Important update: PACS will deduct $65 million from previous revenue reports

PACS Group announced its decision to adjust and reissue two of its earlier financial reports due to potential revenue misstatements of up to $65 million in an internal review conducted by the massive skilled nursing chain.

The company notified the US Securities and Exchange Commission that it would revise its consolidated financial statements for the quarters ending March 31, 2024, and June 30, 2024, indicating that the previous filings with the SEC should not be relied upon anymore.

An internal audit committee has been examining PACS’ adherence to reporting and regulatory standards since November, when activist investors raised concerns about the usage of a Medicare waiver amid the pandemic.

PACS stated, “Management has concluded that due to uncertainties regarding regulatory compliance and Medicare Part B billing, it is prudent to reassess the company’s subjective evaluations of the conformity of its respiratory and certain other therapies services.”

The alteration is necessary to adhere to accounting standards governing revenue from customer contracts and service billing. PACS specified that revenue stemming from respiratory services and other therapy services billed under Part B should not have been counted as revenue in the affected periods.

In light of these discrepancies, PACS will be removing the following revenue amounts, which are estimated and subject to change:

– Around $15 million to $17 million for the quarter ending March 31, 2024.
– Approximately $46 million to $48 million for the quarter ending June 30, 2024.

The audit committee’s progress is a positive development for PACS and its investors as the SEC had threatened to delist the company if it failed to rectify its reporting lapses by September.

PACS reassured its intentions to address the issues by restating the prior financial statements promptly and filing its overdue quarterly and annual reports within the permitted extension. Steps have been taken by company officials and external advisors to thoroughly evaluate PACS’ adherence to regulatory requirements and implement enhancements to improve compliance processes and controls.

To manage these initiatives, an interim chief compliance officer was brought in by PACS to supervise the ongoing compliance evaluation and the implementation of necessary enhancements. It was also clarified that PACS’ audit committee found no basis to doubt the credibility of the company’s executive leadership, including the executive vice chairman, CEO, CFO, and chief accounting officer, who were subject to scrutiny in the fall 2024 investigation by Hindenburg Research.

CFO Derrick Apt was identified as the signatory of the latest SEC filing.