Ensign Owes DOJ Up to $48 Million to Settle Overpayment Allegations

| April 22, 2013

The Ensign Group, Inc. (Nasdaq:ENSG) announced on Monday that it will pay the government up to $48 million as part of a settlement agreement with the Department of Justice to resolve allegations of overpayment by federal healthcare programs.

Ensign expects to enter into a corporate integrity agreement with the Department of Health and Human Services’ Office of the Inspector General (OIG) and make a single lump-sum payment to the government to resolve overpayment allegations against the long-term and senior care provider, in connection with the settlement.

In anticipation of the settlement, Ensign recorded a $15 million charge in the fourth quarter of 2012 and says it will increase its reserve by an additional $33 million in the first quarter of 2013, representing a total reserve of $48 million to satisfy the tentative settlement obligation, the company said in a statement.

Ensign, which has a market capitalization of  about $753 million, expects to pay the alleged settlement amount to the government in the second or third quarter of 2013.

“We are pleased to put this matter behind us and look forward to focusing on our mission of providing compassionate care to patients and achieving our goal of setting the standard for high quality healthcare services throughout the industry,” said Christopher Christensen, Ensign’s President and Chief Executive Officer. “We already have made and will continue to make significant investments in our infrastructure to enhance our compliance program, and we are confident that we are well prepared to comply with the terms of a corporate integrity agreement.”

Ensign has denied engaging in any illegal conduct. While it has agreed to pay the settlement amount to resolve the allegations and avoid the “uncertainty and expense” of a protracted legal battle, the company will not offer any admission of wrongdoing.

While Ensign doesn’t expect the settlement and resulting payment to have a substantial adverse effect on its long-term financial position, business plan, or prospects, it will impact Ensign’s GAAP results of operations and cash flow for fiscal year 2013, according to the statement.

Additionally, the senior care provider will incur ongoing costs associated with enhanced compliance activities, including monitoring expenses and other costs under the corporate integrity agreement, along with interest expense on a portion of the settlement amount. This total sabot $2.5 million a year, and Ensign has revised its previously-announced earnings guidance for 2013 to a range of $2.72 to $2.81 per share.

Pending the successful conclusion of the ongoing settlement discussions, Ensign expects the tentative agreement will “fully and finally” resolve the DOJ investigations.

Written by Alyssa Gerace


Category: Management & Operations, Medicare and Medicaid, Senior Care, Senior Housing

Comments (1)

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  1. Chris_Foley says:

    Looking at Yahoo Finance, Ensign had $825 million in Revenues so the $48 million fine is about 6% of revenue. That's a pretty good hit to a company's gross margin but survivable as long as it doesn't affect their reputation for care.

    Of course, these announcements have a tendency to take some time to fully play out, but apparently, the market doesn't consider this a major hindrance to their future growth.
    At the announcment, the stock price dropped from $34.93 to $33.52 but then bounced up to a closing price of $34.64. A $1.41 initial drop but then ended the day only 29 cents lower than it started (less than 1% drop for the day). Yahoo Finance Link http://tinyurl.com/clj2oxy
    Not knowing a lot about the company, it looks like the Market still considers this a solid company.
    Chris Foley
    CPA (Retired)
    Equity National Seniors Housing Brokerage & Advisors
    cfoley@Equity.net