NME to Pay $89.9 Million in Insurance Fraud Case : Health care: The agreement is the third major settlement for the company and ends its civil litigation with insurers.
National Medical Enterprises said it will pay $89.9 million to settle charges brought by 13 major insurance companies that accused the hospital chain of hundreds of millions of dollars in improper billing at its psychiatric facilities.
The agreement is the third major insurance fraud settlement by the Santa Monica-based hospital operator in recent months and ends all major civil litigation between the hospital chain and insurance companies. NME still faces an ongoing federal criminal investigation into suspected billing fraud, illegal doctor kickbacks and patient mistreatment at its psychiatric hospitals.
“We’ve achieved what we set out to do,” said Thomas Brunner, a Washington lawyer for the 13 insurers, including Travelers, Prudential and Massachusetts Mutual. “This . . . sends a signal to the health care provider community that these insurers will move aggressively to protect their customers’ interest when they suspect fraud and abuse.”
NME has now agreed to pay a total of $230 million to insurers and patients to settle suits involving practices at some of its 61 psychiatric hospitals. In September, the company settled two lawsuits with six insurers by agreeing to pay up to $125 million.
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The payments are covered under a $250-million reserve NME established earlier this year to settle fraud charges. The reserve does not include funds for a possible settlement of the federal probe.
“I think this settlement serves our company and our shareholders very well,” said Christi R. Sulzbach, NME’s senior vice president.
NME shares rose 50 cents to $13.625 on the New York Stock Exchange, after trading at a new 1993 high of $14.375.
As NME has settled one lawsuit after another and the company’s financial liability has become clearer, a number of Wall Street analysts have begun to view the stock favorably.
“Paying $230 million . . . is not a dream event, but the cost of not doing something is higher,” said Edwin Gordon, an analyst at Morgan Stanley in New York.
The federal investigation holds the possibility of stiff financial penalties. NME and federal officials have said that talks aimed at resolving the investigation are continuing.
Analysts are telling investors that NME is likely to settle the federal probe by paying a fine ranging from $200 million to $300 million. A far more serious problem for NME would be a federal ban on its Medicare contracts, although few observers expect such harsh action.
Margo Vignola, an analyst at Salomon Bros., reaffirmed her “buy” recommendation for NME stock on the news.
“We continue to believe that the insurance company settlements set a constructive tone for (the Justice Department talks) and that the company has adequate funds to cover potential fines,” Vignola said.
The 13 insurance companies that sued NME in federal court in July, 1992, had disputed roughly $500 million in claims, accusing the hospital chain of a massive scheme to admit thousands of patients to its psychiatric centers who did not need hospitalization, then treating them at inflated prices.
As part of the settlement, the insurers agreed to “strengthen standard business relations” with NME, such as negotiating new managed care contracts. Sulzbach said such contracts will be particularly beneficial to the company’s 35 acute care hospitals.
NME had countersued the insurers, claiming they were refusing to process legitimate claims from the company’s psychiatric hospitals. The settlement addresses the processing of a “substantial amount of pending claims” from NME with the insurers, it said.
