Gentiva to Pay Settlement Fee

Last week, Gentiva Health Services Inc. ( GTIV - Analyst Report ) announced a settlement agreement with the US Department of Justice (DoJ), whereby the company will pay a $25 million one-time fee. The settlement is related to an investigation into the provision of continuous care services of its subsidiary, Odyssey HealthCare Inc.

Additionally, Gentiva’s Hospice segment, which covers Odyssey, will undergo auditing for five years. Moreover, the company has agreed to provide special education to its employees. Gentiva also inked a Corporate Integrity Agreement with the US Department of Health and Human Services for five years.

Nevertheless, the payment is not expected to substantially affect Gentiva as the company has adequate cash balance. The company exited 2011 with cash and cash equivalents of $164.9 million.

Moreover, the goodwill of Gentiva is not likely to be adversely affected as the investigation pertained to the activities of Odyssey in the period between January 1, 2006 and January 22, 2009, i.e., before Gentiva acquired the company in August 2010.

However, Gentiva is facing substantial legal trouble over its own Medicare reimbursements. The company faced an investigation by the Senate Finance Committee in October 2011, after which the committee alleged that Gentiva and two other leading health care companies -- Amedisys Inc. ( AMED - Snapshot Report ) and LHC Group Inc. ( LHCG - Snapshot Report ) -- deliberately increased their visits to patients in order to reach the thresholds for bonuses and hence, receive higher Medicare payments from the government.

Investors of Gentiva had also filed multiple lawsuits against the company in September 2011, claiming that management issued a series of false and misleading financial statements from July 31, 2008 onwards, with the intention to drive up share value. The complaints further claimed that management failed to disclose the overstatement of in-home therapy visits to investors, thereby misleading them about the company’s performance and future prospects.

However, Gentiva stated that it maintains a high quality in its healthcare services and receives Medicare payments within the reimbursement standards set by the Center for Medicare and Medicaid Services. Gentiva also denied that changes in its utilization pattern were driven by the changes in the reimbursement system in January 2008.

Gentiva currently carries a Zacks #2 Rank, implying a short-term Buy rating. Considering the fundamentals, we maintain our long-term Neutral recommendation on the stock.