‘About That Six Million Dollars …’

DALLAS (CN) - A specialty hospital claims in court that accountants and a hospital it purchased did not inform it that the institution owed $6 million to Medicare and Medicaid.

Cornerstone Healthcare Group sued Eide Bailly LLP, accountants; Solara Holdings LLC, Chickasaw Solara Holdings LLC and seven people in Dallas County Court.

Cornerstone says it relied on financial statements, cost reports and audit reports prepared by the accounting firm for its acquisition of Solara Health LLC.

Cornerstone agreed in July 2010 to buy Solara Health for $34.9 million from the defendants.

After the purchase, Cornerstone said, the Centers for Medicare and Medicaid Services informed it that Solara had received $6 million in overpayments, so Cornerstone was stuck with the bill.

Cornerstone claims the financial statements omitted that $6 million, and overstated Solara Health's revenue. It claims the sellers breached representations and warranties in the purchase agreement, resulting in over $20 million in damages.

Cornerstone claims Eide Bailly is similarly and jointly responsible by negligently preparing the financial documents and fraudulently representing that Solara did not have a $6 million liability to Medicare/Medicaid.

"The Solara sales price was calculated by using a multiple of earnings approach," the complaint states. "Because Solara's earnings were overstated through the omission of the liabilities set forth above, Cornerstone paid a grossly inflated purchase price. Specifically, Cornerstone overpaid for Solara by over $20 million when the earnings overstatement is applied to the multiple of earnings used to determine the Solara purchase price."

Cornerstone seeks actual damages, indemnification and declaratory judgment for negligent misrepresentation, fraud, fraudulent nondisclosure and breach of contract. It is represented by David Whittlesey with Andrews Kurth in Austin.

Cornerstone operates 20 long-term acute care hospitals in six states and "is actively looking to expand," according to the complaint.

The individual defendants are Bill Lance, Kenneth Ross, John Oliver, Linda Hayes, Kliff Rodgers, Paul Evans and Tony Larocca.

Follow @davejourno

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