U.S. authorities are probing whether heart procedures performed at HCA Holdings Inc hospitals were medically necessary and are investigating the company's billing practices, the company said on Monday.
The company's shares were down as much as 10 percent.
HCA, in an unusual move, also issued a detailed rebuttal defending itself against a not-yet-published report by The New York Times. The company said it believes the newspaper will question physician decisions at its hospitals regarding certain heart procedures.
The U.S. Department of Justice is reviewing whether charges to the federal government related to use of implantable cardio-defibrillators (ICDs) met with billing criteria set by the Medicare health program for the elderly, HCA said in a filing with the U.S. Securities and Exchange Commission.
The review will include ICD billing and medical records at 95 of the company's 163 hospitals from October 2003 to the present.
ICDs are devices implanted in a patient's chest to help regulate heart rhythm and protect against potentially dangerous racing heart beats. Major manufacturers of the devices include: Medtronic Inc, Boston Scientific Corp and St Jude Medical Inc.
A representatives for St Jude was not immediately available. A Boston Scientific spokesman did not have an immediate comment. A Medtronic spokesman declined to comment on an investigation involving another company.
HCA also said that in July the federal prosecutor's office in Miami requested information on reviews assessing the medical necessity of certain interventional heart procedures. HCA said it believes such reviews have taken place at about 10 of its hospitals, primarily in Florida.
The reviews were conducted by third-party organizations retained by the company, an HCA spokesman said.
The company said its own review of how many of its hospitals may be affected was not yet complete.
Interventional heart procedures include angioplasty and stenting used to clear and prop open blocked coronary arteries.
Jefferies analyst Arthur Henderson said such inquiries were not uncommon.
"Every time they come out, people get pretty nervous about it and the stocks trade down," Henderson said. "There is not enough information to say this is going to end up bad. As long as the company continues to execute the way they have this quarter, I think there is some upside to the stock."
Shares in HCA fell as much as 10 percent after the disclosures on Monday, but regained some ground to close 3.95 percent lower at $25.55. Rival hospital operators also fell on news of the probes before recovering. Community Health shares closed down 0.6 percent at $23.83, while shares of Tenet Healthcare Corp were off 0.03 percent at $4.66.
EARNINGS BEAT EXPECTATIONS
HCA on Monday also reported better-than-expected quarterly earnings as more patients were treated at its facilities. The company stood by its 2012 earnings forecast.
Net income for the second quarter rose to $391 million, or 85 cents per share, from $229 million, or 43 cents per share, a year earlier.
Excluding one-time gains, earnings were 85 cents per share, topping analysts' average forecast of 78 cents, according to Thomson Reuters I/B/E/S.
Revenue rose 12 percent to $8.11 billion. Admissions to facilities owned for at least one year, combined with outpatient volumes, increased 3.9 percent.
News of the federal probes comes as hospital operators are set to see higher admissions of insured customers as a result of President Barack Obama's healthcare reform law that was recently upheld by the Supreme Court.
At the same time, pressure is growing on the U.S. healthcare system to find ways to rein in costs that have contributed to a massive national deficit. Recent studies have questioned the potential overuse of highly profitable interventional heart procedures in the United States, such as stenting and the placing of ICDs.
HCA said The New York Times may publish one or more articles about the company in which the newspaper will address patient care provided at HCA hospitals.
Based on questions posed by the Times, HCA said the reports may address how decisions are made regarding the medical necessity to perform certain heart procedures, such as cardiac catheterizations and artery clearing angioplasty, and the volume of such medical actions.
The New York Times declined to comment on stories that it has not published. In a story about the HCA disclosures on the Times website, the news organization said it had sent a list of questions on heart procedures to the company.
Morningstar analyst Michael Waterhouse said investors are likely reacting to the uncertainty raised by the pending article.
"People may be selling before the article comes out," Waterhouse said.
Government investigations into Medicare fraud at various hospitals including HCA have led to large monetary settlements in the past, but not in every case.
"What the financial impact is on the company is hard to predict at this point," Waterhouse said.
Between 2000 and 2003, HCA paid a total of $1.7 billion in civil penalties and criminal fines to settle a massive federal investigation into fraudulent billing practices.
Nashville, Tennessee-based HCA maintained its 2012 earnings per share forecast of between $3.57 and $3.77 per share before one-time items, on revenue of between $32 billion and $33 billion. Analysts on average were estimating 2012 earnings of $3.69 per share on revenue of $35.56 billion.
(Additional reporting by Susan Kelly in Chicago, Jennifer Saba in New York, Adithya Venkatesan and Vidya Nathan in Bangalore; Editing by Michele Gershberg, Leslie Gevirtz and John Wallace)