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MedCath Enters Into Settlement Agreement With the Department of Justice

MedCath has entered into a settlement with the United States Department of Justice (DOJ) in connection with an industry-wide investigation involving six of MedCath’s former hospitals in which it owned an interest. Those six hospitals are the only ones for which MedCath retained this liability. The settlement concerns Medicare claims submitted by these former hospitals from October 1, 2003 through the date of sale of each hospital for services relating to the insertion of implantable cardioverter defibrillators (ICD) that allegedly were implanted in violation of Medicare coverage guidelines.

The parties reached a settlement of the allegations under the federal civil False Claims Act to avoid the delay, uncertainty, inconvenience, and expense of protracted litigation. Further, MedCath and the former hospitals deny engagement in any wrongdoing or illegal conduct, and the settlement agreement does not contain any admission of liability.

MedCath paid approximately $6.1 million on September 26th, 2013 to settle and obtain releases from any civil or administrative claims related to the DOJ’s investigation. The impact on MedCath’s net assets is approximately $3.2 million after taking into consideration the portion of the settlement amount allocable to its minority hospital partners and the anticipated benefit of certain tax attributes arising from MedCath’s share of the settlement. Each of the hospital partnerships retained sufficient cash following the sale of their respective hospitals to fund the portions of the settlement amount allocable both to MedCath and to its physician partners. This settlement together with the settlement of several other contingent liabilities will reduce the estimated cash which the Company believes it should hold back for additional contingent liabilities whether known or unknown and unrecorded.

As previously disclosed by MedCath and as a result of this settlement, MedCath’s Board of Directors will proceed to determine the timing and amount of the next proposed stockholder distribution. MedCath will evaluate the possibility of future or potential contingent liabilities, known and unknown, and its obligations under applicable Delaware law when determining any future proposed stockholder distributions including without limitation estimated future potential liabilities related to recovery audit contractor audits.

In accordance with Delaware law governing its dissolution and liquidation, MedCath will seek Delaware court approval to make further distributions to stockholders. MedCath intends to proceed diligently to seek that approval. While MedCath will seek to obtain that approval and make a distribution as promptly as reasonably practicable, it cannot be certain that the Delaware court will approve either the timing and/or the amount of a proposed distribution. Additionally contingent creditors may have the opportunity in accordance with Delaware law to object to the amounts and timing of proposed distributions. Subject to the foregoing, it is anticipated that this will be an interim distribution. Thereafter, an additional interim distribution could be proposed with a final proposed distribution made upon final termination of MedCath’s existence in September of 2015, which date may be extended if all contingent liabilities have not been resolved as of that date.

MEDCATH CONTACT: Lora Ramsey
President and Chief Financial Officer
(704) 815-7700

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