Lafayette-based home health company LHC Group Inc. said Friday it will pay the federal government $65 million to settle a whistleblower lawsuit involving the company’s Medicare billing practices.
Under the settlement, LHC did not admit wrongdoing. The company also said it disputes the government claims.
The settlement resolves allegations that between 2006 and 2008, LHC improperly billed for services that were not medically necessary and for services to patients who were not homebound, according to the U.S. Justice Department.
“Billing for unnecessary home health services misuses taxpayer dollars because it wastes resources that should be available for patients who are truly in need,” Tony West, assistant attorney general for the civil division of the Department of Justice, said in a statement. “As we work hard to spend our public health-care dollars efficiently, settlements like this help us maintain critical health-care programs.”
LHC Group is one of the country’s largest home health companies, with 312 locations in 19 states. The company focuses mainly on serving rural and less-populated areas.
LHC said in a news release that there were no findings that LHC charged or was paid for services it did not provide.
LHC said it chose to settle, in part, to avoid the expense of a multiyear legal fight with the federal government, which acts as the regulator and the primary payer for the health-care services LHC provides to elderly and disabled patients.
LHC said the whistleblower filed a complaint in 2009 under the federal false claims act in federal court in Lafayette.
LHC did not name the whistleblower in Friday’s announcement, saying only that the individual worked for a regional consulting firm that LHC used for its quality reviews between 2005 and 2008.
According to the Justice Department, a whistleblower can collect 15 percent to 30 percent of what the department recovers.
The whistleblower will get more than a $12 million share of the government’s LHC recovery.
Eugene Goldenberg, a senior research analyst at BB&T Capital Markets, said the settlement doesn’t change his perspective on the company.
Analysts and investors look at the company’s recurring operations, he said.
“If you look at what’s happening with the market, LHC was up 1 percent on the settlement,” Goldenberg said.
LHC’s stock closed Friday at $17.06, up 17 cents, in light trading.
From an investor perspective, the settlement removes some uncertainty from LHC’s outlook, Goldenberg said.
“Now we know the $65 million number. That’s not a small number by any means. It’s 20 percent of their market cap,” Goldenberg said. “This is a big charge but in essence … they kind of have a clean slate, at least for this item.”
LHC said it will use $25 million of its cash and roughly $40 million from its untouched $75 million line of credit to pay the settlement. The company will take the hit in its third-quarter earnings, which will be reduced by around $41.3 million after taxes, or $2.25 per share.
Stock analysts surveyed by Thomson Reuters had forecast third-quarter earnings of 59 cents per share and 2011 earnings of $2.18 per share.
In a news release, Chief Financial Officer Peter J. Roman said LHC expects to pay off more than $20 million of the credit line by the end of the year.
Donald Stelly, LHC’s president and chief operating officer, said in a news release that the company’s conservative management approach has resulted in a strong balance sheet, no outstanding debt and significant cash on hand.
“Therefore, this settlement will not impact our ability to fund our operational initiatives or future growth,” Stelly said.
Still, Goldenberg said he’s more concerned about the settlement’s impact on LHC’s cash position than on earnings.
Now the company will have to repay some of the debt taken on to cover the settlement, Goldenberg said, instead of using that money for acquisitions, buying back shares or building up the balance sheet.
Home health firms like LHC and Baton Rouge-based Amedisys Inc. have seen their stock prices take a beating, in part because of federal spending cuts. The vast majority of the companies’ revenue comes from Medicare, which cut home health payments by 5 percent this year and might cut them by 3.5 percent in 2012.
In its second-quarter earnings report, filed in August, LHC made note of the whistleblower suit, which it said had been sealed by the court.
Meanwhile, the U.S. Senate Finance Committee and the Securities and Exchange Commission probes of Medicare billing practices by LHC and three other publicly traded home health firms remain open.
LHC spokeswoman Casey Stavropolous said Friday’s settlement addresses only the Justice Department investigation.
“It doesn’t pertain to a pending SEC inquiry or the Senate Finance matter,” Stavropolous said. “Those are still separate, pending, open matters.”
The Senate committee and SEC inquiries were launched in 2010 after The Wall Street Journal analyzed home health reimbursements and questioned whether home health companies ordered unnecessary patient visits in order to collect thousands of dollars in Medicare bonuses.
Goldenberg said the settlement draws attention to those investigations, which had been pushed to the back burner.
The outlook for legal and regulatory risk in the home health industry appears to be on the rise, he said.
BB&T Capital Markets, where Goldenberg works, expects to receive or intends to seek compensation for investment banking services from LHC in the next three months. A BB&T affiliate has received compensation from LHC for products or services other than investment banking services during the past year.