Renal/18″/dt1st/mark2nd
By ANN DONAHUE
Staff Reporter
How does Total Renal Care go from darling to dunce in a single quarter?
Good question one that executives of the Torrance-based company, the nation’s second-largest provider of dialysis services, are not yet ready to fully explain.
The company went from record earnings in the first quarter to a net loss of $21 million in the second a development that interim Chief Executive George DeHuff blamed largely on the company’s main billing office in Tacoma, Wash. not collecting on numerous patient and hospital accounts.
DeHuff is not providing details the company declined interview requests but Total Renal Care operates and manages hundreds of dialysis clinics nationwide for people who suffer from chronic kidney disease. It also has a dialysis service for patients in more than 300 hospitals nationwide.
More than half of the bills that go out to patients and hospitals for these dialysis services are handled by the Tacoma office, which executives recently discovered had as much as a six-month backlog on some accounts.
The question is why.
Once a Wall Street darling, the company warned investors on July 18 that it expected second-quarter profits to be lower than anticipated because of accounting problems. That same day, former Chairman and CEO Victor Chaltiel stepped down for “personal reasons” not explained and John King resigned as Total Renal Care’s chief financial officer.
The stock plunged from $13.63 on July 15 to $8.63 on July 19. It’s still trading in the high-$8 range.
During a recent conference call to analysts, DeHuff said a rebuilding process is underway, with the hiring of a chief accounting officer and an administrative program that makes it easier for supervisors to track what their employees in the billing department are doing.
“I want to make it very clear there is no evidence of any fraud or inappropriate billing that’s gone on,” DeHuff said. “What we’re dealing with here are issues related to processes and systems, and people issues that we are in the process of working our way through.”
The plan to “focus on the fundamentals” of bill payment and bill collection includes implementing a stringent reporting process at the Tacoma office. The company took a $35 million charge relating to accounts receivable that were more than six months old at that office.
The $35 million was only part of $50 million in charges. During its second quarter ended June 30, there was a net loss of $21 million (26 cents per share), compared with net income of $7.9 million (10 cents) for the like period a year ago. Another $13.2 million charge was taken relating to accounts payable as of the end of the first quarter. The previously reported first-quarter numbers will be restated in the near future, DeHuff said.
“Deficiencies in their accounting for their revenue and their expenses were reflected in their lower profitability,” said Robert Lunbeck, an analyst with Hambrecht & Quist in San Francisco.
PriceWaterhouse Coopers has been hired to identify other problem areas in billing.
“I know that the question most of you have is, ‘Will there be any more charges?’ ” DeHuff said in the conference call. “And while the organization has worked tirelessly for weeks to make certain that all issues we can identify are brought to the floor today, I presently don’t have all of the answers. I believe we have identified the areas of exposure and we’re working very closely with our independent accountants, PriceWaterhouse Coopers, on matters relating to financial infrastructure and internal controls.”
DeHuff, 45, the former president and chief executive of American Medical Response the nation’s largest ambulance provider joined Total Renal as chief operating officer on May 17 and was named interim CEO earlier this month. Executive search firm Spencer Stuart has been hired to help find the replacement CEO, and initial interviews of the candidates will start this week.
DeHuff made it clear from the start that he intends to run a tighter ship. The lease on the corporate jet was terminated and “unnecessary consultants” have been limited. DeHuff also said he does not expect patient care to be impacted by the billing problems.
“They have to continue to provide quality care to their patients and keep working to fix some of the billing issues and work on shoring up the finances,” said Jason Fox, an analyst with Olde Discount Corp. in Detroit. “There can’t be a void of leadership at the top, there still has to be somebody up there giving some direction. I kind of think about it like an army when the general is shot, the next in line has too take the top spot, whether he wants to or not.”
