ODYSSEY HEALTHCARE: A DEPARTMENT OF JUSTICE INVESTIGATION RELATED TO THE FALSE CLAIMS ACT

Journal of the International Academy for Case Studies, 2008 by Newbold, John, Sullivan, Laura

AN UNFAVORABLE TURN OF EVENTS

An Earnings Miss

In February of 2004, Odyssey released its earnings for the fiscal fourth quarter of 2003. While the numbers for 2003 came in on target, Odyssey management advised investors that their earnings estimates for the fiscal year 2004 were being lowered. The primary drivers of Odyssey ' s reduced profit outlook included:1) higher than anticipated costs in the form of newly acquired hospices, 2) greater pharmacy and salary expenses, and 3) greater than anticipated costs in the form of Medicare cap accruals (give-backs to Medicare, their primary source of revenues). It appeared that the prodigious growth rate of the company had finally outstripped its management's ability to effectively control operations. The market was caught off guard by this negative announcement from the industry high-flier. The stock price lost over a quarter of its value in a single day. (Yu, 2004).

Unfavorable Publicity: The Barren's Article

The last thing Odyssey needed on the heels of their February 2004 earnings announcement was to have an unfavorable article come out in a prominent business newspaper. Yet on April 12, 2004, Barron' s featured an article by reporter Sandra Ward entitled: "Troubling Odyssey, Questions Arise About Hospice Company's Patient Care, Level of Medicare Payments". The article discussed the operational problems associated with Odyssey's tremendous recent growth. In addition, the article intimated that Odyssey may have been engaging in less-than-ethical marketing practices. Consider the excerpt below:

"There are also suggestions that some of Odyssey's strong growth is the result of providing a level of care and services below the standards set forth under government guidelines, including providing adequate bereavement services for patients' families. A son tells Barron's of Odyssey's ignoring calls from a nursing home as the staff sought the assistance of the hospice firm with which he'd contracted. Some former nurses and marketing representatives tell Barron's of patients being kicked out of Odyssey programs after 90 days upon being 'reevaluated' or because they required hospital care. Former staffers complain about lack of access to supplies, and caseloads that are heavier than industry norms. The company's CEO, David Gasmire, says Odyssey follows all federal guidelines."

The article went on to imply that Odyssey may have been skirting Medicare requirements for admission into hospice care:

"In a business almost entirely dependent upon Medicare for reimbursement for revenues, adherence to guidelines is crucial. People familiar with the Medicare system say that exceeding the reimbursement cap is very unusual and is considered a serious breach of accepted practice by the Centers for Medicare and Medicaid Services, as well as by the insurance intermediaries who handle Medicare claims. Such breaches raise red flags about admittance procedures and the possibility that ineligible patients are being accepted into hospice programs, which are supposed to admit only those whom doctors believe have no more than six months to live."