NME stock gets battered after unflattering article: problems continue for troubled health care provider.

The long bull market of the last 10 years has passed by shareholders of Santa Monica-based National Medical Enterprises, who last week watched their sickly stock stagnate in the low $10-a-share range, about back where it was in 1981, adjusted for splits but not inflation.

Giant hospital chain NME was hammered recently by a front-page Wall Street Journal article, which explored alleged NME misdeeds, particularly in the area of unnecessary patient admissions. Again, questions were raised about NME's board of directors and corporate ethics.

"The article didn't help it (NME) much, although all the problems have been aired for a long time," said Thomas Snow, analyst with the Boston-based Buckingham Research brokerage house.

The article, printed on Jan. 8, a Friday, helped drive down NME to $9.87 share, off 15 percent for the day.

For the week, NME stock was down more than 20 percent - meaning shareholders lost nearly $400 million in the week, on paper. The stock traded for $24 a share last year.

Long the domain of founder and Long Beach native Richard K. Eamer, 64, chairman and chief executive, NME has been savaged by private, federal and state investigations and charges that the corporation fraudulently admitted patients, especially mental cases. Former NME employees have told regulatory agencies that profits were placed before patients, according to the article.

Since the NME scandal broke last year, heads have rolled at the company and the advice of a consultant - Richard Kusserow, former inspector general of the U.S. Department of Health and Human Services - has been sought on how to improve company operations from ethical and legal viewpoints.

An NME spokesman last week contended the admission problems were isolated and have been fixed.

The spokesman, David Olson, added that NME's 50,000 rank-and-file troops are "angry" about the Wall Street Journal article, and many are writing letters to the editor of the national financial paper.

Eamer was not available for comment last week.

Olson said Eamer, who started NME in 1969, is "determined to see through the restoration of this company's reputation and a return to profit growth." He said he did not expect Eamer to retire.

Meanwhile, some shareholders are also angry and suing Eamer and other officers in Los Angeles Superior Court. They allege Eamer and other officers should have known what was going on in the 143-hospital, $3.98 billion-in-revenues NME chain.

In addition to general hospitals, NME operates psychiatric facilities and drug rehabilitation centers.

Adding to NME's list of ailments, eight major insurance companies last year filed a federal Racketeer Influenced and Corrupt Organizations suit against NME, alleging massive billing fraud, and seeking triple damages. NME is defending itself against the suit.

The insurers charge that NME diagnosed patients in such a way as to milk them for insurance payments - and thus kept some people institutionalized when they should have gone home.

For investors, say some, the lesson of NME may be to pay close attention to management and the board of directors, in addition to the financial fundamentals.

Indeed, NME may serve as an example of a corporate culture gone awry, unchecked by a weak board - a board on which one member, William Banowsky, NME executive vice president, was found in 1989 by the Securities and Exchange Commission to have engaged in insider trading.

Banowsky, in 1986, sat on the board of Los Angeles-based Thrifty Corp., then a publicly held company. He tipped family and friends to an impending buyout of Thrifty by Pacific Enterprises, the utility giant.

The Securities and Exchange Commission caught wind of Banowsky's tipstering, forced him to pay $750,000 and described his actions as fraud.

Banowsky consented to an injunction describing his actions, but never admitted or denied guilt.

The retention of an insider trader on the board of a publicly held company may have sent the wrong signal to NME middle management, said Peter Smith Ring, associate professor at Loyola Marymount University who teaches business ethics.

"You probably don't ask people to stay on boards after they experience those kinds of circumstances because of the potential message it sends to employees, regulators and shareholders," said Ring.

Shareholders, money managers and others might do well to consider ethical factors -- such as Banowsky's continued position on the NME board -- before investing their dough, said Ring. "I think the accepted view now is that ethics and good business go hand-in-hand," said Ring. "In the long run, that is the only way to build consumer trust, to have good relations with regulators and to even have the trust of the press."

NME spokesman Olson refused last week to discuss Banowsky's continuing role on the board, other than to say he is a "highly valued" member of NME.

However, Olson did say he was not sure Banowsky would run again for his board seat, which he will have to do this fall if he is to keep it.

And Olson said the board may see new members.

NME's 17-member board was also criticized by the Wall Street Journal, which noted the lack of strong outside directors ("outside" directors are board members who are not company employees, and thus who are expected to monitor the company and protect shareholder interests).

Of 10 outside directors, eight are former employees or have financial ties to NME, reported the Wall Street Journal.

What the Journal did not report is that even some of the inside directors have quirky histories - for example, NME co-founder John Bedrosian, senior executive vice president, from 1985 through 1987 found time to be chairman of the Valley State Bank, a bank the feds seized in 1987.

Meanwhile, at NME, the Wall Street Journal article is pilloried as an example of poor reporting.

"Their reporter interviewed 13 NME executives and quoted only two of them, and then quoted a few disgruntled former executives, most of whom left the company many years ago," said Olson. "It was a distorted and inaccurate view of the company and the chairman (Eamer)."