Executives at Irvine-based HCP Inc. are standing behind their largest tenant, which is being investigated by the Department of Justice and several other federal agencies.
HCP calls itself an “independent hybrid real estate investment trust.” Its portfolio includes senior housing, medical offices and skilled-nursing facilities.
The real estate company, which had a recent market value of $19.7 billion, recently returned to Orange County after being in Long Beach for 10 years.
HCP disclosed this month in a Securities and Exchange Commission filing that it responded to a “civil investigative demand,” subpoenas and other requests concerning Toledo, Ohio-based nursing home company HCR Manor Care Inc.’s skilled nursing facilities in connection with an inquiry coordinated by the U.S. Department of Justice, the Department of Health & Human Services’ Office of Inspector General, and certain state attorneys general offices.
“Several of you have noted this morning an ongoing civil investigative demand involving HCR Manor Care mentioned in our 10-K,” HCP Chief Executive Lauralee Martin told investors and analysts on a recent earnings call.
HCR Manor Care operations accounted for 26% of HCP’s 2014 revenue of $2.3 billion. HCP also owns a 9.4% equity interest in HCR Manor Care that it acquired together with a $6 billion buy of “substantially all the real estate assets” of HCR Manor Care in April 2011.
HCP recorded a $36 million impairment charge in December for the equity interest.
The charge stemmed “from our review of their 2015 preliminary base financial forecast and other financial information provided by [HCR Manor Care] that reflected a continued shift in patient payer sources from Medicare to Medicare Advantage, which negatively impacts reimbursement rates and length of stay for [its] skilled nursing segment,” HCP said in its filing.
Martin said HCP’s regulatory counsel has discussed the Department of Justice’s inquiry with HCR Manor Care’s own regulatory counsel.
HCR Manor Care “believes that it is in material compliance with all applicable laws and regulations and that they are fully cooperating with the inquiry,” Martin said.
She added that investigations as described by privately held HCR Manor Care’s financial statements “are typical of the industry.”
As examples, Martin mentioned investigations of Louisville, Ky.-based Kindred Inc., which operates hospitals in Westminster, Brea, and Santa Ana, and of Kennett Square, Pa.-based Genesis HealthCare LLC, which bought a pair of Orange County-based nursing home operators: Skilled Healthcare Group Inc. in Foothill Ranch and Irvine-based Sun Healthcare Group Inc. in 2014 and 2012, respectively.
“We continue to have discussions with HCR on how they can support the success of their business, while also improving our lease coverage. As part of these discussions, we have jointly agreed to market for sale an identified pool of up to 50 nonstrategic properties,” she said.
HCP will reinvest the proceeds of any sale and, “in return, provide HCR rent relief,” Martin said.
Sales Strong With Defibrillator
Boston Scientific Inc. recently reported that its Orange County-developed S-ICD implantable heart defibrillator “comfortably exceeded” its full-year 2014 sales goal of $100 million.
Natick, Mass.-based Boston Scientific got S-ICD in 2012 when it bought San Clemente-based medical device maker Cameron Health Inc. for $150 million in cash, with additional payments of up to $1.05 billion possible based on future milestones.
“Patient and physician demand for our S-ICD, which is the only defibrillator that doesn’t touch the heart or invade the vasculature, continues to be strong,” Chief Executive Mike Mahoney said this month.
He also talked about reimbursement for the defibrillator, mentioning that Boston Scientific expects to see improved Medicare outpatient reimbursement and doctor payment codes this year.
S-ICD is also picking up more insurance coverage, he said.
New contracts include one with Tricare, the U.S. military’s health insurance program, and with Hartford, Conn.-based Aetna Inc.
“Tricare, for example, with 10 million members, provides coverage to active duty and retired military for medical services outside the VA system, where S-ICD is also reimbursed,” Mahoney said.
