Federal prosecutors are asking Apria Healthcare Group Inc. to pay $400 million to settle Medicare fraud allegations, far less than the maximum fines and penalties of $9 billion disclosed earlier this week.
Even so, the Costa Mesa home health-care firm was surprised by the government's large settlement demand. The company has been telling shareholders and analysts that the case should be settled for about $7 million.
The apparent stalemate followed several rounds of discussions and audits of Medicare billing practices.
Apria executives maintain that the company committed only "errors and omissions" in its billings, but they say prosecutors insist that more serious misconduct occurred.
"It's like two ships passing in the night," one Apria executive said. "It's a pretty vexing situation."
Executives said last week's settlement demand--amounting to seven times the company's earnings last year--forced Apria to amend a registration statement for a stock offering to reflect the potential for a huge award.
Without revealing the $400-million demand, Apria disclosed Monday that prosecutors investigating a privately filed whistle-blower lawsuit contend that over-billings totaled $103 million over 3 1/2 years ending in 1998 and could lead to penalties and fines of $4.8 billion to $9 billion.
The prospect of a large settlement has cast a pall over Apria just as it prepares to offer about 8.5 million shares of stock to the general public.
The stock has been held by Apria's largest shareholder, Relational Investors. Apria's stock has risen from $3 a share in late 1998 to as high as $30 in recent months.
On Monday, the stock plunged $4.44, or 16%, to close at $24.08 a share on the New York Stock Exchange. It since has continued to drift downward, falling 81 cents Thursday to $22.67 a share.
The lawsuit involves the extensive paperwork the government requires of companies like Apria, which provides respiratory therapy and other medical treatments and equipment to patients in their homes.
Federal prosecutors in Los Angeles have been looking into the case for three years but disclosed only in January that a whistle-blower case was the basis for their investigation. At that point, the government showed the company a statistical analysis of 300 case files that, projected across all billings, would amount to $103 million in total over-charges, said Robert Fabricant, the company's outside defense lawyer.
The $400-million settlement demand was provided to The Times by several people close to the case, who spoke on condition of anonymity.