The leaders of the PACS Group (NYSE: PACS) are facing shareholder lawsuits in connection with an alleged scheme to file false Medicare claims.
Five PACS executives, including CEO Jason Murray and CFO Derick Apt, have been appointed defendants in a currently integrated federal securities fraud class lawsuit.
According to a complaint filed on March 21, these PACS executives allegedly did not warn investors that false claims were a major factor in the company's revenues between 2020 and 2023, and that the company abused its COVID-era exemptions to inappropriately access the skilled nursing Medicare benefits of thousands of patients.
Since its launch in 2020, PACS has positioned itself as one of the largest companies in the sector, reporting a total revenue and profit growth of $2.4 billion in 2022 and $3.1 billion in 2023. In addition, initial public offerings began in the first quarter of 2024.
Of that revenue, Medicare and Medicaid accounted for 47.6% and 30.2% of their total, respectively.
The US District Court filing for the Southern District of New York argues many of the many allegations by the institution's short-seller, the now-dead Hindenburg study, in the nursing home giant's referral and refund practices. PACS then suspended its quarterly revenue results. This is needed by public companies.
Utah operators are currently undergoing federal investigations and conducting their own internal audits.
Skilled Nursing News contacted PACS regarding the lawsuit, but no response was received as in the press time.
Inappropriate billing, no certification role
The lawsuit characterizes the PACS claims practice as “a multi-year, national scheme to maximize income per patient,” and operators allegedly inappropriately charged Medicare Part B for certain treatments, even if these treatments were not applicable to patients.
From a staffing perspective, the lawsuit alleges that the PAC has placed people licensed to managerial positions and misclassified employee positions to avoid minimum staffing requirements.
The PACS executive appointed in the suit is also allegedly violated the fiduciary's obligations by creating a statement that is essentially false or misleading to the company and omitting the facts of the investment.
If the plaintiffs win their case, according to the suit, the PACS executives designated in the suit must explain all the damages caused by them and outline all the benefits and special benefits, and the unfair enrichment that, according to the suit, resulted in the Medicare scheme.
The plaintiffs also require that the PAC take all necessary steps to reform and improve corporate governance and internal procedures in order to protect the PAC and its investors from “recurring the damage events described herein.”
They also seek to award pre-judicial benefits and punitive damages in pursuit of all losses and damages maintained as a result of actions and transactions carried out by the PAC.
Hindenburg and PACS IPOs
The lawsuit reiterates the allegations detailed in the Hindenburg Investigation Report last November.
The Hindenburg report allegedly made false claims under Medicare, and ultimately allowed the PAC to be published in 2024 with the “illusion of legitimate growth and profitability.”
The five-month Hindenburg survey included interviews with 18 former PAC employees and competitors as well as an analysis of the PACS facility cost report, which is over 900 pages.
At the time, Murray said that while third-party allegations were “misleading,” the company's audit committee, which received support from external lawyers, was investigating the allegations.
“Given the industry we operate, we are subject to various government investigations and payment audits during our normal business process and are proud of our track record in compliance,” Murray said in November. “We take these types of claims seriously and will continue to work with the government.”
Just a month after Hindenburg's report, PACS on December 1 ended its 11 facility contracts in Tennessee on a private amount, with Murray saying the company “remaining a solid footing.” The property is part of a joint venture with Caretrust REIT (NYSE: CTRE) and is an unnamed partner to acquire 31 skilled nursing facilities, first announced in October for $500 million.
Ensign Group (NASDAQ:ENSG) and Links Healthcare Group have been appointed operators of the trading along with PAC.
Caretrust REIT CEO David Sedgwick said during the company's quarterly revenue call in February that he was not worried about the impact of the situation on Kacusto.
“There's no worst-case scenario we're worried about right now. I think they'll do well. There's no more commenting before they themselves comment,” Sedgwick said in February.
PACS has not received revenue calls since the 3Q call was postponed to November last year.
Following the Hindenburg report, PACS share price fell by $11.93 per share, or about 28%, to close at $31.01 per share on November 4, 2024, and continued to decline as operators failed to report revenue over the past two quarters.
On Tuesday, PACS shares closed at $11.36, 57 cents and 4.78%.
