UHS’ stock price up more than 10% after $127M DOJ settlement news

Universal Health Services’ stock price soared Friday on news that the investor-owned hospital chain had reached a preliminary $127 million civil settlement with the federal government over a false claims investigation that has stretched on for years.

Leaders with the King of Prussia, Pa.-based hospital chain have hyped an impending settlement with the U.S. Department of Justice in recent quarters, and they expressed relief on their second-quarter investor call Friday that the uncertainty is nearly behind them.

“There’s no way there’s not sort of a general halo benefit,” UHS’ chief financial officer, Steve Filton, responded on the call to a question about whether the news will be good for business. “I don’t think we’ve ever suggested there will be a dramatic and measurable uplift in the business, but it certainly cannot hurt.”

The company’s stock value jumped more than 10% Friday afternoon. False Claims Act attorneys said the market likes to see resolution of such cases because it instills certainty into the company’s valuation.

“It’s interesting: We often see companies make up what they have to pay the government and then some in increased stock price,” said David Douglass, a managing partner in SheppardMullin’s Washington, D.C. practice who specializes in FCA cases.

For at least five years, the Justice Department has led both civil and criminal investigations into UHS’ behavioral health operations, but both the government and the hospital chain have been tight-lipped about the contents of those inquiries.

Meanwhile, BuzzFeed began posting articles in December 2016 about UHS’ mistreatment of behavioral health patients, describing a pattern of involuntary admissions in cases where it allegedly was not justified to increase reimbursement. That same month, Sen. Chuck Grassley (R-Iowa) asked HHS’ Inspector General for more information, citing the news reports.

UHS also announced Thursday that the government indicated it had closed its criminal investigation with no charges filed against any of UHS’ facilities. A DOJ spokeswoman on Friday declined to comment on either case.

The civil investigation pertains to allegations that some of UHS’ facilities submitted false claims for reimbursement to the government. More specifically, the government has investigated whether UHS delayed patient discharges from its behavioral health facilities to maximize reimbursement, said Brian McGovern, a partner with Crowell and Moring in New York. He added that issues over UHS’ admissions standards could overlap with discharge standards.

It’s entirely possible that the DOJ’s civil and criminal investigations centered on the same allegations, Douglass said, and criminal violations are more difficult to prove.

UHS’ CEO, Alan Miller, chimed in on Friday’s investor call to emphasize that he and the rest of UHS’ leadership team are in the clear.

“The criminal investigation also came to absolutely nothing,” he told one analyst. “So you’ll have to deal with the existing management for a while.”

UHS said the DOJ still must approve the civil settlement, which UHS said was also on behalf of various states’ attorneys general. HHS OIG will then issue a corporate integrity agreement, which will issue mandatory compliance standards going forward. Filton said he thinks the entire process will be complete, including UHS’ settlement payment, by mid-fall.

Corporate integrity agreements typically last five years and almost always require the company, at its own expense, to hire an outside firm to monitor compliance with the terms, McGovern said. The cost of doing that will probably be less than the $10 million that Filton said UHS has spent annually to defend itself in the DOJ investigations, but that depends on its provisions.

“The devil will be in the details as to how onerous and how closely the outside organization will be monitoring their business practices,” McGovern said.

For his part, Filton said he thinks the relief from having to pay legal fees will help fund the cost of compliance with the agreement. He also said he does not expect the government will force UHS to make major changes to its operations.

Once it’s released, the corporate integrity agreement will be public, McGovern said.

UHS’ net revenue increased 6.5% in the second quarter to nearly $2.9 billion, compared with $2.7 billion in the prior-year period. Net income was up more than 5% year-over-year to $238 million in the quarter.