Editors Note: This is a cross-posting of an article released today from the Kentucky Center for Investigative Reporting that we felt would be of interest for our readers.
At Kindred Healthcare Inc., retirement gifts have gone way beyond the farewell cake, the cheap wristwatch and the sendoff reception at the local sports bar.
Last December the Louisville-based hospital and nursing home chain announced that its chairman, Edward Kuntz, would be quitting the board of directors after its annual shareholders meeting in May. Kuntz is 68 and has been chairman since 1999. Until 2004, he was also the publicly traded company’s chief executive.
“He has served as a mentor to me and others in our organization, and I will miss his guidance and advice,” Kindred CEO Paul Diaz said in a Dec. 13 press release.
Actually, he won’t. One day before his retirement was announced, Kuntz agreed to a two-year consulting deal that will pay him $120,000 a year. The contract, buried deep in the Kindred (NYSE: KND) annual report filed with the Securities and Exchange Commission on Feb. 28, permits Diaz or the board — whoever needs him — to tap Kuntz up to 12 days per year. For every day of work beyond that, Kindred will pay him $10,000. Per day.
The contract contains no usage limits. If Kindred puts him to work for 30 extra days, Kuntz will make $300,000, or almost as much as his current $315,000 annual salary as chairman. If he puts in 100 extra days, he’ll make $1 million.
Paul Hodgson, an independent corporate governance analyst in Maine, was baffled by the consulting deal.
“This kind of situation is relatively common if the CEO is new and has been brought in from the outside and doesn’t have the knowledge or experience of running a company,” Hodgson said. “I can’t see the need for any hand-holding in this situation. It doesn’t seem particularly necessary for accessing the former CEO and chairman.”
Kuntz’s open-ended, $10,000-per-day consulting deal could become quite an expense, Hodgson said. “I can see that mounting up to $300,000 fairly quickly.”
Kuntz’s contract affords other perks, too. Kindred will give him access to its company jet, a twin-engine, 13-passenger Cessna 560XL. Whether he takes the private jet or not, Kuntz will recoup all travel expenses while working for the company. When he’s consulting from his home in Houston, he’ll have an office — and an administrative assistant — paid for by the company. (Read the consulting deal)
Kuntz could not be reached and did not return a phone call. Kindred spokeswoman Susan Moss would not answer questions about the consulting deal.
“Why is that news?” she asked.
It was news to Graef Crystal, Bloomberg News’ compensation expert and author of six books on the subject. He reviewed Kuntz’s consulting contract for the Kentucky Center for Investigative Reporting.
“The thing that jumps out of the page is the $10,000 per day,” Crystal said. “I’ve never heard of anything like that. I don’t know why they’d want to do that.”
Kindred is one of the biggest companies headquartered in Kentucky. With rehab hospitals, nursing homes, other health care centers and 63,000 employees in 47 states, Kindred calls itself the “largest diversified provider of post-acute services” in the nation.
But Kindred could use some treatment itself — for financial hemophilia. In the last three years, Kindred lost a combined $262.3 million. It racked up $4.9 billion in sales in 2013 — more than half of which came from Medicaid and Medicare billings — only to show a bottom line loss of $168.5 million. And although its stock price, at about $22, is again showing a heartbeat and rebounding from a three-year slump, it is no higher than where it was in 2011 and 2008.
It isn’t clear from the consulting agreement why, exactly, Kuntz’s counsel would be so vital. Diaz, 52, has served as Kindred’s CEO for more than 10 years, a little longer than the average 9.7-year tenure of departing U.S. CEOs in 2013, according to a Conference Board study.
Diaz is also generously compensated for his leadership. His 2013 pay hasn’t been reported to the Securities and Exchange Commission yet, but during the four preceding years, he received $21.4 million in total compensation. His 2012 gross of $4.6 million made him the fifth highest-paid executive of a publicly traded company in Kentucky, according to the AFL-CIO’s Executive PayWatch survey.
Kuntz’s availability as a consultant might provide some continuity in dealing not only with business issues, but legal issues as well.
As of last Nov. 20, the U.S. Justice Department was investigating a whistleblower’s claim that Kindred and two other companies had taken millions of dollars in kickbacks for promoting the use of Amgen Inc.’s Aranesp anemia drug over a competitor’s brand. The widely publicized whistleblower suit was filed in federal court in South Carolina in 2007. Amgen cut its losses by settling out of court last April and agreeing to pay $24.9 million.
As for Kindred and its Louisville-based spinoff, PharMerica Corp., the lawsuit accuses them of taking $20.6 million worth of Amgen incentive money — euphemistically described as “rebates” — from 2003 to 2008.
“Amgen paid kickbacks to long-term care pharmacy providers Omnicare Inc, PharMerica Corp. and Kindred Healthcare Inc. in return for implementing ‘therapeutic interchange’ programs that were designed to switch Medicare and Medicaid beneficiaries from a competitor drug to Aranesp,” the government said in its summary of health care fraud enforcement actions in 2013.
The companies deny the allegations.
Facing a Nov. 20 court deadline, the Justice Department could not make up its mind about assuming the role as lead plaintiff against the companies. It chose instead to stay in the background and investigate on its own. Meanwhile, Cincinnati-based Omnicare settled its case last month by agreeing to pay a $4.19 million fine to the government.
That left the two Louisville companies as the remaining targets of the fraud suit. Reuben Guttman, the Washington, D.C., attorney who filed the suit for Amgen whistleblower Frank Kurnik, said that the government is “significantly interested” in Kindred and PharMerica.