Transworld to Pay U.S. Government $10M in Fraud Suit, Posts $7 Million 3Q Loss

New York Transworld Healthcare will pay the U.S. government $10 million under terms of a civil settlement related to a three-year federal investigation of two of its U.S. operating subsidiaries and a civil whistleblower lawsuit, Transworld officials said.

The company denied wrongdoing or liability in the case but agreed to settle the matter to avoid protracted litigation, the officials said. The agreement releases Transworld, certain subsidiaries, present and former owners, officers, directors, employees and others from further civil or administration monetary claims related to the allegations. In addition to the $10 million settlement, the company agreed to a corporate integrity agreement with the Office of Inspector General.

According to the lawsuit, Transworld, which provides unit-dose medications, defrauded Medicare by allegedly engaging in a kickback scheme in which the company paid durable medical equipment companies and physicians up to $750 for each single-patient referral. The money was paid in increments each time the patient received a shipment of medication, the lawsuit said. The company's subsidiaries, the suit alleged, participated in similar schemes. The suit also charged that Transworld frequently waived the coinsurance payments of Medicare beneficiaries.

The suit was filed as a qui tam suit on behalf of the United States by Christopher Piacentile, a New Jersey businessman. He was awarded $1.35 million of the settlement.

In addition, Transworld reached a settlement with the prior owners of Respiflow, MK Diabetic Support Services and related subsidiaries, agreeing to accept $5 million to settle unspecified issues.

Timothy Aitken, chairman and chief executive officer, said only, "We are pleased to be able to put all of these matters behind us."

For the third quarter of fiscal 2000 ended June 30, Transworld recorded a one-time pretax charge of about $5 million related to the settlements. For the quarter, the company posted a lost of $7 million, or 40 cents a share, compared with a loss of $4.5 million, or 25 cents a share, for the same quarter the previous year.

In other news, Jack Wynne was named chief financial officer of Transworld, replacing Wayne Palladino, who resigned.

Pittsburgh Four Pennsylvania-based home medical equipment companies have consolidated under the umbrella of Dynamic Healthcare Services, operating as wholly owned subsidiaries with eight locations and projected first-year revenue of $10 million.

East Suburban Medical Supply of Pittsburgh and Butler; Gatti Healthcare of Indiana, Dubois and Bradford; Central Medical Equipment of Harrisburg and Camp Hill; and Hess Healthcare Services of Bethlehem banded together because "we believe this is a more effective way to grow and strengthen our position in the local markets and maximize valuation," said Terry Luft, president of Central Medical.

Luft and fellow subsidiary presidents Robert Sovak of East Suburban, Louis Gatti of Gatti Healthcare and Mark Zelezen of Hess Healthcare are founding shareholders and directors of Dynamic.

Each subsidiary will retain its local identity and operating infrastructure but will share some of the management and financial risks of expansion. In doing so, said Sovak, "new programs can be developed and introduced on a shared basis and growth can be achieved at more acceptable levels of exposure."

The company plans to seek strategic acquisitions in Pennsylvania, Ohio, West Virginia, Maryland and New York, officials said.

"In recent months, a number of HME consolidators have entered regional markets through roll-ups," said Steven Brody, a Dynamic director and consultant. "The Dynamic companies preferred to create their own roll-up."