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Former CEO of National Century: Man of mystery
By Edward Iwata USA TODAY
He was a modern-day Gatsby, a smooth talker and sharp dresser who floated across the room to greet the moneyed crowd.

National Century Financial Enterprises' offices in Dublin, Ohio, were raided by the FBI in November.
By Jay La Prete, AP

Before his downfall last month, Lance Poulsen, former CEO of National Century Financial Enterprises, was flying high. He ran a lucrative health care finance firm. He hosted charity fundraisers at his waterside villa in Port Charlotte, Fla. He hobnobbed with Republican politicians, including Florida Gov. Jeb Bush, and he sailed often to the Bahamas on his $2 million yacht, The Enterprise. (Background: Lawsuits claim massive money mismanagement)

"Lance was always very delightful," says Paula McQueen, a Florida businesswoman who has known Poulsen for several years. "Quite honestly, I liked him very much."

But in recent weeks, the mystery has deepened around Poulsen, 59. His financing of small hospitals, nursing homes and doctors' groups nationwide appears to have been a vast, fraudulent scheme, according to court filings and attorneys representing clients and investors.

Up to $2.5 billion in National Century money is unaccounted for, and an additional $400 million is missing from reserve funds used to back National Century bonds, according to company officials.

The Justice Department, the Securities and Exchange Commission and the Department of Health and Human Services, which investigates Medicare fraud, are looking into National Century's finances. Dozens of lawsuits around the country accuse Poulsen and National Century of defrauding investors and employees by skimming money from medical firms.

National Century, whose bonds carried Moody's highest credit rating less than two months ago, is operating under bankruptcy-court protection.

The company's rapid slide has revealed the financial strains in part of the nation's health care safety net. Unable to wait weeks or months for insurance companies to pay claims, 60 ailing companies relied on cash from National Century to run their medical offices and facilities. At least seven — serving thousands of mainly low-income patients from Los Angeles to Washington — have filed for bankruptcy protection since National Century crashed.

In Washington, Greater Southeast Community Hospital and Hadley Memorial Hospital — owned by Doctors Community Healthcare, a firm seeking bankruptcy protection — could not pay independent doctors on contract for several weeks. And Greater Southeast was forced to turn away emergency ambulances last month after the health care firms that provided contract nurses withdrew some nurses because of the cash squeeze.

Meanwhile, Poulsen and his wife, Barbara, have kept a low profile since mid-November, when FBI agents raided National Century's offices in Dublin, Ohio, and hauled away a truckload of computers and records. Poulsen's lawyer declined to make him available for an interview.

"Lance Poulsen is the most slippery character I've seen in my life," says Vicki Buba, an attorney at Stone Pregliasco Haynes Buba, which represents employees of a health care firm suing National Century in Louisville. "He and his people are getting away with murder."

Modest beginnings

The son of Danish immigrants, Poulsen grew up in Chicago in the 1950s, then earned business and marketing degrees at Roosevelt University in Chicago and the University of Iowa.

A decade ago, Poulsen eyed a potential gold mine in health care finance. As medical costs soared and insurance payments took months to process, small health care firms desperately needed cash to run their operations and pay their staff. So Poulsen co-founded National Century with hospital executive Donald Ayers and his wife, Rebecca Parrett, a medical-billing executive.

At investment conferences, Poulsen gave slick marketing presentations that touted clever financing and bond deals by National Century. Poulsen was very polished and aggressive, says one investment analyst.

Investors and health care professionals bought Poulsen's pitch. National Century lent millions of dollars to the health care outfits, which used the cash to run their hospitals and nursing homes. In turn, National Century took over the firms' insurance claims and payments owed by Medicare and other insurers.

Then National Century issued billions of dollars in bonds to Wall Street investors, using the proceeds to snap up more insurance claims from medical firms.



Little has been seen lately of former National Century CEO Lance Poulsen.


Poulsen quickly built a small empire. It grew into one of the nation's largest medical-finance outfits, providing billions of dollars in funding for clients in recent years. Last year, the privately held firm hauled in $40 million in profit on $300 million in revenue.

The Poulsens relished their newfound wealth. In the late 1990s, they moved to Port Charlotte, a posh seaside town in southwest Florida. In the genteel enclave of old money, the Poulsens stood out. Lance Poulsen roared down streets in a red Porsche 911. His 60-foot yacht was the largest pleasure boat in the marina. He boasted about jetting into town on one of his Raytheon Hawker corporate jets. The Poulsen's new, three-story mansion in Grassy Point Estates, a gated community on the harbor, features a 20-foot waterfall and pool, lush tropical landscaping and an underground garage.

Soon, the Poulsens were hosting lavish fundraisers, including a $150-a-person event for the American Cancer Society and a $500-a-plate affair for Gov. Bush.

The Poulsens lent Bush their company jet during his campaign and gave more than $40,000 last year to the Florida Republican Party, campaign records show.

Lance Poulsen's new friends seemed unaware of his spotted past. In 1984, he was jailed in Florida's Dade County for passing bad checks. The Florida attorney general's office dismissed his case after he agreed to pay back his victims. Also in the mid-1980s, Poulsen ran a Florida company called Dinsmore Tire Center that went bankrupt. In 1992, the IRS hit him with a lien for $49,000 in back taxes, which he paid two years later.

Neighbors did notice that Poulsen seemed obsessed with security. Even though sheriff's deputies and armed private guards patrolled the development, Poulsen protected his home with infrared alarms, motion detectors and other pricey devices.

Poulsen always looked wary, recalls one friend. It was as if someone were hunting him.

Lawsuits allege fraud

The warning signs started two or three years ago. In dozens of lawsuits around the country, health care firms doing business with National Century accused Poulsen of fraud, money skimming or conspiracy.

Typically, National Century strangled a medical firm's cash flow, according to the lawsuits and attorneys. Under the financing agreements, the insurance-claim payments from Medicare and other insurers went to bank accounts controlled by National Century. In some instances, the lawsuits allege, National Century failed to pay the health care firms all of the money due and siphoned the cash elsewhere.

In a case two years ago involving the defunct Boston Regional Medical Center in Stoneham, Mass., National Century allegedly shortchanged the hospital $12 million for its insurance claims while overcharging it $3 million in fees, according to court records.

Rather than transfer the money owed to the hospital, National Century withheld a few thousand dollars at a time, according to legal papers. When the hospital's accountants said nothing, National Century grew bolder and allegedly kept larger amounts of cash, from $100,000 to $500,000.

It was a classic embezzlement scam similar to "bust-out schemes" run by organized crime, alleges James Cottos, former director at FTI/Kahn Consulting, a forensic accounting firm hired by the hospital to investigate National Century.

"They would slowly bleed you to death," says Cottos, a former investigator for the Treasury Department and the Department of Health and Human Services.

Many of the medical firms became addicted to the steady cash from National Century and eagerly awaited their monthly checks. "It's like a pimp giving his girls cocaine and money," says David Leak, an anesthesiologist and medical director at Pain Control Consultants in Columbus, Ohio. "You get hooked on the good stuff and you can't leave."

Over a steak dinner, Leak was persuaded to sign on with National Century by two old friends: company co-founders Ayers, a former CEO of Grant Hospital, and Parrett, who ran a firm called Falcon Medical Billing, both in Columbus. Ayers and Parrett could not be reached for comment.

Running a small medical practice in a costly, up-and-down industry is a brutal business, so Leak jumped at the chance to get steady payments from National Century. It would keep his cash flow stable year-round, he thought.

But the deal turned nightmarish. Leak alleges that National Century forwarded only a small portion of the promised insurance-claim money to his clinic.

"It was a white-collar shell game," alleges Leak, who says National Century still owes him $200,000. He has sued for breach of contract, but the lawsuit has been stayed until the bankruptcy case is over.

Bond-rating agencies also grew suspicious. Moody's Investors Service and Fitch Ratings had long praised National Century's business and given its bonds their highest marks. But last year, an anonymous whistle-blower sent the agencies letters warning of possible financial chicanery at National Century.

Bond analysts met with Poulsen and National Century executives, who convinced them that National Century's accounting was fine. Moody's and Fitch gave National Century a clean bill of health.

The bond-rating firms should have looked deeper, some say. Beneath his friendly demeanor, Poulsen was litigious and quick-tempered, intimidating others into silence, according to business and legal sources.

Last year, Poulsen threatened legal action against a shareholder of PhyAmerica, a medical-services firm in Durham, N.C., that received funds from National Century, after the investor started asking skeptical questions about the financing.

The shareholder, Michael McGee, a former principal in investment firm The Appleton Group, fired back by suing Poulsen, accusing him of looting PhyAmerica of millions of dollars. The lawsuit was settled last year for $4 million. "I wasn't going to sit by and let this happen to me or other investors," McGee says.

National Century collapsed quickly. Talk spread in October that its $3.5 billion in bonds were close to default. The company's reserve funds to back the bonds held barely $200 million instead of the $600 million required by bond agreements.

Poulsen, in an Oct. 18 letter to health care firms, warned that one of National Century's cash-reserve funds was "deficient" and near "technical default."

In late October, several investment managers flew to Ohio to demand explanations from Poulsen. After making them wait two hours at National Century's offices, an irate Poulsen "physically ejected" the managers from the building, according to the affidavit of Daniel Ivascyn, a fund manager at Pacific Investment Management (Pimco), which invested in National Century bonds.

Bond analysts quickly slashed National Century bonds to junk status. Poulsen resigned as CEO, and National Century's board hired New York-based turnaround firm Alvarez & Marsal.

Poulsen's attorney, Albert Lucas of law firm Calfee Halter & Griswold, says Poulsen did nothing improper or illegal.

How financing worked

Here is how National Century Financial Enterprises arranged financing with health care firms:

National Century loaned millions of dollars to cash-hungry health care firms and hospitals. In turn, the health care firms gave National Century control of their insurance claims and medical bills.

The health care firms used the cash to run their businesses, and also paid fees to National Century.

National Century used the insurance claims as collateral to issue billions of dollars in bonds to Wall Street investors.

National Century used the proceeds from the bond sales to buy more insurance claims from medical firms.

Sources: USA TODAY research, National Century






A planned bond sale this past fall would have kept National Century afloat, Lucas says. But the bond issue never happened. Investors got spooked, Lucas says, after National Century's auditor, Deloitte & Touche, failed to finish its 2001 audit of the firm. National Century suffered another blow when a $125 million cash infusion from Credit Suisse First Boston fell through. "That led to the liquidity crisis," he says.

National Century and acting CEO David Coles of Alvarez & Marsal are trying to salvage the firm. They've launched an internal investigation and audit and are cooperating with federal investigators. National Century spokesman James Nickell says the company is working with banks to find new financing for the struggling hospitals and medical firms. Investors in $3 billion of defunct National Century bonds hope to recoup some of their losses in bankruptcy court.

Some wonder why the problems at National Century weren't flagged earlier by auditors, bond-rating agencies or other watchdogs.

"Where was everyone?" asks Charles Cooper, an attorney at Cooper & Elliott in Columbus who represents Leak, the anesthesiologist. "If a company is issuing billions of dollars in bonds, don't you check out the principals?"

Poulsen resigned recently as a trustee at Roosevelt University, which honored him in 2001 with an award for distinguished alumni. University officials won't say whether he was ousted or left on his own.

In Port Charlotte, the Poulsens have not appeared on the holiday social scene. Locals are withholding judgment until more facts emerge.

Poulsen's critics are much less forgiving. "They took a lot of people's money," Leak says. "A lot of folks are hurting."