A U.S. bankruptcy judge in Lexington ordered the federal government Wednesday to transfer $500,000 in withheld Medicare payments to Nurses Registry and Home Health Corp. so the company can make its Friday payroll.
The money must be wired to the company's bank account by 2 p.m. Thursday, Judge Gregory R. Schaaf specified in an order he read from the bench.
Schaaf had expressed concern in court that nearly 1,350 patients would suffer this weekend if the company couldn't pay its nearly 200 employees. Testimony during a hearing demonstrated that employees would probably leave the company if they didn't get paid.
"If I don't get a paycheck this week, I know I can't pay my bills, so I wouldn't be working for the company," said Charlene Wilson, chief financial officer for Nurses Registry.
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"Without cash flow, there can be no continued operations," Laura Day DelCotto, the attorney for the company, told the judge.
The company filed Friday for Chapter 11 bankruptcy protection. Medicare payments to Nurses Registry were suspended in May because the company is the subject of a federal investigation of alleged fraud and kickbacks.
The Lexington-based company provides skilled nursing care, physical therapy and occupational therapy to patients in their homes. It is doing business and treating patients, including more than 200 "medically fragile" children, but officials had said in court documents that it would cease operations if Medicare payments do not resume.
The company had sought $1 million that was not tainted by allegations of fraud but that had been withheld by the government. Schaaf granted $500,000 to get the company through July.
If the company ceased operations, its patients could receive care from other home-health agencies in Central Kentucky, Assistant U.S. Attorney Paul McCaffrey argued.
But Schaaf disagreed: "Transferring patients is not as simple as a phone call," he said.
Besides, other home-health firms would have minimal staffs available on the Fourth of July weekend, Schaaf said.
McCaffrey also argued that the judge does not have authority to act on suspended payments until the administrative process has been exhausted and the government had made a final determination on payments.
But Schaaf ruled that he does have jurisdiction to act, and that a failure to act now would cause harm to patients, the company and its employees.
Even though the company was informed about the suspension of Medicare payments in May, employees were not told about that until Friday, when Nurses Registry filed for bankruptcy, testified Pat Allred, chief operating officer for the company.
That's because employees were to remain focused on patient care, Allred said. "Their one thing is taking care of the patients," she said.
Patients and referral sources have not been informed, either, Allred said.
"We have not done that because we have continued to take care of patients," she said.
Nurses Registry has continued doing business thanks to $2.4 million lent to it by the estate of Lennie House, the company founder and CEO, who died in February at age 72.
The $2.4 million came from the sale of "marketable securities" and the sale of property on South Broadway, but the estate has no more liquid assets, testified Charles McGaughey, a certified public accountant who is co-executor of the estate.
The estate is trying to arrange for a $300,000 loan from Central Bank, McGaughey said.
Ron Switzer, the other co-executor, testified that the estate has discussed the possible sale of Nurses Registry with seven potential buyers, who were not identified in court. Four potential buyers want at least 90 days to conduct due diligence and investigate the company's financial status. They also don't want to take on problems with the federal government.
One buyer offered $8 million for the company. Before he died, House, the lone shareholder, was offered between $22 million and $50 million for the company, but he didn't sell.
The Medicare payments to Nurses Registry were suspended in May after the government alleged improper billing and kickbacks to doctors.
In that action in U.S. District Court, the government contends that Nurses Registry billed about $30 million for services to patients who didn't qualify for Medicare. Alleged kickbacks tainted an additional $5 million in Nurses Registry payments. The government alleges that Nurses Registry used cash, concert tickets and University of Kentucky basketball tickets to induce doctors to refer patients to the company.
A six-week trial with 60 to 70 witnesses and hundreds of exhibits is scheduled to start Aug. 10 before U.S. District Judge Karen Caldwell. A pretrial conference is scheduled for next week.