Select Medical Holding Corporation (SEM)
Department of Infectious Management
Select Medical is one of the largest post-acute care providers, operating 105 critical illness recovery hospitals in 28 states, 31 rehabilitation hospitals in 12 states, and 1,933 outpatient rehabilitation clinics in 39 states and the District of Columbia. Concentra operated 519 occupational health centers in 41 states. On September 30, 2022, Select Medical operated in 46 states and the District of Columbia.1
Litigation
INDIANAPOLIS, INDIANA, Oct. 16, 2019 – Select Medical Corp., affiliated entities and an Indiana doctor have agreed to pay $3.5 million to settle a “qui tam” lawsuit alleging Medicare and Medicaid fraud, which was filed by Phillips & Cohen on behalf of three whistleblowers. Whistleblowers filed in 2012.2
Select Medical Corporation and Encore GC Acquisition LLC have agreed to pay $8.4 million to resolve allegations that Select Medical Rehabilitation Services Inc. (SMRS) violated the False Claims Act by knowingly causing 12 skilled nursing facilities (SNFs) in New York and New Jersey to submit false claims to Medicare for rehabilitation therapy services that were not reasonable, necessary or skilled. Select Medical Corporation was the prior parent company of SMRS, while Encore GC Acquisition LLC is the successor-in-interest to SMRS. The alleged conduct occurred prior to Encore’s acquisition of SMRS.3
Oklahoma City Subpoena. On August 24, 2020, the Company and Select Specialty Hospital – Oklahoma City, Inc. (“SSH–Oklahoma City”) received Civil Investigative Demands from the U.S. Attorney’s Office for the Western District of Oklahoma seeking responses to interrogatories and the production of various documents principally relating to the documentation, billing and reviews of medical services furnished to patients at SSH-Oklahoma City. The government’s investigation appears to be focused on respiratory therapy services and billings. The Company does not know whether the subpoena has been issued in connection with a qui tam lawsuit or in connection with possible civil, criminal or administrative proceedings by the government. The Company is producing documents in response to the subpoena and is fully cooperating with this investigation. At this time, the Company is unable to predict the timing and outcome of this matter.
Physical Therapy Billing. On October 7, 2021, the Company received a letter from a Trial Attorney at the U.S. Department of Justice, Civil Division, Commercial Litigation Branch, Fraud Section (“DOJ”) stating that the DOJ, in conjunction with the U.S. Department of health and Human Services, is investigating the Company in connection with potential violations of the False Claims Act, 31 U.S.C. § 3729, et seq. The letter specified that the investigation relates to the company’s billing for physical therapy services and indicated that the DOJ would be requesting certain records from the Company. In October and December 2021, the DOJ requested, and the Company furnished, records relating to six of the Company’s outpatient therapy clinics in Florida. In May and July 2022, the DOJ requested certain data relating to all of the Company’s outpatient therapy clinics nationwide, and sought information about the Company’s ability to produce additional data relating to the physical therapy services furnished by the Company and Concentra. The Company is fully cooperating with the DOJ on this investigation. At this time, the Company is unable to predict the timing and outcome of this matter.4
But it is nothing new.
Excerpts from Glassdoor on Select Medical.
Wording and Grammar are not corrected.
Review 1
Cons
questionable managers in different clinics, each clinic can do things differently so it can get confusing. ethics of higher ups seemingly questioning your billing, though it comes and goes, usually when revenue gets low - you start getting more questions. Lies and "untruths" or stretching/bending of the truth from "managers" and higher ups. some clinics do things that others dont, so inconsistent schedules, saturdays, open/closing times depending on clinic.
Advice to Management
get rid of managers that are not pulling their weight”
Review 2
“Cons
Patient-to-nurse ratios; patients are very sick and the acuity calculator does not always appropriately reflect the needs of the patient.
Advice to Management
Reinvest in the company to lighten the workload of the nursing staff, complete an annual assessment and review of the acuity calculations and make recommendations. Add technology to allow vital signs to interface over and reduce an already overwhelming documentation requirement. Update some of the conservative policies such as requiring staff to take manual BPs when every other hospital uses dynamaps with disposable cuffs. Corporate and people very far removed from the front line create policies that make it extremely time consuming to provide adequate care to a very sick population of patients.”
Cons
Overworked, negative attitudes, hard to get promoted
Review 3
Pros
People are great to work with
Cons
The company doesn’t take care of hard-working employees
Review 4
Pros
Autonomy in your job duties
Cons
Leadership is often poor with problem-solving.
MANAGEMENT ISSUES
We are taking this to document a series of problems that are caused by management. It is common in the medical field to promote care providers and clinicians into management roles. That has been the case for way too long. A big hint here, there are doctorates in management as well as medicine. Just because you are an excellent care provider does not mean you are going to be a good manager. Our experience with medical professionals as managers is that they are close to the worst managers, sliding in only slightly ahead of education and law firm managers.
They are focused on the science and art of care and dealing with abusive amounts of reporting and paperwork. 47% of the cost of care goes to reporting and compliance. So what happens when someone tells a local manager you have to get your numbers up or else? Some pushback. Most become demotivated and mark time or find a way to leave, but some medical managers fudge it. They will send in a bill for a client that canceled and did not appear at their outpatient session. Some managers will ask for two or three extra opinions, delaying discharge by a day or two, before discharging a patient. It helps increase bed occupancy. The flip side of that is discharging the patients with the lowest compensation payment rates for care in order to fill the bed with patients whose coverage pays more.
Employees need feedback from managers. Employees want to know how they are doing, and how the company and their office are doing. Performance reviews on an ongoing, no less than a monthly basis are required. Interim praise is also very effective. Annual reviews and goal setting are worthless and have been shown to be counterproductive. To double down on counterproductive so is tell the local employees, “Hey, you need to step it up. Our margins are off.” This is how Select manages.
Select has also been on a spree of acquisitions and joint ventures. They have been growing through acquisitions and joint ventures. In any industry, growth by acquisition is almost a guaranteed destroyer of value. Looking at the acquisition and JV trail left by Select is one of poor due diligence, overpayment, and a failure to bring operations online and working in a cohesive fashion.
How can we be sure of our statements and assumptions? You are seeing this through the fallout. The poor management choices engender the condition for the violations, the litigation, and the employee comments. Some of us have done medical professional practice management and have seen this for years – or actually decades. Most medical businesses would do well to have the clinicians do the treatment and had to hire some MBA to run the clinics with the clinicians.
BALANCE SHEET ISSUES
The intangible assets are significant in their relationship to the overall assets. Goodwill is 3.5 billion, other intangible assets of 395 million for a total of 3.8 billion again, total assets of 7.5 billion. Just a shade, over half of the assets are intangible assets.
There is a bright side, Select Medical is profitable, though not as profitable as it could be. Also, all the reviews were solid on the level of care Select Medical provided to its patients.
THE TRADE
Some stocks go up, some go down, and some go to the right. When a stock goes to the right, it more or less sets up in a narrow trading range as time marches on.
There are two trades buying the stock at the low end of the range, around $17, and selling at the top of the range, about $27.
The other is writing calls near the top of the range and writing puts near the bottom of the range.
SEM should stay in this range until it gets the managerial indigestion of acquisitions adjusted or is heavily fined. We suggest being out of the market on 03 November for the earnings report. If the stock lurches up or down, take that price movement lurch as an entry point for an investment that will profit from the reversal of direction.
Extracted from SEM’s website.
https://www.phillipsandcohen.com/select-medical-pays-3-5-million-to-settle-phillips-cohen-whistleblower-case/
https://www.justice.gov/opa/pr/contract-rehabilitation-therapy-providers-agree-pay-84-million-resolve-false-claims-act
10-Q. Quarterly Period Ended June 30, 2022