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National Medical's Eamer Quits Helm : Health care: Lawsuits have hurt hospital chain's stock. Eamer's successor denies bankruptcy risk.

April 29, 1993|THOMAS S. MULLIGAN | TIMES STAFF WRITER

Richard K. Eamer, the brash founder of National Medical Enterprises, abruptly stepped down as chief executive Wednesday as the far-flung hospital operating concern confronted serious legal, financial and image problems.

Taking over as chief executive and president, effective June 1, is Jeffrey C. Barbakow, 49, managing director of Donaldson, Lufkin & Jenrette Securities Corp. and an outside director of National Medical. Barbakow, as chief of Metro-Goldwyn-Mayer/United Artists Communications Co., engineered the studio's sale to Pathe Entertainment Group in 1991.

Eamer, 65, will stay on as National Medical's chairman.

Michael H. Focht Sr., 50, senior executive vice president, immediately took over as chief operating officer, succeeding company co-founder Leonard Cohen, 68, who will remain vice chairman.

The stock of Santa Monica-based National Medical has taken a pounding in recent weeks, closing Wednesday at $7.50 a share, unchanged, in New York Stock Exchange trading. Earlier in the week, it fell to a 52-week low of $6.50 a share. The stock traded as high as $18.13 a share last year and hit $25.88 in 1991.

Analysts have said the stock's drop partly reflected investor concerns about lawsuits brought by insurers and patients accusing National Medical of fraudulent billing, mainly in connection with psychiatric treatment.

The company's psychiatric division is also being investigated by the FBI and various other federal and state agencies. Federal prosecutors told the Wall Street Journal that they expect indictments against National Medical officials--perhaps including some top executives--to be returned this summer.

The company settled a lawsuit by the Texas attorney general last June, agreeing to pay $9 million and implement a series of reforms at its psychiatric hospitals there. The suit followed an investigation of charges that National Medical used kickbacks to recruit patients and hospitalized patients for longer than necessary in order to milk their insurance.

To help clean up the scandal, the company in November hired Richard P. Kusserow, former inspector general of the U.S. Department of Health and Human Services--the government's top medical fraud sleuth--to review its ethical standards and institute reforms.

Also depressing the stock was the sale earlier this month of virtually the entire holdings of Eamer and Senior Executive Vice President John C. Bedrosian.

National Medical representatives have said that the two insiders' stakes--2.5 million shares for Eamer and 395,000 shares for Bedrosian--were sold by banks to which the two had pledged the stock as collateral against personal loans.

To cap it all, San Francisco investment analyst Theodore James Jr. of W.I.G. Securities last week issued a withering report in which he predicted that National Medical would be bankrupt within a year. National Medical called that report irresponsible and accused James of shilling for short sellers who would profit from a decline in the stock. James denied that.

Barbakow said in an interview Wednesday that Eamer approached him several weeks ago about taking the job. Those discussions, and others involving other company directors, led to Barbakow's elevation at a regular board meeting on Wednesday, he said.

"It's a normal succession that makes some sense," Barbakow said.

Barbakow, who would not comment on any of the legal actions, said the company has a "very, very strong balance sheet," which was improved recently when a public offering of a British nursing home chain in which National Medical has an interest wiped $100 million of long-term debt off National Medical's books.

As to the risk of bankruptcy, "if I thought there was any truth to that I wouldn't have become involved" in the chief executive job, Barbakow said.

For the most recent quarter, ended Feb. 28, National Medical reported earnings of $54.2 million, up from $44.5 million in the year-earlier period. Revenue for the quarter declined 4% to $933.3 million, from $971.4 million in the corresponding quarter of 1992.

The company's psychiatric division, battered by the lawsuits and by insurers' increasing reluctance to pay for some care, reported a 37% decline in operating revenue, quarter to quarter, and posted a $4.8-million operating loss for the period.

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