims of crime.

The court-ordered settlement included an injunction prohibiting NME from some patient recruitment tactics, including compensating government employees for referrals and placing referral agents in the public schools as counselors.