Health Management CEO Says ‘No Merit’ to Suit That Hurt Stock
Health Management Associates Inc. (HMA)’s former head of compliance says in a lawsuit he was wrongfully fired after he reported fraudulent billing. The company says he was sent away after refusing to give up confidential documents.
The dispute has boiled over into the public arena, causing HMA to lose a fifth of its value over two days, and spurring Chief Executive Officer Gary Newsome to address the controversy head-on yesterday in comments during the J.P. Morgan Healthcare Conference in San Francisco.
Newsome told investors and analysts that on Jan. 8, his 2- month-old BMW Alpina B7 was rear-ended in an accident. A day later, when he saw his company’s stock plunge as a result of investor concerns over the lawsuit, “I felt rear-ended again,” he said, drawing laughter from the standing-room-only audience.
The lawsuit “has no merit whatsoever,” Newsome said. “In fact, we feel very comfortable in saying that publicly, and I think that’s unusual in lawsuit cases.”
The company’s shares fell 7.1 percent on Jan. 9 when an analyst for CRT Capital Group LLC, Sheryl Skolnick, reviewed the documents related to the lawsuit brought by the former HMA employee, Paul Meyer, and told investors in a note they needed to be “at least watchful and at most worried” that Meyer, a former FBI agent, had brought the action.
‘Worst’ Assumed
After a day without public comment, HMA submitted a regulatory filing disclosing the resignation of its general counsel. It caused HMA to fall 13 percent, the biggest single- day share decline in almost three years, as investors assumed “the worst,” said Whit Mayo, an analyst with Robert W. Baird & Co. in Nashville, who has an “outperform” rating on the stock.
The company framed the event as bad timing. There is “no connection whatsoever” between the resignation of the general counsel, Timothy Parry, and the lawsuit, Newsome said yesterday.
From the time Newsome began his comments at about 11:30 a.m. in San Francisco, the stock began a steady rise from about $5.50 to its closing price of $6.05. It was a strong performance by the CEO, said Frank Morgan, a managing director at RBC Capitol Markets in Brentwood, Tennessee, in an e-mail.
HMA rose 4.34 percent to $6:31 at 4 p.m. in New York, the biggest gain since Dec. 5. The stock has fallen 35 percent in the last 12 months.
‘Issue to Rest’
“Hopefully this will put this issue to rest and investors can return to focus on management’s 2012 guidance, which appears to be quite respectable,” Morgan wrote. “We believe shares should recover the last two days’ lost ground over the next several weeks.”
CRT’s Skolnick isn’t so sure, she said in a telephone interview yesterday.
“We have to see how this all plays out,” Skolnick said. “Investors now are looking at the company with a higher degree of caution and that’s absolutely appropriate. If the investigations widen or if there are other allegations made, there could be significantly more downside risk. If not, over time, the stock is still likely to trade at a lower multiple because of the overhanging worry that it might happen.”
The lawsuit, moved to federal court in Fort Lauderdale, Florida, in November, is based on statements by Meyer, the former compliance director.
Several HMA hospitals won higher government payments from the Medicare program for the elderly and disabled, in part by “the submission of fraudulent billing to Medicare through the improper admission of patients as inpatients even though such patients clearly did not meet the standards for inpatient admission,” Meyers said in the court filings.
After Promotion
In the documents, Meyer is quoted as saying he raised the issue after he was promoted to director of compliance in January 2010. He was fired, according to the court filing, on the day he told the company he would report violations to the U.S. government. HMA said he was fired after refusing to give back documents the company needed to respond to a federal subpoena.
“This is not a fraud case, it is an individual wrongful termination case,” said Susan Toepfer, a lawyer for HMA, with Stearns, Weaver, Miller, Weissler, Alhadeff & Sitterson in Miami.
When Meyer raised concerns that a Medicare fraud may have occurred, the company “treated them seriously and appropriately,” she said.
When a compliance issue comes up, the company does an internal audit and then pays money back to people that shouldn’t have been billed for it, Newsome said.
‘People Make Errors’
“The fact is, people make errors, and you have to correct them,” said Chief Financial Officer Kelly Curry said at the health conference. “We do that routinely. There has not been, to any of our knowledge, any occasion that any issue that was ever brought up as a result of compliance reviews that hasn’t been acted upon, investigated, fully to its conclusion and reported to the audit committee.”
Meyer’s attorney, David Isicoff from Miami-based Isicoff Ragatz & Koenigsberg, tells a different story about his client, who he said worked for 30 years at the U.S. Federal Bureau of Investigation, where Meyer gained experience in fraud cases.
“He attempted to do all the right things and then when those avenues were closed off to him, they fired him,” Isicoff said in a telephone interview. “Any suggestion our client had any materials they needed and that he would not surrender to them is absolutely untrue.”
While Meyer could win back pay and damages in the suit under the Florida Whistleblower Act, HMA doesn’t think he is entitled to them, Toepfer said. A trial is scheduled for January 2013.
The case is Meyer v. Health Management Associates Inc., 11- cv-62479, U.S. District Court, Southern District of Florida (Fort Lauderdale).
-- Editors: Reg Gale, Andrew Pollack
To contact the reporter on this story: Sarah Frier in New York at sfrier1@bloomberg.net
To contact the editor responsible for this story: Reg Gale at rgale5@bloomberg.net
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