Paracelsus’ Loss to Be Larger Than Expected
Trouble-plagued Paracelsus Healthcare Corp. said it will report a “significantly larger” loss than anticipated for its most recent quarter, will sell some of its Los Angeles-area hospitals and will investigate possible accounting irregularities.
Paracelsus, which has a long history of legal entanglements in Southern California, said Wednesday that it hired an outside law firm to investigate a “substantial” shortfall in financial results for its psychiatric and other hospitals in the Los Angeles area.
The company said the law firm will “explore accounting and financial reporting practices and procedures, including certain corporate reserve practices” before the quarter that ended Sept. 30. Paracelsus said its board named a committee of non-management directors to “supervise and direct” the law firm’s inquiry.
Paracelsus, which owns or operates 31 hospitals and four nursing facilities in 11 states, was based in Pasadena and privately held by sole owner Manfred George Krukmeyer until its merger with publicly held Champion Healthcare Corp. of Houston earlier this year. Since the merger, the company’s stock has traded under the Paracelsus name.
In August, Paracelsus reached a settlement with Aetna Life Insurance Co. in a massive lawsuit in which Paracelsus and other defendants were accused of engaging in widespread psychiatric billing fraud in Los Angeles and Orange counties. Settlement terms were not disclosed.
Among other things, Aetna accused the company of billing the federal Medicare program for hot-tub baptisms and outings to Knott’s Berry Farm and Disneyland for its psychiatric patients. Paracelsus had denied the charges in the Aetna suit.
On Thursday, after the New York Stock Exchange suspended trading in Paracelsus’ shares at the company’s request, the firm issued a statement that it had had preliminary conversations with its bank lenders concerning the company’s compliance with credit agreements. “Management believes the results of those discussions were favorable,” the company said.
Paracelsus said it was considering selling unspecified Los Angeles-area hospitals because of poor financial performances that “are not expected to improve in the short term.”
The company also announced that one of its outside directors, Angelo R. Mozilo, resigned from the board. The company, which has moved its headquarters from Pasadena to Houston, gave no reason for Mozilo’s departure.
Paracelsus operates Los Angeles Community Hospital in Norwalk, Orange County Community Hospital in Buena Park and Orange, Bellwood General Hospital in Bellflower and Hollywood Community Hospital in Los Angeles. It also runs hospitals in Chico, Monrovia and Lancaster, according to the Healthcare Assn. of Southern California, a trade group.
Paracelsus Vice President Deborah Frankovich did not return several phone calls on Wednesday and Thursday seeking comment.
In 1986, Paracelsus pleaded guilty and paid nearly $4.5 million to settle federal mail fraud charges related to improper Medicare billing. Two years later, Los Angeles County health inspectors accused the firm’s Hollywood Community Hospital of starving elderly patients, performing surgery without valid consent and other problems.
In the Aetna case, Paracelsus and five of its hospitals were accused of participating in a widespread scheme of systematically luring patients around the country with false promises and improper perks. The suit alleged that the patients were given bogus diagnoses and kept in mental hospitals until their insurance benefits were depleted.
