USA Today Examines Bookkeeping ‘Shenanigans’ at Health Care Companies
While the recent focus on "accounting chicanery" has centered on the "most egregious cases," such as Enron and WorldCom, health care companies are "rife with bookkeeping land mines, too," USA Today reports. USA Today reports that the industry is now one of the "biggest culprits" regarding earnings restatements. Between 1971 and 2000, health care companies, including those providing medical equipment, drugs and services, were responsible for 9.3% of all restatements resulting in lower earnings. Bruce Holbrook, a senior partner at Goodman & Co., which audits health care firms, said, "Some (health care accounting) rules can be interpreted in many ways. That can create problems." For example, one of the biggest bookkeeping problems facing the industry is "channel stuffing," a "favorite trick" of drug makers, USA Today reports. To boost revenue in the short term, drug makers sometimes announce price increases, encouraging wholesalers to stockpile drugs they would normally wait to buy. The Securities and Exchange Commission is investigating Bristol-Myers Squibb for using such a tactic. The health care industry allegedly has used other "accounting shenanigans," USA Today reports. For instance, the Justice Department is investigating distributor PolyMedica for alleged "health care fraud, improper revenue recognition and obstruction of justice." Other sources say the company is being investigated for overcharging the government, USA Today reports. Health care companies also routinely "spin off" specialty units to boost the financial performance of the parent company by "offloading" expenses on the new unit, USA Today reports (Krantz, USA Today, 10/30).This is part of the California Healthline Daily Edition, a summary of health policy coverage from major news organizations. Sign up for an email subscription.