SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934
Date of Report: January 18, 2000
Fresenius Medical Care Holdings, Inc.
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(Exact name of registrant as specified in charter)
New York
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(State or other jurisdiction of incorporation)
1-3720 13-3461988
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(Commission File Number (IRS Employer Identification No.)
Two Ledgemont Center, 95 Hayden Avenue, Lexington, Massachusetts 02420
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(Address or principal executive offices) (Zip Code)
Registrant's telephone number, including area codes: (781) 402-9000
Not Applicable
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(Former name or former address, if changed since last report)
ITEM 5. OTHER EVENTS
OIG INVESTIGATION
Since 1995, National Medical Care, Inc. ("NMC"), a subsidiary of Fresenius
Medical Care Holdings, Inc. (the "Company"), and certain of NMC's subsidiaries
have been the subject of criminal and civil investigations (the "OIG
Investigation") by the Office of Inspector General ("OIG") of the United States
Department of Health and Human Services, the United States Attorney for the
District of Massachusetts (the "U.S. Attorney's Office") and other government
authorities concerning possible violations of federal laws, including the anti-
kickback statutes and the False Claims Act.
On January 18, 2000, the Company, NMC and certain affiliated companies
executed definitive agreements (the "Settlement Agreements") with the United
States Government (the "Government") to resolve (i) the matters covered in the
OIG Investigation and (ii) NMC's claims with respect to approximately $153.5
million of outstanding Medicare receivables for nutrition therapy rendered on
and before December 31, 1999 (collectively, the "Settlement"). The Settlement is
subject to court approval, which is expected to be granted.
Under the Settlement Agreements, the net Settlement payment to the
Government is approximately $427.1 million (the "Net Settlement Amount"). The
Net Settlement Amount is comprised of (i) an initial payment to the Government
of approximately $286.4 million which will be paid immediately after court
approval of the Settlement and dismissal of certain legal actions, (ii)
additional installment payments over the next eighteen months totaling
approximately $186.3 million and (iii) payments previously made to the
Government under the voluntary disclosure program totaling approximately $13.6
million, less installment payments by the Government to the Company over the
next eighteen months totaling approximately $59.2 million for the above-
mentioned receivables claims (which shall bear interest on unpaid amounts at
7.5% per annum). Interest on the Company's installment payments will accrue at a
rate equal to the 52-week treasury bill interest rate at the time of court
approval of the Settlement on $51.2 million of the installment payments and at
7.5% annually on the balance of the installment payments, until paid in full. As
security for its obligations under the Settlement Agreements, the Company
amended the $150 million Letter of Credit that was issued to the Government in
1996 to increase the amount available for drawing under the Letter of Credit to
approximately $189.6 million. The maximum drawing amount will be reduced over
time consistent with the Company's installment principal payments to the
Government.
The Company's net cash outflow resulting from the Settlement Agreements is
anticipated to be approximately $265.5 million. This amount reflects the
anticipated receipt of the receivables payment from the Government, the tax
benefit of the special charge discussed below and the payment terms of the Net
Settlement Amount. The cash savings of the tax benefit are expected to be
realized over the next eighteen months.
The Company believes that it will have sufficient cash flows from continued
operations and borrowing capacity under its senior credit facility to pay the
Net Settlement Amount. The Company also believes that following such payments,
it will continue to have sufficient funds available for both its day-to-day
operations and its anticipated growth.
In anticipation of the Settlement, the Company previously recorded a
special pre-tax charge against its consolidated earnings for the three month
period ended September 30, 1999 totaling $590 million ($412 million after tax).
An additional charge to earnings of approximately $11 million was recorded in
the three month period ended December 31, 1999 to reflect the reduction in
payments from the Government for the resolution of the receivables claims
discussed above. These charges will cover the payment of the
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Net Settlement Amount, a $94.3 million write-off of the remaining receivables
described above, and other related costs.
After giving effect to the special charge, the Company remained in
compliance with the financial covenants in its senior credit facility. In
December 1999, the Company and the lenders under the Company's senior credit
facility amended certain covenants in the senior credit facility to accommodate
the Company's obligations under the Settlement Agreements and to enable the
Company to continue in compliance with the covenants upon consummation of the
Settlement.
The OIG Investigation covered the following areas: (a) NMC's dialysis
services business, principally relating to its Medical Director contracts and
compensation; (b) NMC's treatment of credit balances resulting from overpayments
received under the Medicare, Medicaid, TriCare and other Government and
commercial payors, NMC's billing for home dialysis services, and its payment of
supplemental medical insurance premiums on behalf of indigent patients; (c)
Lifechem, Inc.'s laboratory business, including testing procedures, marketing,
customer relationships, competition, overpayments that were received by
Lifechem, Inc. from the Medicare program , a 1997 review of dialysis facilities'
standing orders, and the provision of discounts on products from NMC's products
division, grants, equipment and entertainment to Lifechem, Inc.'s customers; (d)
NMC Homecare, Inc.'s intradialytic parenteral nutrition therapy ("IDPN")
business and, in particular, information concerning IDPN utilization,
documentation of claims and billing practices including various services,
equipment and supplies and payments made to third parties as compensation for
administering IDPN therapy; and (e) billing for certain doppler flow and bio-
impedance analysis tests performed in clinical studies.
As a result of the Settlement, NMC's subsidiaries, Lifechem, Inc., NMC
Homecare, Inc. and NMC Medical Products, Inc. will plead guilty to certain
violations of federal law. The plea agreements impose a total of approximately
$101.2 million in federal criminal fines, which is included in the Net
Settlement Amount. As a consequence of their guilty pleas, these subsidiaries
will be excluded from further participation in federally-funded health care
programs, including Medicare, Medicaid and TriCare. The Company believes that
these exclusions will not materially interrupt its provision of, or receipt of
payment for, the products and services formerly provided by the excluded
subsidiaries because the Company intends to continue to provide such products
and services through other subsidiaries which are qualified to participate in
federal health care programs.
With the exception of the three above-mentioned guilty pleas, the Company
has been advised that the Government has declined criminal prosecution of the
Company, its parent, and subsidiaries, with respect to all aspects of the OIG
Investigation and that there is no pending federal criminal investigation of the
Company. Further, with respect to the Settlement, the Government has released
the Company from civil liability for all conduct described in the Settlement
Agreements and has advised the Company that, with the limited exception
referenced below, the Government has no current investigation and no intention
of initiating an investigation in connection with any conduct that has been the
subject of the OIG Investigation. The continued effectiveness of the releases
described above is subject to the Company's satisfaction of all payment
obligations under the Settlement Agreements. There have been allegations
recently raised by private parties against the Company, most of which have been
previously investigated by the Government in the course of the OIG Investigation
and resolved without a finding of liability against the Company. While there can
be no assurance, the Company currently believes that the resolution of such
allegations will not have a material adverse impact on the Company's business,
financial condition or results of operations.
Each of the qui tam or "whistleblower" actions relating to the issues
raised by the OIG Investigation will be dismissed as a result of the Settlement,
with the exception of a portion of the qui tam filed in the United States
District Court for the Middle District of Tennessee on December 15, 1994,
transferred to the United States District Court for the District of
Massachusetts in 1995, and disclosed to the Company in September 1999. The
portion of this qui tam action that will not be dismissed as a result of the
Settlement alleges, among other things, that the Company and the Company's
parent Fresenius Medical
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Care AG violated the Medicare and Medicaid Anti-Kickback Statute by providing
discounted hemodialysis products to induce the purchase of laboratory services.
In the Settlement Agreements, the Government has declined to continue to pursue
further the investigation or prosecution of these allegations. While the
dismissal of this portion of this qui tam action was offered to the Company by
the Government and the current and former Company employees who filed this qui
tam action (the "relators") in connection with the Settlement, such dismissal
was conditioned on a full release by the Company of all Company claims against
the relators. The Company is unwilling to release its claims against the
relators. While there can be no assurance, the Company currently believes that
the resolution of these remaining allegations will not have a material adverse
impact on the Company's business, financial condition or results of operations.
Whistleblower actions are filed under seal as a matter of law in the
first instance, thereby preventing disclosure to the Company and to the public
except by court order. The Company or certain of its subsidiaries may be the
subject of other "whistleblower" actions not yet known to the Company or which
have not yet been unsealed.
The Settlement does not extend to any current or former employees of NMC
or its subsidiaries who have been, or may be, indicted in connection with the
OIG Investigation.
In connection with the Settlement, the Company entered into a Corporate
Integrity Agreement dated January 18, 2000 with the OIG (see Exhibit 10.1
attached to this Current Report on Form 8-K). During the eight-year term of this
agreement, the Company is required, among other things, to staff and maintain a
comprehensive compliance program. This program must include a written code of
conduct, compliance training programs, compliance policies and procedures
relating to the areas covered by the OIG Investigation, screening of employees
and others for eligibility to participate in federal health care programs,
annual audits by an independent review organization, a confidential disclosure
program and periodic reporting to the OIG. The Corporate Integrity Agreement
provides for stipulated penalties of up to $2,500 per day for each day during
which the Company fails to satisfy its obligations under the agreement. The
Corporate Integrity Agreement permits the OIG to exclude the Company and its
subsidiaries from participation in federal health care programs in the event of
a material breach of the agreement that is not rectified by the Company within
thirty days after the Company receives written notice of the breach. NMC derives
over 60% of its consolidated revenues from Federal health care benefit programs.
Consequently, a material breach by the Company of the Corporate Integrity
Agreement that results in the exclusion of the Company or its subsidiaries from
continued participation in such programs would have a material adverse effect on
the Company's business, financial condition and results of operations.
The foregoing discussion of the Settlement, the Settlement Agreements
and the plea agreements is qualified in its entirety by reference to the full
text of the Settlement Agreements and the plea agreements attached as Exhibits
10.1 through 10.9 to this Current Report on Form 8-K.
This document contains certain forward-looking statements that are
subject to various risks and uncertainties. Actual results could differ
materially from those contained in these forward-looking statements due to
certain factors including, without limitation, changes in business, economic and
competitive conditions, regulatory reforms, uncertainties in litigation or
investigative proceedings, the failure to realize anticipated tax deductions,
and the availability of financing. These and other risks and uncertainties,
which are more fully described in the Company's reports filed from time to time
with the Commission, could cause the Company's actual results to differ
materially from the results that have been or may be projected by or on behalf
of the Company.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits
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Exhibit 10.1 Corporate Integrity Agreement dated January 18, 2000 between
the Company and Office of the Inspector General of the
Department of Health and Human Services
Exhibit 10.2 Settlement Agreement and Release dated January 18, 2000 by
and among United States of America, Lifechem, Inc., NMC
Medical Products, Inc., National Medical Care, Inc., the
Company and Jay A. Buford, Russell J. Davis and William L.
Schoff
Exhibit 10.3 Settlement Agreement and Release dated January 18, 2000 by
and among United States of America, NMC Homecare, Inc.,
National Medical Care, Inc., the Company Ven-A-Care of the
Florida Keys, Inc. and Dana R. Austin
Exhibit 10.4 Settlement Agreement and Release dated January 18, 2000 by
and among United States of America, Clinical Diagnostic
Systems, Inc., NMC Diagnostic Services, Inc., Bio-Medical
Applications Management Company, Inc., National Medical
Care, Inc. and the Company
Exhibit 10.5 Settlement Agreement and Release dated January 18, 2000 by
and among United States of America, National Medical Care,
Inc., the Company, Gregory S. Price and Richard Bradford
Exhibit 10.6 Plea Agreement dated January 13, 2000 by and among Lifechem,
Inc., the United States Department of Justice and the United
States Attorney for the District of Massachusetts.
Exhibit 10.7 Plea Agreement dated January 13, 2000 by and among NMC
Medical Products, Inc., the United States Department of
Justice and the United States Attorney for the District of
Massachusetts.
Exhibit 10.8 Plea Agreement dated January 13, 2000 by and among NMC
Homecare, Inc., the United States Department of Justice and
the United States Attorney for the District of
Massachusetts.
Exhibit 10.9 Letter Agreement dated January 17, 2000 by and among the
Company, the United States Department of Justice and the
United States Attorney for the District of Massachusetts
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FRESENIUS MEDICAL CARE HOLDINGS, INC.
Date: January 21, 2000 By: /s/ Jerry A. Schneider
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Jerry A. Schneider
Chief Financial Officer
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INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION
Exhibit 10.1 Corporate Integrity Agreement dated January 18, 2000 between
the Company and Office of the Inspector General of the
Department of Health and Human Services
Exhibit 10.2 Settlement Agreement and Release dated January 18, 2000 by and
among United States of America, Lifechem, Inc., NMC Medical
Products, Inc., National Medical Care, Inc., the Company and
Jay A. Buford, Russell J. Davis and William L. Schoff
Exhibit 10.3 Settlement Agreement and Release dated January 18, 2000 by and
among United States of America, NMC Homecare, Inc., National
Medical Care, Inc., the Company Ven-A-Care of the Florida Keys,
Inc. and Dana R. Austin
Exhibit 10.4 Settlement Agreement and Release dated January 18, 2000 by and
among United States of America, Clinical Diagnostic Systems,
Inc., NMC Diagnostic Services, Inc., Bio-Medical Applications
Management Company, Inc., National Medical Care, Inc. and the
Company
Exhibit 10.5 Settlement Agreement and Release dated January 18, 2000 by and
among United States of America, National Medical Care, Inc.,
the Company, Gregory S. Price and Richard Bradford
Exhibit 10.6 Plea Agreement dated January 13, 2000 by and among Lifechem,
Inc., the United States Department of Justice and the United
States Attorney for the District of Massachusetts.
Exhibit 10.7 Plea Agreement dated January 13, 2000 by and among NMC Medical
Products, Inc., the United States Department of Justice and the
United States Attorney for the District of Massachusetts.
Exhibit 10.8 Plea Agreement dated January 13, 2000 by and among NMC
Homecare, Inc., the United States Department of Justice and the
United States Attorney for the District of Massachusetts.
Exhibit 10.9 Letter Agreement dated January 17, 2000 by and among the
Company, the Untied States Department of Justice and the United
States Attorney for the District of Massachusetts