Vegas hospital company settles fraud charges

Monday, Oct. 2, 2000 | 11:03 a.m.

SUN STAFF AND WIRE REPORTS

BRENTWOOD, Tenn. -- Quorum Health Group Inc., part-owner of three Las Vegas hospitals, said it settled two civil fraud lawsuits with the U.S. Justice Department for about $95.5 million.

Quorum today said it will pay $77.5 million to settle allegations that it inflated cost reports to maximize Medicare payments from the government and about $18 million to settle a lawsuit that alleges the company improperly shifted costs at Flowers Hospital in Dothan, Ala., to its home-health agency.

Quorum said in its annual report it owned 26 percent of the 148-bed Summerlin hospital in Las Vegas as of June 30, and 28 percent apiece of the 233-bed Desert Springs and and 415-bed Valley hospitals in Las Vegas. The majority partner in the three hospitals is Pennsylvania-based Universal Health Services, and together they are operated as the Valley Health System.

The settlement could remove an obstacle to the Quorum's search for a buyer or financial backer, analysts said. Quorum said on Aug. 11 it had hired Goldman, Sachs & Co. to help it with a merger, acquisition or recapitalization. Universal is considered a possible suitor for Quorum.

"It resolves the key issue facing the company right now," said Credit Suisse First Boston Inc. analyst Peter Emch, who rates the stock a "buy."

Quorum shares rose $1.13, or 8.7 percent, to $14.13 in midmorning trading today.

Buyers won't be reluctant to pay stock for Quorum now because they won't be subject to liability from the fraud case, said Raymond James Financial Inc. analyst John Ransom.

Quorum also might fetch more money because hospital companies have money to spend, he said. The Standard & Poor's SuperCap Health Care Index of hospital stocks has risen 43 percent this year.

"I think it clears the way for a lot of things," said Ransom, who has a "market perform" rating on Quorum.

Ransom said he had expected the settlement to top $100 million. The settlement amounts to about $1 a share, he said.

Quorum spokesman Shea Davis said the settlement was reached independently of the company's search for a buyer or financial backer. "It was a decision the company decided needed to be made," Davis said. "Now we're going to put this behind us and move forward."

The tentative agreement on cost reports is expected to be final in four months, and the home-health settlement is expected to be paid by the end of the year, said the company, which didn't admit any wrongdoing.

"Quorum is a good company with good people working here, many since the company was founded," Chief Executive James Dalton Jr. said in a statement. "We continue to defend the honor and integrity of our company and associates. We have come to these understandings with all parties because we believe it is in the best interest of our associates, our company and our shareholders."

The settlement will accrue interest at 7.25 percent until a final agreement is reached.

The Justice Department didn't make an immediate comment.

James F. Alderson, a former Whitefish, Mont., hospital finance chief who filed one of two whistle-blower lawsuits against Quorum covered by the settlement, could get 15 percent to 25 percent of the cost-report settlement, said his attorney, Stephen Meagher. Alderson filed his lawsuit in 1993 under a federal law that allows him to collect as much as 25 percent of the money the government might recover in his case against Quorum.

Meagher called the settlement a "great moment" for Alderson, who was fired in 1990 and now works as a consultant.

"I think it sends the message that a publicly traded company can resolve a cost-report case. And we hope that message gets to HCA," Meagher said.

HCA-The Healthcare Co., which also is named in Alderson's suit, has yet to resolve allegations that it inflated cost reports. HCA, the biggest U.S. hospital company, tentatively has agreed to pay the government $745 million to settle some fraud allegations against it.

In Las Vegas, HCA owns Sunrise and MountainView hospitals.

The second Quorum lawsuit, which remains under seal, was filed by a former employee at Flowers Hospital. The company said that suit was filed after the employee was fired for alleged improper activities.

Quorum, based in Brentwood, Tenn., owns 21 hospitals and manages more than 200 others.