Fraud Suit Could End if Apria Pays $400 Million
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 alike 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 that 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 some 8.5 million shares of stock to the general public.
The stock has been held by Apria’s largest shareholder, Relational Investors LLC, which takes positions in struggling companies and tries to engineer turnarounds. The fund had announced “mission accomplished” in the case of Apria, which has seen its profit and revenue grow for nearly three full years. Its 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. The information missing from patient files ranges from minor material--Zip Codes and the like--to essential documents such as forms in which doctors certify that the treatments the government is funding are medically necessary.
Details are murky, however. Under federal law, the suit--likely filed by an employee--was filed under seal and, for now, the company doesn’t know who filed the suit, when it was filed or the range of facts that support the claims. The government has not yet joined the suit, though it is acting partly as an intermediary as well as investigator.
At the annual shareholder meeting Wednesday and in conversations with institutional investors and analysts, company executives said they think the case should result in a deal similar to the $7 million that American HomePatient Inc. agreed to pay in settling a government lawsuit last month.
Chief Executive Philip Carter told shareholders that although the company has always acknowledged it had committed various record-keeping errors, it had never committed fraud and indeed policed itself well to ensure compliance with government requirements.
Following the annual meeting, Carter maintained that the institutional investors who hold most of Apria’s shares regard the government’s investigation as “normal for this industry.”
The government for years has been on a crusade to root out Medicare fraud, and “most of the home health-care providers of any size have government billing investigations going on,” Carter said in an interview.
In an investor report, Jefferies & Co. analysts accused prosecutors of unfairly pressuring the company by making unreasonably large demands just before the stock sale. “As we see it, the U.S. Attorney apparently has not a shred of evidence of fraud,” they wrote.
Jefferies analyst Arthur Henderson said in an interview that he believes the government will move beyond “posturing” to reach a settlement near the $7 million Carter suggested.
Federal prosecutors in Los Angeles have been looking into the case for three years but only disclosed 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.
“We had a series of meetings with the government to exchange information and theories of liability and damages,” Fabricant said, “and the company thought those discussions were fruitful.
“But the company was surprised when the government informed us on July 12 of the government’s view that it would take such a large amount of money to resolve this matter,” he said.
Fabricant and Carter said that because the government and the whistle-blowers’ attorneys have yet to show the company the lawsuit, Apria can’t evaluate the evidence against it.
