PhyAmerica founder Steven Scott

Health-care execs testify National Century routinely overfunded companiesBusiness First of Columbus - by Kevin Kemper
Business First

Two executives of health-care companies testified in the National Century Financial Enterprises Inc. trial Tuesday that the company gave them far more funding than they deserved.

In a session abbreviated because of the inclement weather, the government witnesses - both former chief financial officers of National Century customers - told jurors the Dublin business funded their financially troubled employers with millions of dollars in excess of the receivables it had purchased so the firms could continue operating.

National Century bought accounts receivable from health-care providers at a discount in exchange for fast cash to the owners. It would then package the receivables as bonds and sell them to investors, while collecting on its customers' bills. The privately held company collapsed in 2002 owing nearly $3 billion to creditors.

Bryan Weiss testified that his former employer, MediManagement, ran several southern California psychiatric clinics and a 46-bed hospital in east Los Angeles that were so strapped for money they operated week to week. He told the jury he was concerned about the long-term viability of MediManagement because it had a large amount of unsecured debt owed to National Century, its only lender.

MediManagement, Weiss said, was owned by National Century and three of its executives, CEO Lance Poulsen, Chief Operating Officer Donald Ayers and Vice Chairwoman Rebecca Parrett.

National Century financed MediManagement through its NPF XII fund, which the Justice Department has alleged the owners of National Century used to divert millions of dollars to benefit themselves.

Parrett, Ayers and three other National Century executives have been on trial since Feb. 4 in U.S. District Court in Columbus facing criminal fraud, conspiracy and money laundering charges. Also charged were CFO Randolph Speer, Executive Vice President Roger Faulkenberry and James Dierker, a vice president.

All have pleaded not guilty to the charges.

Poulsen will stand trial in late summer, after he is tried on accusations he and an associate tried to bribe a government witness. Another executive, James Happ, is scheduled to stand trial in the fall.

Business troubles
In his testimony, Weiss said Poulsen informed him in a fax that the Ohio company would stop funding MediManagement on Oct. 31, 2002, a day before the business was scheduled to issue payroll for its hospitals and 18 days before National Century would file for bankruptcy. Weiss said MediManagement went into bankruptcy a few weeks later, with a debt of more than $200 million.
Under questioning from defense lawyers, Weiss said MediManagement's facilities, which served indigent communities, were able to stay open and eventually be sold to another health-care company only because of National Century's funding.

Also testifying Tuesday was Stanley Haines, CFO of PhyAmerica Physician Group Inc., a Durham, N.C.-based physician management business. Haines said the company's long-term debt grew during his tenure from $175 million to at least $200 million.

Haines explained to jurors that he joined PhyAmerica in June 2000 because he wanted to help turn around the struggling company, which at the time was publicly traded. PhyAmerica's operating costs far exceeded its revenue, Haines said, so it relied on National Century as a financial lifeline.

Haines said there was typically no limit to the amount of funding it could seek from National Century, though when it asked for more money, National Century's account servicer often denied the request. He said PhyAmerica founder Steven Scott would then go directly to Poulsen, who would approve additional funding.

By 2002, Haines said the business was having difficulty getting funding from National Century. PhyAmerica filed for Chapter 11 bankruptcy protection in November 2002 citing a cutoff of funding from National Century. It owed National Century $365 million, but its assets totaled between $10 million and $50 million.

Defense attorneys are scheduled to cross-examine Haines Wednesday.